Early in my career in commercial banking, I was often on the side of the table that seemed to slow deals down. An environmental and social review would come back with questions, and the approval would wait until the account officer returned with answers. Usually the answers came and the deal went through. Occasionally the questions revealed involvement in activities on the exclusion list, and the deal was declined. Either way, I heard the same phrases often enough to stop taking them personally. We were business averse. We were show stoppers.
I understood the frustration. The account officer had a target, a client relationship, and quarter-end goals to meet. From where they sat, I was adding a step to a process that already had plenty. \ To them, the requirement was friction. I had a different view: to me, it was the point at which the bank found out what it was actually financing.
Most organisations feel regulation through that same tension, and we usually argue about how much of it there should be. I think a more useful question is why the same requirement leads to better decisions in one organisation and only more paperwork in another. My answer is that a rule’s power lies less in what it prohibits than in the questions it forces people to ask before they act. Whether those questions build a better business depends on what leaders do with them.
The question a rule forces
In September 2012, the Central Bank of Nigeria directed banks, discount houses and development finance institutions to implement the Nigerian Sustainable Banking Principles, requiring each to build frameworks for identifying and mitigating environmental and social risk in lending. On paper, it was a compliance obligation. Over time, it did something harder to measure. Asking about environmental and social risk before approving a facility stopped being the peculiar habit of one team and became part of how credit was done. The question shifted from “should we look at this?” to “why hasn’t anyone looked at this yet?”
That shift matters because of timing. Most environmental and social risks get priced eventually. The only real questions are by whom and when. A community dispute, a serious contractor accident, or unacceptable labour practices in a supply chain do not stay in the E&S file. They arrive as delays, legal costs, lost customers and damaged relationships with capital providers. The cost of a problem discovered after disbursement is almost always higher than the cost of a question asked before it.
Put simply, ESG requirements move the reckoning earlier. A lender asking about workers, communities, contractors and supply chains before money moves is really asking what could derail this, who could be harmed, and who pays if it happens. Those are credit questions. They just don’t necessarily appear in the credit model.
Three ways to respond to a rule
Leaders tend to respond to regulation in one of three ways. Some resist: why are they making us do this? Some comply: what exactly do we need to produce? And some integrate: what is this requirement trying to protect, and where in our business should that protection live?
Compliance deserves more respect than it usually gets. A great deal of harm is prevented by people doing what is required, properly, every time. But compliance stops at the edge of the rule. Integration is where the question a rule forces actually changes how a business runs.
When the question is integrated: the deal that got better
Here’s a composite example, the kind anyone in this line of work will recognise. A growing company has a healthy order book, sound financials and a credible offtaker. Commercially, it is bankable. Then the environmental and social review begins.
What emerges is rarely a scandal. More often it is a management system that only partly exists: a policy without procedures, a grievance mechanism nobody has tested, contractor oversight that depends on one conscientious manager, and an incident reporting process that has never been triggered because nobody defined what should trigger it.
The first response is often some version of “other institutions didn’t raise this.” Sometimes that is true. But the conversation rarely ends there. The lender attaches conditions, agrees an action plan with timelines, and perhaps structures the facility so that certain items close before funds are released.
To close those gaps, the company has to decide who owns safety on site, what happens when a contractor is injured, and how a complaint from a neighbouring community reaches someone with the authority to act. These are management questions presented as E&S questions. The company comes out with systems that survive staff changes and a file the next capital provider can read without starting from zero. Credible standards become the price of admission to capital that would otherwise stay closed: development finance, blended structures and climate funds. The deal did not get stopped. It got understood.
When the question is only complied with: theatre
None of this is automatic. The same requirement that sharpens one organisation’s thinking can fatten another’s paperwork.
I have reviewed action plans in which the items read like status reports: “policy in place,” “under review,” “ongoing.” Every line was filled in, yet almost nothing could be acted on by an owner or verified by a reviewer. Fixing them meant converting each status into an action with an owner, a deliverable and a date. The plan was the same length afterwards, but it finally told someone what to do.
The same thing happens with numbers. I once spent a long stretch tracing an impact factor used in climate reporting, the assumption that each household switching from kerosene lamps to solar lighting avoids roughly 0.55 tonnes of CO2 equivalent, back to its original methodology. The factor turned out to have a legitimate origin, but nobody using it could point to that origin any more. Report after report repeated the same 0.55. A figure nobody can trace is not evidence. It is a habit.
Compliance asks whether the requirement was followed. Leadership asks whether it achieved what it was designed to achieve. A completed questionnaire, a signed policy, a twenty-item action plan and a due diligence report nobody acted on can all show the first while saying nothing about the second.
How rules get turned into theatre: proportionality
It would be dishonest not to name the costs. My biggest frustration with ESG requirements is proportionality, both to the scale of the business being asked and to the support offered alongside the ask. A small distributor or mini-grid developer can receive expectations designed for far larger and riskier operations, sometimes from several capital providers at once, each with its own templates. Sending a small business a list of requirements is easy. Explaining why each item is on the list, and what risk it protects against, takes much longer, and that is the support that most often goes missing.
The standards themselves anticipate this. The IFC Performance Standards expect a management system commensurate with the level of risk, not one of maximum possible size. Where things go wrong is usually in administration. When that happens, regulation becomes a tax on the very businesses energy access depends on. Worse, it teaches people that the requirement is just paperwork, which makes theatre more likely next time. Scaling the ask to the risk is not lowering the bar. It is what allows a requirement to land the way it was intended.
What integration looks like in practice
Integration begins with translation. Rules are written far from where they are used, in general language meant for everyone. Someone has to translate them into a specific business model, jurisdiction and workflow. I have had to rewrite frameworks whose language assumed a lending model the business did not actually use. Until that translation happens, staff are asked to comply with words that don’t describe their own work, and that is exactly how box-ticking begins.
In practice, translation comes down to a handful of habits:
- Find the purpose before designing the procedure.
- Make the right behaviour easy for the busiest person in the chain: tell them what the issue is, what evidence would resolve it, and how to explain it to the client.
- Insist that every number can be traced to its source.
- Scale the ask to the risk, and carry some of the load for smaller counterparties instead of simply transferring it to them.
- Build systems that keep working when people leave. If quality depends on one diligent individual, it is a personality, not a system.
- When a requirement exposes something unflattering, resist the instinct to argue with it. Ask instead what it would have cost to find out later.
I no longer hear “business averse” as an accusation. The hardest part of most requirements is not the requirement itself. It is the question it forces you to answer earlier than you would like. Leaders who treat that question as friction will keep producing paperwork. Leaders who treat it as the cheapest moment to learn the truth about their own business will build something that lasts. Regulation can make the question unavoidable. Only leadership can make it useful.
