December 06, 2006
How to Do Sustainble Banking
by Bill Baue
BankTrack, a coalition of nongovernmental organizations promoting social and environmental
responsibility in the finance sector, issues a guide to best practices in sustainable banking.
Sustainable banking has swiftly moved forward since 2003, when nongovernmental organizations(NGOs)
introduced the Collevecchio
Declaration and banks launched the Equator Principles. Now, Sustainable Banking Awards are given by the
Financial Times. While sustainable banking has resulted in significant improvements in
banks' social and environmental policies and practices, there remains plenty of room for
Just this week, Vancouver-based socially responsible investing (SRI)
firm Ethical Funds
filed a shareowner resolution asking Bank of Montreal (ticker: BMO) to benchmark its activities on
climate change to financial sector best practices such as the Bank of America (BAC) Climate Change
Policy. Ethical Funds has been discussing sustainability issues with all five major banks in
Canada, and last year withdrew similar resolutions at Royal Bank of Canada (RY) and Toronto-Dominion (TD) due to such
dialogue, according to Jen McCaffrey, Ethical Funds' senior sustainability analyst.
this time we are seeing progress among most of Canada's five major banks on the issues of lending
policy enhancements to address climate change, and the related issues of forest conservation and
biodiversity protection and indigenous peoples' rights," Ms. McCaffrey told SocialFunds.com.
And last week BankTrack, a
Netherlands-based coalition of NGOs seeking to hold banks accountable for their social and
environmental responsibility, issued a guide to best
practices entitled The Do's and Don'ts of Sustainable Banking. An Implementation Guide
accompanied the Collevechio Declaration upon its introduction, and the BankTrack manual updates
these original recommendations to keep abreast of developments in sustainable banking since then.
"Sustainability for the banking sector requires a lot more than cutting down on your paper
consumption or even signing up to the Equator Principles," said Johan Frijns, BankTrack
coordinator. "It involves making hard choices and a willingness to forego business opportunities
that run counter to your sustainability mission."
"Contrary to popular belief there is not
always a business case for sustainability; there may simply be pressing moral or social reasons to
not get involved in a otherwise financially lucrative deal," he added.
structures its recommendations under the six sections of the Collevechio Declaration (which was
named after the Italian village where it was conceived). These sections include commitments to
sustainability, to "do no harm,", to responsibility, to accountability, to transparency, and
sustainable markets and governance. Each section includes multiple discrete recommendations, often
summarized with "do's" and "don'ts."
In the commitment to sustainability section, for
example, the guide urges banks to redefine their strategy.
sustainability as a niche market," the manual implores. "Do recognize that sustainability
is already at the core of all your business activities, as most activities financed by your bank
have social and environmental impacts, be they positive or negative."
"The challenge is
to recognize these impacts and shift their balance in a positive direction," it adds.
commitment to do no harm section contains the heart of the guidance--a 14-point recommendation on
setting minimum standards through an environmental and social risk management system, which
encompasses many of the suggestions in different sections.
"Develop procedures and tools
to enable a sophisticated exchange of knowledge and information on (possible) clients with NGOs,
other banks, governments and sustainable rating agencies," point number nine suggests. "This
information exchange helps to structure and improve your due diligence procedures."
manual recommends ensuring the right of indigenous people and affected communities to free, prior,
and informed consent (FPIC) before proceeding with financing of development projects with
significant social and environmental impacts. Many financial institutions claiming sustainable
banking fall short of this best practice as it shifts power from them to external stakeholders,
beyond their control.
The recommendations extend to cover banks' investment practices,
urging their analysts to develop expertise on environmental, social, and governance (ESG) issues
and integrate these considerations into their stock reports.
"Don't recommend to
investors the shares and bonds of companies which do not meet the minimum standards set by your
bank," the report urges. "Do include social and environmental issues prominently in stock
analyses and prospectuses."
The manual concludes by suggesting that its recommendations
may not be optional, but rather adoption of them inevitable.
"As you may have concluded
from the above, sustainable banking is not for the weak; it involves creating a profound change in
your business," it stated. "While it may still seem as though this is a choice open to individual
banks (or corporations in general) to either follow or ignore, the trends in the financial world
and expectations within society unmistakably point toward an obligation to take up this challenge."
BankTrack presented the guide at Ethical Corporations’ Sustainable Finance Summit in London late
last month, during the panel on “Emerging NGO visions of Sustainable Banking.”