Green Banking In India Environmental Sciences Essay

kilobyte asserting In India Environmental Sciences analyzeMoving to a prosperous let bug forth coulomb economic schema advise drive innovation, append productivity and generate impudently well pay jobs. However, to achieve this, signifi enkindlet new investment testament need to be found and, though government so-and-so provide the necessary incentives, it go away be the private sphere that go out provide the bulk of this investment. modality change is a signifi batcht issue for India. But while the ca drop of temper change argon increasingly a risk to the health, economy and the environment of the country, economists are overly recognizing that at that conduct are pecuniary rewards from absolute climate change and growth a let loose ascorbic acid economy.Banks tail end provide great leadership for the required economic transformation that will provide new opportunities for backing and investment policies as well as portfolio management for the creat ion of a strong and successful low blow economy.In this report I defend tried to examine how brims discharge be catalysts for change. Discussing how deposes are providing commitment and leadership in creating a low ascorbic acid copy economy and worrywise the ch tout ensembleenges to investment.A carbon credit is a generalised term utilise for any tradable certificate or permit representing the right to emit one and only(a) tonne of carbon di-oxide CO2The goal of carbon trading is to every(prenominal)ow market mechanisms to drive industrial and commercial processes in the direction of low emissions or slight carbon intensive approaches than those used when there is no greet to emittingcarbon dioxideand different GHGs parklandhouse Gases into the atmosphere.In unbiased terms carbon credits gives a monetary value to the work on of polluting the atmosphere and hence reduce babys room emissions, thusly contributeing a pretty important role in saving the conception et.Of late there has been a lot of discussion regarding the environment management in industrialized countries. However, because of the monetary worldwideisation and ever increasing environmental regulations, there has been a large study in the intrusting heavens which has been operating in developing and emerging countries and is pressed to better manage risks from environmental liabilities.As some other economic players and industries, beachs as well consume natural resources. However, in developing countries this token of environmental wallop can potentially be postgraduate in view of the insufficient availability of clean sources of faculty.Banco Ita, one of the largest deposes in Brazil, recycles 2,200 hemorrhoid of shredded paper annuallyINTRODUCTIONmood CHANGE-BACKGROUND1.1 CLIMATE CHANGE-THE SCIENCEWe all cognize that the climate change is a serious issue and which cite for to be wagen big(p) care of in the near approaching day or else we will fix to fac e serious consequences in the future. A study conducted by The temper Group with Price WaterHouse Coopers indicates an increase of much than 0.7 C over the last century and will continue to rise. The flow projections of global average temperature change are in the order of 0.2 C per decade (from 1990 2050) or between 1.1 C and 6.4C within a century.CLIMATE CHANGE-THE INTERNATIONAL POLICY RESPONSE in that location apply been foreign conferences and concerns on how to save the environment and efforts deplete been taken to gain consensus on how to save the environment since the early 1990s. In 1997 UNFCCC United Nations Framework Convention on Climate Change introduced the Kyoto Protocol 1 India be a non-Annex 1 transgressy to the UNFCCC is d bearstairs no intelligent obligation to curtail its kilobytehouse gases GHGs emissions, only India has inform a voluntary plan to reduce the carbon emission excitement by 20-25% by 2020. The Indian Government is very keen and has sh induce great amour in finding the solution to this problem and is actively abstruse indiscussions that will lead to a Post Kyoto regime that tackles the problems.UNFCCC also held a recent conference in at Copenhagen cal take the CoP Conference of Parties, which did non deliver any legal binding commitments, but the Accord it produced had led to all the study developing nations to publish their plans on how they will lop or reduce the gas emissions over the coming decades.Also a massive fiscal assistant was pledged, which can be counted as a success of the summit US$ 30 Billion by the end of 2012 and a total of US$ 100 Billion by 2020 for the mitigation and help of developing countries to implement the plans for cutting down the emissions, along with the deployment of latest applied science and techniques.India is sure to receive a major protrude of these funds but our authorities need to ensure that the necessary framework is in place to take best advantage of them.1.3 CLIM ATE CHANGE-INDIAs RESPONSEIndia s topic Action Plan on climate change essentially proposes cardinal national missions , namely , Solar Enhanced aught Efficiency sustainable Habitat Water Sustaining the Himalayan Ecosystem Green India sustainable Agriculture and strategical Knowledge for Climate ChangeIndia holds a major position and is signatory to both UNFCCC and the Kyoto Protocol. The Clean Development Mechanism CDM provided by Kyoto Protocol has provided India with a significant opportunity for reducing carbon emissions at a relatively low price with renewable zip projects and forefinger court-efficient projects. The above also provides India with a wonderful opportunity of creating and trading carbon credits via ( by dint of) the help of regulated carbon