Tag: green finance

How green is the green finance promise of global banks?, BFSI News, ET BFSI

Banking & Finance

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Most global banks have signed Gfanz (the Glasgow Financial Alliance for Net Zero) at COP26 UN Climate Change Conference pledging to report annually on the carbon emissions linked to the projects they lend to.

Major signatories to the initiative, which aims to provide trillions of dollars in green finance, include Citi, Morgan Stanley and Bank of America. However, earlier efforts to promote green financing have not met with a serious response.

Principles of responsible banking

In 2019, the UN General Assembly exuberantly launched its principles of responsible banking (PRBs) where signatory banks agreed to work with their clients to encourage sustainable practices and to align their business strategy to the UN sustainable development goals and the Paris climate agreement.

Also, many of the biggest banks have not signed the PRBs, even though the principles have been the gold standard until now for committing to decarbonising lending.

Of the top ten banks (by market capitalisation), only Citi, Commercial Bank of China (ICBC), Bank of China and Agricultural Bank of China are signatories to PRBs. JPMorgan Chase, Bank of America, China Construction Bank, Wells Fargo, Morgan Stanley and China Merchants Bank are not on the list.

This is despite it being a limited commitment. Signatories have four years to comply with the principles, and signatories are not penalised or even named and shamed for failing to live up to the principles.

How banks fare

Among the major signatories to PRBs, Citi was the third-biggest fossil fuel lender in 2016-19 after the Paris Agreement and reached second place in 2020.

MUFG and ICBC, who are also signatories to the PRBs, both grew their fossil-fuel lending over the period. MUFG is also a Gfanz member, though neither ICBC nor any of the other Chinese banks are part of the new initiative.

Meanwhile, Wells Fargo and JP Morgan, which were not signatories to PRBs, reduced their total fossil fuels lending each year from 2018 to 2020, by 57% and 23% respectively.

Signatories to the PRBs are also supposed to carry out environmental-impact assessments and to measure the greenhouse gas emissions of projects. They are also supposed to ensure that loans go to projects that are carbon neutral. However, very little of this is happening on the ground at present.

While there is a need for a scheme that makes PRBs compulsory and binding, Gfanz does not tick the boxes. Under it, annual reporting requirements on carbon emissions are not mandatory either.

Experts say instead of forbidding lending to non-green projects now, loan books need to be treated as a portfolio of projects in different hues of green, with a defined trajectory towards greener – but it needs to be mandatory for signatories.



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As India pledges net-zero emissions, banks move to form common ESG framework, BFSI News, ET BFSI

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With India agreeing to achieve net-zero emissions by 2070, the onus is on banks to promote green finance. The Indian Banks’ Association is looking to create a common framework for environmental, social and governance (ESG) issues while carrying out credit assessment and include climate risk as part of their risk management policy, according to a report.

Banks have always been the backbone of India’s economic growth, and as the country pivots to sustainable growth, the banking sector will have to accelerate green lending, SBI Chairman Dinesh Khara had said earlier.

“A formal definition of green finance in India would enable more precise tracking of finance flows to the green sectors, which in turn would help design effective policy regulations and institutional mechanisms directed towards increasing both public and private investment in green sectors,” Khara had said.

Green finance definition

India’s green finance definition could be formed through a combination of adopting international practices, developing a set of principles for green economic activities and obtaining stakeholders’ views, he suggested.

“Unless banks are able to provide adequate credit to green projects and measure risk in their portfolio, the bank’s depositors and shareholders will continue to carry ESG (environmental, social and governance) risk that can erode returns.”

To support acceleration and green financing, he said, a number of structural changes will be needed in the traditional lending approach, including evaluation and certification of the green credentials of each project and understanding of the corporate road map to achieve net zero.

RBI‘s stance

The Reserve Bank of India also feels there is a need to mainstream green finance and devise ways for incorporating environmental impact into commercial lending decisions.

Addressing climate risk in the financial sector should be the joint responsibility of stakeholders as it would affect the resilience of the financial system in the long run, RBI Deputy Governor M Rajeshwar Rao said recently.

“As the risks and opportunities and financial impact arising from climate change vary across jurisdictions, this poses unique considerations for emerging economies like India. The challenge before us is to mainstream green finance and think of ways to incorporate the environmental impact into commercial lending decisions while simultaneously balancing the needs of credit expansion, economic growth and social development,” Rao said.

He noted that the global understanding of the systemic impact of climate change on the economy and the financial system as also its resultant impact on financial stability is evolving and, accordingly, the responses of central banks and supervisors around the world have also been developing.

