Leading Japanese banks have announced support for the UN-sponsored “Principles for Responsible Banking” program, responding to increasing pressure to incorporate ESG issues into financing operations.
Japanese financial institutions have begun to announce support for the Principles for Responsible Banking (PRB) formulated by the United Nations Environment Program—Finance Initiative (UNEP FI). The draft for the PRB was released for public comment in November 2018, and is slated for full roll-out in September 2019. As of March 2019, 49 financial institutions worldwide had signed up.
In Japan, Sumitomo Mitsui Trust Holdings, Inc. announced support in January 2019, and Sumitomo Mitsui Financial Group, Inc. the following month. According to Takanobu Suehiro, general manager, Corporate Sustainability Dept. at the latter firm, “I think the published principles will be accepted as the global standard. We decided to announce support immediately because we’re determined to remain a top firm in East Asia when it comes to ESG.”
Three tiers for banks
The six principles (see table) define the responsibilities of member banks.
Once they sign up, banks must set ESG-related policies and targets, and disclose related information. The UNEP FI will provide recommendations for improvement based on the disclosed information, depending on which of three tiers each bank belongs to. Member banks choose the tier they prefer, with each tier providing different feedback content and guidance.
The PRB is very similar to the Principles for Responsible Investment (PRI) already being used to incorporate ESG criteria into institutional investment operations. In Japan, ESG-related investment accelerated sharply with the adoption of PRI by the Government Pension Investment Fund (GPIF) in 2015.
Globally, banks are being pressured to stop financing coal-fired power generation plants, for example, and promote operations utilizing renewable energy, linking financing to ESG evaluations. Banks signing onto the PRB are likely to transition in this direction in the future.
As a whole, 42.2% of borrowings by Japanese corporations comes from banks, so the impact on corporate Japan will be significant. The effects of ESG are being felt not only in direct financing by investors, but also in indirect financing via banks.
- Principle 1: Alignment
- We will align our business strategy to be consistent with and contribute to individuals’ needs and society’s goals, as expressed in the Sustainable Development Goals (SDGs), the Paris Climate Agreement and relevant national and regional frameworks. We will focus our efforts where we have the most significant impact.
- Principle 2: Impact
- We will continuously increase our positive impacts while reducing the negative impacts on, and managing the risks to, people and environment resulting from our activities, products and services.
- Principle 3: Clients & Customers
- We will work responsibly with our clients and our customers to encourage sustainable practices and enable economic activities that create shared prosperity for current and future generations.
- Principle 4: Stakeholders
- We will proactively and responsibly consult, engage and partner with relevant stakeholders to achieve society’s goals.
- Principle 5: Governance & Target Setting
- We will implement our commitment to these Principles through effective governance and a culture of responsible banking, demonstrating ambition and accountability by setting public targets relating to our most significant impacts.
- Principle 6: Transparency & Accountability
- We will periodically review our individual and collective implementation of these Principles and be transparent about and accountable for our positive and negative impacts and our contribution to society’s goals.
Related link: UNEP FI Principles for Responsible Banking