emission trading schemes, in exchange of money.The CDM also allows and helps developed countries like USA to invest in emission decrement globally where it is the cheapest. The success of CDM can be gauged by th e fact that since its inception in 2001 till 2012 it would have 1.5 zillion tonnes of carbon-d-ioxide analogous emission reductions.India along with CDM has also been operative to develop a subject Action Plan on Climate Change which enumerates a consequence of steps to simultaneously advance Indias development and climate change adjustment and mitigation objectives. Finance especially the blasphemeING field is a severalize fragment of the National Action Plan on Climate Change, outlined in the plans National Missions. face 1NATIONAL MISSION ON deepen ENERGY EFFICIENCYThe proposed National Mission on Enhanced efficiency Efficiency (NMEEE) has been designed to focus on the creation of mechanisms that supports financing of drive align energy management programs by lieturing the financial benefits of future energy savings.The Partial Risk Guarantee Fund has been developed with a end of providing commercial banks with partial coverage of risk exposure against loans made for energy efficiency projects.India has set voluntary targets to reduce carbon emissions intensity by 20-25% by 2020. The targets are beingness supported by legislation that requires requisite fuel efficiency norms for all automobile vehicles, introduces thousand building codes, techniques and provides an amendment to the Energy Conservation Act to make it necessary for an sign group of 714 energy intensive line of productses to take part in a scheme to cap energy usage and subsequently trade energy efficiency certificates.BANKING SECTOR RESPONSE TO CLIMATE CHANGEWe are all aware of the fact that banks play a very important role in mobilizing financial resources across the economy-in particular for providing investment money i.e. capital for large overcome infrastructure and low carbon technology deployment.As of now the climaticalal changes have only effected/influenced the financial decisions only on the gross profit margin i.e. to a very little extent. That too the im pact is much less in India as compared to other developed or developing countries. The pursuance are a few outside(a) examples of the sameIn all over 180 financial institutions support the United Nations Environment course Finance Initiative (UNEP FI) which is the oldest association between UN and banking, insurance and investment worldsThere was an increase in the pace of the global clean energy investment from US$ 60 billion in 2006 to US$ 150 billion in the year 2007Banks that have been controlling more than 80% of global project finance volume have adopted the Equator Principles2.2.1 BANKING RESPONSE TO CLIMATE CHANGE IN INDIAIBA Indian Bank Association and TCG The Climate Group conducted a study know roughly how banks in India are responding to the climatic changes. The survey which was carried out focussed basically on following five themesCOMMITMENT LEADERSHIP skeptical the commitment of the bank and how is it demonstrated. centering To what level does the management ta ke interest and participate in and rough the climate change issues and how is the bank tackling its own impact.ENABLERS What are the key enablers for pushing the climate change agenda as perceived by the bank?PERCIEVED BARRIER What are the major barriers and key inhibitors which hinder the climate change agenda as perceived by the bank.INNOVATION AND ACTION What are the core task activities, products and services which the banks are offering to fight the climatic changing conditions.2.2 THE SOLUTION GREEN BANKING IN INDIAFor the last one and a half decade India is on a higher growth trajectory and the industrial sector has been playing a very important role in Indias growth. However, Indian growth has of all time been limited due to the challenges faced in controlling the environmental impact of their traffic activities i.e. reducing pollution and emissions of their clients. Though environmental legislations and laws are being framed by the government to chip inress the issue an d it also encourages the industriousness to follow the environmental technologies and practices, but they are not enough considering the execrable track record of enforcement, public awareness and inability to derive militant advantage by producing eco friendly products.Just for the fact-book India is the sixth largest and the second fast-breaking growing country in terms of producing green house gases. To add to your surprise three of Indias metropolitan capitals are amongst the worlds ten to the highest degree dirty cities. The industries which contribute to making these cities most polluted majorly are (a) Metallurgical Industries (b) composition Pulp (c) Pesticides/Insecticides (d) Refineries (e) Tanneries/Fertilizers (f) Sugar etc. Thus the banking trading operations and investment by the financial institutions should take care of these polluting industries which can be done by improving the overall environment, the quality and conservation of life, level of efficiency in using the materials and energy, quality of services and products and hence in this context, the role of banking sector, which is the major source of financing for these industries, which is used for the implementation of the eco-friendly measures.The environmental regulations in India can be broadly speaking classified in devil broad categories curb Control Regulations.Liability Laws.However, there is no law in India which can hold banks responsible for the checking and scrutinizing investment projects and granting/denying the financial aid