Despite what one may believe to the contrary; today we live in a world where finance is no longer about mere profits and financial institutions cannot merely confine themselves to the traditional task of being profit making while ignoring their social commitments. What i imply to say by this is that financial organizations can no longer be entities that are insulated from the social consequences of their actions and the impact that social stasis or transformation have on them and their operations.This was made more than apparent by the recent financial crisis that sent organizations that were considered secure and supposed stalwarts of the financial world to their graves and left others gasping for the breath of bailouts from state even as they left the socieities in which they operated reeling by their actions. In an arena like finance where trust is everything the consequences of the repeat of such events can be devastating.
More recently the events in Andhra Pradesh with respect to the suicides amongst people who have borrowed from microfinance institutions has been devastating to the micro finance sector. While profit is essential (for no organization can function for long under recurring losses) the profit also needs to be responsible. The result of these recent events has been to once again bring the focus on to the concept that is popularly known as "sustainable finance"
More recently the events in Andhra Pradesh with respect to the suicides amongst people who have borrowed from microfinance institutions has been devastating to the micro finance sector. While profit is essential (for no organization can function for long under recurring losses) the profit also needs to be responsible. The result of these recent events has been to once again bring the focus on to the concept that is popularly known as "sustainable finance"
Sustainable finance implies a commitment to sustainability in the operation of financial institutions whereby Financial institutions (FIs) expand their missions from ones that prioritise profit maximisation to a vision that also incorporates social sustainability. It requires FIs to fully integrate the consideration of social limits, equity and economic justice into corporate strategies and core business areas (including credit, investing, underwriting, advising), so that sustainability objectives are placed on an equal footing with shareholder maximisation and client satisfaction. It implies financial institutions creating policies, procedures and standards based on the principle of precaution to minimise social harm, improve social conditions where transactions that undermine sustainability; in this regard a delicate mix corporate and social sustainability; are avoided.Such a reality is possible only if the twin elements of responsibility and accountablity are ingrained into all aspects of the FI's operation right from the top to the groundlevel.
This is possible even without the everseeing eye of government watching over the operations of FI's. It will require FI's to have better understand the social "limits" of the environments in which they operate; be able to differentiate between needs, wants and capabilities of their customers and pay their full and fair share of the risks they accept and create. These include financial risks, as well as social and environmental costs that are borne by the communities who are forced to pay a price for unsustainable financial decisions and investments. Responsible finance also requires FI's to ensure that the lives of people; in terms of life itself and the quality of life; are protected. This can be ensured through making sure that stakeholders’ rights are protected through practices and procedures voluntarily adopted by the FI.
Most importantly Financial Institutions are capable of and should ensure that the markets that they create or operate in are capable of fostering sustainability. This can be done by the FI's supporting public policy, regulatory and/or market mechanisms which facilitate sustainability and foster the full cost accounting of social and environmental externalities.
