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What is sustainability and sustainable development?

Sustainability is an approach that favours sustainable development. There are over 100 definitions of sustainable development, but the best known is the landmark definition given by the World Commission on Environment and Development (the Brundtland Commission) in 1987. The Brundtland Commission stated that development is sustainable where it “meets the needs of the present without compromising the ability of future generations to meet their own needs.”

What is the role of the financial sector?

The financial sector can impact environmental and social quality in two ways. The first is through the direct impact of financial institutions on the environment and communities in which they operate, and the second, and perhaps more important some would argue, is through institutions’ indirect impact as financial intermediaries, providing financing for corporate operations.

What is sustainable banking when it comes to a bank’s internal operations?

Banks have large facilities, and large numbers of staff. Sustainable banks manage the direct impact of their operations, aiming to reduce their ecological footprint (i.e. the impact on the environment as a result of their resource demands and waste output arising from their operations), while providing a clean, safe and socially just work environment for its employees, through sustainable procurement policies, or reduced greenhouse emissions goals. A number of leading banks seek to turn this approach into a source of business advantage, decreasing heating and energy costs, or powering electricity, for example through co-generation of methane gases from landfills.

What is sustainable banking when it comes to a bank’s lending operations?

Sustainable banking also focuses on environmental and social management at the level of the bank’s core business - its financial products. Key issues include the environmental and social impact of major project and corporate finance transactions. A number of leading banks also aim to use sustainability as a source of competitive advantage - reducing their credit and reputational risks or differentiating the bank through the provision of sustainability products and services to the client.

What are the Equator Principles?

The Equator Principles are a voluntary set of environmental and social screening criteria and guidelines that provide a framework for banks to manage environmental and social issues in project financing. They are based on the environmental and social standards of the International Finance Corporation (IFC), and apply to development projects in all industry sectors with a capital cost of $50 million or more.To date, more than thirty five financial institutions have adopted the Equator Principles, representing over 80 per cent of the project loan syndication market globally. For more details go to: www.ifc.org/enviro

What are the steps that banks follow when they adopt the Equator Principles?

First, banks use common terminology in categorising projects into high, medium and low environmental and social risk, based on the IFC’s categorisation process. Second, banks require their customers to demonstrate the extent to which they have met the applicable IFC safeguard policies and World Bank sector specific guidelines. Third, in the loan documentation for high and medium risk project covenants, banks include covenants that require borrowers to comply with all requirements of their environmental and social management plans.

What is the triple bottom line?

In a business context, one increasingly accepted sustainability approach makes reference to the Triple Bottom Line, in which a company’s decision-making processes factor in environmental and social considerations in addition to the traditional “bottom line” financial considerations. This is also referred to as the Triple P approach, for people, planet and profit.

This FAQ was created by Sustainable Finance Ltd, the technical advisers for the FT Sustainable Banking Awards.

Copyright The Financial Times Limited 2017. All rights reserved.

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