In 2019, just before the Covid-19 pandemic accelerated conversations around sustainable economies, the Climate Bonds Conference was conducted in 2019 in London with 900 leaders, innovators, and investors from across 55 nations. The aim was to discuss the need for green finance globally and how it could impact climate change. CEO Sean Kidney said, “We have the solutions and there is no shortage of capital that needs to be invested in the new low-carbon economy. We need to design the future sustainable world in which to invest that capital… Above all, we need audacious ambition on the part of governments, where the focus needs to move towards switching the economy sideways, from brown to green.”
For this to happen, green banking is one of the focus areas that could help with sustainable development goals. “Green Banking, also known as sustainable or ethical banking, is a concept that deserves more attention than it currently gets,” says economy lecturer and researcher, Ira Bhaskar. “Instead of just profit, the driving factors are also the planet and its people. It is nothing but environmentally-driven banking. Banks work on reducing their carbon footprint by implementing eco-friendly measures within their organisation. They also encourage their customers and stakeholders to follow sustainable procedures to meet this goal.”
How did Green Banking come about?
The term ‘green banking’ was coined in the United States by Reed Hudnt and Ken Berlin in 2008 to address the need to shift to an environmentally-friendly financial system. It was formally introduced in May 2009 as part of the American Clean Energy and Security Act. Since then, several other countries have joined the quest for green banking. But what does it entail?
Professor Bhasker adds, “For starters, it requires a shift to digital banking. Bank patrons should go online rather than visiting physical bank branches. The commute adds to the carbon footprint and human resource intervention is also an added drain on resources. If digital banking is employed, these can be eliminated. Even bill payments should ideally be done online, rather than visiting branches, signing a cheque or issuing a DD. Instead of passbook upgradations, bank statements can be checked and downloaded online. Even if you visit the bank, touchscreens and ATMs provide opportunities to check your bank balance virtually.
"Many of these systems are still in place for those who need it, but India’s digital footprint is phenomenal – especially with mobile banking opportunities - and we need to tap into it. There is change that is happening – COVID-19 accelerated it – but we need it to happen quicker and in higher volumes. Along with being sustainable, most of these measures also come with lowered costs and save valuable time.”
How can banks make the change?
A December 2022 report on ResearchGate, a global social networking site for scientists, says that the banking sector is being guided by the Sustainable Markets Initiative's Financial Services Taskforce (FSTF). Green finance philosophy was accorded in India in the year 2007. The Reserve Bank of India then developed measures to encourage banks to support sustainability objectives. Small-scale renewable energy projects were included by the Central Bank in 2015 as part of the Priority Sector Lending programme. Indian banks developed internal policies to cut back on lending to industries with high carbon emissions and switch to a green finance philosophy for loans in response. In addition, some carbon-intensive industries have reevaluated their business models and switched to environmentally-friendly productions.
“In India, the State Bank of India was one of the first banks to adopt green banking,” says investment advisor Prateek Sethi. “Among their initiatives is a unique loan towards ‘green housing’ or ‘green home’, in association with the Ministry of Non-Renewable Resource. Here, the onus is on home builders and homeowners to meet certain standards. It helps with increasing energy efficiency, water recycling, and the use of natural and local materials, as well as decreasing environmental air pollutants. There are concessions on the interest rate for those looking to own a home which fulfill these criteria.”
They can also adopt other eco-friendly practices within their offices and branches, such as energy-efficient lighting, rainwater harvesting, and reduction of plastic bottles and disposable paper cups, wherever possible. A lot of paper waste is generated in bank dustbins and at ATMs; efficient ways to recycle this waste without compromising consumer confidentiality are also important. As part of their CSR activities, green banks also support causes that contribute to the environment.
Solar-powered ATMs are another consideration for banks. According to a report by market research firm, Allied Market Research, the global solar-powered ATM size was valued at USD 1.2 billion in 2020 and this number is projected to triple, reaching USD 3.10 billion by 2030. Region-wise, the Asia Pacific dominates the market. However, we have a long way to go and Indian banks are not approaching the quest in a systematic manner.
Customer contributions
Prateek adds, “Green banking isn’t just something that banks need to pursue; consumers must do their bit as well. Instead of investing money in markets just for profit, they should think of the long-term impact of their investments and whether it aligns with their other value systems. They can also apply for green credit cards. There are different kinds of green credit cards in the market, some of which provide cashbacks and rewards for spending money on brands and products that offer sustainable alternatives. Others plant a tree every time the consumer swipes their card, making their purchase carbon neutral.”
Banking has always been synonymous with wealth. But today, the process has evolved into much more than that. Author and economist Tim Jackson put the need for green/ethical banking beautifully in his book, ‘Prosperity without Growth’. “The philosophical point is that our happiness and well-being is not based on incomes rising. This is not just the wisdom of sages, but of ordinary people. Prosperity is more social and psychological: it’s about identification, affiliation, participation in society, and a sense of purpose.”