All Gain, No Pain with Sustainable Banking
John WilliamsRewards For A New Way of Doing Business
More and more banks are embracing sustainable banking as a strategy to gain a competitive advantage, reports Williams. This is no mere Western phenomenon – the FT Sustainable Banking Awards show that banks from Asia, Africa and Latin America have joined the world of sustainable banking.
Williams points out that the awards have not gone without criticism, however: some NGOs have complained that the awards project an image of social glamour on banks whose operations are still a far cry from perfect.
Still, the business side looks rosy. The results of a related survey by International Finance Corporation, the private sector arm of the World Bank, should put to rest any remaining doubts. 86% of financial institutions reported positive changes as a result of measures to integrate social and environmental issues into their business. Even more significantly, not a single one reported any negative effects.
Reduced Risk, Higher Demand
Almost three-quarters of banks questioned responded that the reduction in risk associated with better management of social and environmental issues significantly reduced the likelihood of bad debts, damage to the bank’s reputation, and costly opposition from negatively affected social groups and non-governmental organizations. Almost 50% said that adherence to sustainable guidelines also increased their access to international financial assets. Finally, more than a third of banks questioned announced that they had won new business as a result. New opportunities have arisen in the areas of loans for environmental projects, access to new markets and expansion into sustainability-driven sectors, such as the rapidly expanding eco-efficiency and clean-production sectors.
64% of banks also cited investor demand for financial instruments driven by or incorporating criteria of sustainability as a critical factor in switching their strategies. And crucially, many respondents also expressed the view that central to sustainable banking success is the adoption of management systems which ensure that social and environmental issues are not mere ad hoc measures to traditional banking strategies, but rather an all-permeating new philosophy.
Incorporating Sustainable Banking
The first step to achieving such a holistic strategy is of course the adoption of one or more of sets of international social and environmental performance standards. Other steps include ensuring that managers at all levels have sustainability targets built into their performance assessment, that experts are available to advise boards and senior executives, and that all staff are involved in sustainability through training and other initiatives.
This summary was prepared by the Atlantic Community editorial team from an article originally published in the Financial Times.
The Financial Times, June 7, 2007 (registration required)
What do you think, members of the Atlantic Community? Will we see sustained benefits from sustainable banking? Or is it just a public relations fig leaf for the industry? Leave your comments below.
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