Sustainable banking is a form of banking that aims to balance the environmental, social, and economic impacts of financial activities. It seeks to promote positive development outcomes for society while protecting the communities and environment where financial institutions and their clients operate. Sustainable banking, which advocates for sustainability in the financial sector, is a segment of the Sustainable Development Goals (SDG) especially because it represents the spirit and intent of the SDGs designed to achieve a more sustainable and better future for humanity.
It places a moral duty, and it is also a business promoting opportunity, as it can enhance the reputation, public opinion, competitiveness, and resilience of financial institutions which practice sustainability. Currently, the United Nations drives the financial aspect of this initiative as a key player by bringing together financial institutions around the world to subscribe to its principles. The world’s foremost sustainable banking framework, with over 300 signatory banks representing almost half of the global banking industry, was signed at the United Nations.
Mandated principles constitute a major step forward for banking industry.
This framework, the Principles for Responsible Banking (PRB), directs banks to align their core strategy, mandate and investments with the SDGs and some international agreements like the Paris Climate Agreement. The framework also directs them to demonstrate responsible positive socio-environmental impacts in their activities. The PRB currently has ten Nigerian banks listed online as signatories. In 2012, the Central Bank of Nigeria (CBN) in collaboration with the Bankers Committee, launched the Nigerian Sustainable Banking Principles (NSBP).
The apex bank mandated its compliance for all deposit money banks, discount houses, and development finance institutions in Nigeria. It was further affirmed by representatives of Nigerian financial institutions who were present during the Bankers Committee meeting of October 4, 2018. The NSBP covers nine areas, which are: environmental and social risk management, environmental and social footprint, human rights, women’s economic empowerment, financial inclusion, environmental and social governance, capacity building, collaborative partnerships, and reporting. This set of principles constitute a major step forward for the Nigerian banking industry because it demonstrates the commitment of the financial sector to aligning the sector’s operations with the global sustainability agenda.
Some of the challenges of implementing the NSBP.
Further, the principles respond to the specific challenges and opportunities within the Nigerian context. This includes the need to diversify the economy from oil dependency, the need for financial institutions to collaborate to drive the sustainability goals despite industry competition, and the long-overdue need to address the social and environmental impacts of extractive industries. The NSBP also encourages the growth of small and medium enterprises, advocates for the empowerment of women, and is the pillar upon which corporate social responsibility measures (which promote the SDGs) rest.
However, the NSBP also has challenges in its implementation. Some of them include lack of awareness on and understanding of sustainability issues among bank staff and customers; inadequate data and tools for measuring and reporting on sustainability performance; insufficient incentives to reward compliance, inadequate laws and regulations to enforce strict compliance; limited capacity and resources for integrating sustainability into business strategies and processes; and resistance to change from some stakeholders who perceive sustainability as a threat or unnecessary burden.
There is still room for improvement in sustainable finance in Nigeria.
Meanwhile, sustainable finance in the country has made giant strides in the past decade. However, there is still room for improvement. First, financial institutions in Nigeria need to have a second look at their visions, missions, and sustainability statements to ensure that they are in tandem with promoting responsible banking for the sake of now and posterity. Internal and external stakeholders should be informed, and they should master and practice them in their day-to-day activities. Also, all financial institutions (the CBN inclusive), should incorporate sustainability into their governance structures, decision-making processes, risk management systems, product development, service delivery, performance measurement and reporting.