No lending without the new sustainability test

Joop Wijn GSRI

For the past six months ABN AMRO has been using a new tool for assessing credit applications, which measures the client’s sustainability track record when they approach the bank for financing. Joop Wijn, member of the Managing Board, says this is one of the bank’s most important sustainability achievements in recent years. ‘It makes sustainability tangible and a structural part of the bank’s core product offering.’

The tool is called the Global Sustainability Risk Indicator, or, simply, the GSRI tool. This new application, developed by ABN AMRO itself, has been a standard part of every credit application for the past six months. It’s part of the ‘tool box’ available to relationship managers, who use it to assess clients on their sustainability performance. Joop Wijn believes that we have taken an important step in integrating sustainability into all of the bank’s processes.

What is the essence of the GSRI?

Joop Wijn: ‘We are incorporating sustainability tangibly and structurally into one of the bank’s core products – lending. We have trained six hundred relationship managers in using the tool. They use it to talk to their clients about the sustainability issues relevant to their specific sector. The clients’ answers help us compare their performance against ABN AMRO’s sustainability policy and give us insight into their sustainability performance. As a result, we will be better equipped to help our clients accelerate the introduction of sustainable practices in their own operations.’

Is this special?

Joop Wijn: ‘What makes our approach unique is the extent to which sustainability measurements are integrated into the lending process. This not only makes the sustainability performance of individual clients more visible; it does the same for entire sectors, and our total credit portfolio. We can use the insights we acquire to further promote sustainability among individual clients and throughout various sectors.’

What exactly does the GSRI tool measure?

Joop Wijn: ‘We developed the GSRI tool based on the concept that corporate sustainability can be measured in four ways. Compliance: To what extent does a company comply with environmental and social legislation and regulations? Commitment: Has the company formulated a sustainability policy? Capacity: What steps is the company taking to pursue the policy? And Track Record: Has the company recently been involved in environmental or social issues? Does it pursue responsible business practices? We can then determine whether the company complies with our policy and whether it is a leader or a laggard in this area.’

Could you give us an example?

Joop Wijn: ‘We expect a textile firm that manufactures clothing in low-wage countries to have a working conditions policy in place. The GSRI tool also compares the client’s performance with the best practices in their sector. For example, does the client devote attention to energy conservation? Is the client affiliated with a relevant sustainability initiative?’

What are the consequences of the tool for lending?

Joop Wijn: ‘We are making the relationship between sustainability performance and financial performance more visible. Sustainability cannot be seen separately from our traditional responsibility to estimate the continuity and repayment capacity of a client or prospect. If clients do not comply with our minimum sustainability requirements, we work with them to draw up an improvement plan which should enable them to comply within two years. If this fails to happen, it may have repercussions for the loan.’

What makes you so convinced that this is a valuable tool?

Joop Wijn: ‘I see a great deal of added value for our clients and for us as a bank. On the one hand, we are strengthening our relationships with our clients, by proactively putting sustainability on the agenda. We are sharing relevant insights, trends and developments in sectors. On the other, it helps our relationship managers increase their knowledge of relevant sustainability issues. This will improve their understanding of clients and sectors against the background of sustainability. And finally, the tool will help us conduct effective risk management. The risk assessment of our portfolios will be more solid. The ultimate goal is to translate the client’s sustainability performance into our pricing. The risks are factored into the price of a loan.’

Where do you want to be in a few years?

Joop Wijn: ‘Since we started using this tool six months ago, we have conducted more than 3,000 analyses. We want to glean more information from the growing volume of data. We can use this on different levels, for example to help clients with our knowledge. In the future, we will be able to generate recommendations for improving their sustainability performance with just one click of the mouse. The data we accumulate will help us report on the bank’s sustainability performance faster and more extensively. And the GSRI tool is an engine for innovation, as the tool will help us identify new products. It’s the data-driven tool that makes innovation possible.’