Banks are increasingly realizing that protecting environment and promoting green initiatives are crucial as lending or accepting deposits:
The World Bank has recently announced a $1.5 billion funding for India in its efforts to develop energy from low carbon sources. The World Bank expects India to promote the development of a vibrant market for green hydrogen, continue to scale up renewable energy and stimulate finance for low-carbon energy investments.
With India being the fastest-growing large economy in the world, and the economy expected to continue to expand at a rapid pace, the World Bank feels that decoupling economic growth from emissions growth will require scaling up renewable energy, especially in hard-to-abate industrial sectors. This effort would need a faster development of climate finance to boost the mobilization of finance for low-carbon investments.
GREEN, KEY TO BANKING
Many environmental experts are of the view that since economic growth is majorly influenced by the banking industry, green banking is a crucial factor that can help banks gain a competitive edge. Green banking is defined as a proactive technique of conserving energy and protecting the environment. Its primary aim is to protect the environment for future generations, minimize paperwork and concentrate on electronic transactions, which not only contribute to sustainability, but they also give convenience to both clients and banks. Green banking is essentially the promotion of environmentally friendly practices and the reduction of the banking sector’s carbon footprint.
The main target is the improvement in the conservation of the earth’s environment, habitats and resources.
Green banking constitutes initiatives by the concerned banks that support environmentally sustainable investing. Green banking is growing rapidly as a viable alternative to regular banking, particularly when the long-term availability of fossil fuels as a source of energy is doubtful.
Indian banks have increasingly adopted this concept and have significantly altered their operational processes to support it. Though a new and less explored area, many banks have taken it up in a variety of ways.
SBI – A 10-YEAR STORY
For example, the State Bank of India has adopted green banking as a policy and is the first green bank in the country, by going green and encouraging green energy projects. Likewise, Punjab National Bank has several initiatives to reduce emissions and energy use, Bank of Baroda has undertaken many green banking efforts, including the funding of commercial projects like windmills, biomass projects and generation of solar electricity.
In fact, the State Bank of India had enunciated its Green Banking Policy some 10 years ago and some of the initiatives taken up by the bank are:
- funding for installation of windmills for captive power consumption, a first in the Indian banking industry;
- concessional interest rates for renewable energy projects;
- separate incremental exposure limit for the renewable energy sector;
- agreements with Multilateral/Bilateral Agencies for lines of credit for launching rooftop solar and other projects in the renewable energy space, and
- a commitment to the Government of India to finance viable renewable energy projects worth Rs816 billion over 2015-2020.
The bank has developed and implemented a labeling mechanism in its CBS/ Loan Life Cycle Management System (LLMS) and MIS for projects/accounts undertaken as green projects.
The bank has also issued $250 million worth senior unsecured green floating rate notes through private placement at its London branch in January 2024. The issue is part of the bank’s $10 billion medium-term note program. The proceeds of the issue will be allocated towards eligible green projects in accordance with the bank’s ESG financing framework.
GO GREEN WITH PRIDE
Private sector HDFC Bank has a different strategy for promoting green banking. Its punchline is ‘Go Green with Pride: Your ‘Green Banking Score’ is Worth Celebrating!’
The Green Banking Score reflects eco-friendly banking habits, calculated from a customer’s digital and paperless transactions. It says by going digital, one makes faster transactions and reduce one’s carbon footprint. The Green Banking Score tracks a customer’s eco-friendly banking activities and generates a unique, personalized score just for him or her. At present, there are 4 categories – Eco-Explorer (which is a score of 1-250) where a person has just begun the green banking journey, Earth-Hero (a score of 251-500) where a person has boldly stepped towards environmental responsibility, Eco-Warrior (a score of 501-750) where a person is championing environmental protection with sustainable banking practices and Green Guru (a score of 750 plus) where a person is setting the standard with sustainable banking practices.
DIGITAL IS KEY
The bank encourages its customers to incorporate its digital products into the daily banking routine and thereby improve the Green Banking Score. Its digital banking products include PayZapp Wallet for shopping and sending money with a click at any time, Digital Rupee, which is an app for using the digital tokens instead of cash, Online Payments and Online Money Transfers.
IN LINE WITH GLOBAL AIMS
Another leading Indian public sector bank, Union Bank of India, has declared that it is committed to addressing climate change and accelerating the transition to a low-carbon economy. Its vision is to align with the target of achieving net-zero emissions by 2070 and make its financing portfolio in line with the goals of the Paris Climate Agreement. It supports development of green technologies, offers sustainable finance solutions and strives to meet the evolving needs of its customers who undertake green initiatives.
The bank’s board directly supervises social and environmental matters, including climate change and guides on a strategy in tackling climate change and helping to accelerate the transition to a low-carbon economy.
Among the bank’s declared activities are:
- supporting a sustainable transition by helping the customers and communities prepare for climate-related risks and opportunities;
- managing climate-related risks facing the bank, including those related to physical and transition risks;
- reducing its environmental footprint through renewable energy, energy efficiency and other operational improvements across the enterprise.
The bank has treated climate risk as the principal risk under its Enterprise Risk Management Framework since 2022 and is committed to build a sustainable and climate risk-resilient organization.
The bank also considers that development and use of digital banking channels are key to achieve its targets in the green banking initiative.
ENVIRONMENT CONSERVATION
Another leading private bank, ICICI Bank, considers environment conservation initiatives as the main strategy in reducing carbon footprint. It has adopted a 3R (Reduce, Reuse, Recycle) approach, which it claims is an integrated ecological and environmental strategy for ensuring a more sustainable future. The core effort is constructing and maintaining green workspaces through energy conservation, water and waste management.
The bank has undertaken activities for environment conservation in conformity with the ISO 14001 standard for environmental management systems. The health and safety systems at 13 large offices of the bank have been OHSAS 18001:2007 certified. Its Service Centre at Bandra-Kurla Complex in Mumbai is both OHSAS 18001:2007 and ISO 14001:2004 certified.
Its thrust on achieving its targets is on focus on design of workplaces, effective operations & maintenance practices, enhancing renewable energy usage, managing and conserving ware and minimising and disposing waste.
Punjab National Bank, another leading public bank in the country, has in July 2023 launched an environmental initiative called ‘PNB Palaash’, which is an eight-month period campaign to embrace sustainability. The initiative was expected to lead to cost savings and operational efficiencies through measures such as energy and resource conservation, paper reduction, waste management and streamlined digital processes.
Under the initiative, the 100,000 plus employees of the bank were to plant minimum 2 saplings each. The campaign themes included Digi Branches, Green Data Center, Electrical Vehicle Finance, Green Project Finance, Recycling Camps, Tree Plantation Drive, Paper Conservation Drive, Energy Conservation Olympics, Paper Conservation drive etc.
GREEN DEPOSITS
Private bank Axis Bank has very recently come out with a unique green initiative – the Green Deposit. The bank says it is designed for people who want their money to support environmental and sustainable projects. The bank will use the money specifically for funding efforts like renewable energy, clean transport, pollution control, green construction and efficient water management systems. The Green Deposits are meant for any customer looking to make a contribution to sustainable development through green efforts. The bank is offering attractive interest rates for these depositors.
As the world becomes increasingly conscious about ecological and climate-related threats, banks too are readying to play their roles. In a short time from now, they may consider promoting environment-friendly practices and efforts in reducing carbon footprint as key processes like lending or accepting deposits. They are also getting to realize that greening of industries will also lead to improved asset quality. Besides attracting capital investment, banks promoting green initiatives have realized that waste management and pollution control have their own benefits.
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