COVID-19 has had damaging economic, sanitary and social consequence on all countries. The death toll exceeded 670,000 globally and, according to the World Bank, current projections suggest that global recession will be the deepest since the end of World War II. Consequently, progress that was made in many SDGs over the last years is now being wiped out causing many millions to fall back into poverty.
The lack of visibility on how this crisis will evolve over the next coming months further complicate the situation. However, there is a growing consensus on the centrality of the environmental issue in the world’s recovery process, for at least the following reasons:
- Despite all the dire consequence of COVID-19, the global warming risk is far more challenging. In fact, finding an effective and affordable vaccine or cure for COVID-19 will fix the crisis once for all and the economy and social live will eventually resume to normal. However, climate change damages might be irreversible and far more complex after crossing a tipping point
- Limiting global temperature increase to well below 2 degrees Celsius (as stated in the Paris agreement) requires massive investments to decarbonize the world (electricity production, transportation, industry, buildings…) and thus can put the world economy back on track
A recent report “Financing climate action with positive social impact” by LSE and the University of Leeds sheds light on the role of banking in a green and inclusive transformation. The report’s findings apply to conventional and Islamic banking alike.
According to the report, the banking sector should be a central pillar of this green transformation to rebuild trust, align with stakeholders’ expectations (customers, investors, staff, government…) and create new business opportunities driven by the green economy.
The report recommends a list of actions to embed the green transition across banking operations:
- Leadership & purpose: A strong commitment from the bank leadership to ensure that the green transition is incorporated into the institution’s governance, culture, strategic objectives and business model
- Strategy: A clear institutional action plan for how the bank plans to operationalize the transition. This plan should cover culture, governance, risk, opportunity, compliance as well as the treatment of customers
- Customers: Developing a core portfolio of financial products and services that contribute to achieving a green transition in a socially inclusive manner
- Place: Working with key stakeholders in different geographical areas (in both rural and urban settings) to respond to the diverse needs for achieving a green and just transition
- Policy: Engaging actively with policymakers to encourage the right enabling environment for the green transition through economy-wide policies, financial regulation and public finance initiatives
- Partnership: Engaging in dialogue with government, business, trade unions and civil society to listen to emerging needs and develop breakthrough partnerships
- Accountability: Reporting on progress against goals set in the strategic objectives
This article was first published in Islamic Finance news Volume 17 Issue 32 dated the 12th August 2020