Banks score poorly in sustainability

Report exposes low commitment to climate change, human rights

ISLAMABAD:

Pakistan’s major commercial banks have performed poorly on indicators of reducing corruption, ensuring accountability, and transparency, says the first report on the policies of the country’s five financial institutions.

Policy rankings of five leading commercial banks in Pakistan, “Benchmarking the Sustainability Policies of Banks in Pakistan,” show all five banks have low policy commitments on climate change, human rights, gender equality, and labour rights, while none disclose policies on nature and tax when lending money to companies, according to a report released by Fair Finance Pakistan.

Fair Finance Pakistan is a member of Fair Finance International and seeks to strengthen the commitment of financial institutions to social, environmental, and human rights standards.

Fair Finance Pakistan assessed the sustainability policies of Habib Bank Limited (HBL), Allied Bank Limited (ABL), National Bank of Pakistan (NBP), Meezan Bank, and MCB Bank across 10 thematic areas in the Fair Finance Guide International (FFGI) Methodology.

The highest average scores are observed for the themes of financial consumer protection where these banks got an average score of 4.62 out of 10.

On the index of corruption, the banks scored only 3.18 out of 10, in gender equality hardly 1.48 out of 10, and in transparency and accountability, 1.08 out of 10.

For all the other themes, the average score for the five banks is inferior to 1 out of 10, revealing a lack of public policies on most of the sustainability topics assessed, showed the report.

The ranking is based on the FFGI Methodology used in 21 countries to assess financial institutions’ approach to sustainability, including corruption, human rights, and climate change. It was conducted with the support of Lahore University of Management Sciences (LUMS).

The banks have been assessed based on publicly available information, and their ratings might have been better if they were also assessed on the basis of internal policies, said Siraj Qadir, the representative of ABL.

The banks have long been criticised for making risk-free money by investing in government debt and, in the process, have compromised economic growth and transparency in many areas. They are now facing calls for restructuring their debt after the country’s finance minister termed the public debt “unsustainable.”

The recent statement of the caretaker finance minister that “Pakistan’s debt is unsustainable” is unwarranted, said Ashfaq Tola, former minister of state and former chairman of Reform and Revenue Mobilisation Commission (RRMC) at the report launching ceremony. Tola said that Pakistan’s economy needs an additional $9 billion every year from millions of overseas Pakistanis and exporters to eliminate the current account deficit besides introducing tax reforms as elucidated in the RRMC interim report, which will also give Rs2.5 trillion in direct taxes to reduce the fiscal deficit.

With these two accomplishments, “we can reduce our soaring interest rates by a minimum of 6% gradually to save at least Rs2 trillion in debt servicing,” he added.

“These steps will rejuvenate our economy, and we can quickly achieve GDP growth of 7% and say goodbye to the IMF.”

Read: Mayor urges global collaboration for climate change

The report showed serious policy gaps in the working of the banks, resulting in low standards.

On a scale from 0 to 10, the five banks scored an average of just 0.5 for addressing climate change. Some of the banks have not publicly disclosed any climate policies aligned with the Paris Agreement in lending and investment activities.

Similarly, all five banks scored an average of 0.72 out of 10 in human rights policy. None of the banks disclosed human rights policies related to their investment or financing, which raises concerns and is not aligned with the UN Guiding Principles on Business and Human Rights, according to the findings.

Pakistan’s top five assessed commercial banks scored less than 1 out of 10 on labour rights policies and lack policy commitments to international labour rights standards or adherence to national laws for worker welfare.

None of the assessed banks have formulated public labour rights expectations for their clients and investee companies.

With an average score of 1.48 out of 10, no commercial bank reported measures for equal participation and access to senior positions, with the highest reported representation of women on boards at 12.5%, significantly lower than the global average of 27.1% and falls short of the target of 50%.

None of the banks disclose how they apply a gender lens to their lending and investment activities.

Zahid Latif, former president Islamabad Stock Exchange, said women are ghost members of the board of directors in the companies regulated by SECP, and there are no regulatory checks on the eligibility of women on the board.

Asim Jaffry, Country Programme Lead, Fair Finance Pakistan said, “Finance must be repurposed to address society’s challenges and must redouble efforts for clean air, clean water and save the liveable planet for our future generations.”

All assessed banks reported an average score of 0.36 out of 10 on the theme of tax, transparency, and accountability. None of these banks discloses a responsible tax policy.

They demonstrated low policy commitments on tax policies, primarily due to the lack of public disclosure on tax transparency.

With an average score of fewer than 2 out of 10, none of the assessed banks disclosed transparency and accountability practices in the companies they lend to. Risk control and grievance mechanism documentation were lacking in all five commercial banks assessed.

The five banks scored highest on financial consumer protection, 4.6 out of 10, followed by anti-corruption policies 3 out of 10.

Published in The Express Tribune, December 6^th, 2023.

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