Banking

&
Sustainabil
ity
-

By Prateek Giria (B14100)

Banking and Sustainability

Banking is a very wide term. It includes not only the commercial banks, but also investment
banks, microfinance institutes etc. The objective of a bank if considered to maximize the value of
its stakeholders is on the face-value achieved via acquiring deposits, lending money against the
deposits at higher interest rates, and by selling (& cross-selling financial products and services
like Credit Cards, remittances , insurance etc.)
Why do banks need sustainability in the first place?
Sustainability in context of corporates deals with decreasing long-term risks, creating value for
all stakeholders (which includes social responsibility) and concern for environment. Lately banks
have realized, that it is increasingly necessary to be ethical and transparent to reduce long-term
risks and maintain a good image by being socially responsible apart from engaging stakeholders. Though banks themselves arent much concerned about the environmental distress they
cause in comparison to be caused by other sectors such as manufacturing and transport, but
banks are the veins of economy connecting each sector. Crisis of 2008 has shown to us that the
whole economy can topple if the banks collapses. The sustainability of whole societ is depended
on banking system. Sustainability is therefore need of the hour.
Is sustainability a reasonable fit for the banks?
There are various kinds of fit which are considered when an organization tries to imbibe an idea
viz. operational fit, cultural fit, technological fit, funding fit and customer management fit.
Operational Fit Sustainability calls for more stakeholder engagement thus decreasing
information asymmetry leading to more smoothening of operations. Plus sustainability is about
cost-reduction too, by always vying for conservation of resources. In context of banks these
include tangible resources like premises, vehicles, paper etc. The advent of e-banking is a big
step towards sustainability and increasing operational efficiency.
Cultural Fit Post 2008 crisis most of the banks have started focusing on a customer-friendly,
transparent and ethical culture. Greater good and reducing long-term risks are ensured in turn
sustainability supports culture. Banks in the emerging markets of India and Brazil have imbibed
social responsibility in their org. culture as well and sustainability thus becomes a fit.
Technological Fit Banks are increasingly focus on technology that helps them reduce cost,
increase resource utilization and conservation and transparency. All these work hand-in-hand
with sustainability.
Funding Fit More banks these days are getting funds from international organizations like
IMF, WTO to focus on investments in emerging markets, environment-friendly projects and
socially-conscious projects.
Customer Management Fit Social responsibility nowadays are being used for branding
purpose and hence sustainability helps even in acquiring customers.

Six commitments to Key principles

1) Commitment to sustainability Full integration of corporate strategies, vision, mission,
culture, and core businesses with sustainable practices.
2) Do no harm By not engaging in products which can jeopardize the whole economy, by
not damaging or funding the projects which damage the environment on a large scale
3) Responsibility The risks must be defined especially the environmental, social and
banks should clearly own the damages done by them to the environment.
4) Accountability Necessary to ensure that somehow all the stakeholders viz borrowers,
lenders, employees, shareholders, suppliers, customers participate in major decisions.
5) Transparency Stakeholders should know about banks business in details viz the
sectors it has lent/invested in, assets owned by it, risk it is carrying etc.
6) Sustainable markets and governance Banks should ensure that the whole liquidity
system does not go against sustainability by collectively following certain code of
conduct and also that the governance takes care of it.

Benefits of sustainability
A survey was carried out by International Financial Corporation in 2005 among commercial
banks. About 74% of the banks responded that it helps in reduction of risk, 45% admitted it
helped in easing access to international financing. Improved brand value and reputation,
developing new businesses, improved community relations, Cost Savings, Better quality of
work/regulation, increased revenues, developed new products and services were other benefits.
Barriers to implementation of sustainability practices

Insufficient knowledge (Relatively new area for investment)

Short-term issues (Increase in cost-structure, infrastructure compatibility)
Organizational culture (People may or may not be able to adapt)
Lack of institutional features (Lack of expertise , evaluation criteria)
Financial feasibility (Such projects require low interest rates, large payback periods)
Lower Gross returns (Expected returns are lower than much riskier projects)
Misalignment in the interests of the stakeholders

International initiatives for sustainable banking

Many frameworks and principles have been developed at international level so that banks can
conform to some of the widely accepted sustainable practices.
Equator Principles A framework which focuses on managing credit risk, by defining various
parameters for project financing of complex projects. Currently 77 countries are registered.
UNEP FI A public-private partnership between United Nations Environment Program and
private firms in the financial sector , it focusses on implementation of principles at all levels of

