Banks as agents of change
The global financial crisis shaped the vision that the client should once again be put central in the financial world. But is this enough? Shouldn't the ambition level go up for institutions with an important social role?18/03/2010
Trust is the main ingredient to the financial sector, because it ensures a constant capital flow into the sector. To maintain confidence in the banking sector banks need to fully restore the trust put in them not only by customers, but by all stakeholders of these institutions. This means that banks should take into account all direct and indirect stakeholders when defining and implementing their strategy. The underlying idea is that the banking sector should not only focus on the causes of the financial crisis, but should also consider the impact of the climate crisis and the food crisis on society.
Environment
Many economic analyses look at how western societies can return to the economic growth of before the crisis as soon as possible by making some adjustments in regulatory and remuneration policies. However, more fundamental changes are needed in bankers’ economic thinking and acting. It is essential that they take the boundaries of growth as a starting point and take into account the impact of production on the environment and depletion of natural resources. Our national product should not just be measured in economic terms, but should also consider the costs for the environment. Sustainability is good business.
Banks Must Go Back to Basics
Attract money from new customers and channel it in a responsible way to businesses that contribute to a sustainable society. Many banks still focus on compliance to formal regulations. A big step forward would be if banks would see sustainability as good business and would integrate sustainability within the company. To achieve that, a shift from the short to the longer term is necessary when reviewing investment opportunities and risks. Banks can in their policies make a significant and proactive contribution to sustainability by selecting companies that produce in a durable way, offering products which stimulate sustainability, only providing loans if companies meet certain sustainability criteria and offering lower interest rates to companies that provide a positive contribution to a sustainable society.
Credit
In the developing countries and emerging markets where FMO (the Netherlands Development Finance Company) is active, access to financial services is still very limited. By focusing on the provision of services (credit and savings) to entrepreneurs, for example small and medium sized enterprises, and to low income groups in their country, banks can directly contribute to reducing poverty and improving living standards.
The financial crisis made many banks in Europe and the US decide to withdraw from developing countries, causing a negative effect on the economies of those countries and access to credit. It is of great importance to developing countries in Latin America, Africa, Eastern Europe and (Central) Asia that the international banks return to these regions and thus make a contribution to sustainable economic growth. Development banks such as FMO can play a catalytic role in the process of becoming agents of change.
The Netherlands Development Finance Company (FMO) is the international development bank of the Netherlands. FMO invests risk capital in companies and financial institutions in developing countries. With an investment portfolio of €4.2bn, FMO is one of the largest bilateral private sector development banks worldwide. Thanks in part to its relationship with the Dutch government, FMO is able to take risks which commercial financiers are not – or not yet – prepared to take. FMO's mission: to create flourishing enterprises, which can serve as engines of sustainable growth in their countries.
Further information: www.fmo.nl
