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Emerging markets are hardest hit by many of the problems of sustainability and are also least prepared to deal with them. At the same time, they are the great hope for growth for a banking community that has seen its profits in developed markets wiped out by the credit crisis.
“Humanity is on a collision course with the finite limits of the planet,” says Jennifer Morgan, sustainable business manager at WWF-UK. “We are eating into the natural capital of the planet’s resources and no longer living off the interest,” she adds.
“Water, energy, food and climate issues are having the biggest effect on emerging markets,” says Debbie Whitaker, head of sustainability at Standard Chartered, the global bank.
Interest in sustainability varies according to local characteristics. The strong showing of South Africa reflects the growth of the black empowerment movement as well as its relatively advanced economy; the importance of biodiversity and the Amazon in the national psyche of Brazil has translated into a strong emphasis on environmental issues, while the transition from a command economy to a market economy has coloured the approach to sustainability in Eastern Europe. In China, local issues of air, water, land and energy access are driving innovation in green credit and sustainable banking.
Greg Larkin, banking analyst at Innovest Strategic Investors, says that Brazil and South Africa are the most developed. “They have the luxury of not having to focus on growth at any cost,” he says.
In China, “the view is: we just need to grow,” while in a market such as Russia, so much depends on political patronage that a Russian bank “cannot walk away from a deal because of sustainability issues if the government wants it financed”.
It is no coincidence that sustainability performance is linked to the political system, he says: “If you have free and fair elections with rapid growth, you see a fundamentally different pattern of sustainable development because the government has to have some kind of popular mandate,” he says.
The nominees for the Emerging Market Sustainable Bank of the Year award are a mix of domestic banks, such as Nedbank of South Africa and Banco Real in Brazil, and the regional arms of global banks, such as Raiffeisenbank (Bulgaria) and HSBC (Latin America). This reflects the pressures pushing sustainability up the agenda in emerging markets.
The policies of global banks are spreading across their international networks, partly driven by initiatives such as project finance guidelines, the Equator Principles and the United Nations’ Principles for Responsible Investment.
“We are increasingly seeing a process of standardisation in processes,” says Francis Sullivan, adviser on the environment at HSBC. “This means that when banks work together, they speak a common language.”
There are real benefits to having a global reach, as well, he adds. HSBC is applying lessons learnt in developing a wind farm in India to similar projects in Latin America, for example.
However, domestic banks are also developing the agenda. Rachel Kyte, vice-president, business advisory services at the International Finance Corporation, says that while developed world banks have progressed from seeing sustainability as a reputational and extra financial risk issue to making it a business driver. “In leading emerging markets banks we are seeing that path shorten – emerging market banks are growing using the sustainability business driver as the leading edge of their growth strategies,” she says.
Institutions such as India’s YES Bank and Banco Bradesco of Brazil are leading the way in opening up the financial services sector to the unbanked through innovative microfinance operations. While many global banks’ microfinance operations are run almost on philanthropic lines, these are highly commercial operations, according to Kirsty Jenkinson, associate director, governance and sustainable investment at F&C.
Climate change is the other big theme. An HSBC survey found that people in emerging markets were more concerned about the issue and more committed to tackle it than their counterparts in the developed world. This is not surprising, according to Ms Kyte. “In the developed world many people are not feeling the immediacy [of climate change]. In many emerging markets the scarcity of water, to be compounded by climate change, places a real immediate constraint on growth,” she says.
There are fears that sustainability will not remain a priority in the face of global economic contraction. But many believe sustainability is here to stay: “It is no longer a ‘nice-to-do’, it is pretty much an imperative,” says Meera Sanyal, head of ABN Amro India. “Nor is it a case of having to choose between economic growth and sustainable development. It is not either/or – we need both.”