Sustainable Finance – How banks can contribute to sustainable development
Increasing environmental awareness, resultant regulations, stakeholder pressure and the transition to a low carbon society has forced many organizations back to the drawing table to revisit their long term strategies. Organizations now increasing view sustainability as a key competitive advantage, over and above corporate social responsibility. It is not any different for the banking sector.
Banks facilitate efficient capital allocation by channeling capital from savers to investors. This seemingly simple process as a financial intermediary has the potential to catalyze sustainable development in significant ways.
Sustainability in the banking context has two components:
1. Managing exposure to environmental and social risks
2. Identifying opportunities for sustainable product development and financing
By evaluating environmental and social risks in the loan appraisal process, banks manage default risk by preferentially channeling capital to projects with better expected environmental and social performance. This not only reduces non-performing loans and protects the bank’s reputation, it also has the effect of encouraging project proponents to build in adequate environmental and social safeguards in order to access debt capital.
Secondly, banks can proactively seek to finance projects that contribute positively to sustainable development. These include projects in renewable energy, biodiversity conservation, climate resilient infrastructure and low cost sustainable housing. Green and social bonds also provide an avenue for banks to raise capital to channel towards these kinds of investments. The benefits are immense because not only do the banks play their rightful role in facilitating sustainable development, it also enhances the reputation of the bank, opens up new market opportunities and unlocks capital from Environmental, Social and Governance (ESG) conscious investors.
How Seven Levers LLP can help
At Seven Levers LLP, we are passionate about sustainable development in Africa. We work with local banks in East Africa to help develop innovative sustainable business solutions. We partner with risk management teams to help embed ESG considerations in the credit risk management cycle. We also help develop sustainability strategies that help capture innovative financing opportunities to unlock Green capital for investment.
For more information, explore our Sustainability and ESG services page and reach out to us on firstname.lastname@example.org.
Bernard Kiore, Director at Seven Levers LLP