According to a study, Indian banks and financial institutions fall behind foreign financial institutions in assisting in the control of the climate problem.
Indian banks and financial organizations, such as the State Bank of India (SBI), ICICI Bank, Axis Bank, the Trust Group, and HDFC, are among the world’s top financiers of fossil-fuel projects. Meanwhile, numerous banks throughout the world, notably Banco Santander in Spain and the Commonwealth Bank of Australia, have pledged to phase out coal-fired power stations and mining finance by 2030.
Banks have a crucial role in both funding sustainable industries like renewable energy and preventing the financing of fossil fuels. According to reports and an IndiaSpend study, banks in India have failed to establish strategies to decrease their own emissions or encourage their borrowers to do so. According to a 2019 study by Fair Finance India, a coalition of civil society organizations aiming to ensure a sustainable financial sector in India, only IDFC Bank (now re-named IDFC First Bank) exhibited a policy commitment to mitigating climate change out of the eight Indian banks examined.
This is the scenario five years after India joined the Paris Agreement with 191 other nations to limit greenhouse gas emissions and keep global warming to 1.5-2 degrees Celsius.
“Some countries have clearly not focused on the banking sector as something they need to deal with as they phase out fossil fuels and transition to a renewable energy economy,” Alison Kirsch, lead researcher at the Rainforest Action Network in the United States and co-author of the report “Banking on Climate Chaos,” told IndiaSpend. “Commercial banks will not be ready to move until central banks take the initiative.”
Why must Indian banks take part in climate action –
India has no plans to entirely phase out coal, and the shift to sustainable energy will take decades. According to IndiaSpend, the government pushed for private investment in the expensive, debt-ridden, and extremely polluting coal sector in May 2020, which would require funding from banks and financial institutions, delaying the finance sector’s prioritization of the transition to renewable energy. In 2019, the United Nations Environment Programme published Principles for Responsible Banking to help banks think about the environmental and social consequences of the projects they fund. These are also intended to assist banks in aligning their goals with the 2015 Sustainable Development Goals and the Paris Climate Agreement.
There are now 252 banks that have signed up to these principles, with Yes Bank being the sole Indian bank so far. Separately, several non-banking institutional investors have signed on to the Principles for Responsible Investment, a collection of principles aimed at incorporating environmental, social, and corporate governance (ESG) into investment processes. Signatories from India include SBI Funds Management Private Limited, Equicap Asia Management Private Limited, and Indus Environmental Services Pvt. Ltd.
The Role of RBI
The Reserve Bank of India (RBI) regulates and supervises all commercial banks, financial institutions, and non-banking financial companies in India. It also performs a variety of functions to support national goals, such as providing ‘priority sector lending’ to renewable energy, agriculture, and small and micro-businesses. It issued a guideline in 2007 encouraging commercial banks to consider sustainability and corporate social responsibility as part of their business strategy.
“RBI has guidelines, which includes the amount they can lend, for banks to finance infrastructure projects like housing, renewable energy projects,” Anirban Chatterjee, former senior manager of Canara Bank, told IndiaSpend. For instance, the RBI included renewable energy in priority sector lending in March 2015 and increased the limits of lending in September 2020, which means that renewable energy developers can avail more loans than developers in other sectors. “But there are no guidelines limiting funding for fossil fuel projects,” Chatterjee added.
The RBI has signaled that it is waking up to the risks that climate disruption poses to the Indian economy, that should be a precursor to stronger oversight on Indian banks,” Ashish Fernandes, CEO at Climate Risk Horizon, a Bengaluru-based organization working on the impact of the climate crisis on financial systems, told IndiaSpend. Banks should assess their vulnerability to climate change risks and to long-term disruptions because of the transition from fossil fuels to renewable energy, Fernandes explained. “But, it is important that banks should not wait for the RBI to move, given the urgency” of controlling the climate crisis.
Source – Business Standard