Work in progress on social impact in the EU Taxonomy should not be derailed by the controversy surrounding the green taxonomy
Positive social impact is always context-driven and can never be defined by a limited set of metrics or thresholds
The social impact model of values-based banks can help other institutions and regulators to advance the sustainable finance agenda
Amsterdam, 9 February 2022 – The Global Alliance for Banking on Values (GABV), an international movement of frontrunner banks and leaders in sustainable and inclusive finance, asks the European Commission for a more ambitious and comprehensive approach to the development of a Social Taxonomy. The network wants the Commission to go further than compliance with limited criteria and respect for human and labour rights.
Work in progress to include social impact in the EU Taxonomy should not be derailed by the controversy surrounding the decision to ignore the advice of the expert group in the Platform on Sustainable Finance to define nuclear and gas as green energies, says the GABV.
The final Social Taxonomy should follow the July 2021 recommendation of the Social Taxonomy Working Group team in the Platform to extend the EU Taxonomy to social objectives beyond environmentally sustainable activities. The GABV supports this advice but recommends embedding social impact themes in a broader real economy-focused approach. With that in mind, the social impact model of values-based banks can assist other institutions and regulators to advance the sustainable finance agenda.
According to the GABV, respect for human and labour rights must be a basis for all, as stipulated in the EU Taxonomy Regulation already. But it is not enough to constitute positive impact. As explained in the July 2021 draft report by the Social Taxonomy Working Group, positive social impact is always context-driven and can never be defined by a limited set of metrics or thresholds. Instead, the Social Taxonomy should be a guidance document that can serve as a reference for financial institutions and investors to assess their social impact. Tracking inputs and measuring outputs to claim impact are never sufficient on their own.
Lessons from values-based banks
How values-based banks create social impact has been the focus of an exploratory study by senior researchers at the GABV and the UPF Barcelona School of Management published in the academic journal Sustainability. The paper, ‘Social Impact Value of Values-Based Banking’, shows how values-based banks make positive social impact happen in practice in a diverse range of contexts. This social dimension is also combined with environmental concerns creating two essential pillars of sustainable finance.
The findings can directly help the EU to advance positive social impact. The study also informs the EU’s sustainable finance agenda in additional ways:
- Fund managers and banks or insurers – as distributors seeking to comply with the definition of “sustainable investment” in the funds’ disclosure rules (SFDR Article 2(17) applied to Article 6, 8 or 9 funds), or the revised ELTIF-rules – can use this model to integrate sustainability assessments of investees in their internal processes.
- Members of Parliament can draw on the GABV’s findings to determine best practices for the Social Taxonomy, use proven Key Performance Indicators to measure impact and ensure effectively “do no significant harm” criteria.
- The model can serve as a basis for banks to follow the latest requirements of their internal processes, including an impact assessment over a ten-year horizon.
- And finally, the model informs the role of banks in a social economy, as defined by the EU’s Social Economy Action Plan.
The virtuous circular model of values-based banking
The paper’s authors have identified five stages of the Social Impact Virtuous Circular Model: an institution must 1) Define social impact objectives; 2) Design a comprehensive approach to achieving that impact; 3) Implement the design in practice; 4) Monitor the result to evaluate the initiative’s success; and ultimately allow for the possibility of 5) Scaling-up these efforts in the future.
Adriana Kocornik-Mina, GABV Metrics and Research Senior Manager: “Values-based banks have financed positive impact for decades, proving that non-extractive finance is possible and viable. They understand the connection between economic stability and human rights, equal opportunities, social inclusion and access to high-quality services. And they follow a holistic, continuous and comprehensive approach to deliver positive social impact.”
Ramon Bastida, Vice-dean for Transfer Knowledge at UPF Barcelona Management School: “The achievement of social impact objectives depends largely on the level of integration in the organisation and its business model. Values-based banks integrate social impact objectives throughout their structure, from the board of directors to the branch network.”
Marcos Eguiguren, Director of international Chair of Sustainable Finance at UPF Barcelona Management School: “For values-based banks, delivering social impact is part of its most intrinsic purpose, its mission and its essence. While for mainstream banks, social impact is just an add-on to their usual activity and, in many cases, the answer to the need to comply with a new regulatory framework.”
This report is part of the VALoRE (Values Regulation – Europe) project, funded by the Open Society Foundations, that aims to strengthen the capacity of the financial sector in Europe to deliver a just transition to a low carbon, socially inclusive future. Beyond the EU, the study incorporates a sample of 30 banks from the GABV operating in five regions of the world with different sizes, business models and socio-economic contexts. The findings have practical implications for all types of financial institutions and policymakers to improve how they address social challenges and create a more resilient and transformative financial system.
About the GABV
The Global Alliance for Banking on Values (GABV) is a network of independent banks using finance to deliver sustainable economic, social and environmental development. The GABV has 66 members and operates in 44 countries across Asia, Africa, Asia Pacific, Latin America, North America and Europe. Collectively they serve more than 60 million customers and hold over USD 210 billion of combined assets under management. Learn more at gabv.org
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Sonia Felipe Larios
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