By Chandran Nair
This column appears in the Ethical Corporation November 2006 issue.
Bankers need to grapple honestly and fully with the sustainability challenges facing their industry.
If the world’s banks believe they can earn their “sustainability wings” through “green” investments alone they are mistaken.
A critically important issue, sustainability has fallen victim to fashion, heading the bill at almost every conference – most financial institutions have latched onto the issues associated with climate change.
But many confuse matters of ethics, corporate social responsibility, and the environment with sustainable development. They are related, but for business as a whole, how they are linked differs according to sectors, regulatory regimes, the global dimension of their business, and in how their own policies are implemented.
What does “sustainable banking” mean? Bankers must understand that sustainable development involves hard choices. It is about balancing economic interests with communities’ social aspirations and minimising environmental impacts. It is about trade-offs and political objectives; there are no absolutes; and it is a challenge to maintain transparency.
It requires that decisions taken today not compromise options for future generations -- this difficult issue but must be central to any serious commitment to sustainability.
Put your own house in order
But few people in banking – in most industries, to be sure – have taken the time to understand how the principles of sustainable development relate directly to their operations. This is not for corporate affairs: involvement in sustainable development as “good for business” or “reputation” is not the issue.
Nor have they studied, accepted and applied the core principles to their business. They still need to understand how they make decisions in exercising these principles, and to reconcile the inherent contradictions between sustainability and some practices of their industry.
They may have the best intentions, but many banking sector signatories to environmental policies like the Equator Principles lack in-house systems to ensure their own compliance.
While banks seem to attach some importance to informing investors about sustainability -- so they are seen to be “living” sustainability -- the banks themselves have made little or no attempt to understand the impacts of their industry and what they must in turn do to mitigate these impacts.
Face the future
A critical starting point is for banks to decide what sustainable development means for their business. They must understand the sustainability impacts that their business has and bring intellectual rigour and honesty to their understanding.
Organisations that are serious about sustainable development must put principles at the heart of decision-making. This includes fundamental points, such as how deals are done and loans made, in searching proactively for opportunities – and there are many in China and Asia – and even in establishing and adhering to frameworks that deliberately preclude their involvement in certain investments.
Bankers need to be clear in their own minds that there are some issues to do with sustainable development that they may not be able to deal with. But their response to these issues cannot be to offload all actions to others and wash their hands of them: this is at the core of sustainable development commitments.
All this requires a bold and fundamental shift in the industry. There are clear signs that people’s attitudes are shifting, and will force real change. Banks have a choice: maintain the attitude that current power and influence will allow them to fend off scrutiny, or start getting on top of the issues and look for opportunities in sustainable development, rather than stumble on them and claim sustainability credentials for PR reasons.
In the end, oversight by regulators may be the only way to ensure that banks understand, instil, and practise sustainable development.