The concept of stakeholder centres on the matrix of power and interest. Any individual (or group of persons) or organisation who has an interest or the power to influence is a Stakeholder. In the context of business, major stakeholders are shareholders, employees, suppliers, customers, competitors, and the government/governmental agencies. In the same vein, key stakeholders in the Nigerian banking sector are the Central Bank of Nigeria (CBN), other Banks/Financial Institutions, shareholders and investors, suppliers, employees, and the Civil Society; not forgetting the citizens i.e. the Banked.
On July 22, 2012, Banks, Discount Houses, and Development Finance Institutions in Nigeria signed the Nigerian Sustainable Banking Principles (NSBP), which committed them to consider and integrate Environmental and Social concerns into their business activities as well as closely manage Environmental and Social Footprints all through their operations. The principles further committed them to respect Human Rights whilst strengthening Women’s Economic Empowerment and then, constantly seek to deepen Financial Inclusion. It also obligated them to put in place E&S Governance structures, ensure periodic Capacity Building exercises and initiate Collaborative Partnerships, not leaving out Reporting metrics.
These principles were set up with a projection that successful implementation will have a significant impact on the sustainability of the Nigerian banking sector, the oil and gas, power and agriculture sectors, as well as pave the way for sustainability and responsible business practices in Nigeria.
Having critically examined the nine principles in last week’s edition, we established that all commercial/merchant banks have adopted it although, the number of other financial institutions which have committed to the NSBP has not be ascertained. Nevertheless, the extent of the sustainability to many stakeholders in the financial sector is yet to be substantiated after five years of its (NSBP) existence. This notwithstanding, the adoption and implementation of the principles by financial institutions can only record any significant improvement in the financial services sector when every stakeholder actively commits to their responsibilities. The key stakeholders to the NSBP being the CBN, the Banks, and the Banked.
The Central Bank of Nigeria (CBN): The CBN is the custodian and regulatory body to the NSBP; it is saddled with the responsibility of monitoring the implementation of the Principles across the industry. Within the past five years, it has driven the adoption and implementation of the principles their guidelines. According to the office of the Special Adviser to the CBN Governor on Sustainable Banking, the Apex Bank on March 6, 2014, issued a reporting template “Reporting Template for the Nigeria Sustainable Banking Principles”, to enable it effectively monitor the progress of implementation of the principles with a view to ensuring appropriate intervention to help resolve implementation challenges, and provide an objective, fair and equitable basis for possible incentives. The role of the CBN would therefore be crucial to the success or failure of the principles.
Having monitored and driven implementation for five years, the CBN, as a co-adopter of the principles can also stimulate other institutions by publicly sharing progress and implementation reports of the Apex Bank on the NSBP, to serve as a motivation to other signatories. This will not only increase dedication to the principles, it can likewise initiate similar principles in other sectors of the economy.
Principle Nine which focuses on reporting stipulates that a bank should aim to produce a report on an annual basis to its stakeholders, it also implores signatories to produce external reports at least annually on the relevant progress and performance made in implementing the principles in order to inform a sector-level report in the collective success on the implementation of the principles. For compliance with the stipulations of this principle, the CBN would need to set an example. Through this gesture, a collective sector-level report needed to inform and reflect the implementation and progress of the principles, as well as assess the state of sustainable banking in Nigeria would have been a reality. Consequently, sustainable banking seems like a mirage without sufficient data and reporting on progress made as well as challenges faced by reporting institutions.
In the same vein, as against the requirement of the NSBP guideline specifying that individual banks develop reporting templates, a uniform but nationally recognised reporting format should be developed. This would ensure alignment and guarantee better performance of banks and the sector as a whole.
The Apex bank would need to further sensitize both the banks and the civil society on the importance of sustainable banking and on the NSBP. Based on our study on ‘The NSBP: A Five Year Review’, the principles have not yet generated the expected, viral knowledge amongst stakeholders (especially amongst customers/civil society) who should hold signatories accountable and benefit from sustainable banking.
