Sustainability and finance:

Improved allocation of a critical resource — capital — can go a long way to securing a better future for the planet and the people living on it through sustainable practices. By Veerathai Santiprabhob

In 1987 the United Nations first defined sustainability or sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.

Since then, this concept has served as a guiding principle for various long-term global development agendas. Yet, the principal ideas of sustainability, especially of moderation, responsibility and maintaining a long-term focus, rarely take centre stage in the media. This is most notable in the economic and financial headlines, with their focus on short-term indicators, such as GDP growth, shareholder returns, stock prices or bonus pay cheques.

Whatever it takes today to maximise these short-term indicators is seen as the best course of action. We often forget how such our short-sighted actions can affect our long-term development and well-being.

We at the Bank of Thailand believe in the pursuit of sustainability, and that it can be achieved if we maintain our focus on long-term goals. In the past year we have seen many welcoming developments in our financial sector. These include:

Measures to improve financial institutions’ responsibility. These include credit card and personal loan rules to address the issue of household debt; a new regulatory framework on market conduct; regulations to enhance corporate governance; and a new code of conduct for banks developed by the banking community.

A debt clinic has been set up to facilitate multi-creditor debt settlement and help people exit the state of perpetual debt distress.

Infrastructure has been established to promote financial inclusion and support the transition to the digital era. For example, PromptPay provides efficient access to electronic payment at no cost and has been a catalyst leading to complete elimination of electronic fund transfer fees by banks.

These developments have contributed to improved efficiency in the financial system; wider access and affordability of financial services, especially to the underserved; and mitigation of the impact of several long-term challenges. Consequently, the financial system can more sustainably serve the well-being of the Thai people.

But much more can and must be done to create a more broadly sustainable society. Allow me to highlight four challenges in particular:

First, despite broad-based economic growth and policies targeting low-income households, Thailand remains among the world’s most unequal countries, with the richest one percent owning more than half of all household wealth.

Meanwhile, low financial literacy and high household debt continue to hold individuals back from pursuing new opportunities and securing long-term financial security.

Income inequality is a major contributor to the fragility of Thai society and is frequently used as an excuse to justify costly and unsustainable populist policies.

Second, our labour productivity growth is stalling as our society ages. Most public policies have focused on creating shortterm stimulus rather than on encouraging the necessary adjustments to address longterm productivity issues.

Moreover, our educational standards remain low and that threatens the country’s ability to maintain competitiveness going forward.

Third, we have been too negligent on environmental issues. Millions of people in the agricultural sector rely on quality natural resources for food and income, so preservation of natural resources should be our top priority.

Our irresponsible actions — from massive burning of fossil fuels to excessive use of plastic containers — have contributed to the overall deterioration of the global environment. And, as we have observed, climate change has increased the frequency and severity of natural disasters.

The painful experience of the floods of 2011 should be a case in point. They were the result of rampant deforestation, new developments blocking natural waterways, and drainage systems clogged by careless waste disposal.

More recently, we have been alarmed by reports showing Thailand is a new dumping ground for global electronic wastes; and that paraquat, a toxic herbicide banned in 48 countries — including Cambodia, Laos and Vietnam — is still widely used in Thailand.

Fourth, entrenched corruption remains a major obstacle to achieving long-term focus. Paying bribes and granting favours incur unnecessary costs and create distortions in resource allocation. Despite years of campaigns, corruption has been largely unchanged.

The financial sector has also seen corrupt practices such as insider trading, market manipulation, money laundering, favouritism in credit decisions, and misselling of products. This has led regulators to tighten our codes of conduct and market supervision.

Ultimately, these challenges are byproducts of actions taken without regard for moderation, responsibility and long-term consequences, and they should serve as a wake-up call for all of us. For without a proper remedy, we will be transferring an unfair burden to future generations, thus impairing long-term sustainability and prosperity.

How did we allow these challenges to get out of hand? Mainly, it is because we take for granted that someone else will step up to resolve them when in fact it is our collective responsibility.

Our financial sector can take the lead in making impactful changes with regard to sustainability as all of us play key roles in allocating one of the most important resources — financial resources.

Adoption of best practices in sustainability can also be beneficial to financial institutions in a number of ways:

First, it can help ensure long-term sustainability of financial institutions themselves. Early adopters can meet society’s ever-increasing expectations; take the lead in setting new standards; and make timely and necessary adjustments to their business models. Sustainability practices will also help mitigate strategic, operational and reputational risks.

Second, financial i nstitutions can better attract and retain a new generation of talents, especially millennials, who are increasingly more attracted to firms with sustainability and philanthropic practices because they want to make positive impact through their work. Firms can attract these talents by offering additional satisfaction beyond remuneration.

Third, adoption of sustainability can help financial institutions gain access to an increasing pool of capital, given the increasing volume of funds and investment products based on sustainability criteria.

It is estimated that more than a quarter of assets under management globally are now invested using Environment, Social and Governance or ESG principles.

Our irresponsible actions have contributed to the overall deterioration of the global environment. VEERATHAI SANTIPRABHOB Governor, Bank of Thailand