Green Banking (2)

8/18/2019 Green Banking (2)

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Title: Green Banking: An InnovativeInitiative for Sustainable Development

Author’s Name:

1. Mr. Mridul Dharwal, Assistant Professor (Economics and

Business Studies, BBA !""#D$NA%"#, School of Business

Studies, Sharda &ni'ersit, )reater Noida.

Email: mridul.dharwal*sharda.ac.in

!ontact No. +-1--/1+1

-. Mr. An0ur Aarwal Assistant Professor (2inance, B.!om

!""#D$NA%"#, School of Business Studies, Sharda &ni'ersit,

)reater Noida.

Email:an0ur.aarwal*sharda.ac.in

!ontact No.-+33/4-4

1

mailto:[email protected]:[email protected]


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Green Banking: An Innovative Initiative for Sustainable Development

Climate change is the most complicated issue the orld is facing! Across the globe therehave been continuous endeavors to measure and mitigate the risk of climate changecaused b" human activit"! #an" countries the orld over have made commitmentsnecessar" to mitigate climate change! India has committed to cut its domestic carbonintensit" b" $%&$' percent from $%%' levels( b" the "ear $%1%! As sociall" responsiblecorporate citi)ens *S+CC,( Indian banks have a ma-or role and responsibilit" insupplementing government efforts toards substantial reduction in carbon emission!Although banks are considered environment friendl" and do not impact the environmentgreatl" through their on .internal/ operations( the .e0ternal/ impact on the environmentthrough their customers activities is substantial! The banking sector is one of the ma-or sources of financing industrial pro-ects such as steel( paper( cement( chemicals( fertili)ers(

poer( te0tiles( etc!( hich cause ma0imum carbon emission! Therefore( the bankingsector can pla" an intermediar" role beteen economic development and environmental protection( for promoting environmentall" sustainable and sociall" responsibleinvestment! .Green banking/ refers to the banking business conducted in such areas andin such a manner that helps the overall reduction of e0ternal carbon emission and internalcarbon footprint! To aid the reduction of e0ternal carbon emission( banks should financegreen technolog" and pollution reducing pro-ects! Although( banking is never considereda polluting industr"( the present scale of banking operations have considerabl" increasedthe carbon footprint of banks due to their massive use of energ" * e!g!( lilighting( air conditioning( electronicelectrical e2uipments( IT( etc,( high paper astage( lack of green buildings( etc! Therefore( banks should adopt technolog"( process and products hichresult in substantial reduction of their carbon footprint as ell as develop a sustainable business!

$m5erati'es of )reen Ban0in:

Green banking is ver" important in mitigating the folloing risks involving the bankingsector:

i, !redit #is0 : Due to climate climate change and global arming( there have been direct as ell as indirect costs to banks! It has been observed that due to

global arming( there have been e0treme eather conditions hich affect theeconomic assets financed b" the banks( thus leading to high incidence of credit default! Credit risk can also arise indirectl" hen banks lead tocompanies hose businesses are adversel" affected due to changes inenvironmental regulation!

ii, 6eal ris0 : Banks( like other business entities( face legal risk if the" do notcompl" ith relevant environmental regulation! The" ma" also face risk of

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direct lender liabilit" for cleanup costs or claims for damages in case the"actuall" take possession of pollution causing assets!

iii, #e5utation #is0 : Due to increasing environmental aareness ( banks aremore prone to reputation risk( if their direct or indirect actions are vieed as

sociall" and environmentall" damaging! +eputation risks emerge from thefinancing of environmentall" ob-ectionable pro-ects!

As India has committed to reducing its carbon intensit" b" $%&$' percent from $%%'levels b" $%$%( e are orking toards developing a lo carbon econom"! In a locarbon econom"( there ill be man" challenges and opportunities to banks! Green banking ill be at the forefront of this drive to harness banking e0pertise and buildthe post&carbon econom"! The biggest impact of the carbon cut commitment ill beon small and medium 3nterprise( steel and cement industries hich are carbonintensive! In order to avoid credit risk in these loan portfolios as ell as to grab ne business opportunities( Indian banks must immediatel" adopt green banking strategies

to reduce the carbon footprint of individual banks ill not onl" make them sociall"responsible corporate citi)ens but ill also help save substantiall" operational costs!There are lot of opportunities and challenges for Indian banks in adopting .GreenBanking/ as a profitable business!

