Sustainable banking: overview and future avenue

Banks have a role to play in directing the flow of social capital and should use their characteristics to direct it towards sustainable development. Sustainable banking is defined as the delivery of financial products and services that are developed to meet the needs of people and create profits while protecting the environment (Yip and Bocken, 2018). Banks play an important role in the financial system and have a huge impact on the country and global financial stability. In the context of sustainable development trends, the banking sector has a responsibility to bridge the gap between top-down and bottom-up transformations to enhance the well-being of people globally. Also, because of its effects as a financial intermediary, banks can influence the pace and direction of development of their clients and their own business models (da Silva Inácio and Delai, 2021). The subprime crisis, the financial crisis of 2008, the fourth industrial revolution and the Covid-19 pandemic have all profoundly accelerated the development of sustainable banking. 

Research on sustainable banking focuses on three levels, ethical foundations, products, and business cases. Ethical foundations refer to regulation and corporate governance as ethical foundations helping the construction of social and ecological meaning, distinguishing sustainable initiatives from opportunistic and greenwashing (Arend, 2012). Financial products are specific financial products that promote sustainable finance. The business case focuses on exploring the link between sustainable banking and corporate performance (Aracil et al., 2021). Aracil et al., (2021) claim that research on sustainable banking has so far focused on the business case, with less attention given to ethics, this indicates a strong research interest in instrumental issues. It is therefore reasonable for this blog to consider whether it is possible to combine an examination of the business case and the ethical dimension, which implies an alignment between bank performance and sustainability goals. Although this issue has been pointed out in previous blogs. However, it may be difficult to advance together in the practice of bank development. Barnett (2019) argues that the ethical stance of banks should be the basis of their products. This can be achieved by developing financial solutions for low-income customers or by mitigating environmental impacts, thus reconciling instrumental and ethical.

 

Finally, this blog would like to pose a question for readers to discuss, perhaps the envisaged goal of net zero emissions by 2050 is successfully achieved. So where do we go from here? Firstly, there is no doubt that the net-zero outcome will be maintained. Secondly, what is the end of the sustainable road? This blog believes that perhaps short-term ESG targets can be achieved, but there is no end to the sustainable road, as humanity needs to constantly explore development paths that keep pace with the times, and banking, as an agency, have responsibility to pursue the enhancement of the well-being of people around the world.

References

Arend, R.J. (2012). Ethics-focused dynamic capabilities: a small business perspective. Small Business Economics, 41(1), pp.1–24.

Aracil, E., Nájera-Sánchez, J.J. and Forcadell, F.J. ( 2021). Sustainable banking: A literature review and integrative framework. Finance Research Letters, 42, p.101932.

Barnett, M.L. (2019). The Business Case for Corporate Social Responsibility. Business & Society, 58(1), pp.167–190.

da Silva Inácio, L., Delai, I.(2022). Sustainable banking: a systematic review of concepts and measurements. Environ Dev Sustain 24, pp.1–39

Yip, A.W.H. and Bocken, N.M.P. (2018). Sustainable business model archetypes for the banking industry. Journal of Cleaner Production, 174, pp.150–169.