Six Things You Didn’t Know about Sustainable Banking
Modern banking, in the way that we understand it today, started in Italy in the medieval period. The first banks were intermediaries linking those with money with others who needed money to invest in their business. As these banks acted regionally, they were relatively similar to regional credit unions as we know them today.
Banks would only lend money if the borrower worked hard, acted responsibly and took some risks! They were closer to their customers in that period since they knew that risk could generate profits. They also seemed to realise that being sustainable was good for business intuitively.
In the 16th century the bank Monte di Pieta summarised its guidelines, they read nearly like some 21st-century list of corporate social responsibility principles. Monte di Pieta’s instructions are (Milano, 2011):
- Tightening local/regional links by lending mostly to borrowers form the local community
- Joining in local social activities
- Granting money to public bodies in crises
- Encouraging mortgages
- Lending to women
- Providing treasury functions for local institutions.
Banks and other financial institutions can learn from this development that the integration of sustainability issues into policies, strategies, products and services of the financial industry makes business sense as well. Those institutions that were early adaptors of sustainable banking could avoid financial risks resulting from environmental or social impacts and were able to create business opportunities as well.
So is there such a thing as a sustainable business? Two people think there is. The first is Peter Bakker, who is president and chief executive of the World Business Council for Sustainable Development (WBCSD). The second is Sunny Verghese, CEO of agribusiness giant Olam, who was appointed WBCSD’s chairman in 2018.
Peter Bakker, president and chief executive, World Business Council for Sustainable Development speaking to eco-business.com
“The realisation that we’ve pushed ecosystems to the limit has finally come. Five years ago, I would walk into boardrooms and need to explain why I wanted to talk about climate change. Now I can go in and say, ‘Dudes, we have ten years to change the system, what are you doing about it?’ and no one calls me a hippie and throws me out of the room. The bottom line is, if we don’t radically change in the next decade, there is no point in optimism because we will have run of time.”
Peter Bakker also recently said to eco.business: “The combination of more robust science and previously uninvolved voices—school kids and the highly educated Extinction Rebellion groups—are changing the conversation. They are demanding that all the old rules be thrown out. If the business world continues to say that it will take a while to change the accounting rules to make the shift to sustainable capitalism, these new groups will say that the place is on fire. The rules have to change instantly.”
Any business leader who presents any strategy will now be asked, what are you doing about the climate emergency? If they don’t have an answer, their approach is not viable.”
So says Sunny Verghese, chairman, World Business Council for Sustainable Development and CEO, Olam *
“Sustainable capitalism is not an oxymoron, and the notion that you cannot pursue profit and purpose is a false debate.”
“Sustainable capitalism is the right vision, but we’ve not been bold enough at realising it”
Peter Bakker, president and CEO, World Business Council for Sustainable Development *
Talking to journalists recently Peter Bakker said: ‘I cannot go into any boardroom these days where Greta Thunberg is not discussed. The messaging from Extinction Rebellion is more powerful than any IPCC report I’ve seen. Although, to be fair, the recent 1.5 degrees IPCC report [released in October 2018] has had a strong impact globally.”
Bakker’s recent statements are chilling: “The realisation that we’ve pushed ecosystems to the limit has finally come. Five years ago, I would walk into boardrooms and need to explain why I wanted to talk about climate change. Now I can just go in and say, ‘Dudes, we have ten years to change the system, what are you doing about it?’ and no one calls me a hippie and throws me out of the room.’
The bottom line is, if we don’t radically change in the next decade, there is no point in optimism because we will have run of time.”
Six things you didn’t know about sustainability in banking.
- Sustainable investing has grown 33% since 2014. By 2018 $30trn in assets had incorporated sustainability in investment considerations. According to the MIT Sloan Management Review, companies focused on long-term sustainability will attract more long-term investors.
- Companies with stable sustainability practices also have superior access to capital and pay less for it. And studies show that sound sustainability practices positively influence stock price performance.
- Kate Hersey, portfolio manager of Cambridge Trust Company’s Sustainable and Responsible Investment (SRI) Portfolio, was recently quoted as saying: “Sustainability factors such as customer satisfaction and employee engagement are leading indicators of a firm’s performance. Traditional financial factors are lagging indicators.” In other words, sustainability metrics offer a significant correlation to the future value of a company and its stock.
- Sustainable companies know they have to rely on their staff. That’s why they value employee engagement, advancement, and well-being – They have standardised programs to select and develop, the best and brightest in their employ.
- Hersey says: “More and more companies are talking about sustainability in investor presentations as they recognise that it’s essential to the future viability of their business. As a community bank, there are opportunities to differentiate yourself and position your bank for long-term growth with a targeted focus on sustainability.”
- Last year, Asia raised just US$605 million in sustainability loans. This compares to US$4.9 billion in the US and US$15.8 billion in Europe.