Sustainable Banking: Banorte-Ixe at the Global Climate Change Forum
For Mexico's third-largest bank, balancing long-term sustainability and short-term market forces was a key theme at the Carbon Disclosure Project's Global Climate Change Forum 2012
How can investments in low-carbon technologies and energy efficiency be made during today's uncertain economic climate? With extreme weather events on the rise and energy and commodity price fluctuations becoming more frequent, how can a company best manage operating costs? What are the best practices for adapting to resource scarcity and developing sustainable long-term business models? How can political leadership on climate change issues be sparked? How can we achieve greater certainty and clarity in regulation?
These were some of the high-level questions that were recently addressed at the Carbon Disclosure Project's Global Climate Change Forum 2012, what the CDP described as a "global virtual stageâ¦to explore how businesses can succeed in an uncertain, resource constrained world." Connecting 10 locations over four continents, the Web-based forum was watched by some 2,000 people worldwide.
GLOBAL 500 CLIMATE CHANGE REPORT 2012
The forum centered around the release of CDP's Global 500 Climate Change Report 2012. The report, in addition to revealing the top companies making it in to CDP's 2012 leadership indexes, "highlights how the largest corporations in the world are tackling climate change and building business resilience through innovation and leadership."
Produced on behalf of 655 institutional investors representing USD 78 trillion in assets, the report, co-authored by PwC andÂ now in its tenth year, provides an analysis of climate change as a strategic focus at the world's largest public corporations. This year, 81 percent of corporationsâ405 in totalâin the Global 500 responded to the CDP questionnaire. The findings have struck a chord of concern.
"While some companies are demonstrating an awareness of the strategic opportunities associated with acting on climate change, few are setting the necessary targets required to ensure their long-term resilience and many are facing challenges justifying the business case for low carbon investment," according to the CDP. "Companies are more likely to be successful at raising investment for emissions reduction activities with a long-term payback (3 years or more) when they recognize that their climate change strategy gives them a competitive advantage."
Specifically, the report found that the average long-term emission reduction targets of CDP respondents is only around one percent, far from the four percent annual reduction from 2020 to 2050 agreed at COP17.
A MULTITUDE OF VOICES
Moderated by Diane Brady, the senior editor and content chief of Bloomberg BusinessWeek, and broadcast live via CISCO TelePresence on the CDP and Bloomberg websites, the forum featured speakers representing a wide array of sectors, all of which are critical to the business of sustainabilityâor more specifically, the sustainability of business. In addition to CDP Executive Chairman Paul Dickinson and CDP CEO Paul Simpson, they included Alan Brown, Senior Adviser, Schroders (asset management); Anand Sen, Vice President, Tata Steel (manufacturing); AntÃ³nio Pita de Abreu, board member, EDP Group (energy); Faith Taylor, CSO, Wyndham Worldwide (hotels); Julio Portalatin, CEO, Mercer (financial services); Malcolm Preston, Global Leader Sustainability & Climate Change, PwC UK (accounting); Miguel Castellanos, Director Environment, Health and & Safety, L'Oreal (cosmetics); Paul Abberley, CEO, Aviva Investors (asset management); and Peter Graf, CSO, SAP (software). The forum can seen online atÂ CDP Web TV.
Also, international governmental agencies were represented by Rachel Kyte, VP of Sustainable Development, World Bank; and Fatih Birol, Chief Economist, International Energy Agency (IEA). Notably, only one bank was represented at the forum, by Alejandro Valenzuela, the CEO of Banorte-Ixe. Based in Monterrey, Banorte is the main subsidiary of Grupo Financiero Banorte, one of Mexico's largest and oldest financial institutions, established in 1899.
BANORTE-IXE: SUSTAINABILITY IS SMART BUSINESS
In the discussion, Valenzuela pointed out the complexity of balancing long-term sustainability with short-term market dynamics. He also recognized the importance of companies trying to do the right thing, but not within a regulatory vacuum, saying, "You cannot have, at the end of the day, voluntary sustainability measures without good corporate and fiduciary laws."
But it's really not surprising that Banorte-Ixe was the only Mexican bank to participate in the CDP forum. In 2011, the magazine Euromoney named it the "Best Bank in Mexico" for, among other things, its progress in corporate governance and social responsibility. In 2009, Ixe Bank (which was acquired by Banorte in 2010 to become Banorte-Ixe) was named the "Most Sustainable Bank in Mexico" by New Economy magazine.
In November 2011, Banorte signed the Agreement for a Sustainable Mexico, joining several educational institutions, governmental bodies and corporations "agreeing to business commitments and public policy recommendations, in order to promote a transition towards a green economy in Mexico."
