Sustainable Banking
By Umer Jeelanie Banday
02 August, 2015
Countercurrents.org
‘Sustainability’ appears to be the new Panacea for banks, but asset quality worries amid an uncertain macroeconomic environment.
It is essential to bring together both private and public funding if we have to secure the investment needed to address the problems created by climate change. Some banks have started appointing environmental specialists and social experts to appraise proposals before sanctioning big loans. The move is aimed at reducing the scope of wrong doings arising from the lack of environmental clearances or employee chaos. It is important for the banks to look forward to working with them and other global banks to accelerate private sector investment into renewable energy, energy efficiency and energy access.
In the statements of bankers sometimes, projects get stuck over environmental clearance or because of union unrest due to unhealthy work environment. This scenario provides unhealthy environment for the banks to grow because of banks loans are at risk. The banks can take help from environmental economists to evaluate large loan proposals due to which the risk of unsustainable practices will be reduced. So, lenders are seeking help from specialists to evaluate large loan proposals. The integration and sustainability into a bank's core businesses through the integration of environmental and social considerations into product design, mission policy and strategies. Examples include the integration of environmental criteria into lending and investment strategy, and the development of new products that provide environmental businesses with easier access to capital.
First ever American corporative green Bond in 2013 issued- $500 million in funding to connect investors with projects that create a positive environmental impact. The net proceeds of this new series of bond will be used to finance energy efficiency projects and invest in renewable energy projects such as wind and solar.
The bank like YES Bank has an environmental and social policy (ESP), which draws from the Equator Principles, IFC (International Finance Corporation) guidelines and other international best practices, and provides a 360-degree risk-mitigation framework. It covers impacts related to natural habitat, including air, water, land, flora, fauna and biodiversity. The policy also covers negative impact on environment due to project financing such as pollution, land water/ground water depletion, deforestation and habitat destruction,NamitaVikas, senior president & country head for responsible banking at YES Bank.
It is need of an hour to train professionals on environmental and social risks to help them in decision-making after evaluating projects on ESG (environmental, social and governance) parameters. “There is a large gap in the existing level of sensitization among bankers on these parameters. This (training professionals) is just a starting point and such trainings could become part of risk-assessment courses for (banking, financial services and insurance), and management institutions.
Rival Axis Bank is planning to soon introduce ESG audit to appraise loan proposals. If this type of practices will grow up in the country this will be encouraging for sustainability and on the other side loan defaulters will be reduced because majority of companies are being closed due to lack of EIA (environmental impact assessment) after the company is being opened.A proposal has been given to the board. The bank will start asking for ESG certificates while appraising loan proposals.
This practice so far remains limited to only a few banks. Bankers claim borrowers are often inclined to seek loans from banks that do not demand ESG audit. ESG reporting is an umbrella term that includes a wide variety of reports for sustainability.The Indian Banks’ Association (IBA) is working to create a level playing field and ensure balance between growth and sustainability.
Those type of practices need to start in the form of self-regulation. That is where India banking system needs to come forward to reduce the environmental banking risk. The projects that need environmental clearance should have in-built EIA clause in the loan proposal. Every bank must put environmental clearance and then sanction there loans. But sometimes problems remain in spite of clearances being there. So, some banks do not want to rely on certificates given by government officials. To enhance the sustainability it is a good move by the banks to have ESG clearance for the development of green and prosperous India.
Umer Jeelanie Banday is a Research Scholar Central University of Haryana (Department of Economics Email:[email protected]
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