When will our banks go green?

When will our banks go green?

For banks, going green means going beyond their internal paperless office initiatives to financing projects that are environmentally sustainable.

We are on the cusp of another green revolution today. Leading enterprises around the world are cutting down on carbon emissions and adopting ecologically sustainable business practices. The Indian government too has done its bit by making certain commitments at the 2015 conference on climate change held in Paris.

The IT industry has been a pioneer in promoting environmentally sustainable businesses by making way for paperless offices and knocking off millions of miles of travel by promoting video conferencing and work-from-home culture. However, environmentally sustainable business practices have not gone mainstream as banks have not yet pursued policies that promote green businesses. This is particularly the case with Indian banks.

In India, banks like Vijaya Bank, Canara Bank, HDFC Bank, and ICICI Bank have taken steps to reduce carbon footprint by enabling paperless offices and promoting mobile and Internet banking. While they may be internally pursuing ecologically sustainable business practices, one can’t say the same about the businesses they finance. It’s only when banks scrutinise the projects they finance from an environmentally sustainable perspective will it be possible to promote a business ecosystem that resonates with the demands brought forth by climate change.

In India we already have a legal framework that mandates industries to limit pollution and follow environment friendly guidelines. As the enforcement is lax industries flout these laws and guidelines at the expense of the environment. Indian banks don’t have a policy that does due diligence of projects for environment sustainability. That’s also partially due to the fact that we have no laws that can hold our banks accountable for financing projects that violate eco-friendly practices.

In the long term banks will face numerous hurdles by not adopting a green banking policy. These could include reputational risks where a bank’s financing of environmentally unsustainable businesses may damage its reputation. They could also run credit risk as businesses that flout environmental norms may get into trouble with the authorities.

To sum up it’s good that banks are increasingly becoming tech savvy and automating their processes and channels for increased efficiencies and adopting business practices that reduce their carbon footprint. But the onus is on them to finance businesses that have similar business practices and take advantage of IT to run environmentally friendly businesses. Banks can either wait for the government to enact laws that make them accountable for financing businesses or seize the initiative and take green banking one step ahead.