1. Sustainability in the Banking Industry
Sustainability in the Banking Industry
Varnit Karumuri
I am currently working in the Operations Department at CWB as a Co-op student from the
Universityof Waterloo. At Waterloo, I am presently enrolled in the 3rd
year of a unique program
called Environment and Business, which offers education in sustainability. The Environment and
Business B.E.S. degree is recognized for its environmental leadership with a #1 ranking in the
Corporate Knights survey of how well sustainability considerations are integrated into business
programs at Canadian universities.
I really enjoy studying sustainability as it combines the best of business and environmental
education. It teaches me the skills required to work on sustainability challenges with a business
profitability perspective.
Sustainability in the Banking Industry
The idea of sustainability is not contemporary; in fact it has been prevalent since the 19th
century. These early ideas came from the vision of historical leaders such as George Perkins
Marsh (founding member of the Smithsonian institute), Aldo Leopold (the founder of
conservation) and John Muir (founder of Yosemite National park). Since then, the concept of
sustainability transformed into a business principle that has been defined by the World Bank;
“Sustainability is about ensuring long-term business success while contributing toward
economic and social development, a healthy environment, and a stable
society” (International Finance Corporation, 2007). Sustainability calls for continual
improvement on these three factors leading to increased profits and value to the stakeholders.
The concept of Sustainable Development (SD) is very flexible and the principles can be
leveraged to any industry. The financial sector in specific has been relatively late in adopting
the principles of SD. But, currently it has emerged into an important driver promoting corporate
accountability, transparency and consideration of impacts on environment and society. There
are many reasons to establish SD within a bank, among the most important internal drivers
are:
1. Increased credibility and gain in reputation: According to a survey conducted by
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2. Scotiabank, “More than two-thirds (68%) of Canadians take a company's CSR (Corporate Social
Responsibility) performance into consideration when they make everyday purchases” (Feltmate,
2011). This makes reputation a crucial aspect for a company to pursue and improve. SD directly
improves values such as reliability, quality and consistency through transparency and continual
improvement in the aspects of environment, social and economical factors of a corporation. For
example, Nedbank Group- one of the four biggest banks in South Africa improved its reputation
by adopting sustainability. As a result, it won numerous awards including a second place for
Sustainability Reporting by Ernst & Young in 2005.
2. Lowering risk and better returns: SD helps businesses better manage their risks and
reduce associated costs. It enables this by helping companies identify and mitigate sources of
risk before they become a cost by utilizing a management framework. In addition, it aids
companies in avoiding litigation, legal claims, and demonstrates due diligence on identified
aspects. In relation to the banking industry, Equator Principles helps manage environmental
and social risks associated with new project financings globally with total project capital costs of
USD $10 million or more, across all industry sectors. According to a study conducted by Olaf
Weber an Associate Professor at the University of Waterloo, “…found that integrating
environmental issues into credit risk management improves credit risk prediction, prevents
credit defaults and provides a financial benefit for the lender” (Weber, 2010). Thus,
demonstrating that implementing environmental issues into credit risk management helps
manage both sustainable development and financial risk.
Increased value to shareholders: Practicing sustainability within an organization has
repeatedly demonstrated a positive impact on cost savings and shareholder value. For instance
in Figure 1, SRI (Socially Responsible Investing) Global Equity Funds and MSCI (Morgan Stanley
Capital International) World funds are compared. The chart clearly shows that the return on
investment on SRI Funds mean is considerably higher compared to MSCI World consistently
from 2001 through 2009. In addition, Research Network for Business Sustainability conducted
160 SD studies and concluded that 75% of the organizations showed positive impact and the
remainder showed neutral. This demonstrates that sustainable initiatives may drive revenues
and profits higher, and this could boost stock prices as well.
Figure 1 Comparison between SRI Funds (Socially Responsible Investing) and MSCI World
(Morgan Stanley Capital International)
Canadian Western Bank is on track to achieving sustainability and has numerous initiatives in
the realms of social, economic and environment development. Some examples of these
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