September 25, 2019
On the Signing of the UN’s Principles for Responsible Banking by Japan’s 3 Megabank Groups and the Challenges that Remain
On September 22, the UN Headquarters witnessed the signing ceremony for the Principles for Responsible Banking (PRBs). The PRBs call on financial institutions to adopt finance and lending practices that are in line with the Sustainable Development Goals (SDGs) and the Paris Agreement. They were signed by 140 financial institutions, including Japan’s 3 Megabanks – Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Financial Group (SMFG), and Mizuho Financial Group – as well as Sumitomo Mitsui Trust Holdings.
In response to the signing in of the PRBs, 350.org Japan issued the following statement:
“As financial institutions with a major degree of influence on the world economy, we are pleased to see that Japan’s 3 major megabank groups have taken a leading role in signing these principles. That having been said, it is imperative that immediate action plans be drawn up and executed, to avoid the principles becoming empty words, and a gap opening up between principles and reality.
The Principles for Responsible Banking are made of the six following areas (For further details, see *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, the Paris Climate Agreement and relevant national and regional frameworks.
- Impact & Target Setting: 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. To this end, we will set and publish targets where we can have the most significant impacts.
- 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.
- Stakeholders: We will proactively and responsibly consult, engage and partner with relevant stakeholders to achieve society’s goals.
- Governance & Culture: We will implement our commitment to these Principles through effective governance and a culture of responsible banking.
- 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.
The financial institutions that have signed up to the PRB are expected to fulfill the above commitments, but looking at the latest integrated reports from each of the 3 megabank groups (for further information, see *2), we foresee the following serious challenges.
- None of the reports make any reference to any targets or strategies that are in line with the Paris Agreement’s 2°C target, or the 1.5°C target that has come to the fore since last year’s IPCC report, which rang the alarm about accelerating warming. Furthermore, regarding financing of new coal-fired power plants, which are the largest emitters of CO2 and are completely out of line with the Paris Agreement, MUFG is the only one of the megabanks to cite a commitment to ending financing of new coal-fired power plant projects. This policy commitment however contains broad provisions for exceptions, and hence we foresee an ongoing risk that they will contribute to new projects in the future. In addition to project finance, we also call on the megabanks to limit their provision of financial services to companies engaged in new construction of coal-fired power projects.
- Regarding the risk analysis and mitigation measures proposed by the Task Force on Climate-related Financial Disclosure (TCFD), while some of the groups make limited reference to physical risk, they do not touch on the negative effects of lending to and investing in fossil-fuel related projects, nor on the risks associated with the transition to a low-carbon society, in any concrete way. The 3 megabanks must set science based targets that reduce their exposure to carbon related assets in both their lending and investment portfolios.
- While each group is making progress in terms of disclosure regarding green investments, they make only limited reference to eliminating lending and investment for fossil-fuel related projects, which form a barrier to future prosperity.
- Given that there are numerous protest movements on the ground against environmental destruction and violations of human rights surrounding companies that the megabanks are lending to, it is hard to believe that the megabanks are carrying out sufficient consultations with all stakeholders.
- While there are references made to aligning management strategy with SDGs, it would be difficult to claim that implementation has kept pace in regard to measures taken to tackle global warming.
- The megabanks do not, at present, make disclosures with adequate transparency regarding negative impacts.
Up to now, the 3 megabanks have all signed on to numerous important agreements, such as the Equator Principles, the Principles for Responsible Investment, and the TCFD recommendations. Nevertheless, given the above, we are concerned that their signing of the PRB will be another mere formality.
We fervently hope that the megabanks will take the occasion of signing on to these Principles to formulate and execute a business strategy in line with the Paris Agreement, based on a sense of themselves as “responsible banks,” such that their financing decisions can leave future generations a sustainable global environment.”
A joint statement was released by Japanese and international civil society organizations on September 22 in response to the signing of the PRBs (*3). On September 23, at an official event in NewYork announcing the adoption of the PRB (*4) a protest was held by civil society organizations calling for “no more greenwashing” from the PRB signatories, including the 3 megabanks (*5).