Financial sector can take lead in embracing ‘sustainability’
Thais must incorporate concept’s principles in daily lives and business practices, writes 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 long-term focus, hardly take the centre stage in the popular media, most notably in the economic and financial headlines — where we often focus our narratives on short-term indicators, like GDP growth, shareholders’ earnings, stock prices, or bonus pay cheques. Whatever it takes today to maximise these short-term indicators is believed to be the best course of action. We often forget that our shortsighted actions also dictate and impact the path for our long-term development and well-being. We at the Bank of Thailand believe in the pursuit of sustainability, that it can be achieved if we maintain our focus on long-term goals. This past year we have seen many welcome developments in our financial sector. These include, first, a number of measures being introduced to improve financial institutions’ responsibility, such as regulations on credit cards and personal loans to address the issue of household debt, a new regulatory framework on market conduct, regulations to enhance financial institutions’ corporate governance, and a new code of conduct for banks developed by the banking community.
Second, a debt clinic was set up to facilitate multi-creditor debt settlement for indebted individuals so that they can exit from the state of perpetual debt distress; and third, a number of key financial infrastructures were established to help promote financial inclusion and transition the Thai economy towards the digital era. One in particular was the introduction of PromptPay, which provides efficient access to electronic payment at no cost and has served as a catalyst leading to complete the elimination of electronic fund transfer fees by banks.
These developments have contributed to efficiency improvement in the financial system; wider access and affordability of financial services, especially to those underserved; and mitigation of the impacts of several long-term issues. Essentially, they help ensure that our financial system can sustainably serve the well-being of the Thai people.
Despite our progress, we should not settle for what we have achieved thus far. Much more can be done and needs to be done to improve the sustainability of Thai society as a number of challenges remain, some of which leaves us to question our collective actions as a society on how we allowed these challenges to get out of hand.
Allow me to highlight four challenges in particular:
First, despite more broad-based economic growth and a number of government policies targeting low income households. Thailand remains among the world’s most unequal countries in terms of wealth, with the richest 1% owning more than half of total household wealth. Meanwhile, low financial literacy and high household debt levels continue to hamper the ability of individuals to pursue new opportunities and secure long-term financial security. These have curbed individuals’ chance to improve their socio-economic status in the long run. Essentially, widening wealth and income inequality is a major contributor to the fragility of Thai society and is frequently used as an excuse to draw public support for a number of costly and unsustainable populist policies.
Second, our labour productivity growth is moderating and should be emphasised. As an ageing society with a declining labour force, enhancing productivity is critical for the Thai economy to maintain growth. And yet a number of public policies have focused on creating short-term stimuli rather than on encouraging the necessary adjustments to address the long-term productivity issue. Moreover, our educational standards have not been able to prop up our low productivity levels and lag behind in many important areas.
Third, we have been too negligent on environmental and ecological issues. As a large portion of the Thai population remains in the agricultural sector and all rely on quality natural resources for food and income, preservation of environment and 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 resulted in an increasing frequency as well as severity of natural disasters. The painful experience of the great floods of 2011 should be a case in point, as these floods were the result of rampant deforestation, new developments blocking natural waterways, and a clogged drainage system from careless waste disposal.
Many other environmental issues continue to highlight our negligence. These include a recent report detailing Thailand as the new dumping ground for global electronic waste; or the fact that paraquat, a toxic herbicide (plant killer) banned in 48 countries around the world, including our neighbours Cambodia, Laos and Vietnam, is still widely distributed and used in Thailand.
Fourth, entrenched corruption remains a major obstacle to achieving long-term focus. Paying bribes and granting favours are harmful practices that incur unnecessary costs and create distortions in resource allocation. Distorted policies and actions aimed at political or personal monetary gains can limit the ability of future generations to meet their own needs. Despite years of anti-corruption campaigns, Thailand’s level of corruption has been largely unchanged. In addition, practices in the financial sector have also been the culprits behind corruption. Insider trading, market manipulation, money laundering, favouritism in credit decisions, and misselling of products are just some of the corruptive practices that have led regulators, including the Bank of Thailand, to tighten our code of conduct and market conduct 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 would be transferring an unfair burden to future generations, thus impairing long-term sustainability and prosperity.
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 — that is financial resources. As stated earlier, a number of welcome developments are taking place in our financial sector. But, much more can be done and needs to be done to foster an ecosystem that promotes overall sustainability — that will discourage misallocation of resources, limit corruptive practices, and help preserve our environment.
Adoption of best practices in sustainability is not just about making positive impacts on our society, but it can also be beneficial to financial institutions in a number of ways. First, it can help ensure long-term sustainability of financial institutions themselves. Growing acceptance of sustainability practices globally has encouraged new standards and practices and raised the expectations of our society. Early adopters of sustainability practices can meet society’s ever-increasing expectations; take the lead in setting new industry standards; and make timely and necessary adjustments to their business models. These sustainability practices will help financial institutions mitigate strategic, operational and reputational risks.
Second, financial i nstitutions can better attract and retain a new generation of talent, especially millennials, who are increasingly attracted to firms with sustainability and philanthropic practices. This is no surprise because these young individuals are becoming more concerned about sustainability and want to help make a positive impact. Therefore, firms with strong sustainability values and practices can attract this talent 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.
It is now up to all of us — financial institutions, policymakers, and leaders — to embrace sustainability and incorporate its guiding principles in our daily lives and business practices.