While sustainable practices have been embraced in the world of medicine, aviation, agriculture, and especially industrial energy, the world of finance- particularly the banking sector, has and is still making long strides in ensuring sustainability has been embedded in the industry.
Last September marked the 10-year anniversary of the collapse of the Lehman Brothers in the September 2008 financial crisis. Its collapse caused havoc in the global markets, thanks to its stake size. Having survived the Great Depression in the 1930’s and the two world wars, they were dealt a heavy blow with a 45% plunge in stock and 65% spike in credit-default swaps. Their demise greatly affected the financial sector and consequently caused massive retrenchment globally. The collapse of Lehman Brothers was an eye opener, that even “mighty” corporations could fall.
This was indeed a learning point for the banking industry to embrace accountability and transparency in the sector. It also led to the introduction of new regulations like Dodd. Frank and KYC in a move to protect both the banks and the customers to prevent another crisis occurring.
In September 2012, the Sustainable Banking Network was launched. Its conception originated from the first International Green Credit Forum, a partnership between International Finance Corporation (IFC) and China Banking Regulatory Commission. The network has played a big role in helping banks adopt sustainability into their genetic-make up. The Sustainable Banking Network (SBN), which is a community of regulatory agencies and banking associations, recently launched its 1st Green Bond Report that offers the first ever practical green bond market development tool kit complete with a planning matrix, and a self-assessment kit. It is impressive to see that 15 countries among them being Kenya have launched national policies, guidelines and policies focusing on sustainable banking.
The World Bank too took initiative in 2016 and launched the green bonds, which are bonds geared towards financing projects focusing on energy efficiency, forest conservation and protection, clean transportation, sustainable agricultural practices, efficient utilization of energy and cultivation of environmentally friendly technologies. These bonds have come a long way in catalyzing sustainable development.
In April 2018, for instance, the First Hong Kong Dollar Green Bond was issued by the World Bank as a result of investor demand to make green investments. There seems to be a growing hunger for these types of investments to help in reducing carbon footprint for the betterment of not only the nation but the world at large. California, USA recently invested again in green bonds having invested previously in 2009. The American state focuses on encouraging a low-carbon economy.
The picture of sustainable banking is quickly taking shape. Banks are gradually embracing sustainability. Recently, the Kenya Cooperative bank won the Kenya Bankers Association Finance Catalyst Awards 2017, an award set up to recognize exceptional sustainable practices in the financial sector. Standard Chartered Bank came third in the commercial lending category while Diamond Trust Bank was awarded under financing of SME’S case category. This was in recognition of its efforts to embed sustainability in its practices in order to carry out investment in line with the set International Standards. The efforts of Kenya Bankers Association in spreading the word on sustainability in only a span of two years have borne healthy fruits.
I wouldn’t end this article without recognizing Triodos Bank in the Netherlands that has taken it a notch higher by specializing in “Green Lending and Investing”. The bank only lends to individuals focusing on improving the environment as well as improving the standards of living of the human race. Apart from lending, the bank is an expert in offering services to the following sectors: energy and climate, arts and culture, organic food and agriculture, micro-finance, sustainable trade and lending. Banks in Kenya can learn from examples like these.
Banks play a colossal role in financing the private sector. Moreover, their awareness of sustainable banking policies may push the private sector to adapt to economic realities that are linked to achieving environmental and social sustainability as well as contribute to the national sustainable development agenda. Hence, there is need for more banks to embrace sustainable banking policies.