Posted by: Kelly Robbins, Special Projects Lead
Discussion with Geert Jan Schuite (GJS), Global Group Lead, Outcomes Management & Strategy and Kelly Robbins (KR), Special Projects Lead
(KR) To start off, tell me how you think of Environmental & Social Management? You do a lot of trainings on E&S Management Systems with bank and MFI professionals. How do you explain what E&S means in your trainings?
(GJS) In working with commercial entities in emerging economies, Enclude’s goal is to help them explore and understand their triple bottom line focus. Having an Environmental & Social Management System in place is about looking beyond profits, to also take into account social inclusion and environmental sustainability as elements that strengthen the quality of organisations, strengthen the position of organisations, and ultimately strengthen the business of organisations.
(KR) I know Enclude’s Outcomes Management & Strategy team works with many clients and partners to incorporate new E&S Management Systems into their core businesses. What kinds of systems do you find work best?
(GJS) The key of our work with commercial banks, MFIs, funds, and even individual producers is not so much about convincing these partners to use certain systems or pushing them in a certain direction, but rather to assist them in exploring and finding the business meaning of E&S for themselves, so it becomes intrinsic. That is our ultimate goal. We never say, “this is how we do it in Europe, now also do the same thing in Malawi.” Our basic principle is to work together with our partners to look at social and environmental issues from the local context. We can develop E&S Management Systems together, because together we see what makes sense and what doesn’t for that particular business. That is the key proposition we are after.
(KR) When working so closely with your partners to develop these systems, do you find that managing environmental and social outcomes is already being done – for example in Africa where you have recently held several E&S trainings?
(GJS) People are very receptive and open to these concepts. In some ways, this has been a long, ongoing concern. Business owners are aware of the challenging conditions they and their communities face: that there is an issue with waste, or the quality of water, or with access to energy and sourcing of energy.
Many businesses have responded to these challenges in their corporate social responsibility projects. From the CSR perspective, being a good citizen means that you offer new gear to a local football club, or put a pump in a place where people need drinking water and put a placard on that pump that proclaims who built it. That’s very good for awareness raising and understanding your position as an organisation, as a good citizen. But indeed, incorporating community and environmental needs into your core business is a whole new chapter for many businesses. That’s what we are after.
You can see changes beginning in the financial sector. If we take the example of Africa – the continent as a whole – we can see certain E&S Management systems are really taking off. For instance in South Africa, E&S management and performance is already a very common concept in the financial sector and also among banks. In many other countries in Africa it is completely new. It is often not propagated by the government, there is no initiative by the central bank. Some exceptions are Nigeria, where the central bank is quite proactive, and in Kenya the banking sector takes initiatives. So there are some clear spots in Africa where you can see movement: because of the government in South Africa, because of the central bank in Nigeria, and because of the Bankers Association in Kenya. Unfortunately across Africa and also in many regions in Latin America and Asia, the majority of countries are lagging behind – there aren’t regulatory requirements.
(KR) You have just named a few large-scale stakeholders who are pushing E&S Management to the fore. Who are the stakeholders that may be applying pressure to banks outside of the examples of South Africa, Nigeria, and Kenya?
(GJS) There is a palpable influence of DFIs like IFC, AfDB, EBRD, and FMO that partner with local financial institutions. The DFIs ask their local partners for transparent information on the E&S impact of their portfolio and require certain exclusions. The banks cannot on-lend their loans coming from the DFIs into certain sectors, like illegal activities, weapon-related activities, or tobacco production. This incentive is there, and still developing. Development banks are influencing the behavior of commercial banks.
(KR) Thinking beyond stakeholder incentives, what other factors make E&S Management important to banks and bankers? What incentivizes bankers to focus on E&S Management?
(GJS) When we ask our colleagues at partner financial institutions these questions, the main argument is that they believe incorporating E&S thinking into their business is an element of becoming more professional. So they intuitively see that a professional institution in 2015 should not only look at the financial bottom line, but other bottom lines as well. Ignoring these factors is not an option.
Social and Environmental Management Workshop for Financial Sector Managers (Uganda, 2015)
Another driver is that an E&S analysis of a portfolio helps clarify risks. Not only financial risks, but also non-financial risks. It is better for business. If you finance a client that has everything it needs in terms of financial performance, but it is unclear if this company is dealing with waste management by burning everything in its backyard, that’s a liability in the portfolio. If these things are not properly managed by a company you lend to, then soon this company may be in trouble and not able to pay back your loan. It strengthens an organisation to make E&S risk analysis behaviors intrinsic to business. Institutions who are outperforming their peers on environmental and social performance, are also correlated to better financial performance. This is the bottom line driver.
A third specific incentive in emerging economies is clean energy. There is a growing need for energy so there is also an opportunity for businesses that promote access to energy, clean energy in construction, and renewable energy like solar power, wind, or biogas. That’s an opportunity that is clear to see. There is a similar opportunity for green inclusive (micro) financial services for the rural underserved. These are all opportunities that can be explored when looking beyond the single bottom line to possibilities in the local social and environmental context.