SUSTAINABLE BANKINGFINANCIAL TIMES SPECIAL REPORT | Thursday June 4 2009

www.ft.com/sustainable­banking­2009

Leading banks reap benefitof environmental agendas

As banks struggle to returnto profitability, they aretrimming everything fromIT budgets to researchteams. But while financedepartments might haveonce considered corporatesustainability initiatives ascostly add-on programmes,there is a growing recogni-tion that conservingresources and cutting car-bon emissions can help savemoney. And as they imple-ment sustainability policies,leading banks appear to bereaping the financial bene-fits of their green agendas.

Much of the activity sur-rounds the energy effi-ciency of offices andbranches. “We have seennumerous financial servicescompanies make stronggreen-building commit-ments,” says Mindy Lubber,president of Ceres, a US-based coalition of investorsand environmental groups.

Bank of America isdeploying an energy man-agement system in 3,300banking centres across theUS that will result in sav-ings of up to 50 per cent incosts related to heating andcooling.

Similar initiatives are inplace at Standard Char-tered, which wants energystandards for its new build-ings to be 50 per cent moreefficient than existing build-ings, says Andrew Hunter,group head of corporatereal estate services.

“You may have to spenda bit more on a green build-ing but, at the end of theday, it pays back,” says MrHunter. “If you consumeless energy you’re cuttingcosts.”

At HSBC energy effi-ciency measures imple-mented last year across itsglobal branch and officenetwork saved $7.3m. In theUK, the bank reckons newheating and cooling tech-nologies will, when rolledout across 800 branches,save more than £2m incosts a year, as well as cut-ting up to 10,200 tonnes ofcarbon dioxide emissions.

Timur Galen, managingdirector at Goldman Sachs,says that the bank’s initia-tives – which include con-solidating data centres,moving to more energy-effi-cient real estate and reduc-ing water consumption –are “commercially smartand represent a return oninvestment that typicallypays back over a period ofseven years”.

Banks should view envi-ronmentally sustainable ini-tiatives as providing long-term value, argues FrancisSullivan, adviser on the

environment at HSBC Hold-ings. “Having said that, alarge number of our initia-tives are cost-effective andprovide HSBC with a short-term return on invest-ment,” she adds.

Another potential returnon investment lies ininstalling virtual communi-cations technologies to cutbusiness travel. Ms Lubbercites State Street’s 2007investment of $1.84m invideo and audio conferenc-ing equipment. “This is aclear indication that thecompany believes it canmake money and reducepollution by reducing airtravel,” she says.

Communications technol-ogy has made a dent intravel costs at HSBC. The$8.1m spent on videoconfer-encing facilities last yearhelped it reduce businesstravel by 7 per cent.

Banks also use largeamounts of electricity topower data servers, comput-

ers and other electronicequipment. Here, energy-saving initiatives have afinancial as well as an envi-ronmental payback.

Cisco Systems reckonsthat banks using its Ener-gyWise system – whichhelps clients to monitor thepower used by all their Cis-co-connected devices –could help the average bankbranch to cut annualenergy bills by more than€28,000 ($39,000).

But people play a criticalrole. Standard Chartereduses a social networkingsite called Greenstorming topromote staff engagementin environmental activities.

“They can come up withideas and ask other mem-bers of staff to join theircampaigns,” says MrHunter. “It’s a bit like Face-book but all around theenvironmental initiativestaking place internally.”

At HSBC, a dedicatedteam established in 2008 hasresponsibility for ensuringsustainability is built intodecisions on purchasing,real estate and IT. It alsohas a global network ofemployees with responsibil-ity for measuring and man-aging performance.

At the same time, senior-level commitment is criti-cal. “HSBC . . . has strongboard-level engagement onclimate change,” say MsLubber. “It’s not a coinci-dence that HSBC receivedthe highest ranking among40 banks we evaluated inlast year’s Corporate Gov-ernance and ClimateChange: The Banking Sec-tor report.”

However, some bankshave yet to put issues suchas climate change at theheart of their businessstrategies. The Ceres reportMs Lubber cites found thatmany of the banks surveyedhad “done little or nothingto elevate climate change asa governance priority”.

COST­CUTTING

The rewards forthinking green canbe considerable,says Sarah Murray

ShortlistShortlist of nominees for 2009FT Sustainable Banking Awards:

Sustainable Bankof the Year­Deutsche Bank, Germany­Grupo Santander Brasil­Industrial Bank, China­Standard Chartered, UK­Triodos Bank, Netherlands

Emerging MarketsSustainable Bankof the YearAfrica/Middle East­Access Bank, Nigeria­Equity Bank, Kenya­Nedbank, South AfricaAsia­ACLEDA Bank, Cambodia­Industrial Bank, China­YES BANK, IndiaEastern Europe­AccessBank, Azerbaijan­Center­Invest Bank, Russia­Industrial Development Bank ofTurkey (TSKB)Latin America

­Banco do Brasil­Banco Galicia, Argentina­Itau Unibanco, Brazil

Achievement inBasic Needs Financing­Acumen Fund, US­MicroEnsure, UK­ParaLife Group, Switzerland­The Trust Bank, Ghana­Water Capital, Mexico

Achievement in Bankingat the Bottom of thePyramid­ABN AMRO, India­Bank of Kathmandu, Nepal­Opportunity International, UK­Root Capital, US­WIZZIT, South Africa

Sustainable Investorof the Year­Actis, UK­Calvert Foundation, US­E+Co, US­Global Environment Fund, US­Pictet Asset Management, UK

Economiccrisis sowsseeds ofchange

Ao n c e - i n - a - l i f e t i m eopportunity has cometo sustainable banking.

The credit crunchand collapse of the structuredproducts market have turnedmuch accepted financial wisdomon its head. The world hasgained a new appreciation forlong-term risk, and regulatorsaround the globe seek to imposenew standards on institutionsthey supervise. “Sustainabilityis not a luxury at all. It is justgood business. People are pay-ing even more attention thanthey were before because theyare more conscious of theirimages,” says Fabio Barbosa,president of Grupo SantanderBrasil, which now owns BancoReal, winner of last year’s FTSustainable Bank of the Yearaward. “Society is demanding amore conscious attitude.”

Many proponents of sustaina-ble banking have emerged fromthe crisis relatively unscathed,because they were never bigissuers of credit derivatives andother complicated debt instru-ments. While markets in thedeveloping world have been hitby the downturn, they are not –unlike many western bankers –facing the disappearance ofentire product lines, nor arethey having to completelyrework their overall strategy.

“Microfinance has slowedsomewhat, which is not a badthing,” says Bob Annibale, glo-bal director of microfinance atCitigroup, a finalist in last

year’s awards. “We had institu-tions that were growing at 50,100, 200 per cent a year. Mostmicrofinance institutions havefelt less pressure from the lossof credit than the impact of ris-ing prices and slowing remit-tances from overseas workers.”

