Better Environmental and Social Risk Management for Banks

The survey conducted in June, which examined 54 Vietnam-based financial institutions, focused on awareness and understanding of environmental and social aspects, policymaking and process of environmental and social risk management, comparison of environmental and social risk management in Vietnam with international practices, etc.

 

A few Vietnamese banks have a formal policy, procedures or system to manage the environmental and social risks faced by their clients. One of the key constraints hindering the banks is the lack of specific guidelines on identifying and managing environmental and social risks in project financing.

 

Cat Quang Duong, Deputy Director of Credit Department under the State Bank of Vietnam, said: Financial institutions can reduce their own risks and seize business opportunities by encouraging sustainable business practices among companies. In fact, many governments in the world have enacted policies to encourage banks to have proper attitude to environmental and social risk management. Since then, some new standards and codes of conduct in the banking industry have been built and developed to promote social responsibility and transparency of impacts of banking activities on social and environment aspects. He said the State Bank of Vietnam will work with IFC to strengthen environmental and social standards in the banking sector.

 

The survey showed that many banks are not fully aware that environmental and social risks could affect the financial performances of their clients’ businesses and, in turn, those of the banks themselves. The banks called on the State Bank of Vietnam to work with the Ministry of Natural Resources and Environment in developing mandatory guidelines for identifying and managing environmental and social risks in project financing so as to create a more level playing field.

 

Simon Andrews, IFC Regional Manager for Vietnam, Cambodia, Lao PDR, Myanmar, and Thailand, said: “It is important for banks to adopt prudent environmental and social risk assessment standards during the lending process. A client’s business viability rests not only on its financial health but also on how well it manages the impact of its operations on the environment and the community. Addressing environmental and social sustainability issues also opens a new business opportunities for banks, such as energy-efficiency and renewable-energy financing, for the banks.”

 

Working with the State Bank of Vietnam on improving environmental and social risk management is part of IFC’s advisory program to promote sustainable growth in the country. IFC has partnered with Canada, Finland, Ireland, the Netherlands, New Zealand, and Switzerland in implementing its advisory program in Vietnam.

 

IFC is the largest global development institution focused exclusively on the private sector. It helps developing countries achieve sustainable growth by financing investment, mobilising capital in international financial markets, and providing advisory services to businesses and governments. In the fiscal year 2012, its investments reached an all-time high of more than US$20 billion, leveraging the power of the private sector to create jobs, spark innovation, and tackle the world’s most pressing development challenges.