Across the globe more companies are realising the value of “green” in their brand and making far-reaching commitments to environmental responsibility across their business lines. Companies from BP to General Electric to Wal-Mart are making “green” a core part of their offering and winning new respect in the process.
The finance sector has been at the centre of developments. Financial institutions in Europe, the United States, Australia, Brazil, and, yes, South Africa, have embraced (or even pioneered) the green movement.
Even Wall Street is going green. Global investment banks such as Goldman Sachs, Citigroup, JP Morgan and Merrill Lynch have established formal environmental policies that ensure they do not bankroll projects that “significantly convert or degrade critical natural habitats”, and have made significant investments in combating climate change and in becoming developers of renewable energy. Most recently, Citigroup announced that it would commit $50-billion to broad environmental projects over the next decade.
Admittedly, not all of this enthusiasm has come from the innovative capacity of the banks. Large campaigns by NGOs such as the Rainforest Action Network targeted American banks for their role in financing the destruction of rain forests and other natural habitats, and this led to a behaviour about-turn by these banks.
Within a few short years collaboration with the NGOs brought about the innovative environmental policies and significant environmental commitments we have seen.
But why would NGOs target banks rather than forestry, chemical or mining companies?
The key leverage role of the finance sector in deciding to whom, and on what conditions, it allocates finance, makes it a strong potential lever for change and in ensuring development takes place in an environmentally and socially responsible manner.
So what does it require for the finance sector to be truly green?
We all know banks don’t billow out huge smog clouds, so what are their effects and how can these be minimised?
Firstly, even though banks are not huge consumers of natural resources, some simple efficiency can be achieved in energy and water usage that have both cost savings and environmental benefits. Minimising the use of paper and ensuring recycling programmes are in place are also a good start.
With the focus on the impacts of climate change, banks need to calculate what their carbon emissions are via energy usage, business and staff travel and determine the most appropriate ways to reduce or offset these.
Secondly, ensuring that the company is sourcing its raw materials from sustainable sources ensures that the impact of the company is managed across its entire value-chain.
Thirdly, when funding a particular project or investing in a company, it is good practice to have an environmental policy in place that ensures a consistent application of environmental and social criteria in allocating funding. This comes down to making sure that a potential client has followed the necessary legal process for projects or developments, has all the approvals from government entities in place and has allowed for proper public participation in the project.
A specific initiative is the Equator Principles, a financial industry benchmark for determining, assessing and managing social and environmental risk in project financing. Almost 50 global banks have adopted these 10 principles to guide their assessment and management of project finance transactions, although at this stage Nedbank is the only African bank to follow the principles.
Finally, a bank can play a major role in sustainable development by providing its retail, corporate or investment banking customers with products and services that allow them to contribute to environmental and social responsibility. A broad range of opportunities exist here.
Many new products are being touted around the world, from “green” home loans and vehicle loans to carbon neutral cards and ethical investment products: from eco-insurance to weather derivatives and ethanol financing.
The huge growth in the carbon finance industry, having almost tripled from $11-billion to $30-billion in 2006 alone, has also ensured that most banks globally are engaging with their customers in how to best utilise carbon trading opportunities.
Is the growth in “green” reasonable in a country with economic development imperatives and pressing social concerns? At its heart, sustainable development is about balancing the economic, social and environmental spheres and, in the end, what good is economic development or social upliftment without a planet as the stage for it to take place on?
Justin Smith is a Greening the Future judge. He is also the senior governance and sustainability manager in Nedbank’s enterprise, governance and compliance division