As we prepare for the United Nations Climate Change Conference 2015, to be held in Paris in December, there is a need for concrete plans. It’s a marathon — marathons are a sort of mania where participants head towards a common goal; in spite of being competitors and diverse in nature. Yet, it requires collective perseverance, commitment and stamina. We need such a sustainable developmental mania which will lead us steadily towards balanced sustainable growth.
Banking has not been seen as an industry with a significant environmental footprint, and as a result it has mostly been insulated from scrutiny. But the fact remains that climate change is causing far-reaching changes in the economic environment in which banks operate. As public trust institutions, and ‘baskets of the economy’, banks can play a tremendous role in forging a corporate vision for sustainability.
A five-point action plan for financial institutions could be: One, build climate change into the risk management matrix. Banks are as much at risk from climate change as other aspects that are monitored by their risk management committees. There may be merit in revisiting the pricing of loans to companies engaged in businesses likely to get adversely impacted by climate change.
Two, identify, and cash in on new and innovative opportunities. Despite the challenges, climate change also gives rise to opportunities to finance and invest in new products like ‘waste to energy’ to energise wealth creation. Financing renewable energy resources and other sustainability initiatives are just some of the areas that banks can find exceptional value in going forward.
Three, mobilise and actualise ‘sustainable investments’. ‘Climate Bonds’ or ‘Green Bonds’, which are essentially securities issued to fund climate change solutions, are an important new asset class gaining traction globally.
Four, give rise to ‘disruptive’ technology. Technology may be the single greatest disrupter in the way we look at finance. Mobile money services have been successful in Africa to achieve financial inclusion; the same is being replicated successfully in India. In fact, the RBI has taken this a step further by institutionalising payments banks, which will put in place a new paradigm for rural financial inclusion, and usher in a new era of partnership between banks and technology providers. The climate-related benefits of e-banking are immense; from saving paper, to saving energy as well as reducing the banks’ carbon footprint.
Five, transparency in reporting. There is merit in extending banks reporting to reflect social and environmental impacts and dimensions. It is important that banks evaluate the carbon footprint and potential climate change risks that their direct and indirect assets pose.
As economies around the world continue to develop, financial institutions will play an important role in meeting the growing global demand for capital. Meeting the challenge of taking action on climate change will require prudent financial innovation, skilled people, technical innovation and responsible stewardship from policy makers, corporates and from individuals.
Rana Kapoor is MD and CEO, YES BANK
The views expressed by the author are personal