Sustainable Finance, the Law and Stakeholders: Values-based Banks and Global Banking Regulation
Lead Research Organisation:
UNIVERSITY OF EXETER
Department Name: Law School
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.
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.
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.
Organisations
- UNIVERSITY OF EXETER (Lead Research Organisation)
- Global Alliance for Banking on Values (Collaboration)
- BlackRock (Collaboration)
- Financial Conduct Authority (FCA) (Collaboration)
- World Bank Group (Collaboration)
- Global Principles for Sustainable Securities Lending (Global PSSL) (Collaboration)
- International Securities Lending Association (Collaboration)
- Bank of England (Collaboration)
People |
ORCID iD |
Radek Stech (Principal Investigator) |
Publications
Stech, R
(2022)
Recommendation for 3P Transparency
Radek Stech
(2023)
PILOT GLOBAL PSSL REVIEW: RISCMTP-Notes
Radek Stech
(2022)
Comment on Proposed Rule: Reporting of Securities Loans
Global PSSL
(2021)
Global Principles for Sustainable Securities Lending
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 . UPDATE March 2020. These impact activities materialised in a clear impact, i.e. a formation of the ISLA Council for Sustainable Finance (ICSF), of which I am a co-founder and a Chair. This initiative sits within the £trillions agenda and has been developed through research-based collaboration with prominent beneficial owners (Aberdeen Standard Investments; Aviva Investors; BlackRock; KBC Asset Management NV; NN Investment Partners; and PGGM) and four partner organisations (my ESRC funded Sustainable Finance - Law - Stakeholders (SFLS) Network of Exeter Law School; the World Pensions Council (WPC); Financial Decisions, LLC; and Pan Asia Securities Lending Association (PASLA)). Please see relevant links for further information: https://socialsciences.exeter.ac.uk/law/newsandevents/news/articles/globalsustainabletrillions.php https://www.isla.co.uk/press-releases/isla-council-for-sustainable-finance-pssl/ https://www.isla.co.uk/news/isla-blog-icsf-update/ UPDATE MARCH 2021: The impact activities are now concentrated within independent and impartial Global PSSL. UPDATE MARCH 2022: The impact activities continue through the independent and impartial Global PSSL with emphasis on global financial principles, regulation and supervision. AFM (The Dutch Regulator) became a second regulatory observer of Global PSSL. In addition to this, I have engaged with the U.S. SEC as part of the Commission's ambition to increase transparency and minimise rogue behaviour in securities lending (that includes the role of banks). I have proposed "a global checks and balances approach to securities lending" which also draws on my work with values-based banks. See , for example, my notes that facilitated a meeting with SEC (observed by AFM) at: https://www.sec.gov/comments/s7-18-21/s71821-20119066-271894.pdf Global PSSL has been very visible in the press, e.g. The Financial Times, Global Capital and Securities Finance Times. Update March 2024 Independent and impartial Global Principles for Sustainable Securities Lending CIC is currently being endorsed and recognised by key global players. 3P Transparency initiative (with UN Reviewers) is currently being endorsed and recognised by key global players. |
First Year Of Impact | 2020 |
Sector | Financial Services, and Management Consultancy,Government, Democracy and Justice |
Impact Types | Societal Economic |
Title | GABV data |
Description | Data from a survey, interviews and focus groups. |
Type Of Material | Database/Collection of data |
Year Produced | 2020 |
Provided To Others? | No |
Impact | Influence indirectly a formation of ICSF. |
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 | BlackRock as co-drafter of The Principles for Sustainable Securities Lending (PSSL) |
Organisation | BlackRock |
Country | United States |
Sector | Private |
PI Contribution | I co-created the first PSSL with BlackRock and other beneficial owners in 2019/2020. |
Collaborator Contribution | Drafting the principle on collateral. An overall significant contribution to drafting the Principles and the overall governance structure of the ISLA Council for Sustainable Finance. |
Impact | The initial PSSL and The ISLA Council for Sustainable Finance. |
Start Year | 2019 |
Description | FCA as Global PSSL Observer |
Organisation | Financial Conduct Authority (FCA) |
Country | United Kingdom |
Sector | Public |
PI Contribution | FCA acts as an observer of Global PSSL. |
Collaborator Contribution | FCA acts as an observer of Global PSSL. |
Impact | n/a |
Start Year | 2020 |
Description | GABV |
Organisation | Global Alliance for Banking on Values |
Country | Netherlands |
Sector | Charity/Non Profit |
PI Contribution | Ongoing contribution to shaping GABV as a global epistemic community. |
Collaborator Contribution | Ongoing support for my research through GABV's unique expertise. Access to values-based banks. |
Impact | Co-created survey design. Access to values-based banks. Ongoing support. |
Start Year | 2018 |
Description | Global PSSL |
Organisation | Global Principles for Sustainable Securities Lending (Global PSSL) |
Country | United Kingdom |
Sector | Charity/Non Profit |
PI Contribution | I set the independent and impartial Global PSSL to drive sustainability in the securities finance industry. |
Collaborator Contribution | Overall advancement of sustainable securities finance. |
Impact | Several outputs such as: 1) Strategic Themes for Global PSSL. 2) Response to the Canadian Securities Administrators' consultation on activist short selling. |
Start Year | 2020 |
Description | ISLA Council for Sustainable Finance (ICSF) |
Organisation | International Securities Lending Association |
Country | United Kingdom |
Sector | Private |
PI Contribution | Co-founded ICSF through my research and leadership and continue underpinning its development through independent research. I also chair ICSF. |
Collaborator Contribution | Ongoing advice and support for my research through the ICSF's unique expertise. |
Impact | Principles for Sustainable Securities Lending (PSSL) available at: https://www.isla.co.uk/regulation-and-policy/environmental-social-governance-esg/principles-for-sustainable-securities-lending-pssl/ |
Start Year | 2019 |
Description | The Bank of England |
Organisation | Bank of England |
Country | United Kingdom |
Sector | Private |
PI Contribution | This is an ongoing collaboration re: securities lending based on regular updates and meetings. The collaboration has not been formalized and does not constitute a partnership. |
Collaborator Contribution | confidential |
Impact | confidential |
Start Year | 2019 |
Description | World Bank |
Organisation | World Bank Group |
Country | United States |
Sector | Public |
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 |