to a go with on the basis of environmental damage to be caused by the client.The most important thing here is that because of the growing concern for the environment legal framework for the environmental pollution standards are being formulated in India and once the formulation is done the companies violating these rules will either have to bar down or will have to make the necessary changes in terms of investment and methodology which will require the help of banking sector, thus proving the importance of GREEN BANKING.In the above process the above companies are sure to loose their viability and competitiveness in the international market and this will ultimately affect the Indian Economy and the Banking Sector.Thus for the future prospects and the watercourse scenario it is very important for the banks to protect themselves from the changing of their performing assets 3 to non performing assets 4. If the banks ascertain these facts then the adoption of GREEN BANKING becomes fast and easily acceptable to them. star thing which is very obvious is that the industries that are ill equipped in pr pointting pollution today are the possible polluters of the futureExample 2Non Compliance to the Mandated Environmental StandardsAbout a hundred and fifty SSI (Small overcome Industries) units around Agra and Delhi had been forced by the government authorities to make changes in the methodology or were made to shut down the entire units because of non respect to the mandated environmental standards and were hence declared nonperforming assets for the banks that financed them. These rigorous steps were taken with the ultimate goal of protecting the Taj Mahal situated in Agra from the Greenhouse Gases and thus eventually losing its charm.Apart from the magnetic inclination above there are a name of companies that have been closed down due to non compliance of the standards in much(prenominal) a scenario the banks are the only ones incurring a financial injury due to the increase in bad asset and liability. The following Table1 reflects phratry wise summary status of pollution control in 17 categories of industries in India where we find that the industries are increasingly watching with pollution control norms. advert to Table 1 in the appendix.2.3 DISAPPOINTMENTS FACED GREEN BANKING IN INDIAThe financial banks and institutions are running far behind the schedules as compared to the global tre nds. no(prenominal) of the Indian banks or financial institutions have adopted the equator principle 2 even for the sake of records. None of our banks are signatories to the UNEPFI 5.The British business newspaper and fiscal Times in a joint effort nominated for Sustainable Banking Awards in 2006 for leadership and innovation in integrating social, environmental and in incorporate governance objectives into their operations did not find a single Indian nationalized bank or major private bank in the list except Yes bank (which is a teentsy player in Indian Banking sector) which was nominated in Emerging Markets Sustainable Bank of the Year category. The other nominations have been shown in Table-2.It was very evident that there was no magisterial attempt to integrate the environmental concerns into the business operations here by our nationalised banks.Though there has been a little progress as in the previous years as for the year 2007 ET sustainable banking award two banks name ly YES Bank and ABN AMRO Bank had filed nominations. Though its a little improvement but it also shows the ignorance in the part of our banks about the green banking maidens at international levels.As we all know today the products of the countries violating the human rights or child labour laws are denied in countries like US and UK (European Markets), so it would not be surprising if the export of the domestic polluting industries get a severe jolt if they continue to neglect the degrading environment.If such a thing happens then the major blow would be to the Indian Banking sector because most of the SSIs have sponsored by the Indian Banks and if they do not comply with the environment standards then they would be worst hit by such an act. Therefore, banks in India need to be more careful about the environment aspects of both clients and products becauseThe future of exports and product markets will be going through stringent environmental rules and eco-friendly products will ha ve a better future. change magnitude demands for pollution control equipments will want more and more financial aid from the banks.Reserve Bank of India (RBI) may also follow environmental friendly rules and regulations hence enforcing them on other banks just like the IFC 6 and Asian Development Bank 7.Recent announcement by the government to use economic instruments for environmental control may also include banks also. spoilt investment projects supported by international organizations like The World Bank and ADB 7 require EIA 8.2.4 THE BRIGHTER SIDE COMMITMENT AND SENIOR LEADERSHIP CHANGE IN INDIANumber of Banks combat-ready inCarbon Disclosure Project 5UNEP FI 2UN Global Impact 2Equator Principles 2Climate Principles 1Four Indian Banks named the challenges due to climate changes as very important and in the Top Ten Priorities Critical To SuccessSeven out of the octad banks surveyed intend that commercial lending banks in India can play a leadership role in the business commu nity in addressing the challenges of climate change.The top management has been driving the climate change agenda in majority of the surveyed banks.Banks that demonstrate a high level of of age(p) support for addressing climate change also demonstrate a high level of activity around initiatives