Sustainable finance: What a difference a decade makes

This year’s award season has been a true eye-opener in showing just how far the financial industry has come in sustainable finance and corporate responsibility. 

There have been reams (digital eco-friendly reams, of course) of pitches on achievements, ranging from recycled carpets to supporting employee conversations about events taking place outside work, such as domestic violence or white supremacist rallies. 

We have seen the creation of entirely new products like BNP Paribas’ philanthropy kicker note in Brazil, the development of community land trusts for affordable housing by Citi and the largest green bonds to date. 

At the global banks committed to sustainable finance, those interviewed echoed each other’s sentiments: this has not been an easy road to travel. Ending long-standing business relationships and losing employees and clients that do not share the new culture takes its toll. If banks were once the recipients of hate mail from green campaigners, now they have to contend with being blamed for the closure of fossil fuel industries. 

But what other option is there? they ask. Sustainable business is good business, and being a supporter of it attracts bright young talent – plus they are enjoying their jobs much more these days and they get to sleep well at night. 

Genuine

These are not conversations Euromoney was having with bankers 10 years ago – or even five. And as we begin to nervously eye a calendar that reminds us that we are overdue another financial recession, it is still hard to believe that the banks that are collectively blamed for destroying economies 10 years ago through greed and questionable ethics are now desperate to do only good. 

How much of it is genuine? I believe a large part, even though I am not surprised by the odd scandal. I worry like others, however, that if we do have a recession soon, then efforts in areas like impact investing or blended finance will be put on hold as everyone plays a defence strategy. Nothing quite tests one’s values like losing money. 

And which banks will emerge in the years ahead as the leaders of the movement? There are some signs now. There are those who have laid the groundwork, like Bank of America and HSBC, and – as BNP Paribas has shown – when a bank puts its focus on sustainable finance and is supported by top management, change can happen in a very short time.  

There are, and will be, areas of contention, where the rights and wrongs are not easily decided 

To some extent I believe geography will hinder some of those banks that have led the sustainable finance industry so far. Being headquartered in France, with a government that is supportive of clean energy transition and social equality, perhaps makes it easier to pull out of industries like tar sands and oil shale. 

All the US banks interviewed about sustainable finance pointed out that politically they walk on a knife edge. Lobbyists are no joke in the US. It is interesting that in a society held up as a beacon of capitalism, they find themselves more at the mercy of the government than their peers in a more centrist, statist environment. 

And then of course there is the issue that, because we still rely on oil, we still need banks capable of financing pipelines and drilling and all the things that environmentalists and the media hate. Those that walk that path won’t enjoy being celebrated or pilloried for their carbon policies, but someone has to do it. 

Getting out of hand

Then there is the question of whether or not this drive for sustainability can get out of hand? BNP Paribas, for example, no longer finances tobacco because it is not a sustainable industry. As an ex-smoker I applaud that decision, but could smokers not claim that banks are removing the right to choice? What about alcohol? I would like to see how the media – a famously thirsty industry – responds to that. 

Because if it is not illegal, where does financing stand? Citi, for example, was courageous in introducing a firearms financing policy that millions of Americans support – but there are also millions of Americans who don’t. There are, and will be, areas of contention, where the rights and wrongs are not easily decided. Citi’s Mike Corbat was right to invite debate on the topic of guns; there will be plenty more challenging conversations ahead. 

Of course, what will really help is data. All those awards interviewees say that they have lost business, but they also say they are winning business from the choices they have made about corporate responsibility and sustainability. Some formal quantifying of the net impact of these new policies and actions would be useful, if only to gauge if society is keeping up with the banks on their sustainability missions.