Many banks still see sustainability as something they do in response to pressure from NGOs or to mitigate harm. They are far from immune to the growing scrutiny of corporate behavior and its wider impacts in the society- and they can use it as an opportunity to find new ways to stand out from their competition. Becoming a rusted bank, and creating an impact in the society are requirements for a winning strategy. By standing for something bigger than what something they sell, tuning to customer’s beliefs and taking decisive action, banks have the chance to cast their customer relationship and contribute positively to the sustainable development goals.
One of the key drivers of financial caution in banking is lenders liability which is associated with financial risks banks face when granting or extending loans. Banks and other lender rely on financial statements of companies when deciding whether to grant or extending credits. They need to be fully and accurately informed about decommissioning liabilities to avoid unacceptable high financial risks. Under current reporting requirements, potential environmental liabilities can easily remain undiscovered unless a lender develops its own procedure to assess the environmental risks. Therefore, some banks can end up spending the money on clean-ups of sites contaminated through their client’s activities.
The traditional approach of the banking sector to sustainability is often regarded as reactive and defensive. However, several banks in Africa have recently adopted innovative, proactive strategies to capture the opportunities associated with sustainability. They have developed new services and products such as ethical funds or loans specifically designed for environmental businesses to capture new market opportunities associated with sustainability.
Intertwining sustainability in the core of the banking sector comes with a load of benefits. For instance, support for the circular economy should be required when revamping existing offerings and integrated into activities- particularly credit analysis. Bans should also develop new businesses around the circular economy, in areas like a circular supply chain; recovery and recycling; or sharing platforms new services such as (providing advisory services and financing for developing business in areas like renewable energy, water scarcity and resource efficiency).
Banks focus on sustainability should go beyond facilitating the issuance of green bonds and extend to integrating sustainability dimensions into project analyses, and helping businesses learn how to comply with environmental, health and worker safety regulations. Additionally, financial inclusion should go beyond providing low-cost services, to include providing financial education and services to lower customer segments using an open banking model.
Sustainable banking also involves the notion of the ‘client’ to include governments and organizations. Indeed, banks are best positioned to use their wealth of data to provide the government with insights into spending patterns, returns on investments, impacts on the target audience, identification of fraud, tax avoidance and many more.
Today people want the organizations they do business with to make a positive difference in the world. So, the time is right for banks to start thinking about how the can apply an ecosystem strategy and collaborate with governments, industries, and FinTech to broadcast their social purpose to a wider audience and achieve a sustainable world.