Financial crises usually call for major policy responses as well as frameworks to contain the damage done to the economy and the society, in order to safeguard financial stability in the future. In order to manage the risk of continuous distress in the Nigerian banking sector, the CBN in 2012 integrated sustainable business practices into the sector with the prioritisation of Sustainable Banking and Environmental & Social Risk Management. The Nigerian Sustainable Banking Principles (NSBP) came into force after the Bankers’ Committee approved its adoption for Banks, Discount Houses, and Development Finance Institutions in Nigeria. Thirty four (34) financial institutions then, signed and committed to implement the principles.
Financial institutions (Commercial Banks, Investment Banks, Microfinance Banks, Insurance Companies, Brokerages, and Pension Funds) play strategic roles in the economic development of a nation through the provision of financial services as a catalyst for economic progress, poverty alleviation, and ensuring the general well being of the economy and the people. Due to the undeniable relevance of this sector, every country holds the stability of its financial sector in high esteem.
July 22, 2012 recorded the kick off of a new era in the financial services sub-sector in Nigeria – with the Nigerian Sustainable Banking Principles (NSBP). Since the inception of the banking sector in Nigeria in 1890, there have been several episodes of distresses that have left the sector fairly stable until the 2000s. The consecutive insolvency, and closure of banks in the 1990s dipped the hitherto growing saving culture of Nigerians, led to job and business loses. The most tumultuous bank crisis in 2009 thereafter left twenty four (24) banks on the brink of collapse, initiated a bail out of eight by the Central Bank of Nigeria (CBN) and led to several bank mergers.
The Nine (9) Principles require the signatories to formally integrate environmental and social risk management into investment and lending decisions, by introducing frameworks to identify, assess and mitigate such risks. They cover areas like environmental and social risk management, governance, transparency and accountability, whilst supporting capacity building in the sector and promoting collaborative partnerships to accelerate progress. In addition, it is well thought-out so they cover the areas of women’s empowerment and financial inclusion. Most importantly, the Principles include specific sector guidelines, specifying risk assessment in the high-risk sectors of oil and gas, power and agriculture.
When signing the Principles, an organisation commits to a strict timeline of implementation, with clear expectations, deadlines and milestones to meet annually. The Principles represent an impressive aim to drive change in a crucial sector of the country’s economy. While the Principles are consistent with international standards such as the Equator Principles, they are tailored for the Nigerian context and development imperative. They are developed by Nigerians and for Nigerians, which is critical to their successful implementation.
Successful implementation of the Principles will therefore 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 practice in Nigeria.
Principle 1: We will integrate environmental and social considerations into decision-making processes relating to our Business Activities to avoid, minimize or offset negative impacts.
Environmental and Social (E&S) risks include but not limited to air or water pollution, environmental damage, destruction of biodiversity and cultural heritage, threats to human health and safety, violations of labour rights or displacement of livelihoods.
Under this principle, signatories are not expected to provide financial products and services to clients with poor E&S performance or fund business activities that can have potential negative impact on the environment and local communities where their clients operate. Therefore, financial institutions are expected to incorporate into their decision making process, an approach that systematically identifies, assesses and manages E&S risks and potential impacts associated with clients’ business activities. Nevertheless, when risks are inevitable, they should seek to engage with the client to minimize and offset identified risks and impacts.
Principle 2: We will avoid, minimise or offset the negative impacts of our Business Operations on the environment and local communities in which we operate and where possible, promote impacts.
This tenet clearly commits signatories to ensure that their daily activities and operations must be devoid of causing negative E&S impacts. Financial institutions are therefore required to find effective ways of avoiding, minimising, and offsetting the negative impacts their business activities can cause whilst also innovating new means to achieving positive gains. Using energy efficient resources, active participation in reducing the threats of climate change and Greenhouse Gas emissions, as well as safe management of wastes are some of the steps expected of every signatory. Moreover, there is need for compliance with labour laws, alignment of community investment projects with national social and economic development goals as well as a close monitoring of their supply chain to ensure E&S commitments are respected across board.
