Introduction to Sustainable Banking and the Need for Sustainability
We begin this course by going back to the first days of modern banking. Then banks grew because they could help other businesses grow and because they could be and were trusted. It was serendipitous for all concerned: banks grew rich, business, trade and commerce thrived, investment and innovation meant new products and markets and society prospered. This was sustainable banking for a time except such growth could not be sustained by the planet. During the financial crisis much of that trust was lost, many businesses are now reluctant to borrow or invest and central bankers are struggling to boost flagging economies. Sustainable banking is not a new concept but the need for it greater than ever before.
In this session we will look at some of the basic principles of sustainable banking, some the initiatives and compare and contrast with examples of banking in the 19th century and with Islamic Finance.
What is Sustainable Banking?
- The origins of sustainable banking and the role of banks in society and wealth creation
- The basic principles of sustainable banking
- The Global Alliance for Banking on Values Principles of Sustainable Banking
- Similarities with Islamic finance
Case study: The British Quaker banks the 19th century
Why do We Need Sustainability?
We look at growth. We will see how money, wealth and debt have all grown over the last three centuries and how this accompanied economic, technological and social development. We know that exponential growth can never last forever in the real world and that the climate is changing. The nature of growth in future will have to change. We will discuss whether growth can ever be sustainable and how sustainable banking can be part of an attractive future for us all.
- The growth of debt and wealth
- Climate change
- Population growth
- Limits to growth?
- The financial case for sustainable banking
- A sustainability revolution?
Case studies: The Global Alliance for Banking on Values
Building on the previous session we will explore the sources of wealth and the importance of innovation, creativity and trust.
Banking, Wealth Creation and Society
- The growth of money, debt and leverage
- Sources of wealth
- Innovation, creativity and trust
Case study: The Global Financial Crisis, parallels with Enron, Money, debt and leverage
What to Do When Things Go Wrong
Here we consider what banks can do if there is a crisis. This is part of good risk management but difficult in practice. Of course, not having a crisis in the first place is better.
- Whistle blowing, disclosure or cover up?
- Corruption in banking and preventing it
- Reputation management
Case study: Volkswagen
Sustainable Banking in Developed Economies
Sustainable banking is developing differently in developed markets and developing ones. Sustainable banking in developed markets appears to be driven partly by reputational needs and the desire by banks to restore trust. We will look at what is happening.
- Practice in different countries and companies
Case studies: Scotland and RBS, The Netherlands and Triodos Bank, Handelsbanken
Sustainable Banking and Finance in Developing Economies
In developing economies sustainable banking is more about providing finance for sustainable development. We will discuss what is happening.
- Project finance and the Equator Principles
- The IFC Sustainable Banking Network
Case study: The Nigeria Sustainable Banking Principles
Understanding Banking Environment Today
Banking environment is changing more rapidly than ever before. This session explores the developments in banking and how leadership, fresh strategies and back to basics approach are the main initiatives launched by banks to recover stakeholders trust and to face the new challenges of the industry: customer behaviour, regulation and technology.
- Social role and main characteristics of the banking industry
- Banking evolution over the last years: from local to global approach
- Lessons learned from the recent subprime crisis
- Challenges of banks today (regulation, digital technology, efficiency, stakeholders, social media, trust, etc.)
- The new responses to stake-holders and society needs
Culture Change and Business Models
This session will explore the new values and beliefs framework which is guiding the banking executives and rest of the staff to act with integrity, clarity and transparency in all their performances and businesses, putting their stakeholders at the centre of the banking activities. Innovating and offering suitable products to savers and investors and building up long term sustainable relationships with clients based on confidence and shared value will be the key elements of success for banking in the near future.
- Integrity in Retail Banking: client-centric approach, impact of corporate communication and proximity banking
- Sustainable investment: Socially Responsible Investments (SRI)
- Good practice in derivative markets
- The changing regulatory framework
Case study: Financial products miss-selling in Spain and Ireland
Impact of Regulations on Banks
New Banking Regulations has come to stay and their demanding requirements are pushing banks to change their business models and to divest from non-core businesses or risky assets. We will discuss during this session how banks will have to do business in this new normal environment. The aim of new regulation is to make banks have strong balance sheets and keep the appropriate liquidity and leverage ratios, to protect financial product consumers and to foster safe and efficient financial markets. Policy-makers and regulators would have to see how to strike the balance between enhancing financial stability and not going too far to the extent that innovation and competition get stuck and credit is not extended to real economy and society.
- How banks have changed the way in which they operate
- How to make profits in a regulated environment
Case study: Main Basel III requirements: Towards a new business model for financial institutions
Corporate Governance, Risk and Performance
Culture change in banking is only achievable with the existence of a solid and firm governance formed by members who have long term vision, know the strategy and the risks associated, are committed with ESG matters and set the proper incentives structure tied to long term goals The corporate governance framework based on ethical principles and a strong risk control structure has become an outstanding means to ensuring compliance with the social role of banking and with the coming regulation, keeping all risks under control and building a resilient organization.
- Introduction to governance frameworks
- CSR strategy and corporate governance
- Culture, resilient and risk management
- Risk management essentials and frailties
- Using the Financial Stability Board Framework on Risk Culture
Case study: Lehman Brothers - the originate-to-distribute model: the subprime mortgages scandal
Putting it into Practice
This half day will be a highly interactive session where we put theory into practice. We will look at various ways of presenting banks' business models and assessing banks' performance in relation to the different components of the business and sustainable banking principles. We will develop action plans for implementing sustainable banking or improving on existing progress.
- Business models and sustainable banking
- Assessing an institution's performance in relation to sustainable banking principles
- Developing action plans to implement sustainable banking
Case study: Business models, measures and identifying your own bank's business model
Understanding Culture, Values and Ethics
People are an organisation's greatest asset. We have all heard this and most of us believe it to be true. Why then do staff often think that management believes the opposite? In this session we will learn about incentives, motivation and behaviour. Staff who feel valued, respected and appreciated will work hard to make a good bank better and please stakeholders. Staff who don't will leave or, worse, may stay but damage the bank in subtle ways and sometimes dramatically. We will discuss how rules and procedures work and how they fail. We will learn how ethics, values and culture can be assessed and how banks can protect themselves from people risk.
- Staff, - what are they thinking?
- Incentives and behaviour
- Attitudes to rules and compliance
- Ethical and values frameworks
- How to encourage an ethical culture
Case study: Assessing culture, values and ethics in Intergalactic Imperial Bank (role play)
Telling the World - Corporate Reporting
Transparency is increasingly important. Today banks need to be able to tell the world they are doing well and be seen to be doing well. Stakeholders now want much more information than just the financial accounts. They want to know how banks are doing in terms of social, ethical and environmental performance as well as more useful information on financial performance. And they want quality information not glib statements or spin. In this final session we will look at the new reporting frameworks and some of the best examples of good practice.
- Financial reporting and the limitations to accounting models today
- Stakeholder mapping
- Non-financial reporting and key performance indicators
- Sustainability and Corporate and Social Responsibility reporting
- The Global Reporting Initiative and the International Integrated Reporting Framework
- Selected recent examples of good reporting on sustainability
Case studies: Confidence accounting, own debt and procyclicality, examples of good reporting
End of Course