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What do you expect from the Social Taxonomy? GABV reply to the EU public consultation

The Global Alliance for Banking on Values (GABV) has shared its vision in the EU public consultation on the draft report on the social taxonomy developed by Platform on Sustainable Finance. The report assesses the merits of a social taxonomy in addition to the environmental taxonomy and explores possible avenues to complement the existing taxonomy. The report also proposes various objectives and sub-objectives for a social taxonomy, as well as possible approaches for defining “substantial contribution” and “do no significant harm” criteria. Finally, it develops two alternative models for articulating the social taxonomy with the environmental taxonomy.

The development of the EU taxonomy relies on extensive input from experts from across the economy and civil society. Therefore, the Platform invited its stakeholders to provide feedback on the draft report through an online questionnaire up to 6th of September 2021.


GABV’s vision on Social Taxonomy

The values-based banks gathered in the GABV support the European Commission’s ambitions to integrate social sustainability and impact, as expressed through e.g., the European Pillar of Social Rights, in finance decisions. The GABV’s experience reveals both the added value of doing so and the longer-term viability of banks’ business models if they do so. The GABV appreciates the Platform’s advice to start this integration with the description of horizontal and vertical criteria but recommends embedding the social impact themes in a broader real economy focused approach to finance for the whole financial institution, and so ensure added value in the real economy.

We have demonstrated through our focus on the real economy, our strong capital positions, and our steady financial returns that the values-based banking model provides a viable and needed alternative, adding strength to a diverse financial ecosystem.

The EU Taxonomy is a tool to help investors, companies, issuers, and project promoters navigate the transition to a just, low-carbon, resilient and resource-efficient economy. The GABV banks apply tried and tested solutions to social and environmental sustainability that are ambitious yet practical and realistic, and therefore can be implemented by any regulated bank.

Like the Platform shows in this report, they find that sustainability is not an absolute concept, but rather a relative one. This is particularly true in finance since banks are engaged in every type of sector and economic activity, working in very different social, environmental, and economic contexts. The concept of sustainability is not always straightforward, and there can be trade-offs and conflicts. Science can provide data and information, but different solutions and options must be weighed against each other. One could be setting a target while missing the point.

Therefore, GABV emphasizes the importance of guiding values that offer orientation in everyday business decisions:

  1. All finance has an impact. The focus of finance should be on the real economy since this is one of the strongest contributing factors to the prosperity, sustainability, and social well-being of communities. The IMF confirmed that relatively higher lending to the real economy, specially to SMEs, is correlated with higher prosperity and stability of their member countries. An auditable criterion for financial institutions’ social impact is thus simply the ratio of real economy finance over total assets.
  2. The minimum norms relating to human rights and labour standards translate into basic exclusion criteria (e.g., gambling, tobacco, conflict minerals, pornography, forced labour) and build a minimum floor to be respected by all players in the market. However, we confirm the Platform’s assessment that these do not yet constitute what can be considered as socially sustainable or impactful; respecting this bare minimum is an inherent social requirement that should be expected from any economic actor and not a social achievement.
  3. Transparency at a level that allows depositors and investors to understand what is happening with their money enables these stakeholders to choose where their money goes. With the GABV Values-based Banking Scorecard banks classify which projects and investments add a specific social or environmental value beyond what is standard practice in the respective market and do no harm.

The framework is aligned to the UN Sustainable Development Goals (SDGs). This finance practice has delivered positive social impact for decades and as such contributes to the EU’s sustainable finance ambitions. It is, however, always a relative concept, depending on the context and change over time. As is clearly explained in the report, the criteria should not be translated into enforceable criteria, but rather into a guidance document that can serve as a reference for financial institutions and investors to assess social impact.

As the collection of best practices of values-based banks to social impact examined in the paper “Social Impact of Value-Based Banking: Best Practises and a Continuity Framework”

illustrates, a clear and ambitious set of social objectives are but proof points of progress towards achieving the envisioned future of communities driven by values of inclusion and empowerment, wellbeing and sustainability, human dignity and freedom.

 

Read our full reply here.

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