Sustainable banking in Nigeria: A regulatory approach

Sustainable banking is a form of banking that aims to balance the environmental, social, and economic impacts of financial activities. It seeks to promote positive development outcomes for society while protecting the communities and environment where financial institutions and their clients operate. Sustainable banking, which advocates for sustainability in the financial sector, is a segment of the Sustainable Development Goals (SDGs) especially because it represents the spirit and intent of the SDGs designed to achieve a more sustainable and better future for humanity. Sustainable banking places not only a moral duty, but is also a business promoting opportunity, as it can enhance the reputation, public opinion, competitiveness, and resilience of financial institutions which practice sustainability.

The United Nations currently drives the financial aspect of this initiative as a key player by bringing together financial institutions around the world, to subscribe to sustainable banking principles. The world’s foremost sustainable banking framework, with over 300 signatory banks representing almost half of the global banking industry, was signed at the United Nations. This framework, the Principles for Responsible Banking (PRB), directs banks to align their core strategy, mandate and investments with the SDGs and some international agreements like the Paris Climate Agreement, and to demonstrate responsible positive socio-environmental impacts in their activities. The PRB currently has 10 Nigerian banks listed online as signatories.

In 2012, the Central Bank of Nigeria (CBN) in collaboration with the Bankers Committee, launched the Nigerian Sustainable Banking Principles (NSBP), compliance of which is mandatory for all deposit money banks, discount houses, and development finance institutions in Nigeria. The NSBP was further affirmed by representatives of Nigerian financial institutions present, during the Bankers Committee meeting of 4th October 2018. The NSBP covers the following nine areas: environmental and social risk management, environmental and social footprint, human rights, women’s economic empowerment, financial inclusion, environmental and social governance, capacity building, collaborative partnerships, and reporting.

The NSBP is a major step forward for the Nigerian banking industry, as it demonstrates the commitment of the financial sector to aligning the sector’s operations with the global sustainability agenda. The Principles respond to the specific challenges and opportunities within the Nigerian context, such as the need to diversify the economy from oil dependency, the need for financial institutions to collaborate to drive the sustainability goals despite industry competition, and the long-overdue need to address the social and environmental impacts of extractive industries. The NSBP also encourages the growth of small and medium enterprises, advocates for the empowerment of women, and is the pillar upon which corporate social responsibility measures (which promote the SDGs) rest.

However, the implementation of the NSBP is not without challenges. Some of the barriers include lack of awareness on, and understanding of sustainability issues among bank staff and customers; inadequate data and tools for measuring and reporting on sustainability performance; insufficient incentives to reward compliance, inadequate laws and regulations to enforce strict compliance; limited capacity and resources for integrating sustainability into business strategies and processes; and resistance to change from some stakeholders who perceive sustainability as a threat or unnecessary burden.

The Central Bank of Nigeria (CBN) embodies sustainability in both its vision and mission. While its vision is “to be a people-focused Central Bank, promoting confidence in the economy and enabling an improved standard of living”, its mission is “to ensure monetary, price and financial system stability, as a catalyst for inclusive growth and sustainable economic development”. These statements represent the heart and soul of the Bank and its employees. It suffices to know that the vision and mission of the Bank is in line with the CBN Act 2007, which further empowers the Bank with a developmental function to stimulate financial and economic development. The CBN is therefore at great liberty backed by statute, to engage in initiatives which encourage the NSBPs. It is however expected that the new administration of the CBN would formulate a balancing mechanism to ensure that the core mandate of the Bank is not overshadowed by its developmental function.

Sustainable banking in Nigeria has made significant progress in the past decade, but there is still a lot of room for improvement

By way of recommendation for the CBN, this writer has put down some initial thoughts. For starters, financial institutions in Nigeria need to have a second look at their visions, missions, and sustainability statements to ensure that they are in tandem with promoting responsible banking for the sake of now and posterity. These should be conveyed clearly to their internal and external stakeholders, who should master and practice them in their day-to-day activities. Furthermore, all financial institutions (the CBN inclusive), should incorporate sustainability into their governance structures, decision-making processes, risk management systems, product development, service delivery, performance measurement and reporting. As a nation, we need to think smart. Nigeria cannot continue to rely mostly on oil and gas to be the solution to economic prosperity, as this dependence has to a large extent proven to be an Achilles’ heel, rather than a resource blessing. Financial institutions should therefore innovate and experiment with new solutions, technologies and approaches that can generate shared value for their businesses, the financial sector, the country, and the world at large. From the legal angle, extant regulations and policies governing the financial sector need to be revisited to ensure that their provisions do not offend the NSBP or inadvertently reward a financial institution’s failure to implement them.

