More and more each day, sustainability is becoming a crucial topic in the business world. To this extent, the UN Global Compact has specified four main principles for maintaining a sustainable business: human rights, labor rights, environmental protection and anti- corruption.
As a crucial player in the business world, the banking industry has also recognized the importance of global sustainability. Banks have introduced many financial products and credits in order to promote the realization of corporate sustainability. Moreover, many measures dealing with sustainability issues have been implemented into compliance programs.
KYC (know your customer) is one of the typical examples of compliance measures that have been introduced in the past decade. In many countries, regulators have foreseen and banks have incorporated KYC functions to prevent identity theft, financial fraud, money laundering and terrorist financing and ultimately by such means fight against global anti-corruption.
Another widely noted aspect of corporate sustainability is concerning taking action for environmental protection. Within this framework, many banks operating worldwide have introduced credits for financing projects for “green” buildings and infrastructure, renewable energy resources and other “green” projects. Similarly, “green” bonds are gaining recognition throughout the banking industry.
It should be noted that there are many other aspects to corporate sustainability other than environmental issues; addressing major global social issues are also an important aspect of sustainability. Major banks have addressed these issues through providing special financing options for social entrepreneurs and by investing in “sustainable” assets on behalf of their clients. Also, through international development and multilateral banks, financing is granted to projects that address global social challenges in many parts of the world.
The measures and policies that have been implemented by banks are encouraging. However, I believe that as one of the major actors in the global business markets, the banking industry could contribute to sustainability to a greater extent. I suggest the formation of an international committee for establishing a global sustainability performance criteria and guideline. Such a committee should encourage sustainability by providing criteria for enabling banks to analyze the sustainability of businesses when providing for commercial credits or other financing options. To this extent, the committee should determine guidelines for measuring the sustainability performance of businesses in project financing. These criteria should outline a solid determining factor in terms of financing decisions.
The criteria for evaluation of sustainability may be based on the Global Reporting Initiative’s (GRI) sustainability reporting standards or annual Communication on Progress (COP) reports of participants to the UN Global Compact. Also, criteria for the institutionalization of human rights as set forth under the UN OHCHR Principles on Business and Human Rights may act as a guideline.
Within this framework, the International Finance Corporation (IFC) has implemented an Environmental and Social Performance Standard in 2012 for its clients regarding the management of environmental and social risks. All clients whose projects have gone through IFC are subject to maintain operations in accordance with the said Standard. The Standard not only covers global environmental and social issues, it also specifically covers labor law aspects.
In short, if banks were to take a greater stand in ensuring that the corporate world was operating in a sustainable manner in all aspects, the engagement and involvement of smaller businesses in UN Global Compact and the UN OHCHR Principles on Business and Human Rights would amplify. In return, in terms of risk mitigation, banks would mitigate risks, as they would be providing financial products to those businesses that are in their core “sustainable” by all means.