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Episode 34: UN Principles for Responsible Banking: A Discussion with UNEP FI Head Eric Usher

 

Michael Torrance is joined by Eric Usher, who heads the UN Environment Programme Finance Initiative (UNEP FI). They discuss the UN Principles for Responsible Banking, the impacts of climate change and the transition to a lower-carbon economy.

In this episode:

  • How the UNEP FI was established and has evolved.

  • What the UN Principles for Responsible Banking are and why they were created.

  • How the PRB align purpose with the needs of the individual as defined by the UN SDGs, the Paris Agreement, and other relevant frameworks.

  • How banks implement principles, from establishing systems to measure the impact of financing and reporting on progress to providing assurances of steps taken.


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Eric Usher:

What are the types of impact transactions we want to be driving? So, it really requires an up skilling within banking institutions to be able to work with partners and to say, "Well, let's understand how the world is changing." I mean, coming back to climate, let's start to understand forward looking how industries are going to be changing, to adjust to this low carbon transition and physical climate impacts that are going to come, and let's start to get our capacity to be more predictive, how we can start to pick the winners within the different industries that we work with today, within the communities that we work with, so that you really are value added to these transitions rather than essentially being seen as a barrier to the changes that they need to make.

Michael Torrance:

Welcome to Sustainability Leaders. I'm Michael Torrence, Chief Sustainability Officer with BMO Financial Group. On the show, we will talk with leading sustainability practitioners from the corporate, investor, academic and NGO communities, to explore how this rapidly evolving field of sustainability is impacting global investment, business practices and our world.

Disclosure:

The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates or its subsidiaries.

Michael Torrance:

Eric Usher heads the UN Environment Programme Finance Initiative or UNEP FI, a global partnership bringing together the UN with a global group of banks, including BMO Financial Group, insurers and asset managers working to develop the sustainable finance and responsible investment agendas. Eric oversees governance strategy and day to day management of UNEP FI's world program and global network development.

Michael Torrance:

Since joining in 2015, Eric has focused on accelerating the deep integration of sustainability risks into financial practice, including addressing climate change, natural capital loss and human rights abuses, as well as building out the frameworks for positive impact finance needed to achieve the UN Sustainable Development Goals. UNEP FI has established some of the most important sustainability oriented frameworks within the finance industry, including the Principles for Responsible Investment which were created in 2006, the Principles for Sustainable Insurance which were released in 2012, and the Principles for Responsible Banking, which were released in 2019.

Michael Torrance:

Today, I will be speaking with Eric about the Principles for Responsible Banking in particular. BMO joined the Principles for Responsible Banking earlier this year. So thanks for speaking with me today, Eric.

Eric Usher:

My pleasure, Michael, and great to be with you.

Michael Torrance:

So first of all, tell me a little bit about yourself. You're a prominent Canadian in a prominent role with the UN, how did you come to lead UNEP FI?

Eric Usher:

Long and winding history as we all have, I think if we get deep enough into our career. So I actually have been abroad for actually 25 years. But I started in Canada in the technology R&D sector, specifically actually looking at renewables, renewable energies. Then I joined a solar rural electrification startup company in Morocco, which took me abroad. Then eventually, I did my MBA and then moved into the UN to work on financing for the low carbon sectors, and then eventually moved over to leading UNEP FI, the finance initiative within the UN Environment Program in 2015.

Michael Torrance:

So what can you tell us about UNEP FI for our listeners who may not be familiar, what is the mandate of the organization?

Eric Usher:

Okay, so it was set up, actually back in 1992, at the time of the Rio Earth Summit, which was actually was headed by Maurice Strong, a notable Canadian. That was the first time that governments were meeting really to flesh out the notion of sustainable development, and this was something that caught the attention within the finance industry, and there are a number of banks and insurers who attended and they said, "We need some platform to be able to understand essentially what governments are discussing here around this new idea, and we also need some way to actually feed into these processes going forward."

Eric Usher:

So, the UNEP Finance Initiative was established, and it's grown over time. I think first important inflection was in 2006/7 period, where we had commissioned what was coming to be called the Freshfields Report, which was named after the legal firm in the UK, who penned it, which for the first time, established the notion that it was permissible for investors to take environmental social governance issues into account in their investment decision making. That realization was what led to the drafting, which we undertook with a group of investors and the Global Compact, the drafting of the Principles for Responsible Investment, and those were launched with UN Secretary-General, Kofi Annan, the time at the New York Stock Exchange with just ... it was 20 some investors.

