Sustainable Banking Network – Guidance from SBN Members

Of the SBN members, 17 countries have launched national policies, guidelines, principles, or roadmaps focused on sustainable banking. They include Bangladesh, Brazil, China, Colombia, Indonesia, Kenya, Mexico, Mongolia, Nigeria, Peru, South Africa, Turkey and Vietnam. More detailed information about the existing guidance can be accessed below.

 

Bangladesh

Environmental Risk Management Guidelines were introduced in January 2011 by Bangladesh Bank, in collaboration with local banks and other stakeholders. Mandatory Environmental Risk Management Guidelines were launched in 2012. The Guidelines enable banks and FIs to consider environmental issues in a structured way in their overall credit appraisal processes.

Policy Guidelines for Green Banking were issued in February 2011 to address policy and governance of green banking. The Guidelines cover the incorporation of environmental risk management in credit management, in-house environmental management, green financing, climate risk fund, green marketing, online banking, training, research and development in green banking, sector-specific environmental policies, green strategic planning, green bank branches, bank-specific ERM plans, innovative products, and sustainability reporting.

Bangladesh Bank issued updated Guidelines on ESRM for banks and FIs in Bangladesh along with an E&S Risk Assessment Tool and SFD Circular No. 02/2017 on February 8, 2017. The updated guidelines include social issues and measurement tools:

 

Brazil

Voluntary Green Protocols on sustainable banking were first adopted by five Brazilian state-owned banks in 2008 and then by commercial banks in 2009, facilitated and supported by the Brazilian banking association, FEBRABAN, and the Ministry of Environment.

Between 2008 and 2011, the Central Bank of Brazil (BCB) issued a series of industry-specific and thematic green banking regulations, including on the protection of the Amazon Biome, sugar cane investments, slave labor, and internal capital adequacy assessment process (ICAAP).

In 2014, BCB published a mandatory Resolution on Social and Environmental Responsibility for Financial Institutions. The Resolution strengthens E&S risk management and introduces the concept of relevance and proportionality of E&S risks. It requires banks to develop and execute a Social and Environmental Responsibility Policy, aimed at managing E&S risks, preventing losses from both environmental damages and social issues, and engaging with affected stakeholders.

 

Cambodia

In September 2016, Cambodia launched the Cambodian Sustainable Finance Initiative, which aims to establish best practices and educate its members on sustainable banking practices. The Association of Banks in Cambodia has committed to developing a set of sustainable finance principles in partnership with the National Bank of Cambodia and the Ministry of the Environment. These principles will ultimately lead to the design of voluntary industry environmental and social lending standards, which will be embedded in local bank policies.

 

China

In 2012, the China Banking Regulatory Commission (CBRC) issued the Green Credit Guidelines, providing clear operational guidance to implement green banking in three aspects: E&S risk management, green lending products and services, and greening banks’ own operations. CBRC further introduced the Green Credit Key Performance Indicators (KPIs) in 2015 to strengthen monitoring and evaluation of green banking.

In terms of green loan origination, CBRC launched the Green Credit Statistics System in 2014. Green credit loans are classified into 12 categories with sub-categories. A tool has also been developed for banks to calculate the environmental benefits from green credit lending, including reduction in carbon emissions, water pollution (chemical oxygen demand (COD)), and savings on water use.

China Banking Regulatory Commission (CBRC) launched Guidance Notes to Strengthen Risk Management for Chinese Banks Investing Abroad. Environmental and social risk management is one of the 7 components of the regulatory guidance, alongside credit risk, country risk and compliance risk management. The Guidance Notes require Chinese banks to pay special attention to E&S risk management in project finance and trade finance, with a focus on energy, resources, agri-business, and large infrastructure projects, including engineering contracting. See related link.

 

Colombia

Launched in 2012, the Colombia Green Protocol is a voluntary set of guidelines developed by the banking association, Asobancaria, in conjunction with the Ministry of Environment and Sustainable Development. Based on an initial series of roundtables led by the different banks involved, the Green Protocol was signed by the President of Colombia, Asobancaria and 12 banks, including the major commercial and development banks.

