On November 26, 2018, at its Global Roundtable in Paris, UN Environment FinanceInitiative (UNEP FI) and 28 banks from around the world launched the Principlesfor Responsible Banking (PRB) for a six-month public consultation. The PRB representa voluntary commitment to a more responsible and sustainable way of bankingthat will contribute to the achievement of society’s goals.
The PRB proposes a framework around six principles:
- Alignment: Ensuringthat the banks’ business strategy is consistent with individuals’ needs andsociety’s goals, as expressed in the SDGs, the Paris Climate Agreement andrelevant national and regional frameworks;
- Impacts: Holistically assessing and managing the risks, opportunities and impacts resulting from banking activities. Banks have also to continuously improve their positiveimpacts while reducing their negative impacts;
- Clients andcustomers: Working with clients to encourage sustainable practices and to enable economic activities that create shared prosperity forcurrent and future generations;
- Stakeholders: Proactively collaborating with relevant stakeholders to further the objectives of these Principles;
- Governance and Culture: Implementing banks’ commitments through effective governance processes, management systems and a culture of responsible banking;
- Transparency and Accountability: Periodically reviewing the implementation of the Principles and being transparent about and accountable for the impact.
Although both conventional and Islamic banks can adopt the principles, I do feel that Islamicbanks can better leverage such principles for at least four reasons:
- PRB strengthen the value proposition
Today, Shariacompliance dominates the value proposition of many Islamic banks, which makesattracting customers on a non-religious ground challenging for such banks. Moreover, Islamic banks’ customers expect banks to be strongly involved in economic, social and environmental issues becausesuch a positioning is in line with its core values. With PRB, Islamic banks will integrate sustainability across all business areas, resulting in a stronger value proposition.
- PRB offers international recognition
The PRB frameworkguides Islamic banks in their sustainability journey and allows them to highlighttheir achievements to both a national and international audience. This recognition is particularly valuable when reaching out to new customer segments.
- PRB is more needed in OIC countries
The scale offunding and technical support required to achieve the ambitious 2030 agenda arefar beyond the scope of OIC governments’ budgets and traditional funding mechanisms. Consequently, there is a vast gap to be filled, and Islamic banking can play a leading role, especially that the industry’s underlying principlesemphasize, among others, the values of social justice, transparency and risk sharing
- PRB is more effective in agile contexts
In many countries, Islamic banks are relatively young with a smaller size compared to their conventional counterparts. Therefore, Islamic banks are more agile to adapt their business model to the PRB requirements.
To sum up,The PRB framework provides a timely opportunity for Islamic banks to harmonizethe business model with their core values, ensure continued growth and channelfunds for sustainability friendly projects and initiatives.
This article was first published in Islamic Finance news Volume 15 Issue 49 dated the 5th December 2018