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The financial system is the backbone of the economic structure and development trajectory of any country. The banking sector not only plays a role in facilitating capital flows and economic operations, but it also has a profound impact on the long-term social structure, environmental sustainability, and economic justice. In Nepal, the banking sector still prioritizes a profit-oriented approach. However, the international debate on sustainable development is steering the financial sector in a new direction. In such a context, it is desirable to have a debate on the necessity, possibilities and practical challenges of sustainable banking.

With the development of modern banking system in Nepal, financial expansion accelerated rapidly. The promotion of the private sector, investment in infrastructure, business credit, and consumption-based credit generated significant activity in the economy. However, questions continued to be raised about the extent to which the bank’s investment decisions were sensitive to long-term social impacts, environmental risks, and the preservation of inclusive economic structures.

Generally, through banking, investments are made in various ventures, businesses and profits are made from them. You understand that banking makes a profit for the shareholders. Before the advent of joint venture banking in Nepal, there was not much attention paid to who invested and how. Even after the joint venture bank started its practice, there was not much interest in the impact of its investments on the environment and social capital formation.

The global financial crisis of 2008 was the result of profit-oriented banking. Highly risky financial instruments, attraction to short-term returns and disregard for social responsibility have destabilized the banking system itself. The crisis highlighted the need for the banking sector to give equal importance to responsibility to society and the environment beyond financial profits.

There has not been much discussion on the practice of sustainable banking in Nepal’s banking and financial sector. We don’t come from that culture. It became a discourse that the bank invests only to make a profit. The matter of concern is the magnitude of the business of which bank, which bank is bigger and which bank has earned how much profit. However, there is little discussion about whether the bank’s work had a positive or negative impact.

The principle of sustainable banking is based on the concept of the triple bottom line, which says that financial institutions should give equal importance to the dimensions of people and nature along with profits. In doing so, banking is not only a profit-making business entity but also a driver of social justice, environmental protection and sustainable development.

The sector in which the bank gives priority to increase investment, the speed and direction of the economy is diverted. Therefore, when making investment decisions, banks should think responsibly about the impact on society, the environment and the future

Internationally, in countries such as Canada, France and Australia, sustainable finance models have made significant contributions to community development, green infrastructure, renewable energy, and social responsibility. These experiences provide a clear roadmap for how financial structures can link economic growth to sustainability.

Role of the Bank Only Financial Access

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The bank is not only an indicator of the direction in which the major sectors of the economy are headed. The bank’s investment goes from the private sector to government projects, from personal consumables to big industries. The sector in which the bank gives priority to increase investment, the speed and direction of the economy is diverted. Therefore, banks should think responsibly about the impact they are having on society, the environment and the future when making investment decisions.

The main topic of discussion now is whether to invest in fossil fuels or to switch to renewable energy. Increase or decrease greenhouse gases? The impact of the bank’s investments on the environment, climate, social justice and human welfare is a matter of global debate.

Not only banks, but other sectors also need to embrace the concept of sustainable development while investing. Investments with environmental protection and human welfare as prime priorities will contribute to the sustainable conservation of both humans and nature. However, even the big and prosperous countries do not give much importance to the protection of the environment. Even in the United States, the Trump administration does not seem to have given much importance to the environment. There was no participation from the US government level in COP-30. The focus on short-term gains is diverting many attention away from sustainability work.

The private sector contributes more than 80 percent of Nepal’s GDP. The bank accounts for 70 to 80 percent of the private sector’s investment. If the bank decides not to do anything that will have a negative impact on the environment, it will give a lot of positive results.

Nepal Rastra Bank (NRB) has specified specific sectors for investment as priority sectors. About 45 percent of the investment of banks and financial institutions goes to this sector. The percentage of investment in agriculture, hydropower, renewable energy and small and medium enterprises has been fixed. However, it is not clear what to invest in and where not to invest in the priority sector. We have asked to invest in agriculture but not in the regeneration sector. Even if there is an agricultural project that damages the soil, the bank will invest. Investments in the renewable energy sector have helped reduce fossil fuels. Investment in agriculture also needs to be encouraged with priority towards regenerative agriculture.

When it comes to the real and financial economy, some of the money can also go into the financial economy to diversify the bank’s investment. However, investment in the financial economy does not help increase production and employment. Investment should be increased mainly in the real economy. If the investment can be made keeping in mind the social and environmental aspects while investing in this way, then the return will be long-term.

has been asked to invest in agriculture, but it has not been asked to invest in the regeneration sector. Even if there is an agricultural project that damages the soil, the bank will invest. Investments in the renewable energy sector have helped reduce fossil fuels. Investment in agriculture also needs to be encouraged with priority towards regenerative agriculture.

If the investment is being made in a way that has negative social and environmental impacts, then everyone should equally share the consequences. Many organizations around the world are saying that they will not invest in fossil fuels on the basis of the ‘Fossil Fuel Non-Proliferation Treaty’. Patagonia is one of the world’s most eco-friendly companies. It mainly manufactures outdoor garments and gear. It has announced that it will not do business with banks that invest in fossil fuels. Such a big company has forced various companies and banks to think about whether to invest in fossil fuels or not.