That was followed a month later with the signing of a collaboration agreement with the National Council to Prevent Discrimination (CONAPRED) to support a culture of diversity and labor inclusion. Banorte-Ixe is the first financial institution in Mexico to sign such an agreement. That signing solidified the bank's commitment to the United Nations Global Compact (UNGC), which supports the sustainable and socially responsible principles in the areas of human rights, labor, the environment and anti-corruption.
WHEN IT COMES TO BANKS, PERHAPS SMALLER IS BETTER
Banorte-Ixe is the third-biggest bank in Mexico, with USD 60 billion in assets. But it is small compared to such giants as JP Morgan Chase (USD 2.3 trillion in assets) and Bank of America (USD 2.1 trillion in assets). But as the financial crisis of 2008 demonstrated, the bigger they are, the harder they fall. (And unfortunately, when they do, they take a lot of people and businesses down with them). So, could smaller banks be better-suited for long-term sustainability than large banks?
Raghuram Rajan, the Joseph L. Gidwitz Professor of Finance at the University of Chicago Graduate School of Business, argues that, at least in terms of "soft information," smaller banks fare better. "Hard information, such as audited earnings, is easily captured on paper," he wrote in a 2002 paper published in Capital Ideas, a journal of research highlights from the university. "Soft informationâintangible factors such as a potential client's strength of characterâis difficult to communicate."
It is precisely soft information that can help banks ensure that they are making the right kinds of loans and investments in the world of small business lendingâ just the kind of investments necessary to help innovative start-ups and small and medium enterprises (SMEs), many of which are tackling the world's most pressing problems. But often their size prevents them from succeeding.
"You have two different fronts," Valenzuela said. "You have the big corporations. I think they're trying to do their best in order to comply and show the right signaling for the market. But you also have SMEsâ¦and their margin of maneuver to undertake these kinds of issues is very slim. And these guys, if they start seeing their cost function increases because they have to deal with all these sustainability issues, they know that they won't be able to afford it."
Small and medium enterprises (SMEs) represent the most important driver of the global economy: They contribute 80 percent of economic growth worldwide. In Mexico, Banorte is one of the leading lenders to SMEs. In fact, one of the of the reasons they were named "Best Bank of the Year in Mexico" by Euromoney was the fact that they were the first bank in the nation to offer financial services to convenience stores.
Financial support for SMEs is critical, for sure. But what about for the corporate world in general? How can sustainability become more central to driving business decisions?
"You need to generate a culture within your enterprise," Valenzeula said. "People have to become aware that things need to be done. So if your own people at your own enterprise start buying the idea that this is good for everyone, that's the starting point. We've been working on that front."
When it comes to emission reduction and sustainability, all companies must do better. The question is, will they? One thing's for sure, the big guys can certainly learn something from the small guys.
Carbon Disclosure Project. Global Climate Change Forum 2012. CDProject.net. August 7, 2012. Accessed September 26, 2012.
Carbon Disclosure Project. CDP Global 500 Climate Change Report 2012. CDProject.net. Accessed September 26, 2012.
Carbon Disclosure Project. CDP Global 500 Climate Change Report 2012 - Executive Summary. July 1, 2012. Accessed September 27, 2012.
Carbon Disclosure Project. CDP Web TV - Global Climate Change Forum 2012. Blueprint.tv. September 2012. Accessed September 27, 2012.
3BL Media. BanorteâIXE, Best Bank of the Year in Mexico: Euromoney. August 19, 2011. Accessed September 27, 2012.
New Economy. Rewarding Excellence: The New Economy announces the winners of its Shipping Awards and Sustainable Banking Awards. Winter 2010. Accessed September 27, 2012.
Grupo Financiero Banorte. Annual Report 2011. December 15, 2011. Accessed September 27, 2012.
Raghuram Rajan. When Smaller is Better: The Effect of Bank Size on Small-Business Lending. Capital Ideas, Vol. 4, No. 1, Summer 2002. Accessed September 27, 2012.
Jutla, D., Bodorik, P., & Dhaliwal, J. (2002) Government Support for the Readiness of Small and Medium Sized
Enterprises. 35th Annual Hawaii International Conference on Systems Sciences, Hawaii. In Yong Cao, et. al. Building Blocks for Chinese SMEs to Enter the Global Market: The Roles of Upstream Knowledge and Downstream Channel Infrastructure. International Journal of Business and Management. Vol. 6, No. 7, July 2011.
image: Bannorte Building (Edificio Banorte) and Prism Tower (Torre Prisma) in Silver Zone in the city of Pachuca, Hidalgo, Mexico. (credit: Ruberyuka, Wikimedia Commons)