Economics · Environment · Management

Green Banking Initiatives Abroad and its Implementation in Indian Scenario – A study of possibilities

ABSTRACT

This research aims at analyzing the concept of green technology. This research paper also focuses on some of the major initiatives taken by Green Banks abroad as well as India. This research paper aims at analyzing the various green models that are used by successful green banks abroad. The author has also tried to present the Indian scenario by bringing to light some of the steps taken by Indian banks. The research paper aims at discussing the various green models used in abroad and how can they be implemented in the Indian scenario.

INTRODUCTION

With the environment and climate issues on the rise everybody is looking for the development of new sustainable products. New sustainable products have come in many fields like Hybrid car, green manure, etc. Banking and finances were one of the areas where no one could have ever thought of developing new sustainable products but surprisingly now one can ensure that their money is being managed in a sustainable way, thanks to green banking.

In the year 2009, HSBC employees turned their computers off at the end of the workday which helped saving 7.3 million kilowatt hours of electricity and 3.1 million kilograms of C02 emissions. So, hence we can see the difference the financial institutions can make in benefiting the environment.

Green Bank is a form of bank which helps in benefiting the environment. It basically focuses in using environmental-friendly practices and reducing carbon footprint in banking activities. There are many forms of following green banking policies like paying bills online instead of printing or mailing, etc.

A major aspect of all green banks is investing the bank’s money into environmental projects like investment to worldwide organization for aid, environmentalism and human rights, funding renewable technology, etc.

Some of the major advantages associated with Green Banking are:-

  1. Everyone is aware of the increasing carbon emission in the environment but some time ago no major action was being taken by the banks across the world. But green banking helps in reducing carbon footprints by supporting eco-friendly groups and raising money for environmental conserving projects.
  2. They can offer incentives by offering funds at low interest rates for adopting green technologies.
  3. Green Banks also implement more energy-efficient operations and in a way help saving the energy and decrease the carbon emissions.
  4. Also, internally green banks are devising strategies to make their process environmental-friendly in their day-to-day operations.
  5. Green Banks concentrate less on factories which pollute environment by emitting greenhouse gases. Hence, developing customer’s awareness on various environment issues
  6. Green Banks believe in utilizing less amount of paper, hence saving significant portion of forestry.

Some key green banking products introduced around the world are:-

  1. Green Mortgages: – Green mortgages basically offer better rates for energy-efficient houses. It offers home buyers an additional price of 15% of their house loan for upgrading energy efficient windows, solar panels or water heaters. The Energy Efficient Mortgage is HUD-approved green mortgage which credits for home energy efficiency.
  2. Green Loans: – Basically Green banks offer loans at better rates for energy-efficiency projects. Banks offer incentives to projects like bio-fertilizer, biogas, solar panel, etc. are being offered loans at low interest rates from the banks.
  3. Green Credit Cards: – Green credit card offers the cardholders to redeem points for contributions to eco-friendly organizations. Therefore, it offers great incentive for customers to use their green card for buying expensive eco-friendly products and hence promoting green technologies.
  4. Other Green banking products like green checking helps in converting checking accounts to online banking, green money market accounts which converts saving accounts to online banking and green CDs in which bonus rates are given for online banking and hence we are able to save a lot of paper.
  5. Green Banking Abroad:- Citibank has pledged to invest $50 billion for the climate changing solutions and Bank of America not only offers a Visa card to those who support natural conservancy but some extra points are also added in their visa for their support. Hence, Green Banking is creating a buzz in this fast growing financial world. Though it is a new concept some countries have adopted its policies and activities. But earlier most banks only used to include green and ethical commitments in their manifestos and not follow them. Co-Operative Bank was the first bank whose environmental policy document is available and it includes sections on the arms trade, human rights, corporate social responsibility and carbon neutrality.

When global warming and environment issues are being talked about in every country, be it a developing or a developed nation Green Banking has become the top priorities for many. The concept of Green Banking has developed in western countries. Not only developed countries but developing countries like Bangladesh which is one of the most vulnerable country for climatic change has successfully replicated the concept of green banking. Low lying countries like Bangladesh is adversely affected by the melting of glaciers and ice-bergs which leads to rise in sea level. Because of the increase in climatic change bank credit risk have increased and green banks like BASIC Bank (Bangladesh Small Industries and Commerce Bank) have adopted various strategies to curb the various climatic issues.