)reen Ban0in Strateies:

Indian Banks can adopt green banking as a business model for sustainable banking b"launching some of the folloing strategies:

i, !ar7on credit 7usiness: 4nder the 5"oto protocol( Clean development

#echanism* CD#, provides for co&operation beteen anne0ure 61 and nonanne0ure&1 * developing, countries! The operational mechanism of CD#/sinvolves an investment b" a legal entit" from an anne0ure&1 countr" into a pro-ect in non&anne0ure&1 countr"( hich results in emission reduction! Theseemission reductions have to be certified b" an appropriate authorit" and thesecertified 3mission +eductions * C3+s, hich are commonl" knon as carboncredits can be used to meet the commitments of anne0ure&1 countries under the 5"oto protocol! These carbon credits are traded in the markets! CD# pro-ects are those pro-ects that contribute to credible and sustained reductionin G7G emissions!Indian banks can involve themselves in carbon credit business( herein the" can provide all the services in the area of CD#s and

carbon credits including services of identification and funding of CD# pro-ects( advisor" services for registration of CD# pro-ects andcommerciali)ation of C3+s under different structures to meet there2uirements of its customers( acting as an intermediar" for bu"ing C3+s on behalf of end&users or carbon funds( financing against C3+s and C3+sreceivables( and other related banking services! As India has huge potential for carbon credit business( Indian banks can set up dedicated carbon credit cells tocapture a ma-or share of this carbon credit business!

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ii, )reen Ban0in 2inancial Products: Indian banks should developinnovative green banking financial products hich can directl" or indirectl"help in the reduction of carbon emissions! These banks can introduce a .Green9und/ to provide climate conscious customers the option of investing in

environmental friendl" pro-ects! Banks can also introduce green bank loansith financial concessions for environmental friendl" products and pro-ects!Besides introducing specific green banking products( banks can incorporate an3nvironmental Impact Assessment * 3IA, in their pro-ect appraisal hilefinancing an" pro-ect to measure the nature and magnitude of environmentalimpact as ell as suggest environmental risk mitigation measures! Banks canalso conduct environmental audits of the financed pro-ects! Banks need toredesign their credit products to assist S#3s to adopt 2ualit" and conform toenvironmental standards! Banks should also include green guidelines in their credit policies to raise the green loan portfolio!

iii )reen Mortaes

Banks such as Citigroup Inc!( Bank of America( and ; #organ Chase


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electricit"( heating( transportation( etc! Banks can reduce their carbonfootprints b" adopting the folloing measures:

a, Pa5er8less Ban0in: As banks have computeri)ed their branches( there is

ample scope for doing paperless or less&paper banking! #ostl" ;SBs usehuge 2uantities of paper for office correspondence( audit reporting(recording public transactions(etc! These banks can sitch over toelectronic correspondence and reporting! Banks should encourage their customers also to sitch over to electronic transactions and popularise e&statements!

b, Ener !onsciousness: Developing energ"& consciousness( adoptingeffective office time management and automation solutions and usingcompact fluorescent lighting * C9, can help banks save energ"consumption considerabl"! Banks can conduct energ" audits in all their offices for effective energ" management! The" can also sitch over to

reneable energ" * solar( ind( etc!, to manage their offices and AT#s!c, &sin Mass %rans5ortation Sstem: ;SBs can become fuel efficientorgani)ation b" providing common transport for group of officials postedat one office!

d, )reen Buildins: The Indian banking industr" uses more than one lakh premises for their offices and residential houses throughout the countr"!These banks should develop and use green buildings for their office andemplo"ee accommodation!These measures ill not onl" help banks reduce their carbon footprint butalso save the operational costs considerabl"!

v, Social #es5onsi7ilit Ser'ices: As part of the green banking strategies(Indian banks can initiate various social responsibilit" services such as tree plantation camps( maintenance of parks( pollution check&up camps( etc!