Eric Usher:

It's grown, today we're closing in on, 4000 investors are signatories to the PRI, and it's become the main framework for sustainability or responsible investment norms within the investment industry. Flash forward, well, six years and we did the same with the insurance industry and drafted the Principles for Sustainable Insurance. Then I think the really big scaling up was in 2015, where governments came together, 195 governments, to release the UN Sustainable Development Goals, and at the same time, in Paris, the Paris Climate Agreement.

Eric Usher:

This really marked a shift as a place where governments were coming together to negotiate agreements between governments, but in a way that eventually would impact on health, the financial sector, and everyone in the private sector would do business around these issues of addressing climate change, but also addressing and dealing with other Sustainable Development Goals like gender equality, like poverty alleviation, like access to clean water and energy, and more.

Eric Usher:

So that's a long overview, we're coming up on our 30 year anniversary, but really the necessity and the imperative for the financial sector to understand these issues, how it affects their business, and also what role they can play in driving forward these societal needs, I think, is more relevant than ever before.

Michael Torrance:

So you've alluded to all the frameworks that UNEP FI has created, and the most recent and perhaps most prominent is the Principles for Responsible Banking, and that's going to be the subject of our discussion today. Can you tell us what the Principles for Responsible Banking are, and what was the impetus behind developing them?

Eric Usher:

Sure. Let me go back once again, in time a little bit, the banks were actually, I would say, the first within the financial sector to start to realize that environmental risks and later social risks, definitely were something that they needed to start managing. So going back, and really in the 1990s, where things really started to get going, and you had the Superfund laws in the U.S. and for the first time, well, financial actors, and particularly banks could be held responsible for environmental damages that their clients or their investee companies created.

Eric Usher:

Working with the World Bank group of banks established the Equator Principles, which started to establish from a transactional basis, what were the types of environmental social issues needed to be included in due diligence and understanding, as you decided on your clients, how you're going to finance them, so that in a census, if you think of financing for a mining activity, that you didn't end up financing a mine that was going to leach cyanide into the water table. Very much of a transactional focus.

Eric Usher:

Now, all of the banks were the first out I would say, and then it started to spread across the finance industry, with the investors and with the launch of the Principles of Responsible Investment, who then stepped up and moved from a transactional focus to more of a strategic perspective. I like to describe it a little bit as the elevator pitch, if you get to ride the elevator with the CEO or leader of a major investment company, and you ask them what their approach to sustainability considerations are, or ESG. Typically, they'll say, "Well, we're signatories to the PRI."

Eric Usher:

If you do the same with a bank or leadership, they might know that they're a signatory to the Equator Principles, and that they have environmental risk management department, but the real distinguishing point is when you ask them, "What are the principles?" The PRI signatory knows them, because they have six principles, really, that are written from a strategic perspective, so something that investor, leaders can understand. Whereas, for instance, the Equator Principles are 18 pages, and they're much more technical details that help an institution to understand, to identify transaction oriented risks, they are not strategic in nature.

Eric Usher:

Now, when the PRI was launched, and since then, so that's 15 years ago, the question was, "Well, what about the banks? Should they not have a similar strategic framework?" The typical response was, "Well, we do have a lot of frameworks for helping us not identify the transactions we need to be careful of. In 2015, which as I mentioned, it was a real inflection point, the pressure on the banks to do something really grew, and up until that point, you had civil society. So NGOs who were really pushing them on these issues. But I think to some extent, it was a little bit of a one stakeholder pressure point.

Eric Usher:

Post 2015, we started to get regulators, investors, clients, staff, a much wider set of stakeholders, we started to essentially say to the banks, "We need to understand what you're doing related to addressing climate change, and related to all of these sustainability issues that we believe a bank has the responsibility to be on top of." That's what led a group of banks, and we brought together within our global membership, 30 banks, who started to then draft a set of Principles Responsible Banking, and essentially, these principles lay out what it is to be a responsible bank in the 21st century.

