Environmental Considerations in Corporate Lending Business of Montenegrin Commercial Banks

University essay from Lunds universitet/Internationella miljöinstitutet

Abstract: Commercial banks can play an important role in environmental issues. Having a role of an intermediary in an economy, because of their importance for the business sector, commercial banks can influence and contribute to the healthy environment significantly. Still, the banking sector is slowly responding to environmental challenges in comparison to other sectors: banks’ direct impacts on the environment arising from their internal processes is relatively low. However, the banking sector’s indirect impacts on the environment (i.e. environmental impacts of their clients’ operations, can be significant. This fact is not adequately recognized by the commercial banks and even though banks are exposed to risks connected to their clients’ environmental performance, they are rather slow in evaluating these risks. However, among banks there are front-runners in incorporating environmental considerations in business practices. Internationally, there are many voluntary initiatives aiming at involving banks in taking a more active role in environmental issues, such as the United Nations Environmental Programme Finance Initiative (UNEP FI), the Equator Principles (EP), the European Principles for the Environment (EPE), and so on. A bank that is particularly active in evaluating environmental consequences of its operations is European Bank for Reconstruction and Development (EBRD). EBRD operations cover different investments and include project financing for banks, industries and businesses. EBRD has adopted an environmental policy and a set of procedures necessary for assessment of environmental issues, risks and opportunities in connection with its operations. In this thesis, the author explores Montenegrin commercial banks’ corporate lending practices and their environmental practices. EBRD is chosen as a case study because of its environmental mandate. The parallel with the EBRD practices serves as a basis for making recommendations for changes in current corporate lending process. The aim is to raise awareness of decision-making authorities in Montenegrin commercial banks on the necessity to take into account environmental issues in the business practices.

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