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Should banks be sustainable or simply report on sustainability? 15 Aug 2024

Nigeria is, perhaps, the world’s most dynamic sustainability reporting jurisdiction for banks. In 2012, the Central Bank of Nigeria (CBN) launched the Nigerian Sustainable Banking Principles (NSBP) for banks to report their social and environmental performance. Before and after the introduction of the NSBP, Nigerian banks have been issuing reports in alignment with a horde of global organisations and initiatives, which require similar disclosures as the NSBP. The United Nations alone requires sustainability reporting under its Principles for Responsible Banking (PRB), Principles for Responsible Investment (PRI), and Women’s Empowerment Principles (UNWEP).

One of the earlier frameworks for reporting social and/or environmental performance is the Equator Principles. But the most popular standards for sustainability reporting among Nigerian banks currently is the Global Reporting Initiative (GRI). Beginning from this year, the banks have started reporting on the International Financial Reporting Standards’ (IFRS) International Sustainability Standards Board (ISSB) S1 and S2 Standards. The Financial Reporting Council of Nigeria (FRC) decided Nigeria should be an early adopter of the new standards that were launched in June 2023.

Quite frankly, the initiatives for reporting on sustainability are innumerable. This means that the banks are bogged down by these reporting commitments. Ironically, under this circumstance, real sustainability practice suffers. Indeed, around the world, reporting and communication have become a major threat to sustainability, promoting malpractices such as “greenwashing”, “socialwashing”, “ESG-washing”, “sustainability-washing", etc. Reporting has become the way to fulfil the sustainability self-righteousness.

The banks are tagging along, willy-nilly. A growing number of institutional investors are looking for institutions and products that can generate financial, social, and environmental returns – otherwise known as the triple bottom-line. Globally, such impact investment funds are growing rapidly, reaching over $1 trillion in 2023. With Nigerian banks now racing to March 2026 to meet the new capitalisation requirements of the CBN, it has become even more compelling for them to jump on the sustainability reporting bandwagon.

While reporting to internal and external stakeholders of financial institutions is necessary, it does not define good practice; at best, it is only a factor in the definition. Therefore, to overly focus on reporting is not only sub-optimal, but it can also be harmful for a number of reasons. One, by serving essentially as an instrument for attracting the interest of foreign investors, significant attention is taken away from domestic sources for capital formation, making local impact financing vulnerable to external shocks. As decades of external financial dependency in the public sector has not served the country well, it is unlikely to serve the private sector any much better.

Two, the sustainability reports are putative competitive tools. So also are the reporting standards. Otherwise, why do we have so many of them? In the absence of harmonisation, duplication of efforts – including in reporting – has taken centre stage.

Three, the prevailing reporting practice, using Environmental, Social, and Governance (ESG) frameworks, is causing confusion and lack of progress in sustainability among banks that are genuinely interested in best practice in this area. ESG reporting has evolved two strands of beliefs: sustainability is about doing corporate good and a deterrent to investing in certain asset classes.

These two views are very limiting. To do good, organisations have to have made money. Thus, many of them set aside one percent of their Profit Before Tax for sustainability. But this requires that organisations have to generate profit first, from which they then allocate funding for their sustainability commitments. For any organisation, such commitments will gyrate in their sizes, depending on the level of profit, possibly to zero. And from my experience, the idea that sustainability simply discourages financing for businesses that are deemed environmentally unfriendly is prevalent. This either deters banks from embracing sustainability or encourages procrastination in making commitment.

Finally, and most concerning, the multifarious reporting standards tend to create sustainability silos. This is the very opposite of “holistic” sustainability, which the European Organisation for Sustainable Development (EOSD) is the first promoter of, through its Sustainability Standards and Certification Initiative. Therefore, SSCI, in many respects, is what these other standards are not.

The practice of sustainability in the Nigerian banking industry is at a critical juncture. This is because the NSBP is due for an update. This moment is, therefore, opportune for improving sustainability practice in the industry. The first version of the NSBP generated industry-wide awareness of sustainability and created a new category of professionals – and jobs – in the banks. The CBN as well as the Sustainability Champions of the banks – who tried to make the most of the standards – deserve plaudits.

NSBP version 2, in anticipation, must be fit for purpose. It must embody a set of standards that holistically embed sustainability in the souls (not in the DNA, which can be edited!) of the banks. Because of its all-encompassing focus on institutional, economic, social, and environmental performance, the SSCI of the EOSD is a sound recommendation for banks. First, it is locally adaptable as a regulatory and practice tool, potentially under the branding, and implementation oversight, of the CBN. SSCI shifts the focus from what the banks say they are “doing” to who they “are” as strong pillars for economic growth, financiers of economic transformation, and stellar contributors to social progress and environmental resilience. Through its motto, “profitability through sustainability”, SSCI makes sustainability the business of such institutions.

This also means a new NSBP will be driven via a robust digital platform that standardises data processing, with reporting essentially automated. This will further help the Sustainability Champions to focus more on practice, to make their institutions truly sustainable.

Jide Akintunde is Nigeria Country Representative of the European Organisation for Sustainable Development. Managing Editor at Financial Nigeria International Limited, he is also Director, Nigeria Development and Finance Forum.