Eric Usher:

Part of the driver also was that, 10 years after the financial crisis, banks, I think, were still working to rebuild their sense of purpose, what is the role of the banks, and particularly as you start to get upstarts like FinTechs, coming in and competing in different areas of the business, challenging banks to redefine themselves. So, the PRB really has been positioned, and I think helps deliver as a solution to help reinstate trust in the industry and establish the banking industry as a part of the Sustainable Development Solution that we're increasingly starting to talk about today.

Michael Torrance:

You mentioned, Eric, that there was 30 banks involved in drafting the principles. Can you tell us any more about the processes for development? Was there any consultation with civil society or other stakeholders?

Eric Usher:

Yeah, absolutely. So, as I mentioned, this was a process where the banks were doing the drafting, facilitated by the UN. But it was those who are going to be implementing were the ones who were doing the drafting. It was 30 banks, Initially, it was a global group, and then there was a consultation process, civil society was consulted and provided very valuable input, which I think helped strengthened the framework. Then ultimately, after consultation and some revisions, 130 banks launched the principles with UN Secretary-General Antonio Guterres in September 2019, of UN General Assembly.

Michael Torrance:

You mentioned that the PRB, I like the way you put it, you say it's like the elevator pitch for banking and sustainability, in the same way that the principles for responsible investment might be for an asset manager. Can you unpack for our audience what the principles of the Principles for Responsible Banking are, and in particular, I'm sure you'll get to it as this idea of impact and how that idea is encapsulated in the principles?

Eric Usher:

Absolutely. I think it's very interesting and important that the PRBs principles structure is radically different from the PRI, or the PSI for insurance, because those two frameworks have been very formidable, but in establishing a risk framework for addressing environmental social governance issues, the PRB, largely because it was drafted post 2015, to some extent, assumes that signatories actually have a large part, not entirely, but a large part of the risk dimension in place already, and then it goes to the next step. This is embodied in the principles so that there are six principles. I'll just quickly review what they are and what's different really to the current or their previous approaches.

Eric Usher:

Principle one, the most important alignment. So this is really about the purpose question. The principle basically, roughly says, "We will work to align our businesses with the needs of the individual as defined by the UN Sustainable Development Goals, the Paris Climate Agreement, and other relevant frameworks." So it really is the question of what is the purpose of what we do, and does it align with the needs of individuals? Now, how you do that is defined in second principle, which is the focus of impact, which is the notion of understanding the impact of one's financing, both positive and negative, and understanding that unless you have tools to measure the impact you have, you actually can adjust that impact over time.

Eric Usher:

So the principal two then goes further and says, "We will install the systems to monitor the impact of our financing, positive and negative, and then we will prioritize those impacts and start to set business targets, to make measurable improvements in the most significant impact areas that we have." Now, this is a global framework, which means the impacts and the targets that are set will be different in one market to another. We can learn globally in terms of best practice, but the solutions we apply, the impacts we target are always going to be appropriate to our own commercial context, and our market needs, customer needs.

Eric Usher:

The third principle then is, well, it's very much about customers and clients, because the reality is our paper consumption, our energy consumption, although, historically, we've started to track those measures, and they're relevant, but it is not the most important impact of what we provide, or we create. It's really what our customers and clients do that is the impact of our financing. Therefore, the third principle says, "We will work with our clients and our customers to make these improvements in impact, that becomes part of our role." The fourth principle is around the notion of working with stakeholders. So civil society, we already mentioned, regulators and others to try to also contribute to improving the enabling environment for these important steps to be taken.

Eric Usher:

The fifth is around putting in place the appropriate governance systems. As I mentioned, the elevator pitches is not only about what happens at the transaction face, but it's also backing all the way up, essentially it comes down to leadership, board governance, oversight, management, systems, compensation, etc, to have all the systems in place to help us deliver. Then the final principle is on reporting any accountability and to be credible, to be a framework that all can trust and believe and learn from, we do need sufficient information back to the markets, back to stakeholders to show that we are actually are delivering on the commitments we have made, and I can speak a little bit more in detail about that later.

Michael Torrance:

What can you tell us about practically speaking, what signatories are expected to do?

Eric Usher:

Yeah, so there are four steps, and I've spoken through this through the principles description. The first step a signatory needs to do is instill the systems to monitor impact across lines of business. You'd appreciate this is a big ask, this is challenging. Typically, signatories have this in some parts of the business but not in others. The methodologies are often not fully developed, and so part of the role of bringing banks together is to try to come up with a common methodologies.