Financing conservation andsustainable energy projects aswell as other community-sup-ported development is a viable,even admired, strategy. There isalso support for providing bank-ing and insurance services tounderserved populations.

Interest in the sector remainshigh, as reflected by the 165entries for this year’s FT Sus-tainable Banking awards, spon-sored by the FT and the Interna-tional Finance Corporation, partof the World Bank. Submittedby 117 institutions in 42 coun-tries, the number of entriesreflects a slight decrease fromthe 182 entries in 2008, but ishigher than any previous year.

The judging panel, of figuresin sustainable finance anddevelopment, agreed a short-listfor each category of award. Thispanel will choose the awardwinners.

”The crisis has underscoredthe vital role of finance in eco-nomic growth and development,as well as the need to incorpo-rate the principles of sustaina-bility into business and bankingmodels,” Lars Thunell, IFC chiefexecutive, says. “The high levelof interest in this year’s awardsis an encouraging sign that com-mitment to sustainabilityremains strong in the financialcommunity.”

Bankers and investorsalike say they are still commit-ted to the Equator Principles,which set out guidelines formanaging social and environ-

mental issues. Nearly 70 institu-tions have signed on, includingSantander in April and big glo-bal banks such as JP MorganChase and Citibank.

“Sustainable banking is moreimportant than ever,” says PamFlaherty, Citibank’s director ofcitizenship and president of theCiti Foundation.

“We have always looked forthe sweet spot between what isgood for our communities andresources and what is also goodfor our business. It is good busi-ness sense to underwrite clientswho have all the environmentaland social risk managementissues addressed.”

A recent survey by Co-opera-tive Group’s investment arm

found that 18 per cent more UKinvestors plan to invest in ethi-cal funds this year than lastyear. Inflows into ethical fundsoutpaced outflows throughoutthe financial crisis, a stark con-trast with other retail funds.

Zack Hocking, head of invest-ments at Co-operative Invest-ments, says: “The financial cri-sis appears to have encouragedinvestors to think not onlyabout how much money theymake, but importantly, how it ismade.”

Within the sustainable bank-ing world, microfinance remainsone of the hottest topics becauseit taps into communities andmarkets that are under-served.The sector has room for both

global financial institutions andcommunity organisations, andin some cases they work closelytogether, allowing the big com-mercial banks to access popula-tions they would otherwise beunable to reach. Citibank, forexample, lends to microfinancelenders rather than directly tosmall customers.

“Microfinance is profitableand we continue to invest in it.Our objective is to ensure thatthis is sustainable and that weget appropriate returns but thatwe continue to do it withgreater reach and lower costs,”says Citi’s Mr Annibale.

Sustainable energy project

Sustainability may bea winner in the falloutfrom the globalcredit crunch, writesBrooke Masters

Inside this issueOpportunities Developedcountries have good reason tolook at the developing world,says Mike Scott Page 2

Maoism tomicrofinanceDavid Chazan profilesASA, winner of theBanking at theBottom of thePyramid award lastyear Page 2

InvestorsSociallyresponsiblefunds have

held up well, saysDeborah BrewsterPage 3

IFC sees bigger roleChief executiveLars Thunell talks toTom BraithwaitePage 3

Viewpoint SteveHoward (left), chief

executive of the ClimateGroup, says there are

grounds foroptimism

Page 4

Winds of change: financing renewable energy projects, such as this one in Brazil, is increasingly favoured as part of a sustainable banking policy Jacques Jangoux/Alamy

Continued on Page 2

2 ★ FINANCIAL TIMES THURSDAY JUNE 4 2009

Sustainable Banking

ContributorsBrooke MastersCity Correspondent

Deborah BrewsterFund ManagementCorrespondent

Tom BraithwaiteWashington Business andPolitics Correspondent

David ChazanFT Contributor and former FTDhaka Correspondent

Mike ScottFT Contributor

Sarah MurrayFT Contributor

Rohit JaggiCommissioning Editor

Steven BirdDesigner

Andy MearsPicture Editor

For advertising details, contact:Chris NardiPhone +44 020 7873 4311chris.nardi@ft.com

Economiccrisis sowsseeds ofchange

have had a more difficult timein the past year, as commodityprices have fallen, making itharder to turn a profit.

“The change since last year isthat the price of oil has comedown dramatically so this hasput pressure on sustainableenergy projects,” says BertHeemskerk, chief executive ofRabobank, 2008’s runner up forFT Sustainable Bank of theYear. “Companies have stoppedinvesting in sustainable energy.We think this is wrong.”

Considered one of the world’ssafest banks, Rabobank’sbroader focus on food and agri-culture has made it relativelyresilient amid the banking cri-sis. and its management has notscaled back its commitment torenewable energy.

“Even if today a few of theseenergy projects face some prob-lems, we are confident thatwhen the economy starts mov-ing we will see fossil fuel pricescoming up,” Mr Heemskerksays.

Governments and non-profitorganisations also have less tospend on sustainable projects,says Christine Eibs Singer, chiefexecutive of E+Co, winner oflast year’s FT Sustainable Inves-tor of the Year award.

“Clearly we are seeing a con-striction in the availability ofgrants. In some cases, budgetshave been annihilated,” sheexplains.

The financial crisis has alsopushed climate change off thetop of the agenda at manybanks and insurance companies,but advocates say they hope theeconomic downturn and thenew emphasis on risk will movethe issue back to the top.

“Boards are obviously dis-tracted at the moment,” saysEmily Farnworth, senior adviserfor finance to the ClimateGroup, a coalition that seeks toget businesses and governmentto reduce carbon emissions.

But, she adds, “there is a cor-relation between saving moneyand not using as much energy.”

The unforeseen nature of themarket meltdown has addedpower to calls for more atten-tion to long-term environmentalchange and socially responsibleinvesting.

“Let’s not let climate changecatch us out in the same way,”Ms Farnworth says.

And the equity market melt-down that occurred in the sec-ond half of last year has madeinvestors more respectful of thesolid 3 to 5 per cent returns thatsocially responsible investmentcompanies such as E+Co canprovide, says Ms Singer.

“Our 3 per cent in some port-folios is looking pretty darngood,” she says.

E+Co also benefits from beingable to tap two streams of sus-tainable investing: it also han-dles clean energy projects in thedeveloping world.

“We really feel we are poisedfor a significant win-win,” MsSinger says.

Sustainable bankers also havea unique – but perhaps short-lived – opportunity to reach outto the rest of the financial com-munity and convince them topay more attention to thebroader social and environmen-tal issues.