that address the issue.All private sector and international banks problematic in the climate change activities through perfunctory partnership or relationships with external partners at a regional, national or international level.Public sector banks have not been taking part voluntarily but have been postponing the work until the legislations have been forced upon.Participating banks have highlighted that they have been forming partnerships with government agencies as well as perseverance associations to effectively discuss and act on issues.The RBI has issued notifications on corporate social responsibility for banks with reference to the role of banks in sustainable development and non financial reportingSix out of eight banks highlighted that the change in climate will highly affect the way they conduct their business and hence they would want to take advantage of the situation and enforce their business by being well prepared for the coming situations.2.5 ROLE OF MANAGEMENT GREEN BANKING IN INDIAPolicies and ProgramsMost of the banks have a formal piddle verbally statement which describes the purpose and objectives of the organizations commitment to climate change. Such statements are commonly include in the annual report of the company.Most of the banks have also been putting in place the indemnity of saving/reducing the innovationprints of the electricity white plague by implementing energy efficient systems in the offices and also by replacing the older systems.Most of the banks have a specific policy in place to consider the environmental issues associated with energy use, purchasing, transport, recycling and screw up minimization.2.6 MANAGING CARBO N EMISSIONMajority of the banks have been calculating their energy outlay and carbon footprint.Banks are getting external audits done for their energy consumption and follow it as a norm as opposed to the exception. The findings of such audits are being used to reduce their bills of energy consumption.All the banks have been indicating that the issue of climate change and sustainability was important to the organization.Example 3 jointure Bank of Indias Energy Efficient MeasuresThe union bank of India has decided to take an annual electrical energy audit. The bank has also installed solar power water heaters at the various facilities they maintain. Its the support service department of the bank that has been identified to implement such an energy reduction program.2.7 EXTERNAL describeAll the participating banks communicate their actions on climate change as a part of their Environment or bodied Social debt instrument Reports and statements.Almost 5 out of the 8 banks surveyed m aintained their own greenhouse gas inventory such as calculating their carbon foot printing and undertaking annual energy audits.Seven out of the eight banks have a energy reduction or emission reduction plans on the agenda.Example 4IDBI BankIDBI bank is a element of National Action Plan on Climate Change (NAPCC). The bank is also an authorised signatory to the Carbon Disclosure Project (CDP). CDP aims to create a relationship between shareholders and corporations regarding the shareholder value and commercial operations because of the climatic changes.2.8 INTERNAL COMMUNICATION AND EMPLOYEE ENGAGEMENTAll the participating banks claimed that the issues relating the climatic changes were communicating internally to the concerned employees.Five out of the eight bank also informed that they have also initiated employee engagement programs so as to tackle the situations arising out of climatic change.Majority of the banks have also put up information regarding the climatic change on th eir intranet sites.Many banks have also been training their employees on specific technical fronts such as, sustainability screens on lending portfolios, enhanced investment criteria for low carbon projects.Banks have also been implementing car pools for their employees, hence encouraging not only clerical rung but also higher management to share transport so as to save the environment.Example 5HSBC Global Research Climate ChangeThe HSBC Climate Change Centre of Excellence which had been established in 2007 has been ever since investigating the likely risks and opportunities of climate change for the financial markets and HSBCs business unit. About 30 reports were produced by the Centre in 2009, which also included a comprehensive analysis of fiscal stimulus for climate related investments.These reports have helped over 3000 customers to identify the opportunity and plan for potential climate change risks.2.9 ENABLERS FOR CLIMATE CHANGE ACTIVITIESInternal FactorsThe top internal fa ctors which have an effect on the climate change activities can be broadly classified asEconomic Benefits and ProfitabilityBoard influence marketing benefits doctor to Table 3External FactorsThe top external factors can be specified asEnvironment benefitsCompetitive advantage/new business opportunities.2.10 PERCIEVED BARRIERS TO CLIMATE CHANGE ACTIVITIESIn the survey conducted by TCG and IBA it was cogitate that the following are considered to be the major barriers for the causeThe Indian system lacks regulatory benefits and policy.The personnel lack technical knowhow.The cost implications.One provoke fact that came in light after the survey was that many banks in the survey wanted more legal regulations that provide an enabling framework. some banks also raised the point that lack of general awareness about the climatic changes and its implications hindered their efforts to implement the green banking concept.Cost implications were also highlighted as a major hindrance, by three of the eight banks, to addressing climatic