Banking on Sustainability

September 30, 2020

Sustainability has been a buzzword in recent years, but what does the term sustainability really entail for the banking sector? Taking International Finance Corporation’s (IFC) apt definition for this sector, they define sustainability as “ensuring long-term business success while contributing toward economic and social development, a healthy environment, and a stable society.”

Sustainability and Finance: The crucial role of the Mauritian banking sector

Today, events like economic and environmental disasters, geopolitical tensions, depletion of natural resources and pandemics have deep economic and social consequences around the world and our little Mauritius is not being spared either. The private sector at large has understood that sustainability is not limited to the creation of financial and economic value but also encompasses broader objectives such as long-term environmental and social value for their stakeholders, which includes shareholders, employees, customers, suppliers, media, communities, and public-sector partners – with particular consideration for the needs of future generations.

A clear global trend has emerged in the last couple of years and Mauritius is now slowly but surely following the same trend – in other words, following the global transition towards sustainability-driven economies. Many industries acknowledge that the element of sustainability is now becoming an essential criterion of competitive advantage that they can no longer ignore.

The Mauritian banking sector as a major provider of finance for all businesses, regardless of shapes and sizes, plays a pivotal role in promoting environmental and social sustainability across industries, sectors and communities. Let us not underestimate the influence of the banking sector in positively shaping their clients’ environmental and social actions through their products and services. Over the years, traditional banks have launched a plethora of retail and corporate banking green products such as green car loans, green mortgages or green debit cards. Around the world, the demands for such products and other financial instruments such as green bonds are on the rise thus creating an array of opportunities for banks and other financial institutions towards both customers and investors.

Creating Business Value through Environmental and Social Management

For banks, only adopting the ‘traditional’ risk management models (which includes financial and credit risk assessment framework) will not be sufficient to target new markets and generate profits. However, if a bank effectively manages social and environmental opportunities alongside risks, they will be in a better position to create long-term value for their businesses. Although we need to bear in mind that pursuing sustainability-related opportunities alone would not help to reduce the bank’s environmental and social risks!

One may tend to think that that the financial sector in itself does not pollute much or have a high negative social impact as compared to other industries such as manufacturing or non-renewable energy. Yet, did you know that more than 90 percent of a bank’s environmental and social footprint is accounted indirectly through its lending facilities to clients? According to The Economist, investing with an eye on environmental and social issues, rather than just financial returns, is becoming more mainstream. The World is now entering into a ‘sustainable banking era’ and according to the Global Sustainable Investment Alliance (GSIA), USD 31trn or 34% of all assets under management in 2018 were in ‘socially responsible investments’ that take into account environmental, social and governance (ESG) issues.

In the local context and in particular at Bank One, we are fully cognizant of this changing business landscape and we are thrilled to have recently embarked on a new transformational journey to place sustainability at the very heart of our business. With the close support of a major Development Finance Institution (DFI), we are working towards a systematic approach in the form of an Environmental & Social Management System (ESMS) that is fully integrated into our core processes and operations. There is still a long way to go but Bank One is laying the groundwork for a strategy to create long-term value through sustainable banking practices. It means that the Bank will be providing products and services only to those customers that take into consideration the environmental and social impact of their activities.

Bank One is fully prepared for the journey ahead and is gearing for the adoption of sustainability as a holistic approach. This entails capacity building and training as well as setting measurements and standards of performance across the bank. The Environmental & Social Risk Management Framework will act as a complement the other risk management models already in place (ex. operational risk management, credit risk management, etc.). Moreover, an efficient Social & Environmental Risk Management Framework will definitely improve the quality of our client portfolio, lower credit and compliance risk and ultimately the cost of doing business. We believe that pursuing innovative financial solutions and products generates new markets with new clients that have a soft spot for sustainable solutions.

The importance of a strong regulatory framework on the sustainability front for the banking sector in Mauritius.

Our domestic banking system has a strong regulatory framework but, until recently, we were lagging behind compared to some of our African peers when it comes to understanding and managing climate-related risks in the financial sector. However, we are pleased to note that things are moving rapidly in this space, as the BOM became a full-fledged member of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) in July 2020. The NGFS is a platform that promotes the sharing of experience and best practices among central banks and supervisors to address climate risk management. The network also enables its members to work together for a green and sustainable financial system.

I believe that having a strong banking regulation framework with a clear focus on the Sustainable Development agenda is vital in today’s fast-changing environmental and business context. Having the support of the BOM will definitely encourage banks to embed the concept of a greener banking sector in Mauritius in line with the United Nations Sustainable Development Goals and the Paris Agreement.

Sanjeeve Jhurry
Sustainability Manager at Bank One

Platform Africa, 28 September 2020