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Sustainable banking

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This section focuses on the role of commercial and investment banks in sustainable development. It examines recent trends in banking and sustainable development, innovative banking practices, and events that have shaped the role of the banking sector in sustainable development.

The integration of sustainability into the banking sector has taken two key directions:

  • The pursuit of environmental and social responsibility in a bank's operations through environmental initiatives (such as recycling programs or improvements in energy efficiency) and socially responsible initiatives (such as support for cultural events, improved human resource practices and charitable donations);
  • The integration of sustainability into a bank's core businesses through the integration of environmental and social considerations into product design, mission policy and strategies. Examples include the integration of environmental criteria into lending and investment strategy, and the development of new products that provide environmental businesses with easier access to capital.

The second of these categories has the potential to influence business on a larger scale. By integrating sustainability into a bank's business strategy and decision-making processes, institutions can support environmentally or socially responsible projects, innovative technologies and sustainable enterprises.

While banks play a crucial role in promoting sustainable development, the industry got off to a late start in acknowledging sustainability as an item on its agenda. In the 1990s, however, it started to play a more active role in sustainable development. The major shift happened when bankers realized poor environmental performance on the part of their clients represented a threat to their business success.

The interdependency between a bank's profitability and the environmental record of its clients has influenced the business strategy of both banks and their corporate clients. This has happened in several ways. In particular:

  • To decrease their exposure to environmental liability and to improve risk management, bankers started to look more closely at the environmental performance of their clients. They developed mechanisms to assess the environmental risk exposure of their customers, and to protect themselves from potential losses.
  • This growing concern about clients' environmental performance, manifested in lending and investments decisions, began to act as an additional driver of sustainability in the private sector. Companies were given one more reason to pursue environmentally and socially sound solutions.
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