Eric Usher:

I mean, the most simple example would be the mortgage portfolio, you're financing households to build or to purchase homes, the potential to actually start saying, "Well, how do we shift towards green home loans?" Requires that you're able to actually identify what is a green home loan? What are the purposes of the financing to actually put in energy efficiency improvements or install solar on the roof, etc?

Eric Usher:

For a bank to actually start to be able to set criteria to track individual home loan energy efficiency improvements, and then to be able to aggregate them and to run them through the bank's business, and potentially to securitize those home loans together, and to then sell this financing into the capital markets as green bonds, the rationale for doing that gets clearer and clearer because we have a growing universe of green bond purchasers who are looking for such assets. But the scaling up for the bank to be able to track and monitor that type of impact is something that most banks are still at early days.

Eric Usher:

So the first step, put in place a system to monitor impact. The second step is to start to prioritize impact, and the specific wording says, "Focus where it matters most." So I raised the example earlier of, your own paper use and energy use, those are important, but those are not the biggest impacts you will have. Most of the impacts are essentially what your clients do with your financing. So it's this process of trying to prioritize these impacts. Then you need to set targets for the most significant impact areas. At any one time signatories have to be publishing and working to achieve material progress on at least two impact areas.

Eric Usher:

In places in Europe and North America, climate is certainly one of the most important areas typically that comes up, in other regions, it could vary depending on the local context. Then finally, you have to report on progress, the accountability measures, what I mentioned, and those accountabilities, it doesn't require necessarily PRB reports. Under the PRI you do PRI reporting, under the PRB, banks are already doing a lot of reporting. So it doesn't require an additional report. What it requires is specific types of information that needs to be reported through one of the normal reporting processes. So it could be a bank through their GRI submissions, the CDP submissions, could be through their sustainability report or it could be through an integrated financial sustainability report, but there are set requirements of what they need to report on.

Eric Usher:

And finally, one of the most challenging aspects of the PRB is the first major financial framework where assurance is required. So essentially, assurance providers, the big five accounts typically need to come in and essentially provide an assurance statement that you are reporting, you are transparently providing to the markets information that's needed to show how these principles are being implemented within the bank.

Michael Torrance:

That's a great overview, and maybe if we can just drill down on a couple of those points. So when it comes to impact, you've mentioned climate change, that's obviously a huge one for the financial sector, human rights. What other types of impacts would banks have? Is it all in relation to financing or is it relevant in terms of diversity and inclusion with employees and that sort of thing? How do you define impact?

Eric Usher:

Obviously, there are many issues to look at. The PRB framework is not instructing banks to report on certain topics or to set certain topics, it roughly is a disclosure framework, which allows banks or helps them to deal with increasing issues they know they need to pay attention to. Like climate change, but many other areas like gender equality, like access to finance, like biodiversity in nature preservation.

Eric Usher:

Essentially, as I mentioned earlier, it's up to a bank to decide which are the most important areas depending on the types of products and services and markets they operate in. What the PRB offers then is, if you're going to focus on climate, groups of banks will work together to come up with common guidance on how exactly you should be setting targets and reporting that over time. So it's not an individual bank deciding how they will go about it, it's an industry led process to figure out what is the best way to essentially describe, and to navigate essentially how we're going to look forward. And really, it's about providing forward guidance to the markets, to your customers and clients on a position.

Eric Usher:

So for instance, on climate, on the need to start moving towards this low carbon transition, doesn't mean that a bank on day one is divesting from all fossil fuel intensive activity, but it does expect that they start to provide the guidance to the markets to say, "We believe over time, we see the necessity to start shifting and to working with our clients to shift their businesses models, and we're there to work with them and help finance that transition towards where we believe society, markets and customers need to go on that issue.

Eric Usher:

So, with regard to this target setting guidance, we bring together the groups of banks who are focused on specific issues, and then collectively develop the guidance. So recently, we've just put out guidance on gender, essentially. So what does it mean to start to have policies around gender equality within our organization and with our customers? During the course of the year, we will be putting out collective guidance on nature, biodiversity issues on climate alignment with Paris and the net-zero on issues like circularity, so cleaner production and pollution abatement, waste management.