“For the first time in my life-time, the investment commu-nity is in such disarray thatthere is an opportunity tochange minds,” says SimonZadek, managing partner ofAccountAbility, not-for-profitpartnership that focuses on cor-porate governance and responsi-bility.

“It’s the first time that AngloSaxon short-termism has analternative,” he adds. “But thewindow will close.”

Continued from Page 1

Maoism to microfinance: a journey of hope

One night in March 1978, sevenfervent young men brimmingwith radical ideology swore anoath in a village west of theBangladeshi capital Dhaka.

Kneeling, each touched thesoil with one hand, holding theother to their breast. Theypledged to educate groups of vil-lagers in the hope that theywould take power and turnBangladesh into a Maoist-stylestate run by the rural poor.

That ceremony marked thebirth of the Association forSocial Advancement, betterknown by its acronym ASA,which means hope in Bengali.

It was an unlikely beginningfor an organisation that was

eventually to mutate into one ofthe world’s most successfulmicrofinance institutions,acclaimed for cost-efficiency anda capacity for rapid growth.

The initial change came at thestart of the 1980s. ASA’s found-ers decided that they shouldeducate the rural poor and pro-vide them with services.

At that time they distrustedlenders such as microcredit pio-neer Grameen Bank run byMuhammad Yunus, who wonthe Nobel peace prize in 2006,because they thought suchorganisations were feeding offthe rural poor. But theychanged their minds after vil-lagers repeatedly asked forsmall loans, such as those MrYunus had been providing since1976, to help them buy cows orinvest in other farm activities.

ASA’s president, ShafiqualHaque Choudhury, master-minded a swift transition, saysStuart Rutherford, an expert onmicrocredit and the author of arecently published book aboutASA. “In 1989 Mr Choudhuryflipped his organisation from a

service-providing organisationwith mostly male members to amicrocredit organisation withwomen members, likeGrameen,” says Mr Rutherford,himself a former ASA boardmember.

But Mr Choudhury says hisapproach was not like that ofGrameen or other microlenders.

“We invented a new way ofdoing microfinance,” he says.“Ours is a highly-decentralisedsystem which is lean and low-cost.”

Vijay Mahajan, chief execu-tive of Basix, an Indian ruralfinance institution, says ASA isa “no-frills version of Grameenwhich looked at the Grameenmodel, improved on it signifi-cantly in terms of cost efficiencyand scaled it up.”

Professor Jonathan Morduchof New York University says:“No other microfinance organi-sation has so deeply tackled costreduction.” Mr Choudhurywrote a manual for his branchmanagers to guide them inalmost every detail of theirwork.

“Branch managers can makemost decisions on loans them-selves,” he says. “Decision-mak-ing takes less time.”

The manual even specifies thelay-out and furnishings ofbranch offices. Each office isallowed just one table with oneceiling fan hung centrally aboveit – no unimportant detail inBangladesh’s humid climate.

ASA also simplified the paper-work. “We don’t keep or gatherunnecessary information,” MrChoudhury says. But he stressesthat ASA screens loan appli-cants carefully to make surethey do not borrow from severalmicrocredit institutions, a prac-tice that has caused problems inthe past.

Unlike Grameen during itsearly years, ASA never askedeach group of borrowers collec-tively to guarantee the loansmade to each individual member.

Grameen itself has droppedthe system, which sometimesled to animosity among villag-ers and tended to penalise goodclients for defaults by others.

ASA also has a flatter hierar-

chy than most other microlend-ers. “ASA has always had justtwo levels: the branch and thehead office, without regionaloffices requiring more buildings,furniture and staff,” Mr Ruther-ford explains.

ASA also made it compulsoryfor borrowers to deposit savingsso they would have somethingto fall back on and there wouldbe fewer defaults.

This made ASA less vulnera-ble to the natural disasters towhich Bangladesh is prone.

After unusually severe floodsin 1998, Grameen repaymentsdeclined and it had to borrowmore than $60m.

It was a Financial Times arti-cle written by this journalistwhile based in Dhaka thathelped to alert the wider donorcommunity to Grameen’s diffi-culties.

Grameen from 2001 made anumber of significant changes,including encouraging savingsmore actively. Today deposits atthe bank exceed the value ofloans outstanding and Grameenis self-sustaining.

“ASA figured out how to dothings on a commercial basisand they avoided making thesame claim as Grameen thatmicrocredit was ridding theworld of poverty,” Prof Morduchsays. “The hype has not beenuseful.”

Mr Mahajan of Basix agrees.“Microcredit has value but it’sbeen over-hyped. Grameen wascriticised for overstating its self-sufficiency when in fact itabsorbed a lot of donor money.Now it has learned from thecriticism and from newcomers.”

ASA of Bangladesh stoppedaccepting donor funding in2001 and it now serves morethan 6m borrowers from morethan 3,000 branches around thecountry.

ASA International also worksin a number of other Asiancountries and in Africa.

Last year it secured $125m incapital commitments from insti-tutional and private investors,including major funds in the USand Europe – the largest-evercollective equity capital commit-ment to microfinance.

CASE STUDYASA

David Chazan profileslast year’s winnerof the award forBanking at the Bottomof the Pyramid

Big institutions learn to think small

The world has recentlylost its faith in the glo-bal financial system asan engine of prosperity,

but there is one area that shinesthrough as a success.

Microfinance, pioneered byeconomics lecturer (and nowNobel laureate) MohammedYunus in the 1970s, hasimproved the lives of millions ofpeople by lending them tinysums that enable them to takethe first step on the road tofinancial inclusion.

The sector has developed fromProfessor Yunus’s first loan of$27 in a Bangladeshi village tobe embraced around the world.While those first loans came outof Prof Yunus’ own pocket, thepoorest people in the world arenow, indirectly, receivingmoney from some of the biggestbanks in the world and –through specialist investment

firms such as BlueOrchard –some of the world’s wealthiestindividuals.

Microfinance ticks manyboxes for the large institutions.“It has high social impact, it iscommercially viable and it helpspeople to become our custom-ers,” says Maggie Crompton,head of sustainable businessdevelopment at HSBC. Manybanks see bringing theunbanked into the financial sys-tem as a long-term businessopportunity but prefer to lend tomicrofinance institutions (MFIs)rather than individuals.

This is because serving theunbanked and underbanked isnot easy, says PrashantThakker, head of microfinanceat Standard Chartered. The sizeof individual loans is small, thenumber of loans is high and it isvery labour-intensive, he says,which is why the bank hastaken a wholesale approach ofinvesting in MFIs, which havethe local knowledge and themanpower needed.

“We are sowing seeds,” saysMarcus Agius, chairman of Bar-clays, which is providing micro-finance to Khmer communitiesin Vietnam as part of a £10m

partnership with CARE Interna-tional. At one end of the spec-trum, there will be business forBarclays, he says. While at theother end: “We are trying tohelp people in a way that isgood for them and intelligent forour shareholders.”

