Encouraging sustainable banking & finance services

Therefore, offering sustainable banking and financial services has become a critical way of influencing and contributing towards sustainable development. Leading global banking institutions like the Hong Kong Shanghai Banking Corporation (HSBC) attribute their success to their long term thinking in sustainability strategy and management of environmental and social risks and opportunities in their business approach (Bhimani & Soonawall, 2010).

 

Certainly, thinking sustainability is becoming a business model for many institutions in the 21st Century, with the aid of emerging principles such as the United Nations Environment Programme Finance Initiative (UNEP FI) — Statement of Commitment by Financial Institutions on Sustainable Development, Global Reporting Initiative (GRI) Framework and Equator Principles etc. The Equator Principles are a credit risk management framework for determining, assessing and managing environmental and social risk in project finance transactions.

Consequently, it has been hard to appreciate whether the banking and financial services sector in Zimbabwe has a role, if any, in sustainability matters. Observations have shown that the financial services and banking sector in Zimbabwe has treated sustainability matters as philanthropy, while overlooking opportunities and impacts associated with sustainability and climate change.

 

Further, it has been questionable whether banks have an impact, if any, on environment and climate. In this regard, many banks and financial services institutions have been narrowly involved. In fact, many banks in Zimbabwe have limited their activities to merely annual environmental clean-ups and charity as their corporate social responsibility, without a business approach to it. Much of the activities are not clearly linked to any business strategy. 

According to insurance company AVIVA‘s Tom Oxley, ‘sustainability is not just environmental, it covers customers, suppliers, people and a lot of legal standards’ (Hopwood et al, 2010). This article shares a critical perspective towards encouraging sustainability issues in the banking and financial services sector in Zimbabwe. While the banking and financial services sector in Zimbabwe is faced with challenges, the ability to be innovative will be a determining factor for their long term survival.

 

Many financial institutions have continued to offer traditional and mature products which have little or clear contribution to sustainable development and stimulation of sustainable economic activities. Literally, there are very few financial institutions in Zimbabwe that are offering, sustainable development or environmental (green) products.

Notwithstanding the latter, very few institutions have been able to derive sustainable development products. Banks could offer financing for green projects such as solar farming equipment, solar equipment for commercial and domestic use, biogas projects, solar street lighting for local authorities, recycling, water reticulation systems and climate change projects.

 

Similarly, insurance companies could offer environmental insurance as a product. Currently, this is being offered for the mining sector by about two or three known institutions such as Cell Insurance and Tristar Insurance.

 

Such products could be developed to cover other sectors like construction, manufacturing and agriculture etc. Thinking green in the banking and financial services sector has the potential to stimulate sustainable business activities. However, many financial institutions have tended to overlook sustainability risk associated with some of their clients when lending and providing insurance.

 

Embedding sustainability in the banking and financial services industry in Zimbabwe is possible but needs a paradigm shift in the mindset of many business leaders. It also requires capacity development.

Typical banks in Asia like the Bank of Tokyo-Mitsubishi UFJ (BTMU), Japan, which is moving ahead with development of products and services for SME customers that seek to reduce impact on the environment, offer a good example. BTMU offers business loans with preferential interest rates for customers that have acquired ISO14001 or other environmental certification. Another bank, BanColdex of Colombia, created sustainable development credit lines for customers working on prevention and mitigation of environmental impacts.

 

Furthermore, the Industrial Bank (IB) of China offers a number of green products such as energy conservation and emission reduction project loans, integrated carbon financing services, a low carbon credit card, green wealth management services and green financing leasing services (UNEPFI, 2010). Certainly, financial institutions have a greater role in sustainable development.

The United Nations (UN) has been paying increasing attention to sustainable development by financial institutions. In 2011, a UN office launched guidelines for implementing sustainability in banking based on the ‘UNEPFI Statement of Commitment by Finance Institutions on Sustainable Development’. The guidelines are set to help the sector to embark on a ‘long road to sustainability on baseline standards (UNEPFI, 2011).

 

The Centre for Environmental Accountability (CENAC) will be conducting workshops for local banks and financial services institutions on these guidelines. The guidelines provide opportunities for local banks to develop a global understanding of long term success by realigning their business strategies and approaches with reflections on opportunities and impacts arising from social, economic and environmental aspects.

According UNEPFI Report 2011, there are no Zimbabwean banks which are signatories to the UNEPFI Statement on Banking and Sustainability. However, countries as South Africa, Kenya, Nigeria, Togo and Zambia have banks which are signatories to the Statement of Commitment. As such, the ability of local banks to compete among the latter will depend on their ability to adapt to global best practices and sustainability business practices.

Other typical banking sector guidelines provided by the Dow Jones Index Sustainability Index (DJSI) and  Sustainability Assessment Monitoring (SAM), require banks to consider: Economic Dimension; Anticrime measures, Brand management, Customer relationship management, Stakeholder Engagement; Environmental Dimension; Business Opportunities Finance Services/Products, Business risk, Climate change governance, Environmental policy/management systems, Operational Environmental Footprint and Social Dimensions; Code of Ethics in Investment/Financing, Occupational health and safety, Social Valued added, Standards of suppliers. An assessment using this approach by SAM and PricewaterhouseCoopers (PWC) for the Dow Jones Index in 2010 placed banks such as Westpac (Australia) in Gold Class, while an African bank, Nedbank of South Africa was placed in Bronze Class. No Zimbabwean bank could even participate.

Finally, the legal and regulatory framework for the banking and financial services sector may need to be realigned to global best and sustainability practices, bearing in mind concerns raised about banks during the COP17 conference on Climate Change in Durban last year. However, the evolution of banking and finance services regulations in Zimbabwe cannot afford to overlook sustainable development in its business case. Regulations in countries like Japan, Turkey, USA, China, Spain, Canada, Norway, UK, Romania, Australia, Brazil and South Africa incorporate sustainability practices by encouraging management of environmental, economic and social impacts by banks.

Therefore, sustainability of financial institutions in Zimbabwe will depend on ability to adapt and embed global best practices and sustainability business approaches and strategies. So, the long term survival and regional competitiveness of local financial institutions will be fundamental for the long term success of Zimbabwe’s national economy. Of course, this will depend on their ability to innovate and consider signing and applying global principles such the UNEPFI State of Commitment by Financial Institutions on Sustainable Development, Equator Principles and other similar approaches and practices. Further, the operating framework will need to evolve towards sustainable development and economy.

 

Rodney Ndamba is an ACCA member and Vice Chair of the ACCA Zimbabwe Executive Network Panel. He can be contacted on: Ndamba.ro@accamail.com or cenac@mail.com Views expressed in this article are those of the writer and not of ACCA.

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