Some of the key policy of BASIC bank in light of green banking are:-

  1. Incorporating Environmental Risk in CRM (Core Risk Management) – BASIC bank follows guidelines on Environmental Risk Management of Bangladesh Bank as a part of its Green Banking policy.
  2. Developing and Following in-house Environment Management Strategy for recycling waste materials, reducing wastage of materials and developing strategies for reducing energy usage, etc. has been formulated and circulated to all the divisions and branches. BASIC bank monitors the consumption of paper, carbon granules for photocopy, printing cartages, etc. by appointing supervisor in every branch along with developing ICT & Training Cell premises, collection booth which is in accordance with Green Banking policy. It also takes necessary steps to avoid over-usage of water, electricity, gas, etc. The bank also prepares “Green Office Guide” which enlists a set of instructions for the employees for efficient use of materials and reuse of paper and equipment.
  3. The concept of “Green Finance”:- This concept basically talks about financing eco-friendly projects and business models. BASIC bank finance projects like waste water treatment plant, recycling material projects, solid and hazardous waste disposal plants, clean water supply projects, etc. at low interest rates. Energy efficient industries will be preferred by credit delivery points.
  4. Creating Climate Risk Fund: – Climate risk exposure matrix is developed by the bank to assess environmental risks which are reported to credit committees of the bank. The bank creates climate risk fund by assessing environmental risk of various projects and dividing it into high, medium and low sections. Funds allocated for green banking will also be used for carrying out banks CSR activities at the time of emergency.
  5. The concept of “Green Marketing”:- Green marketing enlists different range of activities like new product innovation, product design and manufacturing changes encouraging clients to design Green Projects which can hence lead to rise in number of startups working for environmental and sustainable products. BASIC bank uses green marketing to widen its target market of usual products. Also banks take steps to build awareness among people for promoting products which are eco-friendly. Research & Development Division is also set up by the bank which develops and markets Green Banking products.
  6. Setting up Green Branches: – Setting up of Green branches which will have the provision of using renewable energy, using natural light, recycling water and paper to the maximum possible extent. These branches will promote using renewable energy and will implement cross ventilation air movement system. These branches will also promote Green banking and Environmental issues to the common man.
  7. Promoting Consumer Awareness by organizing Green Events across various cities: – Also various training programs to be arranged by the banks both for its customers as well as employees so that they can become aware of Green Banking policy and environmental issues.
  8. Sector-Specific Environmental Policies: – BASIC bank has developed different policies for various environment sensitive fields like agriculture, poultry, dairy, etc. Some of the environment sensitive sectors are agriculture, leather, fisheries, renewable energy, chemical, fertilizer, pulp and sugar, etc. The Bank also provides facilities for installation of ETP and Water Treatment plants mandatory for clients having spinning, leather, processing factories so that they can qualify from the bank for receiving financial support.
  9. Pricing Strategy: – BASIC bank has formulated its pricing strategy in accordance with Global green banking issues. For reducing carbon emissions, hazardous products and energy utilization the bank plans to adopt pricing strategy for the clients.

Some of the other Major initiatives in the field of green banking by some International Banks:-

  1. Green Auto Loan Rate deal from United Financial Credit Union:- United :- United Financial Credit Union is offering a .25% rate reduction if one has to buy a new car fueled by alternative energy source mainly Hybrid car, Electric car, Ethanol-powered car or a car powered by a fuel cell. Now buying an eco-friendly car is no more a costly affair.
  2. Citi Bank: – It has developed environmental management system which basically guides its environmental initiatives. In 2003 it developed had developed a comprehensive environment and social risk management (2003) policy and updates periodically which requires adherence to International Financial Corporation (IFC) performance standards and its guidelines which provides pollution prevention, safety and guidance to as large as 63 specific sectors.
  3. PNC Bank: – PNC Bank is the first U.S bank which applies green building standards to all newly constructed or renovated retail branch offices. Some of the benefits of green building standards are cleaner indoor air and improved health and well-being of employees. PNC integrates water and energy saving technology into building practice. PNC has built the largest green wall in United States which provides energy efficiency on the PNC’s headquarter building.
  4. National Bank of Abu Dhabi: – It is the first bank in United Arab Emirates to install a solar-powered ATM for use by customers. National Bank of Abu Dhabi has a target of installing solar-powered machines in all its 110 branches and also add another 430 solar-powered stand alone.

CHALLENGES

Despite the continuous growth and development of Green banking abroad Indian banks are taking baby steps towards green banking. However, some banks like SBI banks have set up windmills to generate 15 MW of power in Tamil Naidu, Maharashtra and Gujarat. Similarly ICICI paperless initiatives like e-statement and e-greetings have helped saving 30,000 tress from being cut in the year 2009-10. It is high time that Indian banks recognize their socio-ecological responsibilities and adopt green banking with higher investment.

Some of the Initiatives taken by Indian Banks on account of Green Banking:-

SBI: – State bank of India is the first bank in India which took some steps towards Green power by setting up windmills for its captive use. The bank has installed 10 windmills with a capacity of 15 MW of power in the states of Maharashtra, Tamil Naidu and Gujarat. In the near future it will soon be installing 10 additional windmill of 20 MW of capacity in Gujarat thereby touching 100 MW power generation. Windmill helps in reducing the dependence on thermal power and hence will try reducing its carbon footprints.

