The Sustainable Finance Initiative will be grounded in three main priorities, namely equipping the financial services sector to perform optimally in the area of comprehensive risk management; enhancing best business practice, leadership and governance through engagement and capacity building at the board and senior management levels; and promoting industry growth and development by fostering a culture of innovation and inclusivity enabled by new technology.
These Priorities were articulated by the SFI Working Group banks and adopted as the focus thematic areas of the SFI.
While utilising capital responsibly to create value economically and deliver returns to their shareholders, sector players should be effective at the mitigation and management of economic and associated risks in both the short-run and long-term period.
Economic Risk: As custodians of capital, anticipating and responding to the impact of macroeconomic conditions, includingfiscal and monetary policy, government regulation and political stability, is core to the viability of the institution as well as thesector at large. Institutions therefore should ensure that their firm is best equipped to respond to economic risks.
Associated Risk: Recognising that the financial services sector is both directly and indirectly impacted by social and environmental factors, through policies and risk assessment procedures, firms should also seek to mitigate social and environmental risks associated with their financing activities.
Board Roles & Responsibilities: Ethical practices and conduct reinforced by corporate values are the foundation of any financial service firm. It is therefore the role of the leadership, which is ultimately represented by the Board and Chief Executive Officer, to set the tone and actively ensure that business practices are ethical and fulfill the established regulatory and corporate governance requirements.
Best Practice: Organisations that openly disclose and embed their core values and priorities tend to have better run institutions. It is therefore proposed that this best practice be adopted within institutional policies and procedures. Reporting is another best practice and key component. As firms work to enhance their reporting policies and procedures; the industry should work to publicize the positive impact of sustainability initiatives that institutions are advocating and achieving in their day to day activities.
Increasingly competition within the sector and from competing sectors is driving financial service players to continually innovate and leverage on existing and emerging technology to respond to, and anticipate dynamic market needs. Considering that product and process innovation contributes towards industry growth and development, a culture of innovation and inclusivity enabled by new technology should be fostered at both the firm and industry levels.
The SFI Guiding Principles inform financiers on how to optimise the balancing of their business goals with the economy's future priorities and socio-environmental concerns.
The Guiding Principles are in line with international best practice and consistent with the financial sector's environmental and social risk management aspirations. They are meant to guide banks in the implementation and adoption of sustainability practices and the incorporation of the same into their day to day operations. They provide a much-needed case and rationale for sustainable banking in the Kenyan and regional context.
Financial institutions should consider both financial returns and the economic viability of their financing activities. Economic viability, defined as the ability to realise sustained long-term growth/returns, should be factored into the decision making process, particularly in the financing of commercial activities. The Guiding Principle is that financial viability is necessary from an investment perspective; but is not a sufficient condition for sustainable economic development.
Financial sector players seek to grow and enhance service delivery for the markets they currently serve, as well as reach out into diversified markets with economic potential thereby fostering financial deepening. The Guiding Principle is that financial institutions in pursuit of growth should innovate and leverage on existing and emerging technology to reach current and potential markets while economically empowering communities.
Economic development is intertwined with social, humanitarian and environmental concerns; therefore financiers are materially affected by these concerns despite the fact that these risks may be perceived as in- direct or secondary. The Guiding Principle is that firms should seek to mitigate social and environmental risks associated with their financing activities through client engagement and effective policies and risk assessment procedures; and in addition, firms should actively measure and report on the financial impact of these risks on their business performance.
In meeting present needs, financial institutions should ensure optimal management of resources, including financial resources and natural capital, so as to avoid compromising the future generation’s needs. The Guiding Principle is that optimal resource management is realized through productivity and efficient utilization of resources; and is guided by comprehensive opportunity cost assessment.
Promoting enhanced oversight of business practices at both the Management and Board levels contributes towards effective, resilient Organisations. The quest for ethical practice, efficiency, productivity and waste minimization should be fostered from the leadership and enabled by adequate governance structures. The Guiding Principle is that the leadership of financial institutions should ensure the organisation to deliver returns in the long term, and in a responsible manner that sees optimal utilization of resources towards achieving positive externalities.
Whereas the SFI Principles guide and inform the financial services sector on the philosophy and expectations around sustainability and sustainable finance, the SFI Procedures are best practice standards for the board and management to implement towards realizing the SFI Principles.
These are specific actions to be undertaken by various players in banks as a way of ensuring compliance with SF Principles. They provide a list of procedures, a clear roadmap of what needs to be done, by which actor and to what end. Viability is necessary from an investment perspective; but is not a sufficient condition for sustainable economic development.