RBI’s efforts

The RBI has been talking about green finance for many years and has taken various steps towards it. It has pushed, on the lines of corporate social responsibility for private companies, the concept of ESG principles into financing aspects. In April, the RBI joined the Network for Greening the Financial System (NGFS) in April 2021.

The NGFS, launched in December 2017 at the Paris One Planet Summit, is a group of central banks and supervisors from across the globe to share the best practices and contribute to the development of the environment and climate risk management in the financial sector. It is an institutional yet voluntary membership, which will also help mobilise mainstream finance to support the transition toward a sustainable economy.

“The RBI expects to benefit from the membership of NGFS by learning from member central banks and regulators and contributing to the global efforts on green finance and the broader context of environmentally sustainable development,” Rao had said in the speech.

NGFS and the Basel Committee on Banking Supervision’s Task Force on Climate-related Financial Risks (TFCR). RBI being a Basel Committee member was already part of TFCR.



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Khara, BFSI News, ET BFSI

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-By Nidhi Chugh & Ishwari Chavan

Dinesh Khara

State Bank of India will soon roll out its Environmental, Social, and Governance structure, with an aim to increase its exposure to climate-change-mitigation companies, such as renewable energy, by extending credit relaxations, said Chairman Dinesh Khara.

For loans exceeding Rs 50 crore, borrowers are assigned scores on the basis of their performance on various ESG parameters, Khara said at the ESG India Leadership Awards 2021 on Thursday.

“The bank acknowledges the increasing risk of climate change that is embedded in its credit portfolio, and is in the process of devising a framework for climate risk management. We are also in the process of identifying and managing risk arising out of ESG practices, to increase our exposure to climate-change-mitigation companies, which includes relaxation in extending credit facilities to borrowers in the renewable energy sector,” Khara said.

Unless banks are able to provide adequate credit to green projects and measure risk in their portfolio, the bank’s depositors and shareholders will continue to carry ESG risk that can erode returns, Khara said.

According to experts, ESG investors are likely to face risks of small cap and single stock investments, and interest rate and inflation.

Khara spoke of the bank’s plan to embrace ESG investments.
Khara spoke of the bank’s plan to embrace ESG investments.

SBI aims to be carbon neutral by 2030, and in line with this target the bank has taken a number of initiatives to reduce its carbon impact, including installation of solar power plants, tree plantation, organic farming and banning the use of single use plastic, Khara said.

The bank has taken a two-fold approach to reach its 2030 goal – managing the impact of its own operations and directing its funding to climate-change-mitigation sectors, he added.

On India’s approach towards sustainable growth, Khara said the banking sector should accelerate green lending and report their ESG portfolio performance. India should define its green finance by combining international practices, developing its set of principles, and obtaining stakeholders’ views.

“To support acceleration in green financing, a number of structural changes will be needed in the traditional lending approach, including evaluation and certification of the green credentials of each project, understanding of the corporate roadmap to achieve net zero, and how projects will contribute to the achievement of net zero emissions,” he said.

Meanwhile, at the award function, Infosys emerged as a ESG leader across industries, while Axis Bank led the pack in transparency and disclosures, said ESGRisk.ai, the organiser, in a note.



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What is sustainable finance, and how has it been faring?, BFSI News, ET BFSI

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-By Ishwari Chavan

Conventionally, investors have evaluated their performance and made decisions solely on financial measures and have neglected environmental and social impacts that come along with it.

Sustainable finance gained interest from the mid-2010s, especially after the Paris Climate Protection Agreement, 2015. In the agreement, 195 countries, including India, have committed to drive economic growth in a climate-friendly manner and reduce greenhouse gas emissions.

Environmental, social, and governance (ESG) issues, along with the associated opportunities and risks, are becoming more relevant for financial institutions. A common way to opt for sustainable finance is by investing in segments such as energy generation, which include solar photovoltaics, on and offshore wind, hydropower and broader energy services.

Here’s a rundown of all that you need to know.

What is sustainable finance?

Sustainable finance includes making business or investment decisions that take into consideration not only financial returns but also environmental, social and governance (ESG) factors.

Sustainable finance is defined as supporting economic growth while reducing pressures on the environment and taking into account social and corporate governance aspects, such as inequality, human rights, management structures and executive remuneration. Environmental considerations, including climate mitigation and adaptation, conservation of biodiversity and circular economy, are under its bandwidth.

One of the key objectives of sustainable finance is to improve economic efficiency on a long-term basis.

What does sustainable finance include?

