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Beyond survival

Banks are brandishing their sustainability credentials in a bid to cement their reputations as industry leaders

Sustainable is not a word that could have been used to describe too many banks before the financial crisis. However, fast-forward to the present and, as banks across the globe look to position themselves for the future, it would appear the issue has moved up everybody’s list of priorities.

Sustainability is far more than a means of skirting a potential collapse or of winning back disenfranchised customers. What’s more, it also goes beyond mere products, and applies just as easily to the culture of banking itself.

Sustainability need not come at the expense of profitability

The World Finance Sustainable Banking Awards offer an insight into the extent to which the issue of sustainability has penetrated the banking industry, and how sustainable products and services can not only boost the credibility of financial institutions but their profitability as well.

According to a recent Roland Berger report, “no matter whether they are shopping, buying a home, or investing money, more and more consumers want their decisions to contribute to making the world a better place”. And nowhere else can this commitment to sustainability better be seen than among the winners of this year’s awards.

Changing the paradigm
The attributes that make for a leading bank are changing, and countless new strategies have emerged to replace the operating models of old. In EY’s latest Global Banking Outlook, the professional services firm made a point of whether ethos counts for more than earnings, and questioned whether customer connections are more important than compliance in the present climate. Whether customers choose to accept it or not, banks have an important role to play in their day-to-day lives, and, in the right environment, can be powerful agents of change.

More and more consumers want their decisions to contribute to making the world a better place

“The discernible shift that many banks have made in recent years towards addressing the environmental and social impacts of their financial services is a welcome and important first step in this direction”, according to a report by BankTrack. “More and more banks realise that ignoring social and environmental issues could considerably increase their exposure to credit, compliance and reputational risks. The progress banks make in this field, however, will be measured not by good intentions or even by strong policies on paper. To » advance sustainability, banks must seek improved performance and results on the ground in affected communities and environments.”

Sustainability is not – as some might suggest – just a stated commitment to environmental or societal causes, but rather something that applies to every facet of an organisation. By understanding the expectations of a new generation, encouraging diversity of thought, assessing technology’s impact on staff and nurturing a collaborative workforce, said EY, banks can deliver on this promise of sustainability. Far from a box-ticking exercise, sustainability is an entirely new approach to business.

Global growth
In only the past year, a whole host of countries have launched national policies, guidelines, principles and roadmaps in a bid to embed sustainable banking practices, according to the International Finance Corporation. Although not all are mandatory, these initiatives go to show the importance of state support in facilitating this expansion of thought. The State Bank of Vietnam, for example, issued a directive to promote green credit and sustainability risk management, while China strengthened its tools to monitor the many and various issues tied to green banking. Meanwhile, Kenya adopted the Sustainable Finance Guiding Principles, and Peru launched the Regulation for Social and Environmental Risk Management.

Another indicator of sustainable banking’s growth can be found in the Global Alliance for Banking on Values (GABV), which is made up of the world’s leading sustainable banks. Established in 2009 by nine banks, the network has gone from strength to strength, and its membership continues to grow. The GABV now has 28 members, serving 20 million customers, and holding up to $100bn of combined assets under management.

The organisation’s Chair and Triodos Bank CEO, Peter Blom, said of its new members: “We want to see banks that value people and the environment as well as profit become the norm not the exception. We want to grow a genuine movement, not be a club for successful but small-scale institutions. And we want to build a powerful voice for sustainable banking as a model for a very different future for finance. Expanding our network is evidence that we can do just that.”

Research by KPMG and the WWF shows banks are beginning to pull their commitments to unsustainable business models and pour them into more sustainable ones with environmental or social purposes. Building on these findings is Mercer, which recently found 83 percent of banks have environmental and social strategies in place to create value for both the bank and society in question.

Beyond survival
According to a recent McKinsey report, “the sector as a whole… must look beyond survival and plan for the future”. Again, “banks should aim high, fundamentally transforming their economics, business models and culture – what we call a ‘triple transformation’”. Most important of all perhaps is the fact that the success of banks is no longer determined by profitability alone. For many, a commitment to sustainability is equally as important and, without it, there’s no reason to believe a bank can survive in what remains a hypercompetitive and increasingly complex environment.

Nowhere can this commitment to matters aside from profit better be seen than in reporting. Annual reports are no longer littered with numbers but, increasingly, crammed with details about the bank in question’s commitment to societal and environmental matters. Any bank with aspirations to become a leading industry name must detail its achievements in areas aside from profitability and demonstrate its importance to the communities in which it operates.

The winners of this year’s World Finance Sustainable Banking Awards consist only of the most sustainable names in the sector, the likes of which should be held up as examples of how banking can contribute to wider societal and environmental goals. Undoubtedly, financial institutions have always played an important part in society, but at no other time in history has their role as agents of change been more widely acknowledged. Assuming they continue to embrace this trend, it looks as though the rise of sustainable banking will continue far into the future.