Nonetheless, constant engagement with other stakeholders on the importance of sustainable banking and the NSBP will generate an improved approach, response, and ownership of the principles whilst curbing box-ticking. Undoubtedly, the CBN as the regulatory body would be most-effective in the facilitation of this type of engagement.
The power of incentivisation cannot be undervalued in economic activities; incentives undoubtedly contribute to the success of new ideas/regulations. The CBN can in addition to its regulatory role, promote the implementation of the principles, using rewards, recognitions and perhaps sanctions, in order to motivate improved implementation.
The Banks: Undoubtedly, implementation of the Principles both at the bank and industry levels have been commendable. Yet, according to the Central Bank of Nigeria, although all the 26 Deposit Money Banks in Nigeria have adopted the NSBP by virtue of their membership in the Banker’s Committee, yet they are not expected to be cajoled into implementing it. It is the responsibility of every signatory to voluntarily integrate it into their operations, as partners in sustainable banking. Incidentally, it is important to note that by design, implementation of the NSBP is principle-based and not rule-based (according to our interview with the office of the Special Adviser to the CBN Governor on Sustainable Banking), thus, banks would need to understand the business case for sustainability in entrenching the principles into their corporate strategy in order to achieve maximum benefits. Moreover, the only means to a smooth integration and implementation of the principles is by considering it ‘a way of business’ rather than a ‘business ritual.’
According to our study on ‘The NSBP: A Five Year Review’, sustainability officers of some banks are concerned with the limited understanding/awareness of the public about the principles and a lack of commitment from top management of various banks. The banks are saddled with the responsibility of communicating the ideals of the NSBP to all stakeholders – including staff and customers and most especially, the specific sector clients (power, oil and gas, and agricultural sectors). More so, the only way success can be guaranteed is by securing management commitment.
The apparent differences in the operations of the various financial institutions – commercial versus merchant bank and microfinance banks suggests the need for a review of the principles, in order to suit specific operations of the various institutions and to guarantee the long-term financial success of these institutions and the financial sector as a whole. This however has to be done with full stakeholder participation, including the civil society, major clients and investors. Furthermore, a study of the NSBP Guidance Note reveals a promise of signatories to review the principles on an annual basis based on CBN’s implementation experience and in order to reflect ongoing learning and emerging good practices.
Ultimately, in as much as the banks constitute members of the Banker’s Committee, they have a major responsibility in ensuring the success of the NSBP; which they voluntarily set up.
The Civil Society/the Banked: We highlighted the expectations for each principle in last week’s edition in order to acquaint the civil society and by extension, their customers with the essence of the principles. The prime obligation of the civil society to the NSBP is to ensure accountability. Every citizen/customer/client should therefore be knowledgeable about the NSBP in order to hold the banks accountable for implementation. To this end, monitoring, participation in reviews, and demand for reports are key effective means to securing accountability from the financial institutions, including the CBN and the Banker’s Committee.
Particularly, practitioners in the power, oil and gas, and agricultural sectors (the three priority sectors of the NSBP), should be as knowledgeable about the principles as the CBN, the Banker’s Committee and the Banks.
In conclusion, integrating Sustainable Banking into strategy and business practices amongst other benefits, empowers organisations to better manage risks, increase brand reputation, boost investors’ confidence, improve customer relations and create new investment opportunities. Ultimately, it plays a crucial role in achieving overall sustainable development in any economy.
Certainly, the implementation of the NSBP has brought to fore the need for banks to embed sustainability in their operations and business activities. Yet, sustainability is still not a ubiquitous trend in the sector. The NSBP is a progressive step towards sustainable banking and sustainable development in Nigeria nonetheless, active stakeholder commitment is indispensable to its maximum success.
CBN (2012), Nigerian Sustainable Banking Principles (Guidance Note): Final Version