“ The supreme reality of our time is….. the vulnerability of our planet “ -John. F. Kennedy Climate change is perhaps the most controversial and complicated issue facing the world. The world has seen much focus on economic progress and mankind has made gaint steps in its journey through time. The side effects of the development process have however also been equally enormous – loss of bio-diversity, environmental damage etc. The warming effect of certain man made gas emissions such as carbon-di-oxide, methane, nitrous oxide and hydro fluoro carbons are found responsible for distortion in climate change.
As environmental issues gain greater attention, pressure is placed on all industries including financial services to implement green initiatives. There is a growing awareness amoung banks and financial institutions to protect the environment and thereby to save the mother planet. As Banks are responsible corporate citizens they believe that every small green step taken today would go a long way in building a greener future. Banks are committing funds on a sustainable basis in responsible banking. They are shifting forward from profit to people and now more importantly, to create a better future for all.
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INTRO TO GREEN BANKING A Green Bank is a bank that promotes environmental and social responsibility but operates as a traditional community bank and provides excellent services to investors and clients. Its progressive approach to the community and the earth sets it apart from other banks. Green Banking is a general term which can cover a multitude of areas from a bank being environmentally friendly to how and also where their money is invested. It is not just another corporate social responsibility (CSR) activity. Green Banking which considers all the social and environmental factors is also called ethical banking.
Ethical banks are started with the aim of protecting the environment. Green banking, compared to normal banking gives more weight to environmental factors. It checks out all the factors before considering a loan – whether the project is environment friendly and has any implications for future. A loan would be sanctioned only when all the environmental safety standards are followed. BANKING AND SUSTAINABILITY Sustainable development denotes the development that does not reduce the possibilities and choices for the future generations, at the same time ensures continuity of economic progress for the present generation.
It requires that decisions taken today do not comprise options for the future – this issue is central to any serious commitment to sustainability. Sustainable development transcends matters of ethics, corporate and social responsibility and the environment although they are all related. The process of sustainable development involves all sectors in the economy – Government, NGOs, corporates, citizens and of course the financial sector. Banking is often associated with formal and rigid approaches and the sector generally perceives itself as environmentally neutral.
The context in which banking operates is however continuously changing. Although banks themselves are generally environment friendly and do not impact the environment much through their own internal operations, in view of the relationship between the banking sector and the firms who are users of bank’s products, the external impact on the environment through these entities is substantial. Banks that are serious about sustainable development put principles at the heart of decision-making.
This includes fundamental issues, such as how deals are done and loans are made in searching proactively for opportunities and even in establishing and adhering to policy frameworks that deliberately preclude involvement in certain investments. For example, an investment in a factory that pollutes heavily (and passes on the costs to the society at large) will generally have a higher financial rate of return than a factory that invests in expensive pollution control technology, as a result showing a lower rate of return.
How will banks assess the two and which one of the two will be considered first for lending although the second case will clearly be a better investment option in the long run?. Environmental issues highlights both risks as well as opportunities. While on the risk side there is pollution, soil degradation etc. on the opportunity side there are investment possibilities through highly successful sustainable funds or green funds in which there is apparently no dearth of investors. Banks, as financial intermediaries are seen as efficient assessors of risk.
The investors who themselves do not have the wherewithal to assess the risk in projects or companies, prefer to invest in the banks offering environment of sustainability linked products. Driving forces for sustainability come from all the stakeholders of the company – the investors, shareholders, employees, board of directors, customers etc. With the market for investment in sustainable investment funds growing, a win-win situation has been created both for a banker and an investor. Its is true that a bank in such case does not aim for the highest financial return, but the highest sustainable return and being profitable in the long run.
IMPERATIVES OF GREEN BANKING Green Banking is very important in mitigating the following risks involving the banking sector : Credit Risk : Due to climatic change and global warming, there have been direct as well as indirect costs to banks. It has been observed that due to global warming there have been extreme weather conditions which affect the economic assets financed by the banks, thus leading to high incidence of credit default. Credit risk can also arise when banks lead companies whose businesses are adversely affected due to changes in environmental regulation.
Legal Risk : Banks, like other business entities face legal risk if they do not comply with relevant environmental regulation. They may also face risk of direct lender liability for cleanup costs or claims for damages in case they actually take possession of pollution causing assets. Reputation Risk : Due to increasing environmental awareness, banks are more prone to reputation risk if their direct or indirect action viewed as socially and environmentally damaging. ROLE OF GREEN BANKING IN ENVIRONMENTAL MANAGEMENT
Many banks in India have implemented green banking initiatives to help customers, reduce their impact on the environment and to better protect the natural resources. Most of India’s Banks are pushing for clean technology in their separate ways including : Online Banking Services: The environment and banking industry can both benefit when more customers use the online banking services. Benefits of online banking includes less paperwork, less mail, less driving to branch office by bank customers which all have a positive impact on the environment.
Online banking helps banks in lowering their own costs that results from paper overload and bulk mailing fees when more of their customers use online banking. Carbon Footprint Reduction : Green banks reduce their carbon footprints by building more efficient branches, implements more energy-efficient operational procedures, offers transportation services for their employees and carefully screens their lending in environment sensitive industries. These banks also support eco-friendly groups, green lending and raise money for local environment initiatives.
Power saving equipments : Banks directly contribute to control climate change and they initiate campaigns to replace electronic devices by purchasing energy star rated computers, equipments and appliances. Green Loans for home improvements : For a major home improvement project, if the project can be done in an eco-friendly manner a green loan would be sanctioned. Green loans are perfect for an energy saving project around the house. Green checking accounts : Customers check their accounts on ATM or special touch screens in banks.
A green checking account helps the environment by utilizing more online banking services online bill payments , debit cards and online statements. Green Credit Cards : Some of the banks have introduced green credit cards. The benefit of using a green credit card is that banks will donate funds to an environment- friendly non profit organization from every money spent from an individual’s credit card to a worthwhile cause of environmental protection.
Mobile Banking : Mobile banking is tricky. On one hand it is great to have the ability to check balances, transfer funds and pay bills. On the other hand this paper less facility saves time and enery of the customers. Social responsibility services : As a part of green banking strategies banks also initiate various social responsibility services such as tree plantation camps, maintenance of parks, pollution check-up camps etc. AT THE END
Green banking creates awareness around business people about environmental and social responsibility, enabling them to adopt environment friendly business practices, and follows environmental standards for lending. In addition to mitigating risks, green banking opens up new markets and avenues for product differentiation. Not only green banking ensures the greening of the industries but it also facilitates in improving the asset quality of the banks in future. Overall, green banking is a good way for people to be aware of global warming. Thanks to green banking.