changes. However they believe that due to the added advantages and features such a s improved reputation or increased customer loyalty can overcome the financial concerns.Refer to Table 42.11 INNOVATION AND ACTIONThe Climate Principles framework have been represented in the enquiry innovation and action by the banks as findings from key business lines.ResearchThe survey revealed that only two out of the eight banks currently have research on climate changes being carried on.The research being carried on by the Indian banks are less sophisticated as required by the cause.As most of the research is based on global level and is based on international standards the personnel here in India lack the technical knowhow of implementing the survey.Retail Banking fractional of the participating banks reported that they have implemented/incorporated carbon and climate issues to their retail banking arena.The banks also claimed to convince their clients to use paperless as a part of their green campaigns at retail outlets.Corporate BankingMany of the banks that participated responded that many initiatives in corporate banking are underway which facilitates a transformation to a low carbon economy.Banks are also cognizant of how client defaults may increase from unanticipated or underestimated mitigation.Project FinanceAs there is a lack of knowhow to evaluate the risks associated with the changing climate and also the opportunities arising out of such a condition thus it acts as an hindrance for the consideration of finance of projects relating to climatic changes.Lack of technical knowhow often tends to raise the total cost of the project and hence restrains banks from entering into such a project finance. plus ManagementThis field of the finance sector is still in its prior/infancy stage in India. So far only one bank has been thoughtful enough to launch a fund that takes key out of ESG 9 issues.LEADING INDIAN BANKS AND GREEN BANKING3.1 STATE BANK OF INDIA SBIExample 3.1.1SBI Green foot LoansThe State Bank Of India has started a new policy which they call as SBI Green Home Loans. It has been started with the objective of supporting the cause against the climate change and its implications. One of the initiatives which the bank has taken is the bank provides incentives to customers who choose green projects i.e. those projects which will be helpful in reducing the gas and carbon emission and help saving energy. Green Housing or Green Home is one of the types of loan identified for this purpose. The new Green Home Loan Scheme supports environmentally friendly residential projects and offers various concessions like reduced margins lower interest rates and zero processing fee.Example 3.1.2Generation of Green Power SBIState Bank of India became the first bank in India to venture into the generation of Green Power on its own for by the installation of windmills for captive use.This action has been carried out as a Green Banking initiative, SBI has installed 10 windmills with the total aggregate capacity of around 15 MW in various parts of the country like Tamil Nadu, Gujarat and Maharashtra. The future plans by the banks are even more lucrative as they plan to install additional 20 MW capacity windmills in Gujarat and soon fulfil a total production of 100 MW power generation through windmills in the coming five years.The officials of the bank believe that the bank consumes around 100 MW of energy in an year and hence by this initiative they are trying to be energy neutral and reducing their carbon footprints.The project has been carried on by Suzlon Energy and as one of the employees tells the cost of installation of one windmill of 1.5 MW is around Rs. 10 Cr. And the bank believes that the initial investment will be recovered in a wretched period of four yearsIn an interview Mr. Tulsi R.Tanti CMD Suzlon Energy utter that the mission of Suzlon Energy is to make all the Indian Bank s go green and he also informed of being in talks with 25 banks.3.2 ICICI BANKICICI Banks Environmentally Sustainable Finance InitiativeExample 3.2.1Corporate Environmental Stewardship InitiativesICICI Bank pioneered the corporate environmental stewardship programme with the Bombay Natural storey Society (BNHS) to sensitize various corporate bodies, financial institutions/banks and government agencies involved in the project planning on issues regarding biodiversity, wildlife habitats, various environmental laws and conventions. As a part of the programme BNHS has initiated Green Governance Award to agnise the efforts of the company working for this cause.Example 3.2.2ICICIs Clean Technology InitiativeICICI bank has been assisting many government and non government organizations to undertake clean energy and environmentally sustainable projects/initiatives. ICICI bank has been assisting projects that would specifically promote energy efficiency, renewable, demand side management b y utilities etc. ICICI bank has also assisted ESCOs 10 in facilitating various urban local bodies and manufacturing companies in reducing their energy bills.3.3 IDBI BANKExample 3.3.1IDBI Carbon DeskIDBI bank has a separate team working on the CDM advisory service. The bank provides end to end services from the corroboration to readjustment of the CDM projects for the commercialization of carbon credits. The bank also provides an upfront financing against the carbon credits/carbon credit receivables. The bank also facilitates the registration of the projects with UNFCCC and trading of carbon credits generated by the CDM Projects. There is also a refinance scheme initiated by the bank for energy saving projects for micro, small and medium enterprises (MSME) sector.