Sustainable Banking Network (SBN) Briefing (February, 2017) 1. What is the Sustainable Banking Network? The Sustainable Banking Network (SBN) (www.ifc.org/sbn) is a unique, voluntary community of financial regulators, banking associations and environmental regulators from emerging markets interested in advancing sustainable finance based on national context and priorities, as well as the international good practices. Its main objectives are to (a) Facilitate the collective learning of its members, and (b) Support them in enabling framework development and implementation, capacity building and knowledge sharing, to create a level playing field for management of E&S risks by banks and to promote sustainable lending for the private sector. The idea for the SBN arose during the 1 st International Green Credit Forum co-hosted by IFC and the China Banking Regulatory Commission held in Beijing in May 2012, where banking regulators/associations from 10 countries requested that IFC facilitate a knowledge network for financial regulators and associations. IFC currently acts as the Secretariat of the Network, playing the role of facilitator and Technical Advisor to the SBN. IFC supports members with developing and implementing policies/principles, facilitating South-South dialogue and cooperation, co-hosting SBN annual meetings, managing technical working groups, building capacity and sharing knowledge. SBN membership now consists of 31 member countries including Argentina, Bangladesh, Brazil, Cambodia, Chile, China, Colombia, Ecuador, Egypt, Ghana, Honduras, India, Indonesia, Jordan, Kenya, Lao PDR, Mexico, Mongolia, Morocco, Nepal, Nigeria, Pakistan, Panama, Paraguay, Peru, Philippines, South Africa, Sri Lanka, Thailand, Turkey and Vietnam. These countries represent over 85% of the banking assets across emerging markets and can play critical role to deliver on the green growth agenda. Latin America Banking Federation (Felaban) representing 19 countries from LAC, joined SBN as a partner member in 2016, demonstrating the emerging trend of regional integration and collaboration on sustainable finance. 15 countries have launched national policies, guidelines, principles, or roadmaps on sustainable finance. IFC provided strategic and technical advisory services to support the development of those country-specific policy/guidelines and to harmonize them with international good practices, in particular IFC Performance Standards and Equator Principles. This development highlights an emerging positive dynamic of market-based actions and policy leadership to advance sustainable finance globally. 1
2. SBN Members Countries on World Map 2
3. What is Sustainable Banking? Sustainable banking is an evolving concept. Definitions differ across communities of practice and according to local culture and context. The term is generally understood by SBN members to include three optional components, depending on local preferences: i) E&S risk management in investment and lending processes; ii) lending and investment to green industries/projects and seeking positive E&S impact; and iii) how banks manage their own E&S footprints, such as greening their facilities and undertaking corporate social responsibility initiatives. The first two components are considered core, although weighted differently based on context and whether social dimensions are included. While the understanding of E&S risk management is now well defined, the definitions of lending with positive E&S impact, and the various models associated with this, can range widely from country to country. 4. What is unique about the SBN? The SBN is a unique global initiative focusing on creating a safe and informal collaborative environment for financial regulators and banking associations in emerging markets to learn from international good practices and share their pioneering efforts to promote sustainable banking at the national level. The SBN currently focuses on emerging markets, which are leading the global trend to develop and implement sustainable finance policies and guidelines. Supported by IFC global and country staff, the Network facilitates south-south learning and partnership among members. The greatest value for members is in learning from the experiences of their peers and being able to benchmark their progress. Members have mentioned in interviews that many of the steps they have taken were enabled by the Network. 5. What kinds of activities does the Network engage in? Cohosted by IFC and a different member country each time, the annual SBN meetings are the principal space for dialogue, networking and knowledge generation. These meetings provide SBN members with a platform to present national initiatives in the sustainable banking space, to discuss current issues, and jointly develop new approaches to sustainable banking. SBN Annual meetings hosted to date: Event Location Date 1 st International Green Credit Forum co-hosted with China Banking Regulatory Commission (CBRC) 1 st SBN Annual Meeting Beijing, China May 2012 3