There is a critical role formainstream commercial banksin microfinance, says Jon Wil-liams, a partner in PwC’s sus-tainability and climate changeteam. “I am very pleased thishas moved out of CSR depart-ments to be seen as a customersegment like any other.” Banksneed to be realistic about profitmargins available, but the sec-tor is definitely self-financing,he adds.

Sava Dalbokov, chief execu-tive of good.bee holding, an ini-tiative by Austria’s Erste Bank,which is rolling out mobilebanking in Romania andUkraine, adds: “We do notexpect to make huge amounts ofmoney, although it must be eco-nomically sustainable. But oneday, the people we help now willbe good bank customers.”

While the initial focus was onloans, microfinance is nowabout more than lending, says

Mr Thakker. “It is about devel-oping a full commercial bankingrelationship.” To this end, Stan-chart helps client MFIs withpayment and collection mecha-nisms and with access to thecapital markets. It has recentlyhelped one organisation withforeign currency syndicationand helped another to raisemoney on the bond markets.

However, to be successful,banking for the unbanked needsmore than just financial prod-ucts, says Jo Crawshaw of con-sultancy africapractice. “Theright technologies and appropri-ate infrastructure is necessarybefore services can reach theunbanked.”

Mobile phones are seen as apromising tool for spreadingaccess to banking to areas thatdo not have any physical bank-ing infrastructure. By 2012,there are expected to be 5bnmobile phone subscribers, withgrowth largely from developingcountries that have the biggestunbanked populations.

In Nigeria, for example, saysMatthew Talbot, vice-presidentof mcommerce at mobile mes-saging service provider Sybase365, eight out of 10 people do not

have a bank account. “A con-sumer’s first experience withtechnology is likely to be themobile phone.”

Customers can add money totheir Sim card by buying creditsat mobile phone shops and theythen have the ability to buygoods, pay bills or transfermoney to someone else.

There are parallel initiativesto make it easier for foreignworkers to send money home.Citigroup has developed a sys-tem for a large constructioncompany in the Middle Eastwhere workers can have pay-ments deducted and remittedhome automatically, savingthem having to queue for hoursat a money transfer bureau –and saving them transfer costs.

Improving access to financewill aid development, reducepoverty and open up new mar-kets and opportunities as morepeople become financially inde-pendent, says StanChart.

As EU Development Commis-sioner Louis Michel said at arecent conference: “The poor arenot destined to remain poor for-ever. If they are offered opportu-nities, they can be entrepre-neurs and consumers.”

OPPORTUNITIES

Developed countrieshave good reasons tolook at the developingworld, says Mike Scott

‘We are trying to helppeople in a way that isgood for them andintelligent for ourshareholders’

Marcus AgiusBarclays chairman

Credit crunchholds manykey lessons forthe future

The most high-profile attempt toboost financial inclusion inrecent years has been in thenews for all of the wrong rea-sons. The sub-prime crisis in theUS has its roots in attempts byBill Clinton to increase access tocredit for low-income families.

So does the sub-prime debaclehold lessons for institutionslooking to extend access tofinancial services to theunbanked and underbanked inother parts of the world?

“There is a huge differencebetween access to finance andpredatory lending,” says GregLarkin, banking analyst at Risk-Metrics. “A huge proportion ofthe world’s population earnsincome, holds assets and isfinancially responsible but doesnot get the access to credit thatthey deserve – and that is anenormous profit opportunity.”

It is generally estimated thatmicrofinance has given about100m people access to financialservices, but that leaves 3bn-4bnpeople still unbanked, says JonWilliams, a partner in the Sus-tainability and Climate Changepractice at PwC.

Murray Gardiner, microfi-nance and community bankingstrategy manager at Temenos, aprovider of banking software,says: “At the moment microfi-nance is sufficiently profitableto attract mainstream fundingthat has some altruistic intent,but not [generally] sufficientlyprofitable to attract a moreunscrupulous, predatory ele-ment. Sadly, this is likely tochange, especially as microfi-nance becomes more complex,

and especially in middle-income(such as Indonesia) to high-in-come (such as Mexico) develop-ing countries.” PrashantThakker, head of microfinanceat Standard Chartered, says:“There is already a feeling thatin some parts of the world, thegrowth of microfinance institu-tions (MFIs) is putting stress ontheir governance and the sys-tems that support them.”

Good governance within lend-ing institutions is an essentialpart of risk management, saysJohn Wilcox, chairman ofSodali, a governance consul-tancy.

Rather than turn their backson the underbanked, banksshould learn lessons from thesub-prime episode, Mr Larkinsays. The most important factoris transparency on both sides.

“Products that enable a poorperson to conceal his income area bad idea, as are those wherethe principle of the mortgage ishard to understand.”

Louise Holly, deputy directorof Results UK, an anti-povertyNGO, says: “Lots of work isneeded to educate people whohave no experience of dealingwith money or financial serv-ices.”

Other lessons include theneed for a thorough understand-ing of the business and the qual-ity of the products being offered,as well as the quality of the bor-rower, says Mr Wilcox. “Thesesound like basic issues, but theywere clearly forgotten over thepast few years.”

While repayment rates formicrofinance loans are verygood at the moment, there mustbe systems in place to avoidover-indebtedness, says MrThakker. These systems shouldbe able to cope if people areunable to repay – and to con-sider the various combinationsof circumstance that mightbring this about. “Our advice isto temper your growth rates andchoose your customers care-fully,” he adds.

The sub-prime problems devel-oped partly because the unchar-acteristic stability of the econ-omy, combined with low inter-est rates, meant that properanalysis of the fundamentals ofeconomic health went by the

wayside, Mr Larkin says.Some people point out that

microfinance is a product verydifferent from sub-prime loans.Balaji Iyer, vice-president,Microfinance, HSBC India, saysthat while mortgages are long-term loans that last for years,microfinance loans are veryshort-term, with most loansbeing extended for less than ayear.

Also, mortgages are a con-sumer product while micro-loans are used for productivepurchases that boost economicoutput and activity, says DrGabriel Montes-Rojas of Lon-don’s City University.

Many microfinance loans aremade on a group basis to a com-

munity of lenders who vet thequality of the loan and the bor-rower, while sub-prime mort-gages were offered to individualconsumers who took the fullrisk of what was essentially aspeculative bet on the propertymarket, Dr Montes-Rojas adds.

And yet as the sector grows itis branching out to offer a widerrange of products, includingmicro-insurance, consumerloans and even mortgages. MostMFIs are currently financed bylarge banks such as StandardChartered or HSBC, by special-ist investment funds such asGeneva-based BlueOrchard orfrom their own deposits. How-ever, microfinance is beginningto be introduced to capital mar-

kets, “which needed to happen,”says Mr Larkin. “But it waswhen the sub-prime sector metthe capital markets that we gotthe banking crisis. If you accel-erate loan growth at an unsus-tainable rate, that is destabilis-ing.”