Operational and labelling standards

1. Green labelled financial securities, products and services

2. Social-labelled financial securities, products and services

3. Sustainability- labelled financial securities, products and services

4. Unlabelled multilateral development banks financing of sustainability oriented projects

Industry oriented frameworks

1. Inclusion of ESG considerations in investment decisions

2. Sustainable and responsible investment (SRI)

3. Impact finance and impact investing

4. Equator principles-aligned projects

Wider Policy framework

1. Sustainable development goals-aligned finance (SDG Finance)

2. Principles of positive impact finance-aligned investments

3. Principles for responsible banking-aligned finance

4. Paris agreement-aligned finance

5. Climate Finance and Green Finance

6. Government sustainability related spending programmes

What is sustainable finance, and how has it been faring?
How has sustainable finance fared around the world so far?

According to the Global Sustainable Investment Alliance, at the start of 2020, global sustainable investment reached $35.3 trillion in five major markets – US, Canada, Japan, Australasia and Europe – reporting a 15% increase in the past two years (2018-2020).
What is sustainable finance, and how has it been faring?Source: Global Sustainable Investment Alliance

Sustainable investment assets under management make up 35.9% of total assets under management, up from 33.4% in 2018.

What is sustainable finance, and how has it been faring?Sustainable investing assets by strategy & region 2020 (Source: Global Sustainable Investment Alliance)

Sustainable investment assets continue to grow in most regions, with Canada experiencing the largest increase in absolute terms over the past two years (48%), followed by the US (42%), Japan (34%) and Australasia (25%) from 2018 to 2020.

What is sustainable finance, and how has it been faring?Global growth of sustainable investing strategies 2016-2020 (Source: Global Sustainable Investment Alliance)

According to the Global Sustainable Investment Alliance, at the start of 2020, global sustainable investment reached $35.3 trillion in five major markets – US, Canada, Japan, Australasia and Europe – reporting a 15% increase in the past two years (2018-2020).



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RBI deputy governor stresses on need to mainstream green finance, BFSI News, ET BFSI

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There is a need to mainstream green finance and devise ways for incorporating environment impact into commercial lending decisions, RBI deputy governor M Rajeshwar Rao has said.

Addressing climate risk in the financial sector should be the joint responsibility of stakeholders as it would affect the resilience of the financial system in the long run, he said.

Rao made these comments while speaking at the CAFRAL Virtual Conference on Green and Sustainable Finance) recently.

“As the risks and opportunities and financial impact arising from climate change vary across jurisdictions, this poses unique considerations for emerging economies like India.

“The challenge before us is to mainstream green finance and think of ways to incorporate the environmental impact into commercial lending decisions while simultaneously balancing the needs of credit expansion, economic growth and social development,” Rao said.

He noted that the global understanding of systemic impact of climate change on the economy and the financial system as also its resultant impact on financial stability is evolving and, accordingly, the responses of central banks and supervisors around the world have also been developing.

“The private and the public sector need to build on our early progress, both by recognising what we do know and urgently filling in the gaps around what we do not,” Rao said.

He further said the impact of climate risk transcends across the national borders and continents.

“Let us be aware that even the countries which are not major contributors will also be equally impacted by these risks. We all are in it together,” he said.

Climate-related financial risk refers to the risk assessment based on analysis of the likelihoods, consequences and responses to the impact of climate change.

Thus, climate-related financial risks may arise not just from climate change but also from efforts to mitigate these changes, Rao said.

A report of the ministry of earth sciences, government of India released last year concluded that since the middle of the 20th century, India has witnessed a rise in average temperature, a decrease in monsoon precipitation, a rise in extreme temperature, droughts, and sea levels, as well as increase in the intensity and frequency of severe cyclones.



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Global banks push ESG loans in India as climate change threat worsens, BFSI News, ET BFSI

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As the climate change threat worsens, global banks are pushing ESG (environmental, social and governance) compliant loans and bonds in India.

A huge pool of global funds is waiting to invest in these securities, which is a big opportunity for such projects in India.

Bank of America (BofA) is offering a 5-7.5 basis points incentive or levying a penalty based on the success or failure of companies in achieving their green targets as stated in the loan documents.

Earlier this year, BofA helped agri and industrial chemicals maker UPL raise a $750 million sustainability-linked loan. This will be a part of the global $1.5 trillion sustainable finance commitment that the US’ second-largest bank has made to be achieved by 2030, in which India will play an important role.

Huge opportunity

Investor interest in debt originating from India is also due to the country’s self-imposed stringent targets as detailed in the Paris Agreement on climate change in 2015. India has committed to reducing greenhouse gas emissions intensity of its GDP by 33-35% below 2005 levels by 2030 and 40% of power from non-fossil fuel-based sources by 2030.

