Navigating the cultural shift towards sustainable banking


By Samuel Kweku KUMAH

In the heart of Ghana’s financial sector, a pivotal transformation is underway, marked by the Bank of Ghana’s introduction of its Sustainable Banking Principles in 2019. The Ghana Sustainable Banking Principles reflect a process-led initiative to take account of the environmental considerations, social inclusion, and good governance in the lending decision-making by banks in Ghana.

It is also a guide to the banks in mainstreaming the fundamental tenets of sustainability in their business and operations, leading to enhanced growth and increased returns. Being seven principles, each principle has been designed through thorough stakeholder engagements benchmarked against global industry standards to ensure that its implementation is robust and seamless.

In industry players’ quests to ensure that change begins from within their operations, a major focus has been drawn to principle two of these principles. This sustainable banking principle, aiming to promote environmental, social, and governance (ESG) practices within the internal operations of banks, heralds a significant cultural shift from traditional banking models to a future where sustainability is intertwined with every aspect of banking operations.

As the banking industry grapples with this transition, the challenges and opportunities presented by the adoption of the principle on ESG integration into banks operations come to the forefront, setting the stage for a profound re-evaluation of what it means to be a bank in today’s world.

This principle is not merely a guideline but a call for banks to internalise and champion good E&S practices within their business operations. Drawing upon international frameworks such as the Equator Principles, IFC Environmental and Social Sustainability Performance Standards, and UNEPFI’s Guide to Banking and Sustainability, it sets a high bar for banks to achieve.

The principle emphasizes the identification and management of the banks’ environmental and social impacts, including carbon footprints, resource utilization, and employment practices, aligning them with global best practices. Why is this principle of paramount importance? For banks in Ghana, the answer lies in the myriad benefits that sustainable practices offer – from reduced operational costs and regulatory compliance to enhanced reputation and workforce productivity. However, the journey towards sustainability is fraught with the dilemma of cultural transition.

This cultural transition is pivotal, yet it poses a dilemma for many banks: how to adapt to and embrace these new sustainability-induced lifestyles without incurring high transition risks. The path to sustainability demands a departure from the mainstream banking culture, characterized by profit-maximization and short-term gains, to a culture that places equal emphasis on environmental stewardship, social responsibility, and governance.

As Ghanaian banks stand at this crossroads, the need to navigate this cultural shift thoughtfully and strategically has never been more critical. This article aims to delve into the essence of the mainstream banking culture, explore the new sustainability-induced lifestyle, and offer insights into ensuring a smooth transition to this new culture with minimal risk. The journey ahead is complex, but the rewards of a sustainable banking future are immense, promising a more resilient, responsible, and responsive banking sector in Ghana.

The mainstream banking culture in Ghana: A prelude to change

The banking sector in Ghana, like many across the globe, has traditionally operated within a framework that prioritizes financial performance, often at the expense of environmental, social, and governance (ESG) considerations. This mainstream banking culture, deeply rooted in profit maximization and shareholder value, has driven banks towards short-term gains, overlooking the long-term impacts of their operations on society and the environment.

Historically, Ghanaian banks have been central to economic growth, providing the necessary financial support for businesses and individuals alike. However, this support has often come without a thorough consideration of the environmental or social consequences. The focus has been primarily on the bottom line, with less attention paid to the broader impacts of banking activities. Environmental risks, social disparities, and governance lapses have frequently been sidelined in the race to achieve financial targets.

Regulatory frameworks have traditionally reinforced this culture, with policies and guidelines that emphasise financial stability and integrity but pay less heed to sustainability issues. Compliance has been geared towards financial regulations, leaving ESG criteria as secondary considerations. In this context, the introduction of the Bank of Ghana’s Sustainable Banking Principles marked a paradigm shift.

It challenges the entrenched norms of the banking sector, urging a move away from the singular focus on financial outcomes to a more integrated approach that balances economic objectives with environmental and social responsibilities. This transition towards sustainability is not merely a change in operations but a fundamental shift in the banking culture itself.

The mainstream banking culture in Ghana faces a critical moment of introspection and transformation. Banks are now called upon to redefine their identities, missions, and values in line with sustainable practices. This cultural shift is monumental, requiring a revaluation of traditional banking models and the adoption of new frameworks that prioritize long-term sustainability over short-term profitability. As banks in Ghana begin to navigate this transition, the challenges are manifold.

There is the inherent resistance to change, the need for capacity building in ESG practices, and the challenge of aligning existing operations with new sustainability standards. Yet, the move towards a sustainability-oriented banking culture is imperative. It promises not only to enhance the sector’s resilience and relevance but also to contribute significantly to the broader societal and environmental well-being.

Embracing a sustainability-induced lifestyle: implications for Ghanaian banks

The transition towards a sustainability-induced lifestyle within the banking sector reflects a global paradigm shift. Financial institutions worldwide are reevaluating their impacts on environmental, social, and governance (ESG) frameworks. This evolution goes beyond mere regulatory compliance; it acknowledges the intrinsic benefits sustainable practices offer to the banking industry. For Ghanaian banks, this shift signifies a compelling blend of challenge and opportunity, allowing them to redefine their roles within the global financial ecosystem.

