Sustainable banking is the recent shift towards sustainable finance or green banking, and thankfully, many financial actors are joining the movement. One of the driving forces for this is the ESG factors in sustainable banking, including environmental, social, and governance.
When deciding on investment and lending, these are factors that could affect sustainability and social impact. In short, the importance of sustainable investment banking very much weighs on the banking industry to be more accountable.
In plain terms, these core principles directly impact sustainable banking and assure the same ambitions envisioned by the Sustainable Development Goals (SDGs) are the backbone of each bank’s strategy. Fundamentally, green banking considers further accomplishing the goal of climate action.
The sustainable banking principles act as a guideline, from managing environmental and social risks to empowering women’s economy and advancing collaborations and financial inclusion.
In 2012, the Nigerian Bankers’ Committee approved and put these core principles in banks and development finance institutions to manage social and economic impacts, from financial crises to repercussions of climate change. Steering the way forward, the framework of the principles will be beneficial for the development of green banking and necessary for a sustainable economy.
So, what are these Sustainable Banking Principles?
According to The Green Finance Platform, there are nine principles to start a well-strategized sustainable investment banking.
1. Environmental and Social Risk Management
By aligning with environmental and social considerations, this principle considers decision-making in business activities and incentives to refrain from risks, including human health, biodiversity, and cultural heritage.
2. Environmental and Social Footprint
This principle considers the business’ attentiveness to not weigh negative consequences within the environment and the community where the business activities occur. In aligning with the bank strategy, this is assured by avoiding, minimizing, or offsetting negative impacts in business operations.
3. Human rights
In the commitment to being socially responsible, sustainable banking and finance also commit to respecting human rights in every aspect. This principle practices accountability by assessing whether the business activities influence human rights and implementing necessary actions to resolve consequential impacts.– And communicating and evaluating its effectiveness.
4. Women’s economic empowerment
By advancing a more positive workplace culture, this principle promotes equal opportunities for women to participate and gain benefits without being discriminated against. Essentially, exercising this principle will be profitable for businesses to practice sustainable banking and finance. And, of course, enhance their sustainable brand.
5. Financial inclusion – Sustainable banking?
The shift towards green banking requires support for individuals who had previously been inaccessible to banks. Through this principle, sustainable banking can offer more affordable services that can contribute to low-income members of the community. In being socially responsible, financial inclusion is essential and can advance sustainable investment within economic growth.
6. Environmental and social governance (E&S governance)
In this principle, strong, trustworthy E&S governance practices can promote business incentives and progress its implementation to respective clients. It also sets a standard within a sustainable investment, clarifying and reinforcing accountability.
7. Capacity building
Through capacity building, this principle considers the actionable assessments to manage environmental and social impacts in the business. It also aligns with the business’s social and economic accomplishments. And guides individuals within the company with the resources they need to advance further their progress in achieving their goals.
8. Collaborative partnerships
Advancing sustainable investment requires collaboration across the financial sector. Encouraging finance actors to be partners rather than competitors can promote progress towards a sustainable economy to achieve sustainable banking successfully.
Constant evaluations and progress reports on business operations’ sustainability progress can ensure they meet the overarching goals.
This ultimate principle emphasizes the driving force of green banking and finance, which is to progress towards the climate action goal through combating climate change and its impacts.
Even though it was initiated as a guideline, green banking principles also remind us why sustainable investment banking is essential to practice across the financial sector.
With the core principles, sustainable investment puts forward a commitment from the financial actors to minimize the risks contributing to climate change. Sustainable banking can elevate businesses and financial institutions to have a solid and sustainable brand from collaboration to inclusion.
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