Key drivers of sustainability in the banking industry

In 1995, research by United Nations Environment Program and Salomon Inc. of New York found that
70% of respondents in a group of 90 commercial and investment banks from four different continents
believed environmental issues had a material impact on their business. In particular bankers are
cautious about the financial implications related to the following:

Lender's liability

Lender's liability is associated with the financial risks banks face when granting or extending loans. Banks
and other lenders rely on financial statements of companies when deciding whether to grant or extend
credit. They need to be fully and accurately informed about decommissioning liabilities in order to avoid
unacceptably high financial risks. Under current reporting requirements, potential environmental
liabilities can easily remain undiscovered unless a lender develops its own procedure to assess the
environmental risks. Therefore, some banks can end up spending the money on clean-ups of sites
contaminated through their clients' activities.

Borrower's ability to meet financial obligations

The borrower's obligation to clean up contaminated sites might impair his or her ability to repay a loan.
The contamination might also reduce the value of the collateral. Prudent lenders are following the
environmental trends and changes in regulatory framework to assess the possible implications of these
changes on their clients' overall financial position.

Growing environmental concerns

The last few decades have been marked by numerous changes in the regulatory framework relating to
environmental protection. Recent scientific discoveries of environmental and health risks associated
with pollution have contributed to an increase in public demand for environmental quality. These
growing concerns have contributed to a major shift in public perception of corporate roles in society.
Influenced by these trends, some banks have begun looking closely into their own environmental and
social performance. In many cases this effort has resulted in adoption of energy and resource efficiency
programs within the institutions themselves.

Business opportunities

The traditional approach of the banking sector to sustainability is often regarded as reactive and
defensive. However, several international banks have recently adopted innovative, proactive strategies
to capture the opportunities associated with sustainability. They have developed new products such as
ethical funds or loans specifically designed for environmental businesses to capture new market
opportunities associated with sustainability