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Very fundamentally, it appears that the NSBP, a well-crafted document, requires a review which would place it on par with topical issues affecting humanity. One of the discussions during such review should revolve around the inclusion of Climate action as an NSBP, in recognition of the adverse effects our negative choices have on the atmosphere and environment. Global warming is a topical issue that must be taken very seriously, especially in Nigeria where flooding and the risk of wildfires in arid land is high. The objectives of the Nigerian Climate Change Act 2021, which extends to the CBN and financial institutions in Nigeria, should be incorporated into the NSBP. Significantly, youth development must also be added as a principle under the NSBP, since this would in no small measure improve positive output for Nigeria, especially in situations where physical manpower is an advantage. The average Nigerian youth is resilient, intelligent, hardworking, and industrious. Put together, Nigerian youths have been forged to withstand difficult situations, yet we remain hopeful for, and are truly ready to join hands in rebuilding Nigeria.

This is where the importance of nationwide awareness of the NSBP comes in. Nigerian citizens should be educated on what the NSBP entails, in the languages and by the visuals they can understand, which would enlighten them on how their actions can affect the future. In the words of the CBN Governor, Mr. Olayemi Michael Cardoso, “Learning should be continuous. Even the way we see things changing in our environment everyday with technology, new ideas, new issues, you need to be ahead of the game”. Indeed, Nigeria must be primed to be ahead of the game. Keeping in mind that section 2(e) of the CBN Act mandates the Central Bank of Nigeria to act as a banker and provide economic advice to the Federal Government, the Bank should align the 8-point agenda of the Tinubu-led Government with the NSBP, in rendering its financial advice to the Federal Government for the promotion of a sound and sustainable financial system in Nigeria.

Going further, the collaboration between financial institutions which is already embedded in the current NSBP must be intensified, with the CBN as the expert driver, to guarantee that finance is never a barrier to the achievement of the NSBP. Consequently, the Chief Executive Officers of financial institutions must cooperate with the newly appointed CBN management and work in one accord to foster fiscal-monetary coordination in favour of the NSBP. As a preliminary measure, all financial institutions in Nigeria that are yet to subscribe to the United Nations Principles for Responsible Banking should be mandated by the CBN to do so. Finally, given the poor rate of compliance in Nigeria, a reward-based incentive can also be initiated by the Bank, to ignite compliance with the NSBP by both financial institutions, foreign and local investors, and Nigerian citizens in general.

Sustainable banking in Nigeria has made significant progress in the past decade, but there is still a lot of room for improvement. The NSBP provides a solid foundation for Nigerian financial institutions to build on, for the benefit of our beloved country Nigeria. However, it needs to be complemented by a strategic mind-set that can foster a permanent culture of sustainability within the financial sector.

It is insightful to point out that the new CBN Governor, during his tenure as the Lagos State Commissioner for Economic Planning and Budget, designed and developed a strategy document, based on poverty alleviation and growth. Also, during his tenure as the Board Chairman of Citibank Nigeria Limited, his efforts resulted in a significant increase in the percentage of women on Citibank’s board, rising from 8% to an outstanding 50%. The cited examples clearly mirror his views on sustainability and reveal the prospect of the CBN Management to advance the concept of sustainable banking as recommended by the United Nations. Nigerians should therefore exercise their civic duty of giving the new administration of the apex Bank an opportunity to reset the trajectory for sustainable economic growth in Nigeria. The media is also encouraged to be more understanding, by not setting unrealistic milestones for the Governor and his deputies, in the projection of a better image for the CBN. These considerations would ensure that the team remains focused in their quest to revive the financial sector in a sustainable way, and without undue pressure. That said, to whom much responsibility is given, much accountability is expected. It is therefore expected that within a reasonable time, and under the leadership of the newly sworn in Management, the Central Bank of Nigeria would soar to greater heights.

Indeed, change has come to stay. But the change required to attain great lofty heights, begins with all of us.

Owuamalam is a highly accomplished lawyer with a strong background in the policy, energy, government, and financial sectors, offering a cumulative twelve years of experience.