Green banking : a new age mantra for sustainable growth

Developing economies like China and India are growing at fast pace to achieve desired economic growth, while the European countries are consolidating their efforts on optimum use of resources for maintaining the socio-economic development. “We must promote growth,” said Ian Johnson, World Bank Vice President for Sustainable Development, “but we must do so with a full awareness of the natural systems on which all life depends. Economic development does not have to come at the expense of the natural environment – the two are intimately linked.

Besides pressures to achieve better ‘environmentally friendly’ practises, financial institutions are facing acute pressure for a sustainably profitable business from other industries and from within the financial sector. Today the definition of green banking is focused on but not limited to environmental impacts of the business or other businesses they support. Green practices, especially with respect to financial institutions are very much linked to the profitability of business, sustainable operations and effective customer service.

Profitability thus finds a dynamic definition for financial institutions, which includes financially sustainable business operations, long and short term returns on business investments, and impact of business operations on the environment in which the business operates. ‘Our success allows us to contribute to local economies by facilitating trade, increasing human resource capabilities, supporting businesses and investing in local communities.’ Mr. Mervin Devis, CBE, Chairman of Standard Chartered bank clearly defines his vision for future business in Asia, Africa and the Middle East. ‘Our aim in building a sustainable business is to deliver value to customers and stakeholders, whilst helping to address significant social, economic and environmental issues the world is facing.’

In India, financial institutions are exploring unique ways to succeed in achieving sustainable model of business. In the large developing economies such as India, social, economic and environmental issues are closely interlinked with each other. This situation presents financial institutions with a complex and challenging environment to work with, and assist socio-economic growth of the country while keeping institution operations profitable. It is a challenge for the financial institutions, especially in the developing countries to meet the business goals, profits and contribute to the sustainable growth of local communities. Indian financial institutions have gone beyond environmentally friendly buildings for their offices as a measure of green business, and have explored solutions with the use of modern communications technologies, and strengthening indigenous business models to achieve ‘sustainability’ in its true sense.

State Bank of India (SBI) and ICICI Bank are the two leading Indian banks who have adapted two unique and interesting business models for their growth. ICICI Bank, right since it’s inception is a ‘techno-savy’ bank. They created niche for themselves through promotion of their ‘convenient’ Internet based services such as online banking and financial transactions. The bank truly introduced an Indian bank customer to nearly virtual banking transactions where customers hardly visit the ‘branch’ for banking transactions. The bank encourages its customers to shift from conventional transactions to e-transactions through GoGreen campaign. The small and medium enterprise section of the bank initiated PlatLife campaign in [Deepali please fill in the year] with BNHS to promote customer behaviour to shift from paper statements to e-statements and a part of savings, the bank spent on planting trees in a few Indian cities.

A report published by Reserve Bank of India (RBI) states, ‘Rough estimates assume teller cost at Re.1 per transaction, ATM transaction cost at 45 paise, phone banking at 35 paise, debit cards at 20 paise and Internet banking at 10 paise per transaction.’ Unlike ICICI Bank, SBI invested in communications technologies to substantially increase their reach. SBI is maintaining its position as a leader among commercial banks in credit linking of Self Help Groups (SHG) and is a prime driver for the movement. As at the end of March 2006, SBI with a share of approximately 47% of total SHGs financed by commercial banks is far ahead of others. Through credit linked SHGs, SBI has successfully introduced rural communities to banking, and easy availability of funds for local businesses. SBI thus increased its business, but supported a socio-economic change by financing small scale local industries.

Indian financial institutes are preparing themselves to benefit from the emerging opportunities such as carbon trading markets. Analysts peg the global carbon trading market at $100 billion by 2010 and the Indian carbon market has the potential to supply 30-50 per cent of the projected global market of 700 million certified emission reductions (CERs) by 2012. In August 2007 SBI Chair S.P. Bhatt announced, ‘the bank proposes to provide a single point delivery of services like implementation of Clean Development Projects (CDM) projects, advisory services and value added products like securitization of carbon credit receivables, carbon credit delivery guarantees and escrow mechanism for carbon credits, besides finance related to carbon credits CDM, under the Kyoto Protocol, to its customers.’ The business opportunity is linked to a growing global market in which industrial polluters in developed countries that cross administered emission limits of greenhouse gases fund clean technology projects in developing countries like India and China under a government-monitored trading regime.

Bombay Natural History Society (BNHS), a 125 years old conservation research organisation, strongly believes that biodiversity conservation is primarily a business issue. Sustainable development can be achieved by integrating sound scientific research and social and environmental considerations with business issues. In global economy financial institutions are playing a key role in defining social, economic and environmental aspects of our business. Financial institutions are at the apex of the business pyramid and therefore have power to guide the business for adapting sustainable business practices. Indian financial institutions have put in efforts to demonstrate a truly sustainable business model, which is strong enough to mitigate the economical challenges. Taking a step forward, our financial institutions are well equipped to offering environmentally friendly business models to other industries and businesses and guiding new age businesses for a greener tomorrow; economically and ecologically.

©2008 Shripad Kulkarni