Banking on sustainability

Our visit to India led us to acknowledge how important sustainability is in today’s world. It was evident through discussions and sessions with senior leaders that we are still not prepared, as a society, for achieving social responsibility and sustainability. There is still so much we need to accomplish as a society to grow towards a more eco-friendly future and events such as the WBCSD help us strive towards that future.

Chennai opened our eyes to various issues and challenges our habitat is facing in achieving sustainability. Most of these issues need to be addressed from the root of it, where we make it a point to incorporate banks, the government and policy makers to first make a step towards sustainability before we encourage and educate others to make that leap.

Sustainable development is at the heart of many non-bank companies in the world and this is evident based on corporate sustainability reports and NGO developments, which clarify their investment towards encouraging and incorporating social responsibility. However, can we say the same for banks and whether they are doing enough to finance individuals and societies, to allow them to grow and indulge in sustainable development?

According to a Deutsche Bank report, approximately USD 14 trillion is being invested worldwide in sustainability. However, the IFC claims that there are “only 14 financial institutions in 12 countries that have taken concrete steps to integrate sustainability into their policies, practices, products and services”.
However, according to the IFC, there are major opportunities for banks in researching “un-served segments of the market”.

It is assumed that social investment tends to be quite a risky business for banks, particularly in India, due to the high operation and maintenance costs involved, coupled with the lack of governmental support and policies.
Banks also claim that there is a risk on payment of security of renewable energy products as a default project could make the plan unviable and unable to have its debt restructured. The main concern lays in the conflict of interest that banks face as a lot of their income is generated through loans to unsustainable firms since not all companies operate unsustainably. If banks barred these services to such firms, it would have a tough impact on their profitability.

Nonetheless, banks, in recent years, have benefited from socially responsible investments with Ceska Sporitelna, Afriland First Bank and Nedbank all benefiting from sustainable loans in waste collection, treatment and energy projects.
In addition to this, banks in India such as YES Bank recently introduced green bonds worth well over USD 160 million however, a large chunk of banks still refrain from providing loans and this ideology needs to be swiftly addressed all over the world.

To conclude, policymakers, investors and the public are all searching for better ways to bank in the aftermath of the financial crisis and sustainable banking is enjoying greater prominence than ever before.

‘Doing good’ is beneficial for banks and society alike, not just in an ethical sense but also financially, when measured against benchmarks such as the triple bottom line. The growing challenge now is to meet the need for lending and other financial services for people traditionally underserved by the banking system and to raise the awareness, amongst these big corporations, on the issues our world is facing today and what they can do to contribute to a more healthy, efficient and sustainable lifestyle.

By Divesh Lachhwani

Bibliography:

Ifc.org. (2016). [online] Available at: http://www.ifc.org/wps/wcm/connect/9486d980488658f8b7b2f76a6515bb18/Banking_on_Sustainablity_Launch.pdf?MOD=AJPERES&CACHEID=9486d980488658f8b7b2f76a6515bb18 [Accessed 24 Oct. 2016].

Cowe, R. (2012). Banking on sustainability: is the financial sector doing enough?. [online] the Guardian. Available at: https://www.theguardian.com/sustainable-business/blog/banking-sustainability-financial-sector [Accessed 24 Oct. 2016].

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