Sustainable Finance, the Law and Stakeholders: Values-based Banks and Global Banking Regulation

Lead Research Organisation: University of Exeter
Department Name: School of Law

Abstract

Global banking regulation is on the verge of a ground-breaking transformation from the mainstream dominant economic model to a people-oriented sustainable approach. This innovative global research, informed by transitional and regulatory theories, aims at maximising the opportunities to inform and underpin such a paradigm shift in the banking sector. It will do so by exploring the role and potential of 'values-based banks' - that is small and niche banks which adhere to Principles of Sustainable Banking (2011) and are values-driven rather than exclusively profit-driven - to inform the re-shaping of global banking regulation. In order to realise this ambition, it is proposed to co-create and conduct this timely and topical research over three years in partnership with both the Global Alliance for Banking on Values (GABV) which currently represents 40 small commercial banks, credit unions, microfinance banks globally (including the UK), and with the World Bank (WB), which made a formal offer to provide the necessary leverage for this research.

The research is set within the ongoing debate over the role of the financial and banking sector in achieving sustainable development (SD). The concept of sustainable banking is complex as it relates to the goals of balancing the social, environmental and financial aspects of banking business and using banking services to achieve social and environmental long-term impacts. The current focus of the global banking regulation is on the largest and frequently described as the 'too big to fail' banks identified by the Financial Stability Board (FSB). Small banks are well positioned to have SD as the core of their practices but their potential to inform global banking regulation is unexplored. Following innovative sampling informed by transitional and regulatory theories, the research will draw from the experience of GABV niche banks.

The study will be conducted over two Phases by taking a mixed methods approach: a desk based review and a triangulation of quantitative and qualitative data. Two placements will facilitate access and the adequate collection of data: a 6-month placement at GABV and a 3-month placement at the WB. The research will actively involve NGOs, which follow the current debates on SD banking regulation (eg. Friends of the Earth, Finance Watch).
Phase 1 will identify values-based banks' innovative and niche sustainable development practices and assess how far these practices can and should inform global banking regulation via surveys and interviews. For example values-based banks' social engagement practices may constitute best SD practice but may be of little use for global banking regulation. Alternatively, these banks may have particularly strong environmental disclosure practices which could be included in global regulation. The research will identify the preferred regulatory strategies for embedding the innovative and niche SD strategies into global regulation via a focus group, which will meet several times.

Phase 2 will assess and test Phase 1 proposals with the global banking regulators (such as FSB) and the largest global banks (such as Barclays Bank) via surveys, interviews and focus groups. Ultimately, it will identify those values-based banks' practices that can be taken up realistically by the global regulators. Phase 2 will also lead to establishing a Stakeholder Forum, whose mandate will be to promote Phase 2 findings and ensure they are on the global regulators' agenda.

The research will lead to producing several high-quality outputs, including a planned monograph, four journal articles, two impact reports, and developing interdisciplinary links. It will benefit several stakeholders such as GABV, the World Bank, global regulators, NGOs, and large banks.

Planned Impact

This research aims to inform a paradigm shift from the mainstream economic model of banking regulation to a people-oriented sustainable approach by exploring the potential of values-based banks to shape global banking regulation. The integration of social and environmental matters into such regulation will have huge impact on improving the well-being of people in the long-term. In realising this ambition, the research has a clear social and economic value evidenced by partnerships with the Global Alliance for Banking on Values (GABV) and the World Bank (WB). The following organisations will benefit from the research:

1) GABV: is keen to learn how their practices could inform global banking regulation (see letter of support) hence this research will help the alliance to understand and seize its potential. It is argued that GABV is the emerging global 'epistemic community' thus well positioned to engage with the global banking regulation (evidenced also by the WB's interest in this project) and this research will contribute to realising GABV's potential by drawing data from its banks.
2) WB, a key global institution and research user, has been at the forefront of integrating sustainable development (SD) in investment projects. WB confirmed (see letter of support) they would benefit from this research to inform the implementation of its Environmental and Social Framework (eg. Standard 9, Financial Intermediaries).
2) Global banking regulators engaged in this research: the Basel Committee on Banking Supervision, the Financial Stability Board (FSB) and members of the emerging Sustainable Banking Network. These organisations include membership from the Finance Ministers, Governors of Central Banks, banking supervisors and other institutions such as the International Monetary Fund, European Union. These institutions will benefit from having access to findings from the rigorous research and, in turn, will be able to use these findings to inform their policy-making.
3) The Globally Systematically Important Banks - G-SIBs - (ie. 30 biggest global banks on the 2016 FSB list, such as Barclays and Bank of America that are target groups for this research) will gain greater understanding of how small and niche banks conduct their business and will be able to use this knowledge to inform their policies and strategies on sustainable banking. Other large banks that can be named as G-SIBs in the future (eg. regional systemically important banks) will benefit from the lessons learned in a similar fashion.
4) NGOs following the global debates on sustainable banking regulation (eg. Friends of the Earth, Finance Watch) will be consulted by the PI and gain unique insight into the capacities of values-based banks to inform global banking regulation. This, in turn, will enable them to run evidence-based campaigns on SD banking regulation and form adequate coalitions when pressing for the paradigm shift.
5) The United Nations. By bringing together GABV and WB the research will directly contribute to achieving the UN Sustainable Development Goals aimed at combatting poverty. In particular, the research will align with the SDG Goal 17 which promotes multi-stakeholder partnerships. Various policy reforms are needed "to redirect and unlock the transformative power of trillions of dollars of private resources to deliver on sustainable development objectives" (UN SDG Goal 17 website).
7) Other initiatives promoting the integration of sustainable development factors in investment projects, beyond banking, such as the London Principles on SD Finance 2002, International Capital Market Association's Green Bond Principles, and the UN's' endorsed Principles of Responsible Investment. Such initiatives may use this research as a case study on how sustainable finance practices can influence global banking regulations. This, in turn, may foster the process of building stronger links between these initiatives in the spirit of SDG Goal 17.

Publications

10 25 50
 
Description I am currently focusing my impact on a rapidly growing sector of a global financial industry. My research and ongoing engagement with key industry players (responsible for trillions of assets) led to the formation of a high-level expert group. This group is currently working on deepening and further integrating environmental, social and governance matters into the investment practices. The group is also developing robust sectoral standards that will be available publicly in due course. I am the overall coordinator of the group, and co-head of 'Finance Systems and Regulation' portfolio/theme .
First Year Of Impact 2018
Sector Financial Services, and Management Consultancy
Impact Types Societal,Economic,Policy & public services

 
Title Malaysia interviews 
Description Interviews with key players shaping the Malaysian values-based intermediation strategy. 
Type Of Material Database/Collection of data 
Year Produced 2018 
Provided To Others? No  
Impact The interviews were included in completing just one aspect of my long-term project on sustainable finance, which, in turn, had an impact on a rapidly growing sector of a global financial industry. My research and ongoing engagement with key industry players (responsible for trillions of assets) led to the formation of a high-level expert group. This group is currently working on deepening and further integrating environmental, social and governance matters into the investment practices. The group is also developing robust sectoral standards that will be available publicly in due course. I am the overall coordinator of the group, and co-head of 'Finance Systems and Regulation' portfolio/theme. 
 
Description World Bank 
Organisation World Bank Group
Country United States 
Sector Private 
PI Contribution Ongoing support for the World Bank core strategic objectives.
Collaborator Contribution Ongoing advice and support for my research through the World Bank's unique expertise.
Impact N/a directly yet.
Start Year 2018