Two important questions are why financial regulators may be interested in environmental performance of the business and whether there is a need for regulators to include sustainability into their guidelines. Zadek and Chenghui (2014, 2) believed the last financial crisis played a key role in this. They state, “the global financial crisis has highlighted the weaknesses in the financial system that favours capital allocation, increasing both specific and systemic risks. Policy interventions into the workings of financial markets to reduce systemic risks, have focused on addressing short-term biases, misaligned incentives and better stewardship of assets, as well as improved transparency, governance and accountability.”
The integration of sustainability issues into financial regulations is already happening in developing and emerging countries but not in industrialized countries, even though industrialized countries were more strongly connected with both the origins and the effects of the financial crisis. Emerging markets are taking the lead in regulating sustainable banking practices, focusing on the impact of the financial sector on sustainable development. In Western industrialized countries, such as those in the European Union, the term “sustainable financial sector” is used to describe the financial sustainability, or the financial health, of the financial sector (see for instance European Commission 2011).
The implementation of financial sustainability regulations leads to another question: why are the emerging economies taking the lead in the development of this process? In addressing this, it should be noted that the establishment of environmental and sustainable development practices started as voluntary efforts among individual banks, and sometimes a combination of two or more banks, to form standards, codes or development strategies for internal processes to help introduce, strengthen and