2 nd International Sustainability Finance Forum cohosted with Central Bank of Nigeria International Sustainable Finance Forum, cohosted with Superintendency of Banking, Insurance and Private Pension Fund Administrators of Peru (SBS) 3 rd SBN Annual Meeting International Sustainable Finance Forum, cohosted with Indonesia Financial Service Authority (OJK) 4 th SBN Annual Meeting Lagos, Nigeria Mar 2014 Lima, Peru Sep 2015 Bali, Indonesia Dec 1 & 2, 2016 Additionally, banking regulators and banking association are invited to participate in thematic working groups such as the Sustainable Finance Measurement Working Group launched during SBN annual meeting in 2016. Members are also invited to IFC-hosted dialogue events, such as the annual IFC Performance Standards Community of Learning, a meeting for financial institutions that have adopted the Performance Standards. These events provide the opportunity for dialogue with leading commercial banks worldwide, which plays a crucial role in the development of national enabling frameworks. A defining characteristic of the Network is the practicality and openness with which regulators collaborate to share knowledge. Discussion topics have included: a. Effective approaches to developing regulation/voluntary principles and creating national roadmaps b. How to monitor and measure implementation by banks c. Effective economic incentives d. Developing sector-specific guidance for banks e. The role of regulators in centralizing information on company E&S performance f. Uncovering the business opportunities in sustainable finance Members are also able to collaboratively explore and engage on a range of topics potentially impacted by sustainable finance, including climate change and financial inclusion. As facilitator of the Network, IFC has produced several knowledge products, which showcase country-level progress and member insights. The IFC team also regularly communicates with members to stay abreast of national developments and facilitate knowledge exchange across regions. 4
6. What has been learned to date through the SBN? 1. Influenced by country context and culture, three general approaches to sustainable finance have emerged among members: a. Mandatory approach, led by financial or banking regulators, such as in Bangladesh, China, Indonesia, Peru and Vietnam; b. Voluntary approach, led by banking associations such as in Colombia, Kenya, Mexico, Mongolia, Turkey; c. Blended strategy of industry-led initiatives and policy leadership at different stages of sustainable banking development: starting with voluntary principles led by the banking association, then mandatory policies led by regulars such as Brazil and Nigeria. 2. International E&S standards have proven useful when designing countryspecific sustainable finance policies (e.g. IFC Performance Standards, Equator Principles, WBG Sector-Specific Environmental Health and Safety Guidelines). Many countries have used international standards as a starting point or benchmark when designing policies and guidance that fit with country-level legislation and institutional systems. Implementation, compliance and enforcement mechanisms are significantly stronger when standards are country-specific. When consistent with international standards, such country-specific policies are also likely to have more significant system-wide impact (rather than only project-specific impact), and make more efficient use of resources of governments and development partners. 3. South-South knowledge sharing and partnership among SBN members are effective ways to shorten the learning curve. 4. Capacity building is critical for banks and for regulators. 5. Several mechanisms have been used successfully by a number of countries to develop and implement sustainable finance policy/guidelines, and are useful examples to replicate. These include a. Multi-stakeholder consultation and collaboration (e.g. partnership between financial regulators, environmental regulators and banking associations) b. Economic incentives c. Monitoring and evaluation system and Key Performance Indicators (KPIs) 6. Sustainable finance is evolving rapidly to include the wider financial ecosystem, such as capital markets, insurance providers and pension funds, as these sectors become increasingly aware of the necessity for effective risk management and the resulting business opportunities. This trend offers opportunities for synergies between various parts of the financial sector. Consequently, there is growing interest among SBN members to expand the discussions to include sustainable finance across the wider financial ecosystem. 5
7. Global and Regional Partnership SBN and IFC have been building partnership with global and regional organizations and initiatives to jointly promote sustainable finance and support SBN members: a. UNEP Financial Initiative (UNEP FI): IFC and UNEP FI signed a MoU in January 2015 to strengthen cooperation in knowledge sharing and capacity building for SBN. b. G20 Green Finance Study Group (GFSG): was launched in January 2016 under China s G20 Presidency, aiming to enhance mobilization of private green investment through financial markets. SBN was recognized by GFSG as the only network of emerging market-led banking regulators/associations focused on green banking. Therefore, SBN/IFC was invited to be the lead knowledge partner for GFSG. SBN has prepared an Input Paper providing an emerging markets perspective to inform the global agenda with case studies of SBN member experiences. The GFSG Synthesis report and its recommendations were endorsed by the G20 Leaders on Sept 5. One of the recommendations calls SBN to scale up as a global learning platform with G20 support. c. Latin American Banking Federation (Felaban): IFC and Felaban signed a MoU in March 2016 to jointly promote sustainable banking and SBN through Felaban s network of 19 banking associations and over 600 banks in LAC, with a focus on capacity building. d. Association of Southeast Asia Nations (ASEAN): Partnering with Indonesia s Financial Services Authority (OJK), SBN hosted the first ASEAN Roundtable for Sustainable Finance during SBN 4 th Annual Meeting in Indonesia in December 2016. Representatives from ASEAN countries discussed joint approach and actions to advance sustainable finance for the region, leveraging SBN global experience and actions already taken by ASEAN countries. Delegates also agreed to explore regional capacity building for banking regulators, associations and banks, including through the ASEAN Bankers Association. 6