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Green banking
Thought Paper
Thought Paper 02 Thought Paper 03
Green banking
With the go green mantra permeating all
spheres of life, the banking sector too has
adopted sustainable practices to reduce its
carbon footprint. Collectively termed green
banking, these initiatives range from day-
to-day banking operations to investments in
companies involved in renewable and clean
energy technologies. In a bid to discharge social
responsibility while retaining proftability, banks
are adopting green banking worldwide, with
those from the Asia-Oceanic countries leading
the way.
Current scenario
Opportunity
Some green banking initiatives worldwide include:
Paperless statements, bills and annual reports.
Donations to conservation charities as an
incentive for choosing green products.
Special line of credit to homeowners for
investment in energy-efcient upgrades.
Listed below are some proactive initiatives of
banks globally.
Canadian banks have adopted the Equator
Principles, a set of globally recognized,
voluntary guidelines established to assess
and manage social and environmental risk in
project fnancing.
At the end of 2010, green credit issued by Bank
of China exceeded RMB 190 billion with new
issuances up by more than 40 billion.
Where is the money going?
As per the Bloomberg New Energy Finance
presentations, global investments in clean
technology have increased from USD 54 billion
in 2004 to USD 260 billion in 2011, with
region-wise investments in 2011 as follows.
At the end of 2011, China Development Bank
had lent 658 billion Yuan to energy-saving,
emission-reducing projects, accounting for
12.7% of the banks total outstanding loans.
China Development Bank Corp, which fnances
over 50% of overseas projects of Chinese
enterprises, has fnanced a Chinese company
that operates an iron ore mine in Africa. These
funds are apparently utilized to move surface
soil to a place of safety to protect local fora.
The State Bank of India has introduced
green channel counters and no queue
banking in over 5,000 branches across India,
doing away with deposit slips.
North America and Caribbean - 30%
Europe - 24%
Asia & Oceanic - 39%
Central & South America - 6%
Middle East & Africa - 1%
Thought Paper 02 Thought Paper 03
Funding by banks
Regulatory environment
The numbers indicate that there is a clear and
present opportunity for banks to increase
profts by investing in green ventures and
cutting down on existing investments in
conventional portfolios.
Some investments by major global players and
the areas of investment are represented in the
charts below.
Banking regulators also discourage investments
in industries with high energy consumption.
For instance, China Banking Regulatory
Commission, Chinas top banking regulator,
ordered lenders to cut loans to industries with
Quoting Catherine P. Bessant, Head, Global
Technology and Operations, Bank of America,
The [clean tech] market is really vibrant, with
lots of transaction potential. If no one ever wrote
about it, wed be doing it anyway. It is absolutely
core to the success of the company. The
company also pledges USD 100 million in grants
and low-interest loans. (Source: New York Times,
http://nyti.ms/OdLXjp).
high energy consumption and pollution levels
and favor green industries.
The United States encourages investments
in renewable energy projects by ofering tax
credits on them.
(Source for values: http://nyti.ms/OdLXjp)
0
10
20
30
40
50
60
Bank of
America
Wells Fargo Goldman
Sachs
NewInvestments Pledged (in USD billion)
NewInvestments Pledged (in USD billion)
*Citigroup
(Pledged in 2007)
(Source for values: http://nyti.ms/OdLXjp
BofA Investments (USD Billion)
BofA Investments (USD Billion)
0
1
2
3
4
5
6
7
8
9
Energy
efficiency
Renewable
energy projects
Consumer loans
hybrid cars
Way forward
Clean technology investments are here to
stay; however, a concerted efort is required to
increase the proft margins from such investments.
Banks should track these funds and monitor
their proftability.
Some ways to implement green banking
initiatives are:
Garner low cost eco-deposits specifcally for
eco-loans where customers get bonus credits
as fxed or percentage points based on the
profts generated by these funds.
Ofer eco-loans for eco-farming, green
buildings and cars, and green technology
initiatives at reduced interest rates.
Mobilize social media and mobile
technology, and online kiosks at branches, for
promotions and marketing, instead of
pamphlets and brochures.
Conclusion
There is defnitely a huge opportunity for
investing in clean, renewable energy technologies.
The entire government machinery and the
regulatory bodies need to work in tandem to
bring about this shift in the market, and banks
being an integral part of our economy, must
lead from the front.
Thought Paper 04 Thought Paper 05
Support from governments and regulatory bodies
Ofer eco-deposits to the public as tax saving
instruments to encourage public participation.
Ensure the realty sector adheres to all norms
required for an eco-building.
Set up a mandatory certifcation body to screen
such green applications and sanction loans.
Extend subsidies and tax breaks to banks
meeting the eco loans target to ensure they
remain proftable and repay the eco-deposits
with bonus credits.
Proactive regulatory reviews to monitor the
eco-asset investments, foresee possible NPAs
and take corrective measures.
Review operational processes and cut down
on paper-based documentation and
disclosures at all stages.
Augment the existing mobile payment
systems to reach the unbanked.
Invest in new core banking solutions to
launch new eco products with reduced
time to market.
References
1. www.cba.ca/en/component/content/category/
62-banks-and-the-environment#green
2. www.cba.ca/en/component/content/category/
62-banks-and-the-environment
3. www. boc. c n/ en/ boc i nf o/ bi 1/ 201105/
t20110525_1402257.html
4. www.chinadaily.com.cn/bizchina/2012-02/25/
content_14691629.htm
5. www. thehindubusinessline. com/industry-
and-economy/banking/article2162243.ece?
homepage=true
6. bnef.com/free-publications/presentations/
BNEF_gl obal _t rends_i n_cl ean_energy_
investment.pdf by Michael Liebreich
7. nyti.ms/OdLXjp
8. www. ener gyf ac t check. or g/ s l i des how/
renewable-energy-is-a-bad-investment-and-
major-banks-and-institutional-investors-are-
cutting-back-their-clean-tech-portfolios-the-
only-capital-available-for-the-renewable-sector-
is-from-american-tax/
9. http://www.wri.org/publication/bottom-line-
series-renewable-energy-tax-credits
Thought Paper 04 Thought Paper 05
Shijo Tom Koshy
Lead Consultant, Infosys
Finacle from Infosys partners with banks to transform process, product
and customer experience, arming them with accelerated innovation
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