Entrenching Values-Based Banking is financing the future we want

By Paul Russo, KCB Group CEO

For a long period, the financial system that includes banks has been considered selfish, driven by short-term profit maximisation, and subverted by rigid managers. However, it would be short-sighted not to look at the overall role of the financial system in supporting the needs of the real economy.

As a matter of fact, banks hold a unique position in sustainable development because of their strategic roles in the economic development of a nation through the provision of financial services as a catalyst for economic progress. Given their fundamental impact on society and the environment, financial institutions are increasingly being looked at to address social and environmental challenges and engage in sustainable practices that are inclusive and aligned with the needs of future generations.

The narrative that the banking sector has been slow to respond to environmental sustainability challenges is not far-fetched. As an industry that has been considered to have a low direct impact given their exposure to risk, bankers have been relatively slow to examine their customers' environmental and social responsibilities. This can be attributed to the fact that closer scrutiny into the behaviour of the customers they lend to would amount to unacceptable interference in their activities and risk carrying the tag of “Big Brother” syndrome.

While the practice has been lauded as a buffer to maintaining customer confidentiality, it seems to overlook the due diligence banks ought to be performing to assess the risks involved in any credit proposal. New and emerging economic and financial models now require respect and support of an ecosystem that includes care for the planet. 

Banking on value: The new frontier

The process of rebuilding trust in the banking industry has given birth to the meteoric rise of a new form of banking known as “Values-Based Banking”. These are financial institutions focused on human needs in the real economy, which includes investing in green and social innovation sectors that are at the heart of a sustainable financial system, with a focus on helping individuals fulfil their potential and building stronger communities.

Values-based banking is purposively oriented toward the development of a sustainable economy. It is a diverse movement drawing in financial players to invest more in long-term customer relationships and not become dependent on the whole idea of making profits, as was the case with traditional banks. It also demonstrates a different way of operating, which includes customers in its governance and operating system as a crucial lever around which new socio-economic and institutional arrangements can be built.

Values-based banks have understood something that is missing in mainstream banking: that banking is a combination of responsibility for society and making a reasonable profit to generate fair livelihoods. These banks care about the journey of the money entrusted to them. They are purpose-driven organisations that make a deliberate choice to focus on financing actual businesses and people working to address some of humanity’s greatest challenges.

As a powerful channel for citizens’ voices in finance, values-based banking enables people to make more active and informed decisions about their financial needs and the choices of their financial services providers. This is so because banks collect large amounts of data from customers, such as transaction data, consumer behaviour, consumption patterns and preferences, information that banks can use to inform their sustainability journey.

More than just an ethical option

Banking for future generations is basically what everyone should be doing. It’s not an option. At KCB Group, we believe that banks should not exist outside of or above other parts of the society they operate in. There is an opportunity to not only increase our value but also that of the communities we serve. This can be achieved through supporting the long-term financial health of clients, investing capital that will contribute to the local economy, and prioritising the social and environmental needs of the greater community.

To achieve this, the banking industry will need to broaden its outreach and diversify its portfolio by catering to stakeholders of both a values-based economy and a market-oriented one. In its journey to becoming a sustainable bank, KCB Bank has embraced its engendered purpose - being the infrastructure for systemic values-driven growth.

As a result, KCB has leveraged finance to scale green investments that seek to find the intersection of doing well and doing good as important drivers of sustainable growth. A quick glance at the 2021 KCB Group Sustainability Report reveals the bank’s commitment to walking a transparent and accountable journey through reporting to gauge our Environmental, Social and Governance (ESG) impact as a core part of our value-based banking journey.

To support this, KCB Group was able to grow its total green loan portfolio to 8.4 percent, a figure we look at scaling to 25 percent by 2025. Going forward, we have purposed to incorporate the effects of climate change into our loan appraisal decisions, leveraging data-driven insights to better understand our customers’ needs as well as embracing appropriate metrics to understand the impact of long-term value initiatives, such as lowering carbon emissions, on customer trust and engagement.

Committing to an enduring purpose-driven approach will require bold leadership and, at least in the short term, economic trade-offs. It also means navigating the local and regional political interests and balancing the expectations of customers and shareholders. While this can be viewed as a challenge given where we have come from, we consider this a unique opportunity to change how our customers think about their money, and how it is used to foster long-term positive progress.


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