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Why reaching beyond cooperative principles can help your credit union gain a competitive advantage

Why reaching beyond cooperative principles can help your credit union gain a competitive advantage

4 Minute Read

Your credit union already had a strong social impact. However, it needs to expand on its foundational principles to include every pillar of ESG in its products, services, and operations as the demand for sustainable banking increases.

Learning from the Principles for Responsible Banking framework can help incorporate ESG priorities into your credit union by:

  • Setting a target
  • Communicating your goals
  • Measuring your progress
  • Reviewing your governance structure

Applying these Principles will help ensure your credit union makes ESG a priority as it works toward achieving a sustainable future.

Partner, Enterprise Risk Services & Leader, Environmental, Social & Governance

Fostering a strong community has always been a core value in the credit union space. However, it is increasingly important for your credit union to evaluate its environmental commitments as the landscape continues to change and sustainability-related targets and actions become a key priority.

As MNP discussed at the World Credit Union Conference in July, Canada is moving toward achieving net-zero emissions by 2050 and banks are shifting their focus toward Environmental, Social, and Governance (ESG) strategies. Additionally, your members are demanding sustainable and responsible action and employees are wanting more from both their work and their employers.

Your credit union already has a strong social impact — but now it needs to expand on its foundational principles to include each pillar of ESG in its products, services, and operations. The Principles for Responsible Banking offer a useful framework to help you integrate a focus beyond social priorities into your business model.

Reviewing this framework can help provide guidance on how to include environmental and enhanced governance oversight within your credit union. Using these principles as guideposts can help your credit union chart a path that appropriately addresses emerging business realities related to ESG.

What are the Principles for Responsible Banking?

The Principles for Responsible Banking were created in 2019 through a partnership between the United Nations and founding banks. This framework is intended to ensure that the strategy and practices of signatory banks align with the Sustainable Development Goals and Paris Climate Agreement to help society achieve the vision it has set out for its future.

Currently, 190 banks and financial institutions have become signatories of the Principles for Responsible Banking. Adopting a comprehensive ESG framework will become more important than ever as signatories work toward achieving their goals and the demand for sustainable banking continues to grow.

The six objectives of the Principles for Responsible Banking

The Principles for Responsible Banking include six objectives that signatory banks commit to embedding within their institution across all business areas — including strategic, portfolio, and transactional levels. These objectives are:

  1. Alignment — Align business strategies to be consistent with and contribute to individuals’ needs and society’s goals, as expressed in the Sustainable Development Goals, the Paris Climate Agreement, and relevant national and regional frameworks.
  2. Impact and target setting — Continuously increase positive impacts while reducing the negative impacts on, and managing the risks to, people and environment resulting from financial activities, products, and services. To this end, signatory banks will set and publish targets where they can have the most significant impacts.
  3. Clients and customers — Work responsibly with clients and customers to encourage sustainable practices and enable economic activities that create shared prosperity for current and future generations.
  4. Stakeholders — Proactively and responsibly consult, engage, and partner with relevant stakeholders to achieve society’s goals.
  5. Governance and culture — Implement the commitment to these Principles through effective governance and a culture of responsible banking.
  6. Transparency and accountability — Periodically review individual and collective implementation of these Principles and be transparent about and accountable for their positive and negative impacts and contributions to society’s goals.

Your credit union must consider its business strategy and how it aligns with your member’s needs around the Principles. Additionally, your credit union should be able to describe how you work with your members in relation to sustainability, define your stakeholders, and ensure appropriate consultation around ESG priorities and initiatives.

Timeline to achieve the objectives of the Principles for Responsible Banking

If your credit union decides to become a signatory of the Principles for Responsible Banking, there are several important factors to keep in mind. This includes the timeline expectations of the UN from the initial adoption of the Principles through to reporting. Eighteen months after signing, signatory banks must report on their impact, how they are implementing the Principles, the targets they have set, and the progress they have made.

Signatory banks must have met the following requirements within four years:

  • 0-1 years — Become a signatory to the Principles for Responsible Banking (and a UNEP FI member).
  • 2 years — Publish first reporting and self-assessment on the Principles for Responsible Banking within latest 18 months of becoming a signatory and annually thereafter, in line with annual reporting cycles.
  • 3-4 years — Fully implement the required steps regarding impact analysis, target setting, implementation, and accountability outlined within the document.

Your credit union may or may not choose to become a signatory of the Principles for Responsible Banking. However, aligning your priorities with these Principles will demonstrate your commitment to ESG and sustainability beyond the cooperative principles.

How can applying the Principles help credit unions remain competitive?

The needs of your community are changing — and sustainability is a key priority as Canada moves toward achieving net-zero emissions. It’s no longer enough to focus on social impact as the demand increases for investments that support a resilient economy and a financial system that supports sustainable growth.

Traditional banks have already addressed this growing demand by making ESG strategies and sustainable finance opportunities a key part of their service offerings. Additionally, banks have committed to achieving net-zero by 2050 and communicated their green initiatives to the public. While credit unions remain committed to creating social change, it is more important than ever to embrace each pillar of ESG to remain competitive.

The Principles for Responsible Banking provide a path toward aligning your credit union’s products, services, and operations with sustainable banking practices. Even if your credit union does not become a signatory, applying elements from these Principles can help your credit union move toward ESG, create a positive impact on the environment, and meet the needs of your community.

Where to apply the Principles for Responsible Banking in your credit union

Applying these elements from the Principles for Responsible Banking can help your credit union get started on the path toward making ESG a priority:

Set a target

Choose which environmental issues your credit union wants to support. You may want to reduce the carbon footprint of your operations or offer more green products to your members. Identifying where you want to focus your credit union’s efforts will help reveal the path toward reaching your commitment.

Communicate your goals

Communicate your credit union’s commitment to making a positive impact on the environment and how you intend to achieve your goals. It is important to define your goals to your members and stakeholders and work with them to encourage sustainable practices such as sustainability-linked loans.

Measure your progress

Consistently monitor your credit union’s progress toward reaching its sustainable finance commitments. For example, if your goal is to reduce your credit union’s carbon profile you may start by calculating your finance emissions and implementing changes in your operations to reduce its impact on the environment. Report your results transparently throughout every step of the process and make adjustments as needed to reach your chosen goal.

Review your governance structure

The Principles for Responsible Banking include effective governance and a culture of sustainable banking as a core objective. While you may not be ready to completely restructure, it is essential to determine who is responsible for owning your sustainability goals within your credit union.

Credit unions

Credit unions play a key role in Canada’s financial system. We’re here to help you navigate this dynamic industry, empowering you to stay competitive and profitable.  

Take the next steps

The Principles for Responsible Banking provide a useful framework to help your credit union move toward adopting ESG strategies as it works to ensure a sustainable future for every member of your community.

If your credit union needs help adopting a framework such as the Principles for Responsible Banking or creating its ESG strategy, contact a member of MNP’s ESG team. Our advisors have the experience to help you map your ESG journey in line with best practices, ensuring that you meet your strategic and sustainability goals concurrently.


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