The Colombian Banking Association, Asobancaria, launched the “General Guidelines for the Implementation of Environmental and Social Risk Analysis” in November 2016. The guidelines, launched by Asobancaria and the Green Protocol, are the result of interdisciplinary work between public and private entities, interested in generating good practice standards for environmental and socials risk management in the banking sector. Read the guidelines here. (Spanish only)

 

Ecuador

The Banking Association of Ecuador, Asobancos, launched the "Sustainable Banking Protocol" in November 2016, with 10 signatory banks that represent more than 80% of the market share and with the participation and support of IFC/SBN. The signatory banks voluntarily committed to work towards setting a sustainability governance, offering green financial services and products, implementing eco-efficiency programs and putting in place Environmental and Social Risk Management Systems.

 

 

Indonesia

Recognizing the need for an integrated and robust response from the financial sector, while at the same time improving the resilience and competitiveness of financial services institutions, Otoritas Jasa Keuangan (OJK), the Indonesia Financial Services Authority, launched a Sustainable Finance Roadmap in December 2014. The roadmap enlists the financial sector under OJK supervision, including banking, capital market, and non-bank financial institutions (such as insurance companies, leasing companies and pension funds) to contribute to the national commitment to address climate change – including mitigation, adaptation and the transition to a competitive low carbon economy.

On July 12, 2017, OJK released the Sustainable Finance Umbrella Policy to provide guidance to the whole financial system in Indonesia. The Policy covers:

  • Definition of sustainable finance
  • Principles of sustainable finance
  • An Action Plan for banking, capital markets and non-banking sectors

Under the new regulation, financial institutions are required to submit an annual plan to OJK on implementation of sustainable finance. These plans can cover:

  1. Development of green financing product/ service and increase of green portfolio;
  2. Adjustment in structure of organization, risk management, corporate governance and SOPs that incorporate sustainability principles.

Additionally, banks and other financial institutions must submit a sustainability report annually to ensure monitoring and accountability of the new requirements.

 

Kenya

The Kenya banking industry, through the Kenya Bankers Association (KBA), adopted the Sustainable Finance Guiding Principles during the 2nd CEO Roundtable on Sustainable Finance held in March 2015. KBA is now working with banks to ensure they have the capacity and resources to implement the Principles. Towards this end, KBA has developed an innovative e-Learning platform (sfi.kba.co.ke) for the industry.

 

Mexico

Mexico led efforts to establish "Inclusive Green Growth" as a priority area for the G20 development agenda under the Mexican G20 Presidency in 2012. This was taken forward by subsequent G20 presidencies and resulted in the launch of the GreenInvest initiative in June 2015. ABM has led a voluntary industry approach to sustainable banking in Mexico through the development of a "Sustainability Protocol", which has been signed to date by 19 FIs.

 

Mongolia

The Mongolian Bankers Association (MBA), representing all Mongolian banks, launched the Mongolia Sustainable Finance Principles and Sector Guidelines in December 2014, which took effect in January 2015. All participating banks have since developed internal E&S policies and procedures and have hired full-time E&S staff. The sector guidelines provide guidance to participating banks on how to assess potential E&S risks and opportunities in the agriculture, mining, manufacturing and construction sectors, and assess the ability of clients to manage E&S issues. They include guidance on E&S risk rating criteria for assessing and categorizing risks, and encourage adoption of relevant industry international standards and best practices. The development and launch of the Principles are a result of joint effort and consensus building across the Mongolian banking industry, led by MBA, with support from the Ministry of Environment, Green Development and Tourism, and the Bank of Mongolia.

 

Morocco

Morocco Morocco’s Central Bank, Bank Al-Maghrib (BKAM), together with the banking association and 5 other financial regulators, launched its “Roadmap for Aligning the Moroccan Financial Sector with Sustainable Development” in November 2016 during COP22. This roadmap has capitalized on the best international practices and revolves around five major themes: Extending risk-based governance to socio-environmental risks; Developing sustainable financial instruments and products; Promoting financial inclusion as a driving force for sustainable development; Capacity-building; Ensuring market transparency and discipline. Each of these axes is broken down by sector: banking, insurance, capital markets and the Casablanca Financial Center (CFC). To strengthen the African regional cooperation, Morocco also launched “Roadmap of the Moroccan financial sector for the emergence of sustainable finance in Africa”. Also during COP22, the Moroccan Capital Market Authority launched the “Green Bond Guide”. BKAM launched the first Corporate Social Responsibility Report which documented the first Sustainable Finance Event organized in partnership with IFC/SBN and UNEP FI in 2015. Read the full documents here.

