ALTERNATIVE energy-producing windmills line the shore in the coastal town of Bangui in the Ilocos region. Funded by a loan from the Philippine Export Import Agency, the windmill project is an example of a sustainable development project supported by so-called environmentally friendly lending by a development financing institution.

One group came up with a proposal to help upland communities preserve their forest environments through a microlending program that would allow residents to buy and use gas stoves instead of cutting wood for cooking.

Another presented how money coming from a German development agency is being used to prevent the occurrence of killer floods and landslides through a financing program that seeks to raise forests in every available land suitable for such a purpose in urban and rural areas.

Yet, another group proposed the establishment of an advisory center that will guide small businesses in sustaining their investments by engaging in environmentally sound enterprises.

Welcome to a seminar-workshop on sustainable development where participants are not the usual NGO types planning and designing projects for the “poorest of the poor.” These are officers of government and privately owned banks engaged in development financing, defined as “banking by a national or regional financial institution designed to provide medium- and long-term capital for productive investment, often accompanied by technical assistance, in less-developed areas.”

The Association of Development Financing Institutions in Asia and the Pacific (ADFIAP) is a regional grouping of 76 state and privately owned banks across 35 countries engaged in the mission of “financing sustainable development.” Part of this mission is the “greening of the financing sector” whereby members of ADFIAP, a 30-year-old United Nations-accredited international NGO based in Makati City, are oriented and equipped to use lending instruments at their disposal to encourage the rise of sustainable propeople and proenvironment enterprises and industries.

At the Asian Institute of Management last month, officers of ADFIAP-affiliated banks in Cambodia, Malaysia, India, Nepal and the Philippines participated in a five-day seminar-workshop that taught them how to conduct their corporate governance in a manner that ensures not only their own sustainability but also those of their clients and the communities and environments within which they operate business projects.

Conducted by Dr. Cesar Saldana, founding fellow of the Institute of Corporate Directors and former dean of the College of Business Administration of the University of the Philippines and Dr. Theta Ponce, professor of physics and environmental science at the University of Asia and the Pacific (UA&P), the seminar-workshop specifically dealt with how development banks can exercise their corporate social responsibility in a manner that would ensure long-term financial, economic, social and environmental viability for both their shareholders—the government in the case of state-owned member-institutions like the Development Bank of the Philippines—and their stakeholders or communities and environments hosting projects financed by development banks.

Beyond traditional lending

The seminar-workshop was particularly instructive in encouraging bankers to look beyond their traditional function of lending and to be aware of and accountable for the effects that their lending operations have on people and communities.

This, in light of the dark history of development bank lending where creditor countries ended up being saddled up with loans that their people did not need, that went only to line the pockets of corrupt government officials and their cronies, and worse, that financed technologies that were inappropriate, obsolete and harmful to people and the environment.

All these, because the banks that lent those loans looked at returns on investment only in terms of interest earnings and not quality of life improvements that funded projects are supposed to result in.

Things, however, are beginning to change especially in Asia and the Pacific region where ADFIAP is actively pushing environmentalism as a basis for decision-making in bank lending and investment.   

“We are not just pushing environmentalism as a condition for lending,” clarified former Philippine ambassador to the United Kingdom Jesus P. Tambunting, chairman of ADFIAP. “For us, environmentalism is the basis by which to judge whether businesses will succeed or fail,” he said, stressing that “progress must be environmentally viable for it to be sustainable, at the very least, and profitable at best.”

The ADFIAP seminar-workshops on sustainable development and corporate social responsibility form part of ADFIAP’s “Greening of DFIs” project, supported by a €346,446 grant from the European Union’s Asia Pro-Eco Programme, according to Octavio B. Peralta, ADFIAP secretary-general.

The ultimate goal of the “Greening of DFIs” project, he added, is to support sustainable development efforts of the banking and finance sector in Asia and the Pacific through development and implementation of environmental governance standards (EGS) for ADFIAP member-DFIs and other participating financial institutions.

The ADFIAP advocates two sets of EGS. On one hand, there is the Environmental Performance Monitoring (EPM) program for application within the organizational structures of development banks. The EPM program provides tools to benchmark the environmental management policies and practices of development banks against best-industry standards.

“To be a truly green bank, development banks have to be green from within,” Peralta said.

On the other hand, there is the Environmental Rating Standards (ERS) for loan appraisal and project finance. Under this set, banks are enjoined to treat environmental risks using several tools that European banks currently use to address environmental risks. These include risk-adjusted pricing, monitoring, covenants, refusal of loan and portfolio optimization.

The ADFIAP is preparing a trainer’s guidebook and a resource book containing the measures, methods, tools and instruments for determining environmental governance standards of member-banks, Peralta said.

National seminar-workshops will also be conducted for around 200 senior executives and middle managers of development banks throughout Asia to provide insights and appreciation of environmental management practices and environmental issues in lending operations. The seminar-workshop at the Asian Institute of Management last February was the first of such workshops that the ADFIAP will be conducting.

Based in Makati City, since its founding by the Asian Development Bank in October 1976, the ADFIAP is the largest organization of its kind in Asia and the Pacific with currently 70 member-banks from 35 countries. In the Philippines, it counts among its members the Development Bank of the Philippines, Planters Development Bank (of which ADFIAP chairman Tambunting is also chairman and chief executive), Philippine Export-Import Credit Agency (PhilExim), RCBC Savings and Queen City Development Bank of Iloilo.

One group came up with a proposal to help upland communities preserve their forest environments through a microlending program that would allow residents to buy and use gas stoves instead of cutting wood for cooking.