Nabil plans sustainable banking for Nepal
Nabil Bank is celebrating a weeklong Green Week to mark one year of sustainable banking it launched last year to ensure financial literacy in rural areas, commercialise the agricultural sector, promote entrepreneurship and support the UN's Sustainable Development Goals (SDGs). It has provided Rs410 billion to 571 farmers and 60 entrepreneurs. The bank is also a member of the Partnership for Carbon Accounting Financials (PCAF) and measures greenhouse gas emissions related to its loan portfolio and investment.
Chair Upendra Poudyal has been pushing this priority for financial investment in Nepal, and Nabil was the first bank in Nepal to start a program supporting agri-based rural entrepreneurs. Poudyal who is also the Asia Pacific Regional representative of the Global Alliance for Banking on Values recently spoke with us about sustainable banking in Nepal.
Excerpts from the conversation:
Nepali Times: What is a sustainable banking initiative program?
Upendra Poudyal: Sustainable financial investment looks at three aspects – people, planet and prospects. Nepal’s banking sector is focused on size expansion and reaping profits and we forget about human beings and the Earth. This needs to change. Finance is important for infrastructure and businesses and without banks that is not possible. But the banking sector itself needs to change, instead of orienting itself toward profit and size, it needs to look at the impact its investments create, and if they will adversely affect the environment, public health and the very livelihood of the people. Which is why we launched the sustainable banking program that prioritises agri-based entrepreneurship.
And the impetus for this?
The 2015 Paris Accord where countries agreed to limit global warming to 1.5 degrees changed the priorities of many businesses around the world. But I, like most bankers, used to be driven by just profit and expansion. After I joined the Global Alliance for Banking Values, I met bankers who talked about sustainable banking instead of profits. It was the start of a new journey for me.
The 2008 financial crisis is in many ways a lesson for us all. It was proof that when banks invest in unproductive areas, it puts the overall economy of a country at risk. Over the last 80 years, intensified industrialisation has brought about the climate crisis which is threatening the very livelihood of people from the high Himalaya to the Tarai and resulting in a risky, uncertain future. We need to support the real economy and make sustainable investments. This starts with cooperation in every sector and shifting the investment priority of financial institutions.
Nepal Rastra Bank (NRB) already prioritises hydropower and agriculture. How is what you are doing different?
The banking sector has invested in hydropower and agriculture, but we have made environmentally risky investments. If the central bank had not instructed banks to invest a certain percentage in these sectors, then they would not have done so voluntarily. In 2018, NRB issued a directive for environmental impact assessments to be mandatory for projects that banks invest in. It is rarely practiced, however. But with the current climate scenario, we have no choice but to be environmentally conscious.
But will banks invest in sustainable projects instead of highly profitable ones?
Now is the time to think about credit and value creation. What can we do with profits made at the risk of humanity itself? If we just pursue profits, the future generation will not survive and the blame will fall on us. I remember that my first loan was to the cigarette industry. That would not happen now.
In the past 30 years, banks and financial institutions have increased loans by 20% but Nepal’s economy has expanded by only 4.5%.
Bankers have gradually started to realise that our sector has not uplifted our economy. But I believe the NRB should be guiding the bank towards investing in productive sectors. It is only natural for investors to seek profit but they should not expect a high-level return. Otherwise, the economy will collapse. What is the meaning of such banking that would not propel the economy forward and benefits just one group? Investments without a positive impact on the society, citizens, environment and the country will benefit no one.
Having said that, banks have also invested in productive sectors like the expansion of hotels and cement industries. But now we need to look at the energy consumed by these projects invest in, their environmental impacts and carbon emissions. In Europe, I came across a bank building that did not depend on grid electricity during the day. We can adopt such practices ourselves.
But banks investing in imports and real estate sectors have negatively impacted the economy and the environment.
The government and the baking sector both should shift their priorities. Nepal should be self-reliant in manufacturing and create employment opportunities. Banks should invest in building such a system. High imports and unproductive investment can push the country into an economic crisis.
Food and energy are critical sectors for any country. The finance sector has played a strong role in energy generation by investing in hydropower. And Nepal is now nearly self-sufficient in electricity and as a banker, I’m proud of this. This now should be replicated in food and agricultural production which makes up one-fourth of our imports. This can be replaced with domestic production if we prioritise and invest in agriculture.
We also have a huge potential for pilgrimage tourism from Janaki to Pashupati to Muktinath. If we do not prioritise the real economy we will likely crash, this is what recent events in South Asia have taught us. By producing essential commodities including agricultural goods, exporting electricity and promoting electric transport, we can reverse the balance of payments deficit.
How will Nabil itself put these values into practice?
We set up a sustainable banking department last year. We are also training youth in entrepreneurship and leadership. We are giving loans to up-and-coming businesses in remote Nepal to start local agricultural enterprises but we also educate them about their responsibility towards the environment.
Nabil Bank is also a member of the Global Forum on Partnership for Carbon Accountants Finance. We are committed to tracking our loans and how much they have contributed to reducing carbon emissions.
Nepal needs to prepare a roadmap in various areas of sustainable development, finance and green economy. It also needs to implement its commitments including the Paris Agreement. Nabil Bank is moving in that direction, other banks should too. The past experience, present needs and future goals should all align when we invest in financial sectors.