Banks hold considerable clout in shaping and enabling the ESG goals of industries and corporates
By Rajashekara Maiya
The 2030 Agenda for Sustainable Development that includes 17 Sustainable Development Goals (SDGs) and the landmark Paris Agreement, which came into force in 2016, as well as the growing awareness on climate change have had an impact on Environmental, Social, and Governance (ESG) goals of organisations across industries, including banking and financial services. As per a BCG report on sustainable finance, large institutional investors are increasingly incorporating ESG metrics into their capital allocation and stewardship criteria.
Banks undoubtedly hold considerable clout in shaping and enabling the ESG goals of industries and corporates. In addition, they also have an opportunity to enable their own ecosystem by embracing the right technology and designing policies around employment and inclusivity. Some of the areas where banks have an opportunity to participate and drive ESG goals are:
Financial inclusion is key to achieving the goal of ‘ending poverty’ as part of the UN SDGs for 2030. Banks have an opportunity as well as a responsibility to provide banking services to the unbanked and underbanked population across the globe, thereby allowing them to participate effectively in the economic arena. Access to banking helps encourage savings and makes inclusion into welfare schemes easier.
Inclusive financing, which entails a systemic mandate to encourage access to finance for populations that traditionally fall outside the ambit of traditional financing is key. Grameen Bank in Bangladesh is a successful example. Ujjivan Small Finance Bank in India has successfully followed a similar model. Besides these private players, government initiatives such as the Pradhan Mantri Jan Dhan Yojana, a financial inclusion programme of the government of India have had a significant impact.
Shareholders and investors are seeking greater openness and disclosure around issues that concern ESG, whether it is about curbing the gun culture in the US, penalising chronic polluters such as big oil, or encouraging sustainable businesses. The fact that banks and financial institutions play a key role in providing the necessary funding and capital for the functioning of various industries, puts them in the center of the ESG revolution.
Aside from lending policies and customer offerings, there is also an opportunity to streamline internal operations of banks to make them more ESG friendly. This includes the adoption of technologies such as cloud, AI etc. to ensure more efficient operations, inclusive hiring policies, and adopting eco-friendly practices that help reduce their carbon footprint. The pandemic has created its own challenges and opportunities. For example, remote banking operations have become mainstream, spurred by the need for social distancing as well cost cutting.
Overall, banks need to be mindful of their impact on larger environmental, social, and governance issues and closely track their reputational risk index. As governments, customers, shareholders, become more aware, banks must rise to the occasion and deliver.
The writer is vice-president, global head – Business Consulting-Finacle at Infosys