$nitiati'e ta0en 7 $ndian Ban0s:

*SBI, has become the first bank in the countr" to venture into generation of green poer b" installing indmills for captive use! As part of its green banking initiative( hasinstalled 1% indmills ith an aggregate capacit" of 1' # in the states of Tamil @adu(#aharashtra and Gu-arat! It has planned to install an additional $% # capacit" of

indmills in Gu-arat soon and touch 1%% # poer generation through indmillsithin five "ears( indmills are set up ith a definite ob-ective of reducing thedependence on the polluting thermal poer and not on purel" economic or businessconsiderations! At present( the bank consumes 1%% # of poer per "ear! So( SBI illtr" to be energ" neutral and reduce its carbon footprints! The total cost of installation of aindmill of 1!' # is around +s 1% crore! The operation cost is close to )ero and it ise0pect to recover the initial investment in four "ears! E=ur mission is to make all Indian banks go green and e are alread" discussing ith $' banks(E said Su)lon C#D Tulsi +

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Tanti! 7e said( ESu)lon( hich currentl" holds ''F market share in the countr" is nomore focused on ind poer development! =f the 11(%%% # installed ind energ" inIndia( (%%% # has been installed b" Su)lon!

EThere is '(%%% # ind poer potentialit" in the countr" and e ill target that

market here(E #r Tanti added! #r Bhatt * Chairman =f SBI, said( the bank ill alsosupport the green initiatives of its clients and ill offer them finance on priorit" and atconcessionar" rates of interest! Toards that end( the bank has launched a loan productcalled .Carbon Credit ;lus/ to finance the future C3+ receivables of CD# pro-ects!3arlier( #r Bhatt referred to the upard bias in interest rates in the coming months as themanufacturing sector activities are picking up!

7e said the credit groth ill be much better than the 1HF registered last fiscal and itmight even touch $8F as against +BI e0pectation of around $%F this "ear!According to him( retail and agriculture sectors ill pick up in the second 2uarter( hilethe third 2uarter ill see huge build up in infrastructure front and increase in cape0 and

orking capital! EThe industr" is orking at H%F capacit" no( hich is close to its peak of H'F and so the credit groth ill be fairl" good this "ear(E he added!

2uture "utloo0:

The model that the bank uses is different from other banks! ill the model itself be alimiting factor on the ambitious groth and development plans of the bank ill the da"&to& da" business of being a bank dominate over the desire to be an instrument of socialchange 7o does the future look for SBI Bank no that other banks are alsoincreasingl" positioning themselves as pla"ers in the sustainable econom" sector Canthe bank still continue to fulfill its mandate to strive for social ob-ectives

;eter Blom is convinced it can! According to him( man" other banks entering thesustainabilit" space also invest billions in companies that don/t in an" a" contribute to a better orld! And there are issues of transparenc" too! 7e believes that the bank can profit from economies of scale! As of no( SBI continues ith its strong belief that it isthe individual ho can bring about real change in the societ" and hopes to remain a platform for people ho ant to .make a difference’ in the orld!

!onclusion: Indian banks need to be made full" aare of the environmental andsocial guidelines to hich banks orldide are agreeing to! As far as green bankingis concerned( Indian banks are far behind their counterparts from developed countries!If Indian banks desire to enter global markets( it is important that the" recogni)e their environmental and social responsibilities!In addition to mitigating risks( green banking opens up ne markets and avenues for product differentiation! India/s groth stor" and commitments to cut its carbonintensit" b" $%&$' percent from $%%' levels b" the "ear $%$% provides tremendous


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opportunities for Indian banks& from funding sustainable pro-ects to offeringinnovative products and services in the areas of green banking! The survival of the banking industr" is inversel" proportional to the level of global arming! Therefore(for sustainable banking( Indian banks should adopt green banking as a business modelithout an" further dela"!

+eferences:

an illem van Gelder( *$%%,( >Sustainable Banking in ;ractice: A closer look at thenominees for the $%% 9inancial Times Sustainable Banking Aards?( Banktrack!(;rofundo!

eucken( # *$%%1, >Sustainable Finance and Banking, The finance Sector and The Future of the Planet”! ondon( 3arthscan!

!Starogiannis( D *$%%, >hat is 3nvironmental +esponsibilit" of Banks? 4@3; 9I

Conference( une!Thompson(&7ilar"&( *1JJ', “The Role of Financial Institutions in Encouraging Imro!ed

En!ironmental Performance” in +ogers(ichael&D!( ed! Business and the environment! @e Kork: St! #artinLs ;ressM ondon: #acmillan ;ressM $N1&H1

4@3; 9inance Initiatives( $%%$( Financial Institution Initiati!e Signatories,htt"#unefi$net#fii#signatories%countr&$htm

Stavros( Dimas *$%%', Speec

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Green Banking (2)