Environmental Protection and the Financial Sector

Economists describe the pollution dissipated into the environment as an "externality" that allows the polluter to obtain the benefit of his actions without having to pay for the damage caused to others as a result.

In her dissertation submitted towards the requirements of her LLM degree Ms Kruger argues that due to their intermediary role in the economy, banks occupy a unique position from which to contribute to the sustainable development of South Africa by helping to protect the environment due to their intimate knowledge of their clients' financial and environmental risk profiles. Internationally the development of sustainability indexes are slowly beginning to track the environmental performances of leading companies worldwide. Ms Kruger argues that effectively banks are in a unique position to imposing "externality charges" (through higher interest rates and tariff differentiation imposed on clients with poor environmental records and environmentally unsustainable business models).

Her research reveals, though, that many banks have not taken a leading role in this regard, preferring instead to support projects with high rates of return over relatively short payback periods (that often impose high costs on the environment).

As she explores the concept of the liability of lenders (as the providers of finance for environmentally unsustainable projects) in the context of growing pressure for corporate accountability she concludes that for as long as growth remains the determining factor in the way we think of economic success, it is unlikely that sustainability will become something more than a moral plea for responsible conduct. And yet there is growing evidence of a shift in public opinion - evidenced by tougher environmental legislation, investor and other social pressures and widespread adoption of principles of selfregulation.

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