Beyond microfinance thereare dangers, too, says Mr Lar-kin. In many markets, consumercredit is expanding much fasterthan wage growth, with Russiaespecially vulnerable. Consumercredit is more than 100 per centof income in a number of coun-tries, including many thought tobe in relatively good shape suchas Malaysia, South Korea andChile. That could lay the foun-dation for future banking crises.

DANGERS

Banks can benefitfrom the chaos – ifthey know what toavoid, says Mike Scott

Pointer for financial inclusion: the sub­prime debacle in the US cast a spotlight on the need for financial education Kimberly White/Bloomberg News

‘These sound likebasic issues butthey were clearlyforgotten over thepast few years’

FINANCIAL TIMES THURSDAY JUNE 4 2009 ★ † 3

Sustainable Banking

Value of awardsshines in the gloom

Sustainable banking? Theturmoil in the world’sfinancial markets over thepast 18 months makes theconcept seem like anoxymoron.

Yet the scale of entriesfor this year’s FTSustainable BankingAwards shows that it is inexceptional circumstancessuch as these that thecommitment of thefinancial services industryto sustainability emerges –and the value of theawards can be appreciated.

There was scepticismabout the project when itwas launched four yearsago, through a uniquepartnership between theFinancial Times and theInternational FinanceCorporation.

Smaller institutionsfeared the prizes would goto the global giants, withtheir slick marketing ofsustainability policies andtheir access to generousfunding in an era of cheapcredit. Non-governmentalorganisations pooh-poohedthe idea of giving any butthe purest, greenest banksthe title “sustainable bankof the year”.

Some still fear that theawards will encourage“green-washing” and someof the winners in the firstyear or two of the awardswere indeed banks whosenames were familiararound the world. Yet asentries have risen, anincreasing number ofsmaller organisations –many from emergingmarkets – have beenrecognised.

Then last year, BancoReal of Brazil was declaredto be sustainable bank ofthe year, the first timethat an emerging marketinstitution won the topaward. It reappears in thisyear’s shortlist under itsnew ownership as part ofGrupo Santander, alongwith the first Chinese bankto reach the final stage inthis category.

The growth in entries

has also been impressive.The first year’s field of 90entries from 48 banks in 28countries was a respectablestart, but it quickly rose to151 entries in 2007 and to182 last year – from 129institutions in 54 countries.

New categories such asSustainable Investor andBanking at the Bottom ofthe Pyramid for thoseserving the 4bn peopleliving on less than $2 aday drew entries fromoutside the world ofbanking. Tiny microfinanceorganisations whose smallloans and insurancepolicies empowered a newgeneration ofentrepreneurs in emergingmarkets began to enter.

This year’s awards cover2008, a year when theworld’s financial systemappeared close to collapse.

It is hardly surprising thatthe organisers of theawards feared a dramaticfall in entries.

Certainly some of theglobal groups that hadfeatured in previous yearsdecided they would notenter the 2009 awards – thefight for survival had madefurther progress towardssustainability difficult.

Yet 117 institutions from42 countries submitted 165entries, a fall of less than10 per cent. While the fieldwas dominated by smallerinstitutions, there werestill many largeinternational groups.

Even in the short historyof the awards,sustainability has becomepart of more and more

banks’ licence to dobusiness. The quality ofthe entries has jumpedeach year, and there hasbeen fierce competition.

After four years asco-chairman of the judges,this is my last year ofinvolvement. I will admitto some scepticism when Iwas first asked to join thejudging panel. As a formerBanking Editor of the FT, Ihad a somewhat jaundicedview of the industry andshared some of the doubtsof the non-governmentalorganisations about itscommitment tosustainability.

Yet it quickly becameclear that institutions fromthe largest to the smallesthad recognised the need tobecome more sustainable.In some cases, they hadlearnt through beinginvolved with projectswhose lack ofsustainability had damagedtheir businesses. But inmany others, there was adeep-seated commitment bystaff at all levels to maketheir institutions moresustainable.

Year by year, the judges– who bring many differentperspectives to the panel –have become more rigorousin reaching their decisions.

They recognise thatsustainability is not an endbut a journey. The worldfaces great threats fromclimate change and fromthe poverty that scarsmany continents, andothers will no doubtemerge.

Yet the fact that thefinancial services industrycontinues to develop moresustainable practices evenas it struggles with thebiggest global economiccrisis since the secondworld war should be causefor optimism. There is nocertainty of success, butsome of the best brains inbanking around the worldare at least asking theright questions.

John Willman isco-chairman of the 2009FT Sustainable BankingAwards and a formerFT journalist.

Guest ColumnJOHN WILLMAN

‘It quickly becameclear institutionshad recognised theneed to becomemore sustainable’

John Willman

IFC foreseesa bigger rolein wake ofglobal crisis

Lars Thunell was in ruralMaryland when the worldchanged. The chief execu-tive of the InternationalFinance Corporation washolding his organisation’sannual strategic retreat lastSeptember and swiftlychanged the agenda toaddress the financial crisis.

As part of the WorldBank, the Washington-based IFC focuses on loansto the private sector – back-ing projects in developingcountries and working withlocal and internationalbanks.

As the former head ofSweden’s “bad bank” – setup to right the country’sfloundering banking systemin the early 1990s – MrThunell was under no illu-sion about the fallout fromthe collapse of LehmanBrothers on September 15.

With the failure resound-ing around the world theconcern of the IFC was –and has been since – thefate of business in develop-ing countries.

“In terms of the financialcrisis and the immediateeffect, the need for IFC isbigger than ever – manycommercial banks havepulled back from emergingmarkets at the same time asthe need for financing isincreasing,” he says.

It is not just commercialbanks’ flight to safety thathas endangered projects inpoorer countries but thenature of the global finan-cial rescue efforts, whichhave targeted countries atthe expense of companies.

At April’s Group of 20meeting, leaders from largeeconomies agreed to boostthe lending capacity of theInternational MonetaryFund to ensure that some-one stepped in as privatecapital retreated fromregions such as easternEurope and governmentsstruggled to cope.

But, says Mr Thunell, theextra funds available to theinternational financial insti-tutions such as the IMF andthe World Bank have obvi-ous limitations. “If you lookat what’s happening at theinternational financial insti-tutions – including the IMF– they’re getting additionalresources. Many of the mul-tilaterals are focused onhelping the governments.You have a crowding-outeffect of the private sector.”

