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Five ways to bank sustainability

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According to one Michel Barnier, the European Commissioner for Internal Market and Services, “New growth will have to be greener, fairer, more sustainable, and whether they like it or not, companies will have to reduce their detrimental social and ecological footprint.”

Financial Sector Spotlight with Omen Muza

Banks in Zimbabwe are no exception to this imperative. In fact, their role as intermediaries in the financing of economic growth imposes upon them the obligation to not only embrace, but also promote sustainable growth.

Sometime last year, through GTR Magazine, I came across Bankrolling Climate Disruption: The Impact of the Banking Sector’s Financed Emissions a report by Rainforest Action Network/Banktrack, which offered some interesting insights on the imperative for aligning the banking sector with the sustainability agenda.

The banking sector accelerates global climate change through “its financed emissions”, the greenhouse gas emissions induced by bank loans, investments, and financial services. “Financed emissions” constitute the carbon footprint of a bank’s financing portfolio and represent the bank’s exposure to climate-related risks emanating from its financing activities.

“If banks do not address this current blind spot on financed emissions, stakeholders will be unable to distinguish banks that take the lead on reducing the climate impacts of their financing portfolios from those that merely add a ‘green’ public relations spin to business-as-usual lending practices that do not yield measurable emissions reductions,” says the report.

It concludes that in order to accelerate the shift to a low-carbon economy, banks must commit to reduce the negative impacts of their social and ecological footprint.  In this instalment, I outline my views on some of the ways in which banks can achieve this lofty ideal and become more active in the “climate smart” market.

Issuance of Green Bonds
Granted, the conditions are not yet conducive for issuance of any kind of bonds in Zimbabwe, but when the time comes, banks should consider issuing green bonds, with the capital raised being used to finance specific renewable energy projects. Green Savings Bonds, such as those issued by Nedbank in South Africa in  a 2012  R4bn ($500 million)  capital raise, allow individual investors to grow their savings while at the same time affording them the opportunity to do their bit in supporting development of renewable energy sources.

Adoption  sustainable remuneration practices

In order to achieve sustainability, Zimbabwean banks must work very hard at managing their cost structure, given the liquidity and viability challenges currently bedevilling the sector; otherwise they will not survive if they cling to unsustainable remuneration practices which are based on everything else other than productivity.

It’s not just about thrift though,  sustainability is also about reducing the huge gap between compensation for executives and  shop floor workers, something which has in recent times caused the emergence of  banker-bashing protest movements such as Occupy Wall Street.

Subscribing to financial industry benchmarks

Banks should consider subscribing to international financial industry benchmarks for determining, assessing and managing social and environmental risk in their financing initiatives.  The Equator Principles and Principles of Responsible Investing (PRI) easily come to mind.

Reviewing  support for carbon-intensive projects
While it is still largely impractical for Zimbabwean banks to reduce their level of support for carbon-intensive projects due to the country’s overwhelming reliance on coal-fired power stations for instance, this is an eventuality they must begin to prepare for now.

The dilemma banks face regarding whether to finance carbon-intensive projects or not is typified by the response of one banker when asked to comment on the issue by GTR Magazine. “Everyone has to do their job. Banks are in charge of financing the economy; we have environmental and social policies for sensitive sectors, but the push has to come from the political side, if authorities agree that the construction of a coal-fired plant is necessary, it is not the bank’s role to refuse to finance it,” he said.

Banks, however, do not only have the option of reducing funding to carbon-intensive companies in order to manage their carbon footprint because there other innovative ways to achieve the same objective.

Stanbic Bank Zimbabwe, for instance, announced the successful registration of the Green Light Programme of Activities (POA), which covers the replacement of light bulbs with energy efficient CFL (Compact Fluorescent Lamp) light bulbs in domestic households. In the manufacturing sector, Stanbic Bank facilitated a joint project between Kwekwe-based Sable Chemicals and US consulting firm MGM Innova to secure UN approval to generate carbon credits from various oxide gas destruction projects at Sable’s plant.

Sharing infrastructure
Sharing infrastructure such as ATMs and payment networks such as Zimswitch is more sustainable as it reduces duplication and curtails under-utilisation of resources, which would otherwise lead to a poor return on investment (ROI).

Speaking at the recent Broadband Forum, James Wekesa of WIOCC could have been talking about the banking sector when he said that collaborating was the new rule of the game around the world instead of fighting for recognition as the service provider with the best infrastructure.

Collaborating to build financial infrastructure deals with the basics and paves the way for banks to compete on the basis of capability or service, not infrastructure.

Feedback: omen.muza@gmail.com.  Omen N. Muza writes in his personal capacity. You can view his LinkedIn profile at zw.linkedin.com/pub/omen-n-muza/30/641/3b8

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