Why Sustainable Finance is the Future of Banking

Sustainable Finance, defined as taking Environmental, Social and Governance (ESG) considerations into account when making investment decisions, has gained momentum in recent years across the globe.

With more governments, businesses, and investors exploring sustainable finance strategies, institutions are becoming more resilient through the identification and mitigation of environmental and social risks; more innovative in updating their business models, technology and processes; and achieving greater stakeholder relationships by valuing social and human capital.

At its core, sustainable finance represents a fundamental transformative shift in how financial institutions could (and should) act with greater urgency in contributing to a better future.

Much of the impact that sustainable finance will have on the future of 21st Century banking will stem from just how much it is able to guide and motivate regional financial institutions as advocates in the pursuit of sustainable development, particularly for Small Island and Developing States (SIDS).

A Catalyst for Positive Change
One of the primary goals of sustainable finance is to bring about positive change by creating a financial system that incentivises institutions to implement, support, and champion practices that lead to more resilient, inclusive, and sustainable economies.

Sustainable finance, therefore, not only aligns financial interests with environmental and social goals, it also presents significant opportunities for financial institutions to have a tremendous positive impact in these areas. For example, in order to incentivise Small and Medium Enterprise (SME) customers to adopt more environmentally and socially responsible practices as part of their overall operations, the Republic Group launched an SME-focused loan facility, guided by an Environmental and Social (Risk) Management System (ESMS) that sets measurable lending and investment prerequisites such as requesting customers to submit reports on their ESG risks before any financing is provided.

The Group also developed an ESG Policy Framework and Guidance Document and an ESG Group Data Management Platform, both of which became pivotal in providing additional structure as the Group sought to leverage its long-standing social investment programme, the Power to Make a Difference, to invest in creation of a viable local (and regional) business ecosystem.

Most recently, this paved the way for partnerships with organisations like the MARVISTA Institute for Agricultural Training & Development in support of programmes that educate farmers on climate-smart crop management practices. It also led to a successful collaboration with the Trinidad & Tobago Chamber of Commerce and Industry with Digimark Reloaded, giving MSMEs the digital tools and knowledge they need to thrive.

While there are different sustainable finance strategies that financial institutions can adopt to have greater environmental and social impact, a proactive and inclusive approach is the key that will unlock more opportunities to champion viable environmentally-friendly projects and programmes, climate change, food security, renewable energy, and sustainable land and water use initiatives.

Looking ahead, as sustainable finance and corporate social responsibility become intertwined, additional doors can be opened through investment in programmes that focus on promoting human development, healthcare, education, social inclusion, gender equality, and community development; all of which contribute greatly to improving the overall quality of life.

The Republic Group and Sustainable Finance in the Caribbean Today
In 2021, the Republic Group set a target to lend and invest US$200 Million in climate financing across operations in the Caribbean, Suriname, and Ghana. To date, the Group has met 75% of this goal – just around US$150 Million in sustainability related projects in clean energy, maritime, transport, energy efficient, environmental protection, water management, waste management and sustainable agriculture.

Additionally, the Group has established an Agriculture Financing Target of USD $100 Million for CARICOM member states as it seeks to play its part in reducing the region’s food import bill. These are just a few of the ways the Group stays vigilant for ways to support partners and programmes that have positive social and environmental impacts and can help ensure a more resilient future.

With each successful venture, the Group aims to empower more business leaders and communities to action; encouraging a wide range of willing stakeholders to come on board in a wholehearted embrace of sustainable finance as a viable investment strategy.

With the possibility of additional opportunities like the implementation of green debt instruments, the growth of local and regional electric vehicle markets, and the development of a sustainable green real estate sector in the near future, the future of sustainable finance is an open one. For now, as existing opportunities continue to be created and seized, institutions must stay the course in keeping sustainable finance as a priority and a practical response to the call for investment strategy.

Sustainable Finance for Tomorrow
For financial institutions in the Caribbean today, sustainable finance is not merely a dollars and cents decision; it is a prudent one. Understanding sustainable finance, therefore, is vital in a world where economic activities and success are fundamentally linked to the value of one’s environmental and social strategies, programmes, and partnerships.

While there are concerns over data gaps, fluctuating methodologies, low levels of investor awareness and expertise, and effectively policing and preventing greenwashing, the benefits of sustainable finance stand unchallenged.

Overcoming these challenges will take time and collaboration. It will call for more robust reporting and disclosure practices, stakeholder engagement and empowerment, and an earnest effort to address ongoing issues and plan for future ones. When the time comes to transform talk into action, the framework would already be in place to galvanise financial institutions in the fight against climate change, resource depletion, and social disparities.

Sustainable finance is clearly the way forward. Not just for the future of banking, but for the future of our world and our people.