Implementing the Collevecchio Declaration on Financial Institutions and Sustainability

This document provides guidance for financial institutions (FIs) on implementing the Collevecchio Declaration on Financial Institutions and Sustainability.

The Delcaration calls for broad commitments, and FIs may have differing interpretations regarding how to implement them. This document provides clarification of what civil society currently (2003) expects from FIs commited to implementing the six key principles of the Collevecchio Declaration. 

FIs can work with stakeholders to take the following immediate steps: 

1. Commitment to Sustainability

a) Measurement of environmental and social impacts FIs should measure the environmental and social impacts of their portfolios in core business areas, including lending, investing, underwriting and advising. b) Continuous improvement based on environmental & social impacts of portfolios Although some FIs embrace the concept of continuously improving their management systems, all FIs must assess the sustainability challenges and issues facing their portfolios; and create objectives, strategies, timetables and performance indicators to increase the sustainability profile of their portfolios. c) Fostering sustainability FIs must actively seek to shift their businesses to proactively sustainable practices which improve environmental and social conditions. This might include, for example, reducing the carbon footprint of their portolios by shifting investments from fossil fuel to renewables; or the capitalization of sustainable enterprises. FIs should use their influence to ensure that companies and projects in which they invest or support act in line with best practice. FI should set clear timetables for improving their clients’ sustainability performance, and if neccessary, withdraw their support of non-performing clients. d) Implementation and capacity building FIs should take all necessary steps to ensure that staff are trained and capacity is built to ensure that sustainability objectives are met and that procedures, policies and standards are implemented. Staff performance reviews and bonuses should be linked to the acheivement of sustainability targets and timetables. 

2. Commitment to ‘Do No Harm’ 

a) Sustainability procedures 
On the basis of the Precautionary Principle, FIs should create transactions-based procedures that screen and categorize potential deals on the basis of environmental and social sensitivity. Based on a transaction’s sensitivity, the FI should perform appropriate levels of due diligence, stakeholder consultation, and assessment. FIs should also create processes for influencing, legally enforcing and monitoring sensitive transactions. 
b) Sustainability standards 
FIs should adopt internationally recognized, sector-specific, best practice standards that can serve as the basis for financing or refusing to finance a transaction (e.g. World Commission on Dams guidelines, Forest Stewardship Council standards) 
Banks should also establish supplementary sectoral standards with stakeholder input and guidance. Some such standards exist already for the forests sector and others are being developed for other issues/sectors such as Minerals and Dams projects. These standards will vary, but should as a minimum cover issues such as: respect for international conventions, no-go zones, gender equity issues, supply chain issues, human rights, etc. 

3. Commitment to Responsibility 

a) Bear full responsibility for the impacts of transactions 
FIs must pay for their full and fair share of risks that they accept and create. This means FIs should not help engineer country bail-out packages that aggravate the debt burden of developing countries. It also means that FIs should bear full repsonsbility for the environmental and social costs that are created by their transactions but borne by communities. This includes using their influence and resources to address the needs of communities whose livelihoods and ways of life are compromised by the adverse environmental or social impacts of their transactions. 
b) Recognize their role in developing country debt crisis 
FIs should recognize that the ability of countries to service external debt depends on the maintainance of social and ecological systems, and that developing country debt burdens are socially, environmentally, and economically unsustainable. FIs should refrain from lobbying against innovative solutions to the developing country debt crisis, and support calls for significant debt relief/cancellation. 

4. Commitment to Accountability 

a) Public Consultation 
FIs can advance accountability by consulting civil society groups when creating sustainability policies, objectives, procedures, and standards. FIs should incorporate the views of stakeholders affected by their credit, lending, underwriting or advisory functions. This includes respecting the right of affected communitites to “say no” to a transaction. 
b) Stakeholder Rights 
FIs must also support regulatory efforts that increase the rights of stakeholders in having a more influential voice in the governance of FIs and their transactions. 

5. Commitment to Transparency 

a) Corporate Sustainability Reporting 
FIs should publish annual sustainabilty reports according to an internationally recognized reporting format supported by civil society. FIs should further include disclosure on the sustainability profile of the FI’s portfolio, a breakdown of core business activities by sector and region, and the implementation of the FI’s sustinability policies and objectives. 
b) Information Disclosure 
FIs should make assumptions in favour of information disclosure. Particularly for completed transactions, but also for those in the pipeline, 
FIs should publicly provide information on companies and significant transcations in a timely manner, and not hide behind the excuse of business confidentiality. 

6. Commitment to Sustainable Markets and Governance. 

a) Public policy and regulation FIs must recognise the role that governments must play in setting the market frameworks within which companies and FIs function. FIs should work to make markets are more capable of fostering sustainability by actively supporting public policy, regulatory or market mechanisms that foster the internalisation of social and environmental externalities. b) Financial practices FIs should avoid and discourage inappropriate use of tax havens or currency speculation that are unfair and that create instability. FIs should also strive to make financial decisions based on longer-term time horizons and reward clients that do the same.