The UN Climate Summit held in New York witnessed an unprecedented participation from businesses and financial institutions. More than 50 financial institutions worldwide, representing USD 2.9 trillion in assets, committed to assess and disclose GHG emissions of their loans and investments. It is the largest such commitment ever made in the financial sector.

 

Accounting for over two-thirds of financing, the banking system has been the largest financier of an ever-growing global economy. Adopting a similarly significant role, banks can leverage their strength to finance the future by adopting an ethos of Responsible Banking, and align to both the Paris Agreement and Sustainable Development Goals (SDGs).

 

The Global Goals require an annual mobilization of around USD 5 to 7 trillion by 2030.  For India, the annual estimate stands at around USD 960 billion – out of which the current shortfall is USD 565 billion. While SDGs present a financing gap, solutions to address climate change and development needs are breeding a set of emerging sectors that are poised to be the engines of future growth. Climate-smart businesses in India alone present an investment potential of about USD 3.1 trillion, between 2018 and 2030, as estimated by the International Finance Corporation. Specifically, six sectors - green energy, green buildings, e-mobility, waste management, urban water and climate-smart agriculture are expected to propel India towards becoming a sustainable and futuristic economy.

 

The past five years have already witnessed next generation banks introduce a number of innovative financial instruments and products to meet the needs of sunrise sectors. The country witnessed a sharp growth in its Green Bond market since 2015, and a very innovative first of its kind green retail product called the “Green Future Deposit”. Besides these, there are an array of sustainable finance products and mechanisms that can be replicated from global examples, such as Sustainability linked loans that provide pricing advantage to greener sectors, and risk weights adjusted for greenness which gradually transition portfolios towards being more sustainable.

 

Proactive banks are already taking the lead, however, a common framework to guide them in aligning their business to SDGs and the Paris Agreement have been lacking. Taking a step in this direction, the United Nations Environment Programme Finance Initiative (UNEP FI) recently launched the ‘Principles for Responsible Banking’ – the first global framework for enabling banks to align with the objectives of the SDGs and the Paris Agreement. 130 banks (including YES BANK from India which is also a Founding Bank of the Principles) that collectively hold USD 47 trillion in assets have become signatories to the Principles. They together represent one third of the global banking sector, and are expected to accelerate the industry wide transition to sustainable banking.

 

In light of this global movement, it is only right that the promising economy of India is geared for the future with support from banks that have an inclusive, equitable and sustainable ethos of Responsible Banking.

 

(This article is written by Namita Vikas, Group President & Global Head, Climate Strategy & Responsible Banking, Yes Bank)