 

Nepal

Nepal released the “Guideline on Environmental and Social Risk Management (ESRM) for Banks and Financial Institutions” on May 28, 2018. The ESRM guidelines launched by Nepal Rastra Bank (NRB) set down standards for the identification, assessment, and management of E&S risks. Hydropower-related E&S criteria have been given special attention, given the country’s reliance on this form of energy. The guidelines also provide a reporting template for all banks to report to NRB on sustainability performance. Nepal Rastra Bank started its journey towards a sustainable banking system in 2014 when it joined the IFC-supported Sustainable Banking Network (SBN). The ESRM guidelines have been drafted by experts at IFC and NRB using global standards, including IFC’s Performance Standards and Equator Principles, and finalized through a long process of consultations with bankers’ associations and development partners.

 

Nigeria

The Nigerian Sustainable Banking Principles were launched by the Nigerian Banker’s Committee in July 2012. Thirty four financial institutions committed to their implementation. With the Central Bank of Nigeria’s decision to supervise the implementation of the Principles (and Sector Guidelines), the adoption of the Principles (and Sector Guidelines) has become quasi-mandatory.

In 2013, the Central Bank introduced a Monitoring and Reporting Mechanism to guide and monitor the implementation of the Principles. Banks are required to provide preliminary once-off reports on policies and systems, as well as baseline data collection, followed by bi-annual reporting on indicators organized according to the nine principles.

 

Pakistan

Pakistan released Green Banking Guidelines on October 9, 2017. The State Bank of Pakistan has taken a phased approach whereby the Guidelines will be complimented by relevant tools and additions subsequently. The first phase (12 months) require banks to formulate policies and procedures and have proper capacity building initiatives in the bank as per the requirements. Currently the Guideline covers Environmental and Social Risk in lending, financing green projects and reducing the banks’ carbon footprint. The mandatory Guidelines are intended to level the playing field in E&S risk management and stimulate green financing.

 

Peru

The Superintendency of Banking, Insurance and Private Pension Fund Administrators (SBS) launched the Regulation for Social and Environmental Risk Management (see English translation) in March 2015. The Regulation aims to establish minimal requirements for social an environmental risk management in order to encourage financial institutions to implement the best practices and prudent decision-making process. SBS also released the Role of Enhanced Due Diligence in the Regulation of Socioenvironmental Risk Management for Financial Firms (see English translation) to explain the key features of the regulation.

 

South Africa

The Banking Association South Africa introduced voluntary Principles for managing Environmental and Social Risk in 2014. These principles recognize the role that financial institutions can play in the protection, promotion and fulfilment of social, economic and environmental rights in South Africa by conducting and reporting on their operations, business, lending and investing practices in a sustainable manner. As responsible corporate citizens members commit themselves to these Principles.

 

Turkey

Turkish banks have followed a market-led route to sustainable banking, aligning with national goals as well as international principles and good practice. In 2014, the Banks Association of Turkey (BAT) issued voluntary Sustainability Guidelines for the banking Sector. The Guidelines were prepared by a BAT working group on the Role of the Financial Sector in Sustainable Growth, with the participation of 18 banks.

 

Vietnam

The State Bank of Vietnam issued a Circular (39/2016/TT-NHNN) dated December 30, 2016, in which one of the main lending principles defined is that the customers and the applied transactions need to comply with environmental laws and regulations. This new regulation will enhance the Directive on ESRM and Green Finance issued in 2015 by the SBV Governor, and will contribute to the ongoing efforts to promote a greener and more sustainable economy in Vietnam.

The State Bank of Vietnam (SBV) issued a Directive in March 2015 to promote green credit and sustainability risk management by banks. The Directive requests all financial institutions operating in Vietnam to set up an environmental and social risk management (ESRM) system, as well as to develop innovative products to enable lending to environmentally and socially friendly business activities.