Graphic by M. Shanmuga

Buying decisions are one of the hardest to make in life. And as consumers or investors, we daily wage a decisive war inside our minds while buying materialistic things or investing in something. And while we make those decisions, numerous things run wild in our minds before we finally execute those decisions. So I want you to ask yourself a very rudimentary question today before we descend upon the theme of this article: What do you look for in a commodity before buying it? You would say features, appeal and guarantee. And rightly so, these are the very characteristics that make an object sellable. But what if I told you that these are just superficial characteristics, beneath which lies the original trait that authorizes each of your buying decisions? You may agree or disagree, but the sustainability of your purchase is that commanding trait.

The iPhone or android you carry in your pockets, the sumptuous Mac that adorns your desk, the cars you drive to your offices, and the stocks you add to your portfolio do not just speak of your status but also something about your subconsciousness. You buy with a conviction that your purchase should survive for the longest time while maintaining relevance in the market. You prefer to invest in those companies that do not face the danger of perishing in a few decades; In short, you buy what is sustainable. And if we, and everything around us, are programmed to do things the sustainable way, don’t you think it is also high time we looked at how sustainable our banking system is?

Sustainable Banking Deciphered: A banking system or model that well accommodates the needs of the present and is also observant of the future while acting as a catalyst of growth. A sustainable bank does not exist merely for the transfer of monies, for lending and safeguarding our savings but also for conserving the environment, uplifting society and keeping governance in check.

Now try to juxtapose this definition alongside the history of the banks’ working patterns and answer if they both align or conflict. You would argue that the banks have adapted and fared well over the past few decades against the challenges posed by technological advances and political changes, but what about the net impact on societal, environmental and governance aspects? Did everyone in the world benefit from the advancing of the banks? Did our environment become safe from emissions by banks? Did any of our regulatory, gender and poverty issues get a resolution by that advancement? The answer is a plain no. 

The current model of the banking sector and the way it operates best fits the definition of survival or makeshift model against a sustainable model, which is the actual need of the hour. But what is the exact definition of sustainable banking? In 1987, when the World Commission on Environment and Development (WCED) first published the Brundtland report, it was no short of a moment of epiphany as it changed the way we looked at development and growth. The Brundtland Report, for the first time, talked of a development model that was viable, sustainable and did not require remodeling after every other quarter of the century. It advocated an all-pervasive growth.

But the Brundtland Report was not a mandate in itself; it was just a guiding principle; A recommendation to adapt or perish. And every organization tried its best to inculcate, experiment and implement those principles and succeeded to an extent. The most exemplary of all initiatives came from the securities exchange platform DOW JONES which, in 1999, introduced its own sustainability index that solely represented companies founded on and working according to the sustainability philosophy. But the banks did not show any such enthusiasm.

And as to what is the exact definition of sustainable banking, you will be startled to know that there is none; Banks worldwide are yet to decide on a taxonomy expounding sustainable banking, let alone working towards it. Simply put, any organization, institute or government, intent upon becoming sustainable, must work on three plinths of sustainability theory: Environmental, Social and Governance. Now try to reckon down the performance of banks on each of these parameters.

On the environmental front, the banks have undoubtedly tried to do something; The initiatives such as the issuing of Green Bonds speak loud in favor of banks and deserve lauding on the world stage. Many banks have opted to go as green as possible by erecting windmills, installing solar panels and limiting the number of physical branches. But going green alone would not suffice; it would mean just meeting the one goal of sustainability and overlooking the other two. While this is the case with some banks, others are solely concentrating on the upliftment of some select strata of society by issuing subsidy-based loans and gender-specific loans; Again, this doesn’t mitigate the harm caused to the other two plinths of sustainability theory.

By now, you would have started wondering why press so hard on the banking sector and what would radically change if the banks began working on sustainability issues. Since there is no template or empirical data widely available to base my arguments on, I will try to imaginatively portray what would significantly change with the banks onboarding the sustainability revolution. And here is my take: First of all, banks would concentrate more on issuing sustainability-linked loans to encourage more companies to move towards sustainability, initiating a chain of revolution. Secondly, the banking sector would start identifying the gaps between CSR funds and the deserving beneficiaries, thereby effectively closing in on the gender and poverty issues. And lastly, banks would start accounting for the risks their activities pose to the environment and publish reports based on that for public scrutiny.

Sustainable banking still largely continues to be a utopian theory that has not come to complete fruition because of its multifacetedness. The banking sector, at least, needs to apply a three-pronged solution (environmental, society and governance) to cover up everything. And just to let you know, I have not yet raised the issue of cryptocurrencies and the whole commotion around DeFi to expand upon other challenges sustainable banking faces. I leave it to your sense of judgment and scrutiny. If a greener world with equal representation of everyone in it is the goal, then active participation of banks is a must. Banks must evolve from being just financial intermediaries to accountable entities.

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