It comes amid a shift inIFC investments towards“frontier” countries ingreatest need. In 2006, theIFC lent $6bn to the poorestcountries; last year it was$11bn-$12bn. In 2006 a quar-ter of projects were in coun-tries with an average grossdomestic product per capitaof less than $1,000 a year;this year, says Mr Thunell,it will be over 50 per cent.

That shift began beforethe crisis and it certainly isnot charity. “That’s wherewe have good financialresults,” says Mr Thunell.“We’re not subsidising,we’re supporting goodprojects.” He also rejectsthe notion that the presenceof the IFC competes with ordiscourages other sourcesof capital, pointing to therule of co-investment in theIFC’s charter.

“From a competitiveadvantage point of view,our role is to crowd the pri-vate sector in,” he says.This can mean operating onthe Paraguayan bankingsystem or the Uganda mort-gage market. Increasingly,

it means projects in less-de-veloped countries.

But grand projects incountries higher up thedevelopment league tableare also continuing – espe-cially if they fulfil the IFC’sremit to consider schemesthat could have a positiveimpact on the environment.

A €55m investment forTurkey’s biggest wind farmin May saw the IFC partner-ing with multilaterals,including the EuropeanBank for Reconstructionand Development. Commer-cial banks were notablyabsent.

For all the overwhelmingattention garnered by thefinancial crisis, Mr Thunellis adamant – in a sentimentshared with US PresidentBarack Obama – that sup-port for renewable energyprojects and other environ-mentally-positive schemesmust carry on alongside aneconomic response.

“We have to address bothof them and it’s really rightat the core of our mission,”he says. “People try to sayyou have to choose one orthe other but we have to doboth. We have to think

about what is the worldafter the crisis and whereare the business opportuni-ties going to be. There aregoing to be massive needsrelated to climate change.”

Business opportunitiesthat come as a result of cli-mate change – or as ameans to mitigate theimpact – will be in frontiercountries too. Those, afterall, are the geographicregions often least able tocope.

Mr Thunell is determinedthat more should be done togenerate foreign investmentand trade between develop-ing countries.

He says this need hasbeen made clear after the“decoupling” of the big glo-bal economic blocs provedto be a myth in the past twoyears, with problems at USbanks quickly spreadingaround the world. “There isgoing to be a rebalancing inthe relationship betweenChina and the US” to miti-gate the glut of saving inChina and spending in theUS, he says. “And thatmeans the world cannotrely on the consumers ofthe US.”

INTERVIEWLARS THUNELL

The InternationalFinanceCorporation chieftalks to TomBraithwaite

‘We have to thinkabout what is theworld after thecrisis and whereare the businessopportunitiesgoing to be’

Thunell: ‘You have a crowding­out effect of the private sector’ Mario Vedder/Getty Images

Institutions lead the way in investments

Socially responsibleinvesting, a lynchpin ofthe sustainable investingmodel, appears to be

enjoying strong growth amonginstitutional investors, espe-cially European pension funds.However, it is less popularamong US retail investors.

European sustainable andresponsible investment assetsunder management rose to ahigh of €2,600bn ($3,600bn atcurrent exchange rates) at theend of 2007, more than twice thelevel of two years earlier,according to the EuropeanSocial Investment Forum, anindustry organisation. Sincethen, the funds’ assets havefallen slightly along with finan-cial markets.

European investors accountfor more than half of total glo-bal socially-responsible invest-ments (SRI), according to theforum. Dutch pension funds areespecially active. The US,despite being the largest regionin assets under management,accounts for less than 40 percent of total SRI.

Paul Hilton, director ofadvanced equities research atCalvert Funds, one of the larg-est SRI fund managers, says:“The institutional market hasbeen growing much faster. Pen-sion funds are starting to catchon in the US, and foundationstoo.

“We’re putting a lot ofresources into the institutionalbusiness,” he says. Calvert man-ages $10bn on behalf of 400,000investors.

SRI funds have recentlybecome extremely popular inFrance, where in five years theyhave tripled their assets toabout €20bn. However, that stillaccounts for only 1 per cent oftotal fund assets in France.

And despite much talk aboutSRI funds in the US, in the pastfive years US retail funds do notappear to have grown any fasterthan the rest of the industry.

Total net assets of SRI fundsin the US stood at $41bn by

April 2009, according to Morn-ingstar, a fund tracker – a riseof 29 per cent since 2003. Theentire fund industry, mean-while, rose by 31 per cent overthat time, to $5,700bn.

However, SRI funds haveoverall held up well in duringthe financial crisis, with propor-

tionately smaller outflows thanthe rest of the industry.

Of 183 SRI funds, 109 had netinflows during 2008, accordingto data from Strategic Insight, aresearch firm. That is a muchbetter result than the industryaverage.

Mr Hilton says: “Over the last

year there has been a lot of con-cern over corporate governance,and the SRI funds have largelymanaged to shield investorsfrom some of the worst of that.

Also, he says: “SRI investorsare more likely to be ‘sticky’, sothe funds have higher investorretention rates. We see SRI

funds generally hold up betterin down markets because inves-tors are more committed to thefull story, they are not justchasing performance.”

He and others say therelatively robust state of thefunds is also due to an upsurgeof interest in green funds, which

is the latest trend to emerge.Calvert’s Global Alternative

Energy fund, a “green” fund,had inflows of $174m last year,he says. This was despite thesmall fund’s volatile returns.

The performance of SRI fundsdoes not appear to be any betterthan other non-SRI funds. There

have been several attempts tomeasure performance, but thereis no consistent evidence thatinvesting according to SRI prin-ciples outperforms using non-SRI methods of investing.

Screening out tobacco stocksremains the single most popularveto used by SRI investors.Divesting stocks that have inter-ests in Sudan has become thefastest-growing screen, follow-ing a strong push from activistsover genocide in Sudan’s Darfurregion. Green investment funds,which are increasingly popular,do not necessarily screen outcompanies on social or govern-ance grounds.

A recent report by Trucost, aresearch firm, examines the car-bon footprints of leading USmutual funds, and says that thecarbon intensity of mutual fundholdings varies hugely.

The highest-carbon fund is 38times more carbon intensivethan the fund with the smallestfootprint.

The combined global emis-sions associated with fund hold-ings amount to more than 615mmetric tonnes of greenhousegases, the report says.

Issues such as carbon emis-sions have only recently beenelevated in importance by SRIfunds, which have traditionallyconsidered environmental issuesalong with labour issues, corpo-rate governance and socialissues.

The strategies are becomingincreasingly sophisticated andhave long since moved beyondthe practice of screening outhalf a dozen tobacco anddefence stocks.

Pension funds, endowmentsand foundations are increas-ingly under pressure from boardmembers to consider SRI impli-cations of their investing.

Mr Hilton says: “Maybe I’moptimistic, but I think we arejust seeing the tip of the icebergin SRI growth.”