Principle 3: We will respect human rights in our Business Operations and Business Activities
Human and labour rights are to be respected by signatories, in their business operations. They are also responsible for ensuring the compliance of their supply chain with these laws/rights. Therefore, they are expected to develop human/labour policies that synchronise with international standards.
Principle 4: We will promote women’s economic empowerment through a gender inclusive workplace culture in our Business Operations and seek to provide products and services designed specifically for women through our Business Activities.
According to this principle, women economic empowerment refers to the ability of women to participate in, wholly contribute to and fully benefit from the Nigerian economy without prejudice and in a way that recognises the value of their contributions, respects their dignity and creates a fairer distribution of income. It is demanded of signatories to develop products and services targeted at women, create opportunities for women leadership and contribution at all levels and develop/be committed to growing women’s economic empowerment policy.
Principle 5: We will promote financial inclusion, seeking to provide financial services to individuals and communities that traditionally have had limited or no access to the formal financial sector.
This rural-friendly principle requires of financial institutions; products and services that cater for the disadvantaged and marginalised groups within the society. Under this principle, every bank is expected to be accessible and friendly to the physically challenged. This principle is particularly significant as it ensures that financial entities contribute to poverty reduction, economic participation for all, support for SMEs and financial literacy for all.
Principle 6: We will implement robust and transparent E&S governance practices in our respective institutions and assess the E&S governance practices of our clients.
Under this principle, a signatory should be able to provide a clearly-defined E&S governance and accountability structure. It should also ensure same is set up by its clients whilst ensuring and encouraging performance. Periodic E&S Audit is another effective strategy to ensuring E&S commitments are constantly respected. Furthermore, signatories are expected to make information on E&S available to the public especially as regards progress in implementing the principles.
Principle 7: We will develop individual institutional and sector capacity necessary to identify, assess and manage the environmental and social risks and opportunities associated with our Business Operations.
According to this principle, signatories are obligated to provide opportunities for skills development and capacity building on E&S risk identification and performance to its staff, from the top level down the employee pyramid.
Principle 8: We will collaborate across the sector and leverage international partnerships to accelerate our collective progress and move the sector as one, ensuring our approach is consistent with international standards and Nigerian development needs.
With this principle, an end should come to undue competition and distancing among financial institutions. The principle encourages institutions to partner in developing the Nigerian economy and working towards sustainable banking in the country. There should be capacity building within the sector, as well as networking and collaboration for community investment/social initiatives. All should also commit to international sectorial standards like the Global Reporting Initiatives (GRI), International Finance Corporation Performance Standards (IFC-PS) e.t.c.
Principle 9: We will regularly review and report on our progress in meeting these principles at the individual institution and sector level.
Every signatory is expected to develop monitoring, measuring, and evaluating metrics for tracking progress and implementation of the NSBP which should form a basis for a collective tracking of sustainable banking in Nigeria. Through internal reporting mechanisms, institutions are able to track individual performance and also make external reporting. Every signatory is also required to produce external performance/progress reports at least annually to initiate a nation-wide review of the performance of the principles towards ensuring the sustainability of the sector.
As the NSBP entered its fifth year last Saturday, July 22, 2017; at least, all commercial banks in Nigeria have signed and committed to it. The Central Bank of Nigeria (CBN) has also been quick to affirming responsibility in ensuring that the Principles are complied with and adequate punitive measures are applied against defaulting signatories. Yet, one question that should continue to nudge every stakeholder is ‘if the adoption and implementation of the NSBP has recorded any significant improvement in the financial services sector within the last five (5) years’
Nevertheless, it is the responsibility of every stakeholder; from the CBN, the banks to the academia, experts and the civil society, to ensure that the good objectives of the principles are translated to impact within the sector and across the economic and social wellbeing of the country.
Editor’s Note: We will also like to hear from you, do you think the implementation of the NSBP has recorded significant improvements in the financial service sector? You can send your opinion as comments on www.sustainableconvos.com – CSRFiles.
CBN (2012), Nigerian Sustainable Banking Principles: Final Version