ICICI Bank: – ICICI Bank has taken many green initiatives with the objective of collaborating with its customers and making “green” a part of everybody’s life. Some of key products are:-

  • Instabanking: – It is platform for improving the convenience of banking anywhere anytime through Internet banking and Mobile Banking. This platform helps in reducing carbon footprint as customers no more need to travel to banks.
  • Vehicle Finance: – ICICI Bank offers auto loans which offers 50% waiver on processing fee for those which wish to buy a car with alternative sources of energy.
  • Home Finance: – ICICI is offering reduced processing fee to those who want to purchase homes in “Leadership in Energy and Environmental Design” (LEED) certified buildings.

State Bank of Mysore: – It has taken the initiative of using energy efficient CFL bulb and computers. They have banned plastic bags in office building and have adopted eco-friendly corporate building policy.

After questioning about the implementation of Green banking policy one of the official answered that there was no system in place and there is failure in implementation of green polices made by the bank. What’s shocking is that in India officials consider green banking only as a form of paperless banking. Green Banking policy is only in the bank’s manifesto but the strict implementation will only come when RBI makes it compulsory. The change will not only come by financial institutes changing their policies but also the Indian government needs to look upon the same very seriously.

Some of the strategies which Indian banks should follow to create green banking a success in India:-

  1. Giving Green Auto Loan at a low interest rate: – Like United Financial Credit Union, Indian Banks should start giving loan at reasonable to customers who want to buy a new car fueled by alternative sources of energy. Now only few banks like ICICI Bank are giving loan at low interest rate and every Indian bank should start giving loan at good interest rates. Also banks should educate the masses about the benefit of these cars along with the interest rate they offer.
  2. Building up new infrastructure based on green building standards and also giving loans at: – Like PNC Bank which has integrated water and energy saving technology into building practice, Indian banks should also develop such new technologies. If not, at least offer loan at low interest rate to those who want to buy such houses. Like PNC had built green wall in United States which provides energy efficiency on the PNC’s headquarter building, Indian banks should also build such infrastructures which are green as well as economically beneficial.
  3. Setting up Solar-powered branches or Green branches: – Like National Bank of Abu Dhabi, Indian banks should set up more and more solar-powered ATM for use by its customers. These branches help in reducing carbon emissions. National Bank of Abu Dhabi has a target of installing solar-powered machines in all its 110 branches and also add another 430 solar-powered stand alone. Not only solar-powered ATM banks should set up Green branches which will use minimum amount of renewable energy, paper, water resources, etc. These branches will also create awareness among common man and will motivate them to save electricity and water.
  4. Introducing the concept of Green Finance and Green Marketing:- Like BASIC bank ,Indian banks should adopt the concept of “Green Marketing” which is basically carrying out different range of activities to develop new products related to green technology and encouraging manufacturers to design Green projects. Indian Banks should also set up R&D Division for carrying out research in the field of green technology. Indian Bank should also adopt the concept of “Green Finance” which basically talks about financing eco-friendly projects and business models. Indian banks should finance projects which are environmental friendly like recycling waste material plant, clean water supply plant, waste water treatment plant, etc.
  5. Environment Management Strategy(EMS): – Like BASIC bank, Indian Banks should start following the concept of EMS for reducing waste materials , recycling waste materials, etc. in all its branches and divisions. Like foreign banks Indian banks should also try monitoring usage of paper, cartages for printing, etc. by training people about the same. They should also take some serious measures to avoid over-usage of water, gas, electricity, etc.
  6. Pricing Strategy: – Indian Banks should formulate its pricing strategy in accordance with Global green banking norms. The bank must adopt these strategies for reducing carbon emissions.
  7. Social Responsibility Services:- Indian Banks can also indulge in various social responsibility services like maintaining parks, organizing various tree plantation camps, organizing various awareness programs, organizing check-up camps, etc.
  8. Consumer & Employee Awareness: – Indian banks should also organize various events or training programs for its employees as well as customers about the benefits of green banking. Green banking shouldn’t be merely taken as paperless banking but should be thought very seriously.

CONCLUSION

Indian Banks have a long way to go in the field of green banking but changes will not come until and unless common man becomes aware of environmental issues and concept of green banking. In the research paper above concept of green banking was discussed in detail. Some of the green banking products were enumerated. Strategies and Initiates taken by foreign banks in context with green banking was examined. Some strategies BASIC bank like pricing strategy, in-house Environment Management Strategy, etc. was discussed and how they can be incorporated in case of Indian banks was discussed in detail. Also past strategies and the implementation of these strategies of Indian banks in line with green banking was also discussed.

By: Ayush Anand, Delhi Technological University

REFERENCES

  1. Green banking – the new strategic imperative, AJRBEM Volume 2, Issue 2 (February, 2012) ISSN: 2249‐7307
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