​​​​​​​​​​​​​​​​​​​​​​​Sustainable Finance

Moving t​​owards sustainable finance: a ​perspective of local banks 


​The importance of sustainable finance

Sustainable finance has become one of the top policy priorities in banking and finance as we enter 2019; it is no different in the regional- and locally-focused savings and retail banks that WSBI-ESBG represents in 80 countries, representing the interests of approximately 6,000 banks in all continents.

Building more sustainable economies is of utmost importance. The effects of climate change are now being felt around the globe through increasingly severe weather patterns and natural disasters. The impact this is having is noticeable for WSBI-ESBG member banks as well, as we are present in remote areas, close to the people, and focus the majority of our work on SME and private household lending. Working for a sustainable future, in particular tackling climate change and strengthening social cohesion, is a priority for citizens, businesses and local communities in our towns and regions.


How can WSBI-ESBG members help?

Shifting to a more sustainable economy will imply important changes to key sectors such as housing, transport and manufacturing. A successful transition to a sustainable economy will only happen if everybody works together. Savings and retail banks are willing to bear their part to support this change. We are fully aware that the transition to a sustainable economy implies taking into account risks, including transition and asset risks, but also entails sustainable growth opportunities like financing energy savings and investments in renewable energy, or funding new approaches to mobility.

Regional and locally-focused savings and retail banks provide fundamental banking services, such as bank accounts, loans and financial advice, to their customers – primarily private households, SMEs and local/regional communities. Based on the social tradition of our members, we are fully aware that sustainability should integrate social as well as environmental aims. Therefore, striking a balance between what is green and what is social is of crucial importance. We also agree that good governance is fundamental for any sustainable economy.


What can policy makers do?

​In 2019, policy makers around the world are taking into account the impact that human activities have on the environment. The Sustainable Development Goals, the UNEP FI Principles for Responsible Banking, and the Task Force on Climate-related Financial Disclosures (TCFD) Recommendations have all set out frameworks that banks are encouraged to adopt, in order to sustain local development and ensure a more sustainable future. We are supportive of achieving these goals and have published a note on the SDGs on our website.

With this in mind, WSBI-ESBG members are following closely the EU-level Action Plan on Sustainable Finance​, including the debate on the taxonomy and sustainability ratings and research. As our business models traditionally have been responsible and conscious of the needs of society, we are particularly interested in policies fostering both environmental and social aims. We urge EU policy makers to adopt measures that are applicable in a straightforward manner for the finance industry, including a reasonable sense for the principle of proportionality. This is of crucial importance to WSBI-ESBG's regional- and locally-focused member banks.

Overall, we warmly welcome the objective to channel more funds into sustainable projects. This should be done by giving true incentives to the real economy, private households and SMEs to make sustainable solutions attractive at local, national and global levels.

In this regard, we point out that retail banking activities are fundamentally different from wholesale banking activities regardless of size. In addition, the differences between banking, asset management and insurance have to be fully considered and taken into account. We therefore urge policy-makers to design sustainable finance policies adapted to the specificities of retail banking and supportive of a diversified banking sector. We also encourage them to adopt legislative steps in the right order. In this respect, regarding the parallel initiatives being carried out at EU level, whose objectives have our full support, WSBI-ESBG urges policy makers to carefully consider timelines for implementation. For example, it is necessary to have a common understanding of what environmentally and socially sustainable investments are before implementing compulsory requirements relating to ESG products. Finally, we also underline that unnecessary administrative burdens should be avoided as they would be counter-productive and hinder the market for ESG products. Legislative initiatives should always include cost-benefit and impact analyses, pursuant to the better regulation principles, so as to ascertain that greening the economy is fully coherent with the social aims supported by retail banks, sustaining local communities and SMEs, which is most crucial for innovation and job creation.

At the international level, we welcome the institution of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS)​. The Network's purpose is to help strengthen the global response required to meet the goals of the Paris agreement and to enhance the role of the financial system to manage risks and to mobilize capital for green and low-carbon investments in the broader context of environmentally sustainable development. We nonetheless underline that the assessment of capital buffers should be purely risk-based and capital requirements should not be detrimental to the goal of financing a sustainable economy.

In order to connect finance with the global and the EU's agenda for sustainable development in a fruitful way, it is crucial to smoothly guide investors into a low-carbon future without disruptive impacts on the whole economy and to reduce the cost of financing to raise sustainable finance. The Commission highlighted in her supporting papers [1] to the Communication 'A Clean Planet For All' that “climate and environmental risks should be mainstreamed in economic and financial decision-making and the valuation of assets. Once markets and credit risk agencies will price climate risks properly, borrowing conditions will adjust to favour sustainable investments." ESBG welcomes such an approach which should support the re-orientation of capital flows towards green and sustainable investments.


What next for us?

​​Retail and savings banks are committed to support fully the transition to a sustainable economy. At the same time, we trust that both international and EU decision makers know that some changes, such as updating IT infrastructure, recalibrating risk assessments and reviewing financial advice, take time and additional resources to implement. Furthermore, in some respect, a lack of appropriate data might hamper the swift application of new processes. An adequate transition period and suitable requirements and expectations during this transition period will be fundamental to cater for the specificities of retail banking. Furthermore, some flexibility would be very much appreciated by savings and retail financial institutions within the WSBI-ESBG membe​rship to implement new legislation whilst we move forward in supporting the economy to become more sustainable in the near future.

Since building up an environmental and social economy, with a strong governance at its service, concerns us all and since a lot of effort is being required from all of us in order to transition to a more sustainable economy, we are stretching out our arms and invite decision-makers all over the globe to work together with WSBI-ESBG and its members. Let's build a more sustainable future together.


[1] European Commission “In-depth analysis in support of the Commission Communication 'A Clean Planet for All' COM(2018) 773", 28.11.2018, see page 238​

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