Eric Usher:

So there are an increasing number of issues, banks are dealing with this on a regular basis, often in individual ways, and essentially, this is a means to get together and say, "Okay, let's come up, let's prepare guidance, let's work with regulators and civil society to figure out how we set such guidance." But really driven by helping the banks as economic actors, who really increasingly need to shift from being change takers, to helping being change makers, to work with clients to actually say, "Okay, how can we navigate these new issues that are coming up, that we realize there's a need to change, and let's work together to get there."

Michael Torrance:

One thing I really like about the principles is this focus on working in partnership with clients and customers. This is a dynamic that I think a lot of people maybe who are in the banking sector don't always appreciate that there's a big difference between the way that asset managers engage with companies and the way that banks would engage with their client companies ... In the banking sector, you have very long standing, sometimes decades, old relationships with clients, and there really is a close partnership with them to help them achieve their strategic goals.

Michael Torrance:

The opportunity here is to help advance their economic and financial goals while also advancing sustainability, which is increasingly really tied to business strategy, and so there's that partnership idea. Can you just speak a little bit to that dynamic and what makes the Principles for Responsible Banking responsive to that dynamic?

Eric Usher:

Yeah, no, I think this is a critical issue. If we look at the role of investors versus banks versus insurers and others, with the client, it is slightly different in terms of how we navigate forward on these issues. For instance, if we think about climate issues, there's a lot of pressure towards divestment. There's also a realization that well, in liquid capital markets, first of all, investors, the biggest impact they can have is engaging with the clients, but the reality is that they're typically quoted as distance, and sometimes engagements are not that easy when you're in really liquid markets, because there's always a buyer for the seller. So the threat of divestment might not have that much impact.

Eric Usher:

The value of banks are often very much in the client relationships, and therefore, it's very much about not so much exiting a sector, but how do you work with that sector? How do you work with that community, to essentially, if we're going to have to navigate forward to actually make those changes, and particularly as we start to think about sectors that start to get into some difficulty with changes that are coming? Often, in terms of the public equities market, you don't actually worry that much about your investors when your stock price's going down, you worry about your bondholders and your bankers, those are the ones who really have influence on industries as they get into trouble.

Eric Usher:

Therefore, the critical role of bank's to be able to work with companies with big industries to say, "Well, we see things are happening, things are changing in the auto industry, in the cement industry and in the steel industry, in power and energy and in agriculture, we need to start working together to figure out what the solutions are to get on to a pathway of prosperity, of economic development, of good jobs in a way that doesn't leave communities behind, but actually moves us in a direction that creates economic but also social and sustainable prosperity."

Michael Torrance:

One of the things I really also like about the PRB is focus on impact, is that you have the ability to find intersection between different types of impacts, and you've touched on this. So the idea for example of climate and climate related transition being critical, but also understanding social impacts, community impacts, and you can incorporate ideas like just transition, are you able to talk a little bit about that of the intersection between different types of impacts and how the principles facilitate a more holistic view of those impacts?

Eric Usher:

Yeah, no, absolutely. I think this will always be a work in progress, because of the notion of impact. I think one of the challenges for banks, impact is something that you want to try to break it down to be able to identify, which is the good customer, the good financing versus which is the bad one, it doesn't lend itself directly to the checkbox approach. It requires more of a capacity development for a bank to really have the ability to understand this more holistic view, and essentially that the notion of positive impact is one where you holistically understand everything that goes on around the economic activity, and that you help to essentially make improvements in that.

Eric Usher:

So, it's not only the one environmental impact that it might have, but it is also is the jobs impacted, also is the other societal indicators or social indicator impact that you need to track. So we are once again with the signatories coming up with these tools to try to go in and try to understand and build the capacity to say, "Okay, how do we understand how society is going to shift on this issue or needs to shift?" Climate to some extent, at least climate mitigation is one of the easier areas because people conceptually at least understand the notion of a price on carbon, or an implied price on carbon. So it starts to give you a rule of thumb about how we can help decarbonize an economic activity over time.

Eric Usher:

But if you climb out of the climate challenge and into the other 16 Sustainable Development Goals, the ones I mentioned earlier, it can get really, really challenging, and to some extent is, when we see it, we understand that it's good, but it's hard to actually know before, and what are the types of impact transactions we want to be driving. So it really requires an up skilling within banking institutions to be able to work with partners and say, "Well, let's understand how the world is changing.

