One of the hallmarks of the paradox times we live in is that developments often accelerate more than we think, as most of us continue to think in terms of the past. A few years ago, the revelation that six of the largest US banks are committed to align their loan portfolios with the goals of the Paris Agreement on Climate Change would seem like science fiction. And yet it is a fact. Obviously, these banks maintain huge credit lines that are mainly aimed at investing in companies and high-intensity activities, which are not environmentally friendly.
We are experiencing a completely new situation that undoubtedly contains many challenges but also new, significant, opportunities for Greek banks as well.
In the last eight months or so, the international banking system has not only given new answers to old questions, but it has also changed the questions! The question is no longer whether it will meet the global requirement to protect environment, but how the relevant commitments affect a bank’s assets and balance sheet, whether banks will seek and rely on high-carbon offsetting, how much this will lead to the reduction of emissions, etc.
Usually, the problematic issue addressed to the Greek public opinion is focused on domestic problems, several of which are important, but they monopolize the interest and the contact with the tendencies that are formed internationally is often lost. The settlement of non-performing loans, the capital shielding of banks and the best possible utilization of European funds by the Recovery Fund are undoubtedly some of the most important issues that deserve our attention, but at the same time we should not underestimate the strong international trends that change much of what we knew until recently about the operation and the priorities of the banking sector.
It is obvious that the development of Greek economy in the post-pandemic era is also related to the global effort to protect the climate and the environment. We must, as soon as possible, adopt new priorities that have emerged and according to which banks are at the forefront of the effort to support the UN declaration on sustainable development. Already in several financial institutions and at a higher executive level, executives are placed whose main role and responsibility is sustainable development.
General public expectations, investment community, employees, suppliers, and customers are now converging and meeting at an unprecedented point. In addition to financial performance, more and more stakeholders are demanding from bank’s leadership transparency, accountability, enhanced and obvious corporate responsibility (social and environmental) and the adoption of best governance practices. The development of reliable methodologies for faster integration of sustainability issues in lending and investment decisions, with the parallel goal of transforming the corporate culture aiming in creating long-term value and the consequent positive contribution to society, is now one of the most important point. Similarly, the policies of environment, social responsibility, and governance (Environmental, Social and Governance) on which from now on the appropriate integration of risks and opportunities regarding the future formation and management of their assets by the banks should be based. We are living the beginning of a new era as the fulfillment of the Paris Agreement goals presupposes a new “contract” between the banking sector and society. Some estimate that the necessary changes will require huge investments, the amount of which is estimated at 5-7 trillion dollars.
In reality, the commonly accepted finding is that climate change poses a well-founded as well as an immediate threat to global economy. From this one comes a “new” systemic risk to international banking system, which must be addressed promptly and effectively. Businesses and banks in particular can no longer ignore or deny the catastrophic economic and social consequences of climate change. Accepting reality is no longer enough. It is time to take action to ensure the long-term viability of banking ecosystem and the world economies in general.
Some argue that banks have already lagged behind other industries in engaging in the gigantic effort for sustainability. Maybe this is correct. Nevertheless, I believe that today conditions are being created for us to significantly accelerate our pace.
Many credit institutions and supervisors are pursuing the so-called sustainable banking strategy, looking for new paths. They seek to gain a competitive advantage by offering products and services that are in line with the requirements of the time to protect our natural environment. Supervisors plan or carry out stress tests that examine and evaluate the risks of climate change undertaken by banks. But the banks themselves realize that what is needed is not just to adapt to the obligations imposed by the supervisors but to precede them.
Time is crucial as we face a great systemic challenge and especially a complex task that needs to be done in the near future. Greek banks meet a significant opportunity as they also start from approximately the same starting point, with all the others. The adjustment needs of traditional banking to the new conditions and policies of environment, corporate responsibility, and governance (ESG) are relatively new for everyone. No one is essentially ahead of this race and therefore Greek banks that are at the same starting point, have the opportunity to run without disadvantages, to build the required advantages, to create the value expected by the shareholders and other interested parties and why not, to lead on a later stage, the venture that will soon drastically change the banking as we knew it until today.
*Mr. Ilias E. Xirouhakis is the Chief Executive Officer at Hellenic Stability Fund (HFSF)