Banks' attitudes of sustainability issues have changed

The thinking and attitudes of banks concerning sustainability issues have been changed in recent years as the financial sector has realised that environmental and social issues pose risks which affect the bottom line across all sectors of banking, said the Chairman of the Association of Development Financing Institutions of Asia and Pacific (ADFIAP) Ambassador Tambunting.

He was addressing the 29th annual ADFIAP meeting which began in Colombo last week. The theme of this year's annual meeting was DFIs: Are they sustainable?

Tambunting said that the issues of sustainability have been the subject of many studies and passionate debates.

Though there is a recognition of the close link between business and the environment, and the need to preserve the environment and the social fabric for future generations has grown worldwide, banks have responded far more slowly.

To find the reasons for this Tambunting quoted the book written by Marcel Jeucken "Sustainable Finance and Banking".

"Banks generally consider themselves to be in a relatively environmentally friendly industry. Banks consider it the responsibility of project proponents to observe the proper environmental and social standards and practices.

However, they were aware that they can contribute a lot to sustainable development because of their tremendous influence as financial intermediaries", he said.

More and more banks see environmental and social stewardship not just as something nice to do but as an essential component of risk management and good business.

Most of the CEOs from 43 countries that were surveyed by Pricewaterhousecoopers likewise agreed that sustainability is vital to profitability and is an integral part, not just an add-on of creating value, Tambunting said.

Tambunting explained the success story of Plantersbank in the Philippines on SME financing and operation in rural and marginalised areas. He said that when Plantersbank bought a small provincial development bank in 1972 and with the size and the location of the bank it had no choice but to cater to the small businessmen and entrepreneurs.

The bank had to educate the entrepreneurs on the proper use of credit giving them access to affordable loan packages. After seeing the growing profits and expanding businesses of their clients, the bank abandoned the original plan of turning it to a commercial bank and stayed as a development bank.

Over the years, the bank's return on investment has been higher than the average for the banking industry despite the additional social costs that SME financing involved, he said.

The 29th annual meeting held from May 8-11 in Colombo was hosted by the DFCC Bank, the first development bank in the country. DFCC is a founder member of ADFIAP. A delegation representing 63 institutions in 32 countries participated in the meeting and exchanged their experiences and expertise.

(GW)