Recently, I re-read Henry David Thoreauās 1863 essay āLife Without Principle.ā He issued a challenge: āLet us consider the way in which we spend our lives.ā Now, it is more than 150 years later, and the challenge still stands.
If we really understood the environmental damage caused by our collective and individual decisions, I believe most people would simply make better choices. However, is it that simple?
In part 1 blog in this series, I looked at the increasing linkage between banking and sustainability. In this blog, I dive into motives. There are three key motives for participants in the emerging finance eco-space: sustainability, morality and economic.
Motives for sustainable finance
Sustainability-oriented motives relate closely to stakeholder demand for environmentally responsible behaviour, along with pressing social issues in developing countries. Both factors are driving banks to invest in sustainability.
Morality-oriented motives relate to a bankās commitment to ethics. Morally driven banks seek out supply chain collaborations and other innovative methods to reinforce sustainable performance along the supply chain. They believe it is the right thing to do for their business, for their stakeholders, and for the planet.
Finance-oriented motives counter balance the other two motives by focusing on the need to make a profit while driving sustainability. Buyers and sellers want easier access to cheaper financial resourcesāa demand that needs to be balanced with the pursuit of sustainability.
Stakeholder sustainability expectations
When researchers speak of stakeholders, they essentially mean corporations, governments and customers. It is safe to say that stakeholders, in todayās global society, are increasingly aware of climate change, and many are pushing for increased action to reduce greenhouse emissions.
Increasingly, global stakeholder expectations for responsible behaviour are driving sustainability regulation. In Europe, for example, regulators have mandated that the European Union achieve zero carbon emissions by 2050. This push, along with other new legal mandates, are the āstickā to get participants to take action, but it also comes with ācarrots,ā including tax breaks and incentives. In addition, there is pressure on corporations, particularly those doing business with European companies, to manage better the environmental and social performance of their supply chains.
Banks have a major role to play in all of this and their environmental, society and governance (ESG) departments will need to take a hard look at their risk models, onboarding guidelines, and other policies, along with their financing terms and conditions. In addition, bank regulators will become more stringent regarding financing activities, adding sustainability to their focus on large-scale fraud prevention.
If these activities achieve the desired outcomes, stakeholder satisfaction may increase. More specifically, sustainable performance could provide banks with improved brand reputation and customer loyalty. These benefits, in turn, drive their competitive advantage, which is an important āsoftā incentive for green financing development and implementation.
In my next blog, weāll take a look at how some real companies are exploring their motives, preparing for the carbon-zero mandates ahead of schedule, and using some really interesting and innovative methods to gather better insights, as well as better control their suppliersā behaviour. In addition, weāll review a few potential takeaways and maybe, in response to Thoreau's challenge, we'll deeply consider this moment in time and what weāas individuals and as banking professionalsācan do to help our planet.
In the meantime, if youād like to discuss this second blog, sustainable finance in general, or CGIās work in this area across the globe, please contact me.