Address by Mr. A. A. Thassim, CBSL Director of Supervision
Let me take this opportunity to thank Sri Lanka Banks Association for inviting the Central Bank to address this distinguished gathering, and on behalf of the Central Bank of Sri Lanka, I commend the initiative by the Sri Lanka Banks Association to take forward the Sri Lankan Sustainable Finance Initiative (SL-SBI).
Looking at Sustainability from Banking Dimensions
Sustainability in banking is just like in any other field and can be divided into three broad categories.
We are aware that banks are already looking to improve the environmental footprint of their own operations by reducing carbon emissions while cutting down costs. Accordingly, all banks are encouraged to move towards sustainable operational initiatives such as,
Going forward as a nation, we should look to both increase in supply and increase in the demand for sustainable financing.
When increasing supply of sustainable finance, we should look to increase sustainable financing at each stage of the entire supply chain in the priority economic sectors, encourage innovation in developing environmentally friendly products, and to improve the quality and provision of access to information.
On the other hand, when looking at increasing demand for sustainable financing products; regular, structured and targeted outreach campaigns and socialisation programs is required to increase public understanding on sustainable finance.
Regulatory Measures Taken by CBSL
In line with the international movement to promote sustainable financing, the Central Bank has also joined the Sustainable Banking Network (SBN) of the International Finance Corporation (IFC). The Sustainable Banking Network (SBN) is a unique community of financial sector regulatory agencies and banking associations from emerging markets committed to advancing sustainable finance in line with international good practice.
Consequently, as a member of the SBN, the Central Bank of Sri Lanka would focus on sustainable banking practices to help banks to effectively manage environmental and social risks in the projects and promote sustainable banking.
Accordingly, the Central Bank conducted a joint workshop with IFC on Sustainable Finance from 28 February to 01 March 2017 with the participation of all key stakeholders and under the patronage of His Excellency the President Maithripala Sirisena as the chief guest. As an outcome of this meeting it was decided to develop roadmap for implementing a sustainable finance framework for Sri Lanka.
Therefore, the Central Bank has already appointed a steering committee headed by Deputy Governor, Dr. P Nandalal Weerasinghe to facilitate developing a Road Map to initiate a Sustainable financing framework for the Sri Lankan financial sector with the consultation of relevant stakeholders. The Committee also consists of 11 other senior Central Bank officials representing relevant Departments of the Central Bank.
Going forward, banks could also look at the feasibility of incorporating scenarios that estimate the potential impact on financial stability from supplying credit to environmentally unsustainable or sustainable activities over time into banks Pillar 2 Supervisory Review stress tests under the Basel framework.
Today, a growing number of financial institutions worldwide are adopting policies, systems, and lending practices that reduce the environmental and social impact of doing business. Accordingly, various countries have adopted unique routes in response to each country’s local context and priorities which can be broadly categorised into two main approaches.
Regulatory Tool kit available for sustainability finance
There are numerous tools available to regulators for the purpose of developing a sustainable finance framework. Some of the tools available are;
Sri Lanka has yet to adopt any of the above mentioned tools for the purpose of promoting sustainable finance, however we are now in the process of evaluating the need to introduce such tools for promoting this endeavour.
Common barriers going forward
To overcome these barriers, going forward our banking sector should look for fruitful collaboration with the international community which is essential while sharing knowledge and building partnerships. This process includes engaging in joint research, development of sustainable finance tool kits, continuous capacity building, peer-to-peer learning, funding aids from foreign counterparties, harmonization of international good practices and develop common resource pool.
Therefore, this initiative by the SLBA is a vital stepping stone towards developing an environmentally, socially and economically sound banking sector in Sri Lanka. So, all banks are encouraged to come together to make this worthy initiative a success.
In conclusion I wish this forum all success and hope you will have fruitful deliberations today in pursuing an effort of national and global importance. Thank you once again for inviting Central Bank to express its thoughts on sustainable banking.
Mr. A A M Thassim,
Director, Bank Supervision, Central Bank of Sri Lanka