Operation by following the ESG (Environmental, Social and Government) factors in risk
analysis.
London Principles of Sustainable Finance Based on three pillars of Economic Prosperity
(Easy access to funds for investment, promotion of transparency), Environmental Protection
( Calculating cost of environment, equity ownership) and Social Development ( CSR,
disadvantaged communities), it lists principles which ease sustainability in Financial institutions.
World Business Council for Sustainable Development Financial Various CEOs participated
and reached to certain conclusions such as recognizing transparency as urgent need of the hour,
recognizing drivers of sustainability, and pledged to promote sustainable thinking.
Other than the above there are UN Global Compact, The business charter for sustainable
development ICC, Sigma principles all of which are universally applicable
Strategies devised for implementing sustainability
Internal Strategies
Measuring of Footprints by various metrics and by ensuring that it reduces over the years
till it reaches reasonable level
Increase in the proportion of Intangible Assets such as patents, brand value, is an indirect
way for sustainable banking since it saves much of tangible assets.
Improvement and retaining talent reduces unforeseen risks, brings stability, preserves
organization culture and in turn sustainability.
Cutting costs by means of eco-efficiency methods in turn getting access to funds for
implementing more sustainability
Risk management process taking into account unconventional risks such as that of social,
environmental, regulatory etc.
Effective corporate governance, well defined rules & guidelines in place for high
standards of ethics and transparency. Complying with those laid down by the regulatory
authorities in many countries itself ensures this.
Innovative practices supported by technology. It is technology which has saved lot of
paper and therefore lot of trees by increasing the proportion of paperless transactions and
opening up of Atms/E-Branches instead of high-cost full-fledged branches.
Developing an organizational culture where each individual understands the importance
of sustainability , to enforce such a culture by means reward/punish
Hiring expertise who can handle sustainable projects. Agriculture experts are recruited for
proper disbursal of agro-based projects.
Incorporating the idea itself in the mission and vision.
External Strategies
Financing sustainable projects at lower interest rates, relaxed norms. Keeping a fixed
percentage of credit reserved for them. In India most of the lending done via priority
sector lending somehow help in promoting sustainability indirectly.

 Increasingly Banks are channelizing funds for the greater good via CSR activities in
which they often help under-privileged sections of the society or directly contribute in the
environmental welfare by undertaking initiatives like plantation campaign, etc.
Sustainable criteria for selection of creditors, suppliers, debtors etc.
Selling of products and services which promote sustainability directly/indirectly such as
plastic money, microfinance etc.
Transforming money by scale , duration and location itself promotes sustainability as it
leads to efficiency in expenditure by customers and reduction of usage of resources in
adjusting with locational constraints
Establishing of a stakeholder complaint system mechanism, which is exhaustive and
covers all kinds of stakeholders from customers to suppliers.
Ensuring consistency, transparency and due diligence in each of the transactions.
Developing efficient information exchange mechanisms with customers, NGOs, Govt. etc
Avoidance of tax havens which result in non-payment of millions in taxed to the govt.
and in turn affecting the sustainability budget as well redistribution of income.
Some of the sustainability promotion examples of Banks across the world
Co-operative bank of UK has made its customers to pledge to avoid investing in
environmental degrading sectors like tobacco etc.
Commonwealth Bank clearly outlines sustainability practices via Corporate Governance
(Transparency, Communication with shareholders, prevention of money laundering etc.)
Standard Charted has delved into serving community by providing finance to small
businesses, microfinance, Islamic Finance, Agribusiness, and Infrastructure projects with
ease, this is apart from the CSR activities which have direct impact.
Ned Bank of South Africa regularly publishes Sustainability report , established an
environment policy , has built upon Equator principles and tied up with WWF
State Bank of India promotes microfinance, financial inclusion, environment-friendly
projects, agri-projects and CSR to commit itself to the principles of sustainability.
AFRIland First Bank often conducts seminars on sustainable development, it has created
several funds like Carbon Renewal Energy Fund to invest in sustainable projects
Center-Invest Bank of Russia is ranked among top banks to provide affordable housing
finance and has been supported SMEs of river region in addition to encouraging of its
customers to invest in social and environment friendly projects.
Conclusion
Though banks have lately realized the importance of sustainability, they are still far behind many
other industries in terms of implementation of practices. Basel Norms, the guiding beacon for the
banks, in fact still has not incorporated the risks of environment distress. That is the first thing to
be done. Sharing of strategies, practices is another. We have observed that bringing sustainability
in banks would in fact enforce sustainability in other sectors as well and not only that, it would
also create a market in sustainable products. Projects, services as well which are in fact the new
emerging sector in the world economy all poised for growth and stability.

Declaration
I declare that this written submission represents my ideas in my own words and where others
ideas or words have been included, I have adequately cited and referenced the original sources. I
also declare that I have adhered to all principles of academic honesty and integrity and have not
misrepresented or fabricated or falsified any idea/data/fact/source in my submission. I understand
that any violation of the above will be cause for disciplinary action by the institute.
References
Research Reports:Bank Track
http://www.banktrack.org/download/the_dos_and_donts_of_sustainable_banking/061129_the_do
s_and_donts_of_sustainable_banking_bt_manual.pdf
NBI
http://www.nbi.org.za/Focus
%20Area/ClimateAndEnergy/Documents/IFC_Banking_On_Sustainability.pdf
GMI
http://www.sustainability-in-finance.com/gmi-jeucken-bouma.pdf
IFC
http://sustainability-in-finance.com/ec-web.pdf
IMD
https://www.imd.org/research/publications/upload/WP_2008_07_Steger_Lins_Wajnberg_Ionesc
u_Somers_Level_1.pdf
Forum for the Future
https://www.forumforthefuture.org/sites/default/files/project/downloads/londonprinciplesexecuti
vesummary.pdf
PWC
https://www.pwc.lu/en/sustainability/docs/pwc-fsbanks.pdf
UNEP FI
http://www.unepfi.org/fileadmin/documents/StabilitySustainability.pdf

Links
Equator principles
http://www.equator-principles.com/
Wikipedia
http://www.wikipedia.org/
UNEP FI
http://www.unepfi.org/
Standard Charted
https://www.sc.com/in/

Appendix

Value vectors for sustainability officers (Brazilian Banks)