Eric Usher:

Coming back to climate, let's start to understand forward looking how industries are going to be changing to adjust to this little carbon transition and physical climate impacts that are going to come even without the lock in that we have today, and let's start to get more capacity, to be more predictive of how we can start to pick the winners within the different industries that we work with today, within the communities that we work with, so that you really are value added to these transitions, rather than essentially being seen as a barrier to the changes that they need to make.

Michael Torrance:

You mentioned the tools that have been developed by UNEP FI, and this has been something that we've used quite a lot actually, in the context of our impact fund, we were able to leverage some of the tools that you've built to help us structure our impact assessment. Can you speak a bit about how UNEP FI is supporting bank members and creating these kinds of toolkits to implement the principles?

Eric Usher:

Yeah, I mean, there are various aspects to it. As you've mentioned, the way the signatories operationalize is, there are working groups that are set up, which are groups of banks who are addressing common issues, and there are actually two groups working specifically around impact analysis, one who are developing portfolio impact analysis tools, and also corporate impact analysis, or the portfolio level, you have many corporates, and you can try to get aggregate information on how much, say, energy efficiency improvements you're making within your mortgage portfolio.

Eric Usher:

But then when you start to work with individual corporates who potentially are very complicated themselves, they have many factories around the world, you actually also need tools that are specific to individual clients. We also have pure exchange, so essentially, banks working together to collectively try to navigate through these issues as they develop new types of guidance. We are releasing shortly new guidance on an impacted analysis, a number of new portfolio impact analysis tools, we will be coming out with new tools, one in terms of investment portfolios, one in terms of real estate, both in the coming months. Real estate portfolios and then more will be developed over time.

Eric Usher:

Another area where work is underway is in terms of legal, the legal framework. I'd mentioned the Freshfields analysis from 15 years ago, we really have seen a lot of clarification in terms of fiduciary duties from an investor perspective of what an investor can and can't look at from a risk financially material risk perspective. The latest work we're working on jointly with a PRI is, how can you integrate impact into your investment strategy. Now, that's from an investor perspective. But it does have ripple on effects to banks to essentially say, "How far can you go in targeting an impact based business and not running afoul, essentially, of your duties to proper responsible financial management?" That's an important area of work.

Eric Usher:

Then the final area is all of this is definitely driven by data. The lifeblood, the financial system is data, and we are seeing important developments happening today in trying to bring more convergence in terms of the data standards and the data reporting. Right now we have the GRI, we have CDP, we have SASB, and more, and there's a call to essentially try to get more of a classification and a convergence in these standards. Recently, we have the IFRS, which sits over the IASB, the accounting standards for most countries globally.

Eric Usher:

Their intention to potentially set up accounting guidance for non financial measures, including certainly impact related measures. We're also working with the banking sector to be feeding into those processes, to try to essentially put in place the tools so you can measure, so you can understand the impact of what you measure, and you can essentially start to set business targets to make improvements in those impacts over time.

Michael Torrance:

I'm involved in that to the legal working group to update the Freshfields report. It's very fascinating work. So, look forward to seeing the output of that and those other working groups you mentioned. In terms of the principles going back to them, the accountability framework, how will members of the PRB ... will there be a review process to determine their adherence to the commitments? How do you think about that topic?

Eric Usher:

Yeah, so the signatories do have to provide information report back through the reporting mechanism that they choose on an annual basis, initially 18 months after signing and then thereafter on an annual basis, that information has to be assured, as I've mentioned, and there was a matrix of framework of what needs to be assured to provide confidence in terms of the accountability towards implementation. There is a delisting mechanism for those who are not meeting the base requirements to further undergo the integrity of the principles.

Eric Usher:

Finally, there is the Civil Society Advisory Body, which provides input from civil society towards the issues that they're seeing that should be addressed at the strategic level. This does not change or negate the need for banks to be working with civil society in the business that they do today, but we hope it will help provide a wider accountability in terms of what the banking sector can do. We will shortly announce the inaugural members of the Civil Society Advisory Body, and I think you'll see it's very interesting, a very cross section of stakeholders who will be providing inputs that help ... I think, really provide inputs towards banks to help them navigate their way forward in this really challenging area.

