IT COULD take up to five years for Royal Bank of Scotland to lead the banking sector in areas such as ethics and the environment, the company's head of sustainability has warned.
Despite what he regards as huge progress from a standing start following its near collapse in 2008, Andrew Cave said the part-nationalised bank's reinvigorated stance had led it to take a more robust line on lending to companies in controversial sectors such as mining and defence.
His comments came ahead of the expected publication of the bank's Sustainability Review, the last to be overseen by former Standard Life chief executive Sir Sandy Crombie as chairman of RBS's sustainability committee.
Sir Sandy is being replaced by Wm Morrison director Penny Hughes, a former Coca-Cola executive, as he steps up to be senior independent director.
Mr Cave said: "Up until 2008 for most banks sustainability was a little bit tokenistic. They rarely addressed material business issues."
At Edinburgh-based RBS he said there was "an abrupt change in commitment" to issues such as ethics and community engagement when its nationalisation brought in a new leadership team headed by chairman Sir Philip Hampton and Stephen Hester as chief executive.
"A number of them came from companies that had quite an evolved approach to these things," Mr Cave said, citing the work Sir Philip had done at J Sainsbury, where he was previously chairman, on promoting fair trade goods.
Meanwhile, he argued the patronage of Sir Sandy led to issues being aired in the boardroom and permeating through the company in a way they wouldn't have if left to middle managers.
Sustainability at 81% state-owned RBS is defined broadly.
"We are not just looking at narrow environmental concerns," Mr Cave said."The way Sandy Crombie often described it is as 'issues that have the potential to threaten the sustainability of the business'." He said the discussions at RBS have included how it conducts its tax affairs and its lending practices.
More recently its sustainability agenda has included the application of new chief executive Ross McEwan's drive to rebuild trust with consumers, a major theme in RBS's Sustainability Review for 2013. Among the changes are a more robust approach to lending to what Mr Cave describes as "high impact industries", such as defence, oil, mining or forestry that "have the potential to go wrong if you back the wrong deals in the wrong jurisdictions".
But he contrasted RBS's stance on controversial sectors with those of banks like Co-operative Bank which seek to avoid certain areas altogether.
RBS is more likely to discuss its concerns with a company before making a lending decision although there have been a number, which Mr Cave refused to name, which it has not lent to.
He said several of those knocked back have been in oil and gas and others in defence where RBS has had concerns over the technology the firm has been selling or the destination of goods.
RBS has still faced significant criticism on issues such as the pay of top staff and its backing for companies in controversial parts of the oil industry in recent years.
Mr Cave has acknowledged the bank has further to go.
"What RBS has done is make sure we caught up with good practice," he said. "Part of the problem was that in the last crisis banks were too busy looking and thinking about regulation.
"They didn't often enough step back and think 'never mind our peers, never mind regulation what feels like the right thing to do?'"
He added: "We have gone from a bit of a standing start to what we would see as a programme of work that has us well positioned in the sector.
"We have not really worked out what it looks like to lead the bank sector on this. There is another three to five years of work before we feel comfortable on this agenda."
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