Does climate change have an impact on the economy, asks Bruce Stewart, Head DCM, and Arvana Singh, Principal; Debt Origination, CIB. Are there challenges and opportunities that now exist within sustainable finance? Importantly, do banks have a role to play in financing sustainable developments?
The short answer to this question is, of course, an unequivocal ‘yes’. This is particularly true for financial institutions, and especially banks, with a presence in developing economies, where the imperative of driving the implementation of the United Nations Sustainable Development Goals has largely been hamstrung by the significant lack of resources, mainly financial. In these scenarios, the private sector – and banks in particular – undoubtedly have an essential role to play in being part of the sustainable development and, in so doing, help lay the foundation for business to thrive into the future.
Interestingly, while the traditional view is that the primary function of banks in sustainable development is to facilitate the finance required to drive the development agenda, there is another key reason why banks can, and must play their part – and it has less to do with funding, and everything to do with reach, networks, innovation, influence and the ability to meaningfully foster change.
The nature of banking means that participants in the industry touch virtually every aspect of society, including individuals, businesses and larger organisations in both the public and private sectors. Banks can therefore be regarded as investors in the real economy and have the opportunity to utilise levers at its disposal to lead impact and change in society.
The delivery of this responsibility can be best achieved through a shared value commitment in which shareholder returns are viewed as only one component of investment, whilst delivering positive social and environmental impact are equally valued.
Banks as drivers of sustainable development
The responsibility of banks to be key drivers of sustainable development extends far beyond traditional financing. Given their position and role in society, banks have the opportunity to be key communicators, educators and influencers with regard to climate change and sustainability generally. It is incumbent on banks to capitalise on this opportunity and function as an effective bridge between the world’s scientific community and society at large.
In Nedbank’s experience, one of the most effective ways of delivering on this communication responsibility is by providing tangible evidence of the positive difference that impact-driven investment can, and does, make. This communication and education imperative applies as much to each bank’s internal stakeholders as it does to their external ones.
It’s one thing to tell people that they can change the world for good; but it’s another, more impactful scenario entirely to be able to show, practically, what that change looks like. And banks are more than able to demonstrate this practical impact of the investments they make or facilitate, and then to use these examples to inform and drive a change in understanding, as well as a desire to be part of the solution within government, investment and consumer communities.
The importance of banks in well-functioning societies also presents them with a responsibility to model and influence effective leadership in the realm of sustainable development. Banks have a unique opportunity to lead by example and directly influence good corporate citizenship within all the industries and sectors they serve.
And beyond exemplifying such good corporate citizenship and leadership, banks have the ability to encourage investors to demand this level of leadership from the businesses and funds that rely on their support. Importantly, once the message has been shared, banks are in a position to encourage and enable these investors to apply their money appropriately, effectively attracting institutional investors to follow their example and invest in ways that not only secure returns, but do so while positively impacting society and creating a more sustainable world.
Opportunity or economic risk?
Importantly, the responsibility of banks to become even more integrally involved in sustainable development finance components is compounded by the fact that failure to do so, effectively transforms what should be an opportunity for positive change into a systemic economic risk.
This risk has been more than amply demonstrated by the recent global events of Covid-19 and the worldwide anger expressed in terms of discrimination and inequality.
Any failure by global leaders in both public and private sectors to address societal and environmental challenges – whether they be racism, income disparity, healthcare shortcomings, climate change or other forms of environmental degradation – effectively undermines the planet’s vital economic, social and environmental ecosystems and makes us less effective, impactful and productive as a society.
Based on this understanding, the role that banks need to play in sustainable development clearly goes way beyond the realm of extending finance. Banks can step up and fully leverage their position as key societal leaders and influencers; thereby compounding the positive impact of the sustainable development investments they make and facilitate.