Globally, banks that have incorporated sustainability into their core operations report not just anecdotal success but quantifiable growth. Institutions embracing sustainability have seen stronger growth rates in assets, loans, and deposits compared to their peers who have not yet prioritized these practices. In Africa, for example, Kenya’s Equity Bank and South Africa’s Standard Bank have led the charge, integrating ESG considerations into their business models.

These pioneers demonstrate that the benefits of sustainability extend beyond environmental conservation, unlocking new market segments and bolstering financial performance. For instance, a study by the Global Alliance for Banking on Values shows that sustainable banks offer higher loan to deposit ratios and stronger financial outcomes than traditional banks, indicating a clear business case for sustainability.

For Ghanaian banks, embarking on this sustainability journey involves a comprehensive revaluation of their risk management frameworks to incorporate ESG criteria. This shift is crucial for mitigating long-term risks linked to environmental and social challenges. Operational efficiency improvements, such as adopting energy-saving technologies and minimizing paper consumption, can lead to considerable cost reductions. Reports indicate that banks implementing green building standards and energy-efficient practices can reduce operational costs by up to 30percent, showcasing significant economic benefits.

The regulatory environment in Ghana is increasingly geared towards sustainability, compelling banks to weave ESG practices into their fabric not merely for compliance but as a strategic differentiator in a fiercely competitive market. Transparent engagement with communities and stakeholders, alongside projects aimed at community development, can elevate a bank’s reputation, and fortify its market position.

The burgeoning field of green finance, including renewable energy loans and green bonds, offers an innovative pathway for growth. The global green finance market has experienced exponential growth, with the volume of green bonds issued worldwide reaching $258.9 billion in 2019, signalling a robust demand for sustainable investment opportunities.

However, the journey towards sustainability is fraught with challenges. Ghanaian banks face the daunting task of building capacity in ESG matters and navigating the delicate balance between short-term financial considerations and the long-term benefits of sustainable practices.

Despite these hurdles, the success stories of African banks and global institutions adopting sustainable practices serve as beacons of inspiration. By pivoting towards sustainability, Ghanaian banks can not only bolster their resilience and competitive edge but also make substantial contributions to national and global sustainability objectives, aligning financial success with the broader goal of sustainable development.

Avoiding transition risk in adapting Principle Two

As banks worldwide, including those in Ghana, navigate the intricate path towards sustainable operations, they confront the dual challenge of integrating environmental, social, and governance (ESG) principles while managing the risks associated with such a transition. The blueprint for success involves not just adopting new policies but fundamentally reshaping corporate cultures and business models. This revised section highlights real-life examples of financial institutions that have successfully embarked on this journey, offering insights into effective strategies for a smooth transition to sustainable banking.

Strategic planning and phased implementation are crucial. For instance, DBS Bank in Singapore has set a benchmark by systematically assessing its operations to identify areas for integrating sustainability practices. This process led to the bank significantly reducing its carbon footprint by optimizing its use of energy and resources. DBS’s approach underscores the importance of a meticulous evaluation of current practices and the identification of strategic entry points for sustainability initiatives.

Education and capacity building are pivotal in ensuring that the transition to sustainability is embraced across all levels of an organization. Barclays Bank offers an exemplary case where comprehensive training programs on sustainability and ESG factors have been rolled out for employees across the board. This initiative ensures that every team member, regardless of their role, understands the importance of sustainability and their contribution towards achieving the bank’s ESG goals.

Engaging stakeholders is another critical step in the transition process. Santander Bank has demonstrated the value of transparent communication with customers, investors, and the community about its sustainability ambitions and achievements. Through regular updates and forums for stakeholder engagement, Santander has built a strong reputation for its commitment to sustainability, which in turn, has strengthened its customer base and investor confidence.

Innovation in product development is essential to meet the growing demand for sustainable financial solutions. For example, the Bank of America has successfully introduced a range of green finance products, including eco-friendly mortgages and investment opportunities focused on renewable energy. These initiatives not only cater to the evolving needs of environmentally conscious consumers but also open new revenue streams for the bank.

Collaboration is key to amplifying the impact of sustainability efforts. A notable example is the partnership between ING and the European Investment Bank, which pooled resources to fund sustainable projects across Europe. Such collaborations enable banks to share risks and learnings, thereby accelerating the transition to sustainable practices.

Monitoring and reporting on sustainability performance are indispensable for tracking progress and demonstrating accountability. HSBC’s practice of publishing detailed sustainability reports exemplifies how banks can use data to measure their impact, adjust their strategies, and communicate their progress transparently to stakeholders.

These examples from around the world illustrate how banks can successfully transition to sustainable operations by adopting a strategic, inclusive, and innovative approach. By learning from these real-life cases, Ghanaian banks can navigate the transition risks more effectively, ensuring not only their contribution to a more sustainable future but also enhancing their resilience, competitiveness, and appeal to customers and investors. The journey toward sustainability may be complex, but with careful planning and execution, it holds the promise of transforming the banking industry for the better, both in Ghana and globally.

>>>the writer is a sustainability professional with expertise in research, impact management, and sustainability reporting. Currently serving as the Research and Impact Management Officer in the Partnerships, Sustainability, and CSR department at Fidelity Bank Ghana, Samuel has demonstrated a robust capacity for implementing and reporting sustainability research and impact strategies that align with global standards.

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