INVESTORS

Socially responsiblefunds have held upwell in the crisis, saysDeborah Brewster

Big footprint: combined global emissions associated with fund holdings amount to more than 615m tonnes of greenhouse gases, a report claims Wolfgang von Brauchitsch/Bloomberg News

There is no consistentevidence that investingaccording to SRIprinciples outperformsusing non­SRImethods of investing

4 ★ FINANCIAL TIMES THURSDAY JUNE 4 2009

Sustainable Banking

Green risks and rewards:grounds for optimism

The world is taking atemporary holiday fromgrowth. But the economywill bounce back, doublingor tripling in size bymid-century.

Over the same period wewill have developed policyframeworks that lock usinto reducing globalgreenhouse gas emissionsby 60 to 80 per cent. Therewill be about 2bn morepeople and the world’surban population will havealmost doubled.

If we put it all together,all future growth willeither need to be low orzero carbon growth – andthe financing will have tomatch it.

In the past few months,the financial crisis and theelection of Barack Obamato the US presidency haverecalibrated global debate.With a climate championin the White House, theglobal shift to a low-carboneconomy will increasinglyfavour low-carbon players,whether they becompanies, cities or statesor nations.

The current financialcrisis creates anopportunity to build afuture that is lessdependent on carbon andthe uncertain price offossil fuels. As bail-outpackages are raised aroundthe world, national leadersare increasingly aware ofhow their economies areinterconnected and thatthey must work together toovercome common hurdlessuch as climate change.

A sizeable chunk of thesestimulus packages – 15 per

cent, according to a recentHSBC report – has beenallocated to greening therecovery. The $3,000bnglobal bailout puts intoperspective the price oftackling climate change,estimated at about 1 percent of GDP by Lord Stern,UK government adviser onthe economics of climatechange.

The international flow ofsupport from industrialisedto developing countries tohelp finance the costs ofshifting to low carbongrowth and adapting to theconsequences of climatechange is estimated ataround $100bn.

Green stimulus packageshave set the context forfurther investments tofollow. The global financesector needs to not justmanage climate risk, butunlock the economicopportunities presented byclimate change.

New low-carbontechnologies such as LED(light emitting diode)lighting and electricvehicles are capital-intensive in the short term,but give strong predictablereturns over time. Therapid scale-up of thesetechnologies requires newapproaches to financingand there is an increasingneed for global financialinstitutions to understand.

There are causes foroptimism. Late in 2008,some of the leaders insustainable financelaunched the ClimatePrinciples – anover-arching framework todevelop best practice onclimate change within thefinance sector.

A key question that theadopting group of financial

institutions is trying toanswer is which policiesshould be prioritised tohelp the finance sectorsupport the transition to alow-carbon economy.Similarly, finance leadersand organisations, such asIIGCC (InstitutionalInvestors Group on ClimateChange) representing€4,000bn of assets undermanagement, recognisethat putting a stable coston carbon and ambitiouscaps on emissions arecritical to the behaviourchange required to deliversuch a huge economictransition.

The carbon market looksset to expand from currentEuropean leadership intothe US and Australia. Thefinance sector should besignalling real support fora global carbon market,not just for the tradingopportunities, though theseare considerable, butbecause it is the bestmechanism we have forstimulating a low-carboneconomy.

China and the US areentering a competitive raceto lead the world’stransition to a low carboneconomy, and are alreadydemonstrating

extraordinary low-carbongrowth. Europe, after anearly lead, risks pantingalong in third place.

Supported by anincreasingly strong andcomprehensive low-carbonpolicy framework, China ismaking progress reducingits carbon intensity andbuilding capacity to supplythe world with low-carbontechnology. It is theworld’s leading renewableenergy manufacturer, thetop maker of wind turbinesand a leadingmanufacturer of solartechnology.

Under Mr Obama, the USis under starter’s orders tojoin the new technologyrace. The lumbering heavymanufacturing industriesof the Midwest need to bere-skilled to compete in theclean-tech future. SiliconValley is fast becominglow-carbon valley, with ahost of venture capitalclean-tech companies.

The shift to a low-carboneconomy promises to beevery bit as transformativeas the internet, but on abigger scale.

It may be difficult forour cash-strapped,risk-averse financialinstitutions to raise theirgaze from the currentrecession to focus on thelooming climate crisis. Butthe prize for doing so willbe low-carbon prosperityand new markets.Financial institutions willneed to put their bestpeople on it.

Steve Howard is chiefexecutive of The ClimateGroup and chair of theWorld Economic Forum’sGlobal Agenda Council onClimate Change.

ViewpointSTEVE HOWARD

‘Europe riskspanting along inthird place’

Steve Howard

Brazilian lender focuses on both profit and growth

Jeronimo Ramos, a directorat Banco Real in São Paulo,sounds like a man with amission. “You have to oper-ate inside local communi-ties. You have to know yourcustomer’s story at firsthand. Because by giving

people credit, you are creat-ing well-being. About 70 percent of people that getcredit are lifted out of pov-erty as a result.”

Yet as Mr Ramos insists,Banco Real is not in thebusiness of delivering socialservices. “We are not a phil-anthropic organisation,” hesays. “You don’t just givepeople credit because theyneed it. They have to beable to pay. We’re here tomake a profit.”

Banco Real was named

Sustainable Bank of theYear by the FT in 2008,beating competition frombanks in Europe, Asia andAfrica where microfinance– lending small amounts tosmall and very small busi-nesses – is more developed.

Yet Banco Real is not typ-ical of low-income bankingin Brazil as a whole. Itsmodel is similar to thatfound in Asia, Africa andthe rest of Latin America:giving loans to small busi-nesses to promote develop-

ment from the ground up.But the fastest expansion oflow-income banking in Bra-zil has been in makingsmall loans to consumersrather than to businesses.

The sector received ahuge boost at the start ofthis decade, when the gov-ernment began tackling theproblem of access to thebanking system for hugesectors of the populationthat were too poor – and toointimidated – to step insidea high street bank.

Its solution was toencourage “correspondentbanking” – creating outletsoffering simple bankingservices such as takingdeposits and accepting billpayments. One network isBanco Postal, run by Bra-desco, a big private bank,through Brazil’s nationwidenetwork of post offices.Another was run by Bancodo Brasil, a big public-sec-tor bank, through itsbranch network. Others,such as Lemon Bank, a pri-vate-sector initiative, set upkiosks at petrol stations,bakeries and shops.

“Brazil is certainly aworld leader in increasingthe number of accesspoints,” says Martin Holt-mann, chief microfinancespecialist at the Interna-tional Finance Corporation,the division of the WorldBank that lends to the pri-vate rather than public sec-tor. “I don’t think there’sany country in the world tocompare with Brazil’s 95,000

access points – even in themost remote villages.”