Interest in sustainable banking

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For a long time, the work of the banks had contributed to the promotion of social welfare and environmental protection, but more than that, the issue of profit was prioritized. He increased investment in the promotion of garment, carpet and other industries of Nepal. Investments have been made, but the larger interests of the environment and society have not been given careful attention. More attention was paid to how to increase the profit of the bank and how to promote the interests of the shareholders. The impact of this kind of work on the community and future generations has not been a priority.

Of course, in rural areas, small groups of women, farmers, etc. have been formed and invested in collective guarantees. This has helped in their empowerment. In general, income has also increased. Cooperatives and microfinance organizations working in rural areas were taking this initiative. However, the mainstream banks are less so. While small organizations contributed to making a positive impact on society, banks were mainly focused on the purpose of making a profit.

We have been discussing sustainable banking in Nepal. In 2016, I went to Amsterdam to attend the annual conference of the Global Alliance for Banking on Values (GABV). I heard the bankers there talk only about the ‘triple bottom line’. They were also discussing profit with prosperity. The bank’s full commitment to making a positive impact on society and the environment is essential for the common good. It was different from what we had in Nepal.

I proposed to hold GABV’s ‘Values Based Banking’ conference in Nepal in 2017 so that the issue of sustainable banking should be brought to the center of discussion in Nepal. At first, they didn’t believe it. He wondered where Nepal could hold such a conference. He replied that he had already decided to hold the program elsewhere. After I insisted a little more, they agreed that they would come to Nepal and see and then decide. Finally, in 2017, GABV’s conference was held in Kathmandu. About 150 people from all over the world attended the event. Since then, there has been some discussion on sustainable banking in Nepal.

After the Nepal Rastra Bank brought the guidelines of the Environmental Risk Management System (ESRM), there was more debate on this issue. The International Monetary Fund (IMF) and the Netherlands Development Bank (FMO) have also provided training to Nepal’s bankers on sustainable banking. This helped propel the debate on sustainable banking to a new level.

Banks are not only an indicator of financial access, but also the direction in which the major sectors of the economy are headed. From the private sector to government projects, from personal consumables to big industries, the bank’s investment goes everywhere. The sector in which the bank gives priority to increase investment, the speed and direction of the economy is diverted.

There is a level of solidarity between sustainable banking and value-based banking. Sustainable banking focuses only on sustainability, but rather about customer protection, transparency, inclusive governance, long-term relationships with customers and understanding their risks rather than value-based banking. It is said that these things should be kept in the culture of the bank. How important these issues are for our country has been made a subject of debate here in that conference.

Sustainable Banking Practice

At the end of 2017, after becoming the director of Nabil Bank, we developed some products keeping in mind the social and environmental impact of adopting sustainable banking practices. The Nabil School of Social Entrepreneurship was started to strengthen it. The course has been prepared by inviting practitioners of social entrepreneurship from India. On the basis of this, work is being done to create a new social enterprise.

Everything we are using or getting now is a gift of nature. We have to protect nature and fulfill our needs. Future generations should not consume the depression of nature, but should leave them as a gift. We should be aware of this from today.

The theme of the 2019 GABV conference in Vancouver was “Migrants, Me-Too, and Melting Ice Caps: Redefining Banking for a Radically Different Future.”TAG_OPEN_span_73 They are working with such a strong theme.

The main purpose of sustainability is to do it forever and for everyone. At present, ecological heritage is neither used for all, nor has it been preserved forever. The example of Bagmati in Kathmandu is enough for this. The Bagmati, which could bathe in the murky water until three decades ago, now has a foul smell.

Policy Initiatives

There is a policy provision for environmental impact assessment while constructing big projects. Nepal Rastra Bank (NRB) has taken a step towards sustainable banking. Nepal Rastra Bank (NRB) has formulated and implemented the guidelines of the Environmental Risk Management System (ESRM). There is also a need to assess the impact of climate change and invest in it. If a project is going to be made, it should be done by preserving the cultural heritage, not by demolishing it. If there is a need to build a project in the same place, then help in relocating the cultural heritage there.

For example, if we continue to extract and sell pebbles and sand from the Chure region, there will be no production in that area after three ÷four decades. In such a situation, there is no point in leaving only the bank. Today’s generation should think about saving it for tomorrow’s generation.

It is necessary to review the investment in the priority sector and make it timely. In the coming days, banks should be encouraged to work more and more in the sustainable banking sector {{

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Investment in a place where goods are produced, employment is created and the economy is strengthened. Sustainable banking practices are if social and environmental protection and well-being can be taken into account while making such investments.

Upcoming Effort

As the Environmental Risk Management System (ESRM) guidelines issued by the Nepal Rastra Bank are implemented more effectively, sustainable banking can take a leap forward in Nepal. It is necessary to review the issues of investment to be made in the priority sector and make it timely. In the coming days, banks will have to be encouraged to work more and more in the sustainable banking sector.

Just because practicing sustainable banking contributes to other economies does not mean that it should not work in other sectors. There is no way to do it. For example, banks should maintain a deposit-to-credit ratio (CD ratio) of 80 percent. In doing so, we should also create a place to invest the remaining 20 percent.

The focus should be on building social capital and protecting the environment. Sustainable banking practices motivate banks to use their profits to promote human society and nature together.