Michael Torrance:

Just as a final topic, Eric, what can you say in terms of the level of adoption of the principles so far? What would your message be to financial institutions who have not yet adopted it?

Eric Usher:

Thanks. Well, I should call out and congratulate Bank of Montreal, because you are the first of the Bay Street banks to become signatories. Today, we have 215 signatories globally. Now, of course, there are many more banks than that around the world. But those 215 represent a little over 40% of global banking assets. So it's mostly the bigger banks in their markets. We have nine out of 10 of the largest banks in Europe, are signatories, seven out of 10 in Latin America, four out of 10 in Asia, three out of 10 in Africa, and we're at only two out of 10 in North America. So we have a lot to do, particularly in the North American region.

Eric Usher:

But less than two years into the launch, we were quite happy with the scale of adoption, in terms of what they've been doing, because it's much more than just signing as a collective. Well, they've established a new governance body, which is the Principle Responsible Banking Board who oversees the implementation. They have established an individual and collective progress review process. So as I said, individual reporting and feedback review. They've established the Civil Society Advisory Body that I mentioned, and the delisting mechanism, but I think the real progress is what they've been doing internally.

Eric Usher:

I think that individual banks have been working to create the strategy, the policies, the training, the accountability, they need to embed the principles across all their lines of business, they've started to work with clients and customers to provide sustainability focused advice. The new types of financial products and services like Sustainability Linked Loans that are needed by their customers to help navigate these issues and these transitions. The signatories have started to scale up their efforts to drive the green transformation, and I think they've been areas like reviewing their emissions portfolio, some are starting to set Paris aligned portfolio targets, and develop new types of green financial products, green loans, etc, to help deliver on them.

Eric Usher:

I think, in general, making a big step up, and probably one of the most important indicators in these times today is their response to the pandemic. I think, through maintaining business liquidity lines, payment breaks, establishing new credit lines, working, including with governments, they really have been showing the role of banks and playing a responsible role in navigating the crisis and starting to build back. All of those, I think, are what's happening today.

Eric Usher:

So, this year we will actually be preparing the first biannual collective progress report of the collective signatories, which starts to measure and give an idea of, is this group, which is a large part of the banking industry, actually starting to make progress on certain measures related to the challenges that they've identified? To your question earlier, they will be looking at that framework, and to ensure that it maintains an ongoing relevance and efficiency, they will be undertaking a biannual review of the principles and the framework documents.

Eric Usher:

This is meant to be a live set of guidance documents so that over time, they will update them as the world changes, as the world adapts. So it's a moving target, and also to support implementation, there are many working groups, as I mentioned, looking at areas like impact analysis, target setting, reporting and assurance, how to engage with clients, progress monitoring, and the like.

Michael Torrance:

That's excellent. Well, thank you so much for your time, Eric, and look forward to continuing to work with you on the Principles for Responsible Banking and with our work with UNEP FI.

Eric Usher:

My pleasure. Thank you very much, Michael, and looking forward to continuing on this journey. I don't think it's any easy for anyone but this is a stretch ambition, and we really believe it's very promising with the banking sector, are the ones who are leading this change, and working hand in hand with governments, with other stakeholders and with their clients to help us navigate a solid way forward.

Michael Torrance:

Thanks for listening to Sustainability Leaders. This podcast is presented by BMO Financial Group. To access all the resources we discussed in today's episode, and to see our other podcasts, visit us at Bmo.com/sustainabilityleaders. You can listen and subscribe free to our show on Apple podcasts, or your favorite podcast provider, and we'll greatly appreciate a rating and review and any feedback that you might have. Our show and resources are produced with support from BMO's Marketing Team and Puddle Creative. Until next time, I'm Michael Torrance, have a great week.

Disclosure:

The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates or its subsidiaries. This is not intended to serve as a complete analysis of every material facts regarding any company, industry, strategy or security. This presentation may contain forward looking statements, investors are cautioned not to place undue reliance on such statements as actual results could vary.

Disclosure:

This presentation is for general information purposes only and does not constitute investment, legal or tax advice, and is not intended as an endorsement of any specific investment product or service. Individual investors should consult with an investment tax and or legal professional about their personal situation. Past performance is not indicative of future results

Michael Torrance Chief Sustainability Officer



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