The government also cre-ated funding for low-incomebanks, allowing them to use2 per cent of their reserverequirements – the share oftheir deposits that theymust park at the centralbank – for lending at inter-

est rates capped at 4 percent a month. That is lowby Brazilian standards,where rates to consumerscan be as high as 20 percent a month.

Microfinance banks inother parts of the world haddemonstrated that the poormake surprisingly good bor-

rowers. But Brazil’s experi-ence was different. Bancodo Brasil created a subsidi-ary, Banco Popular doBrasil, offering simplifiedbank accounts and easyaccess to cheap loans. Non-performance rates weremuch worse than expectedand the subsidiary wassoon absorbed back into themain bank.

Robson Rocha, directorresponsible, says the banklearned a lot. It operatesthree types of credit: “free”credit, for any use at theborrower’s discretion;“directed” credit for smalland very small businesses;and community develop-ment initiatives, wherecredit agents work withlocal bodies such as farm-ing and fishing co-opera-tives. Non-performance, hesays, is in line with thebroader market in the firstsector but much less in theothers.

Banco do Brasil declinesto reveal non-performance

rates. But its experience ismirrored at Banco Real,where Mr Ramos says non-performance of microfi-nance, at about 3 per cent,is lower than the broadermarket, at 8 to 10 per cent.

One reason for BancoReal’s success is that itdoes not restrict itself tosmall loans. As businessesgrow, they are allowed totake on more credit.

In Heliópolis, a shantytown on the outskirts ofSão Paulo, Almir Araújo isa typical customer. His firstloan from Banco Real wasfor R$250 ($122), in 2000. Atthe time, he ran a bar in aroom in his house. Now,two streets away, he has aninternet cafe and a DVDrental shop. His latest loanwas for R$20,000.

“Banco Real grows alongwith you,” he says. “If youhave the structure to sup-port a loan of R$1,000, that’swhat you’ll get. If you havethe structure for R$20,000,you’ll get it.”

CASE STUDYBANCO REAL

Jonathan Wheatleyprofiles last year’soverall winner

‘I don’t thinkthere’s any countryin the world tocompare withBrazil’s 95,000access points’

Resource shortages yieldinvestment opportunities

Environmental problemsare combining with glo-bal population growthto create shortages in

food, energy and water – ourmost fundamental commodities.

In 2008, the world had a tasteof resource constraints – oilpriced at $147 a barrel and sharpincreases in the price of manyfoodstuffs. Since then, priceshave dropped sharply. Whilethis has eased pressure in someareas, the volatility of prices isbad for businesses everywhere,particularly small farmers inemerging markets.

Knowing what environmentalchanges will occur and how todeal with them is crucial forbanks and their customers.In a recent report on Bankingand Climate Change by Swissgroup Sustainable Asset Man-agement, Matthias Kopp of theenvironmental group WWFsays: “Growing global environ-mental and social challenges areposing future risks of dramaticmagnitude and consequence.

These risks are of material sig-nificance for financial markets,especially in a resource-con-strained world.”

Alex Barratt, head of researchat Standard Chartered, says“Because we operate in emerg-ing markets, the issue of sus-tainable growth and the envi-ronmental aspects of that arevital. If we do not have sustaina-ble policies in our markets, theyare not going to grow and thefinancial sector will not grow.”

Water is the most pressingissue. Climate change meansdrinkable water will becomescarcer, rainfall distribution willchange and there will be morefloods, more droughts and morestorms. The key to coping withchanging conditions is informa-tion, and a number of compa-nies are providing data on thechanging climate and its impacton the economy.

This information highlightsapparent absurdities such asSaudi Arabia growing wheatusing desalinated water whilethe US subsidises farmers togrow biofuels, says Mr Barrett.It is far more efficient for SaudiArabia to produce oil for fuelwhile the US grows wheat. Butrecognising the problems withgrowing water-intensive prod-ucts in water-stressed areas willalso have far-reaching conse-

quences for big agricultural pro-ducers in areas such as Califor-nia and Australia, which faceincreasing water scarcity.

Environmental consultanciessuch as WSP Environment &Energy provide tools to helpbusinesses work out the stresspoints in their supply chain.

“Banks and investmenthouses that understand how cli-mate change will affect businesswill have a competitive advan-tage, enabling them to invest inthe right areas and avoid thewrong ones,” says DavidSymons, director of corporateservices at WSP Environmental.

Investors have a big role toplay, he adds. “There is a verysubstantial adaptation gap inthe world at the moment. Com-panies will start taking thismore seriously if investors startasking probing questions abouthow well companies are pre-pared to deal with climatechange.”

Eckhard Plinke, head ofsustainability research at BankSarasin, the Swiss private bank,says: “The economic and socialrisks associated with scarcityresult in interesting investmentopportunities.” These includeenergy efficiency and renewableenergy; water purificationand water efficiency; andagricultural technologies such

as irrigation and fertilisers.For some banks, this is a long

tradition. Rabobank, establishedin the late 19th century to pro-vide financial services for Dutchfarmers, is now replicating thatmodel in emerging markets,says Arnold Kuijpers, head ofRabobank Development.

“Demand for agriculturalproducts will grow exponen-tially because of the growth ofthe world population and theincrease in wealth in emergingmarkets,” Mr Kuijpers says.Over the next 30 years, therewill be significant trade flowsfrom places such as Mozam-bique, which is using only 15per cent of its vast resources ofagricultural land, and China,which has a quarter of theworld’s population but only 8–9per cent of the arable land.

The sector is inherently riskybut companies such as Swiss Reare helping farmers to manageunpredictability with weatherinsurance. In Malawi, for exam-ple, working with the WorldBank, Swiss Re has created ascheme whereby it will pay outup to $5m in the event thatMalawi’s farmers suffer from adrought-related shortfall inmaize production.

Another approach to the per-ennial volatility of the commodi-ties market is taken by Credit

Agricole Asset Management.Rather than invest directly incommodities, it invests in thecompanies that produce them.“We do not want to invest in aspeculative way, looking forquick wins,” says Anne Ruffin,head of CAAM’s globalresources fund. “Last year’smassive commodity price riseswere in no one’s interests. Theonly way to manage resource

scarcity cleverly is to help com-modity producing companies togrow their resources andexpand their markets.”

Rabobank’s CSR directorRuud Nijs sums up the way for-ward: “Our clients’ CSR risksare huge opportunities for us.Sustainability is the new way ofbanking – banks will not sur-vive unless they have this as along-term strategy.”

AGE OF SCARCITY

Environmental andpopulation shifts needto be understood,writes Mike Scott

‘The only way tomanage resourcescarcity cleverlyis to help commodityproducing companiesgrow their resources’

Thirst for solutions: the prospect of more floods makes the need for safe water more pressing AP Photo