To meet its commitments made under the Paris Agreement, India will need an estimated $2.5 trillion between 2015-2030.

Spelling the opportunity, for example, renewable sources make up only 7.9% of loans to the power sector.

Global lenders have themselves set ambitious targets to ensure a lower carbon footprint.

For instance, Barclays wants to achieve 100 billion of green financing by 2030, after facilitating 32.4 billion by the end of 2020. It is looking to raise $8-10 billion via sustainability-linked bonds by the end of this year.

HSBC deposits

Last month UK-based Hong Kong and Shanghai Banking Corp (HSBC) has raised $400 million of green deposits in India and identified financing opportunities to use those funds. Under its strategy, the bank first finds avenues to finance before raising the resources. The loans are extended for renewable projects, biodiversity linked initiatives, clean transportation and pollution control. Once the loans are sanctioned they are matched with deposits.

HSBC was the first bank to offer a green loan in India in January 2020, and it is currently in discussions to offer sustainability linked loans to multiple companies which will have incentives like a discount on rates.

ESG bonds

The ESG-focused fund-raising (green bonds) market, which has already scaled an all-time high so far this year, is set to cross the $10-billion-mark by December, according to Wall Street investment banking major JP Morgan, which has advised 12 of the 13 such bond issuances out of the country so far this year totalling $6.24 billion.

According to the bank, the overall bond issuances from the country may touch $25 billion this year, having already raised $17.5 billion so far, of which ESG-compliant bonds constitute USD6.2 billion.

Globally, the ESG has become a key board-room topic since 2013-14 and soon investors have also been asking on the ESG principles of their investee companies.



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Axis Bank joins green finance rush with first ESG bonds in India, BFSI News, ET BFSI

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Axis Bank has raised $600 million from offshore investors by selling sustainable additional tier-1 (AT1) bonds at a coupon of 4.1 per cent said.

The bank will be using the proceeds towards eligible green and social project categories, as per the term sheet. The bonds will be listed on bourses, including NSE IFSC and India INX IFSC.

The lender launched the issue of the perpetual bonds earlier in the day with the initial pricing guidance at 4.4 per cent, looking to raise up to USD 1 billion.

Axis Bank raised USD 600 million from its GIFT City branch. The issue saw the order book peaking at USD 2.3 billion, as per the sources.

The major investors in the issue included Bluebay, Blackrock, Fidelity and HSBC Asset Management Company, they said.

This was only the third environment, social and governanc-themed bond issue by any lender globally and the first one in India.

The Axis Bank bonds were rated Baa3 (negative) by Moody’s Investors Service, BB+ (stable) by Standard & Poor’s and BB+ (negative) by Fitch Ratings.

HSBC deposits

Last month UK-based Hong Kong and Shanghai Banking Corp (HSBC) has raised $400 million of green deposits in India and identified financing opportunities to use those funds. Under its strategy, the bank first finds avenues to finance before raising the resources. The loans are extended for renewable projects, biodiversity linked initiatives, clean transportation and pollution control. Once the loans are sanctioned they are matched with deposits.

HDFC issue

HDFC, India’s largest private-sector mortgage financier, too announced last month the launch of a new green deposit plan to attract environmentally conscious depositors.

The company plans to raise these deposits from individuals to lend to projects by retail borrowers.

It plans to use these funds to lend to standalone homes which use environment-friendly practices, like putting up solar panels and water recycling, or even to women borrowers or self-help groups.

AT1 bonds

The bank is the third lender in quick succession to raise money from the AT1 route after HDFC Bank raised USD 1 billion from overseas investors last month, and SBI raised Rs 4,000 crore earlier in the day from domestic investors.
The AT1 capital instrument had received a setback after Yes Bank’s investors lost over Rs 8,400 crore of bets after a write-off in the RBI-led bailout.



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IFC’s investment in Federal Bank to promote green recovery, improve access to finance for SMBs, BFSI News, ET BFSI

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IFC and two investment funds managed by IFC Asset Management Company, IFC Financial Institutions Growth Fund, LP, and IFC Emerging Asia Fund, LP have made an equity investment for a 4.99 percent stake in Federal Bank Limited.

The $126 million (₹916 crores) equity investment is expected to increase financing for climate-friendly projects as well as more financing for small businesses to help accelerate India’s economic recovery from COVID-19.

The investment is expected to support FBL’s commitment to environmental, social, and governance standards with increased green portfolio financing for projects including energy efficiency, renewable energy, climate-smart agriculture, green buildings, and waste management.

The investment also aims to strengthen its Tier 1 capital adequacy ratio (CAR) and expanding its micro, small, and medium-sized enterprises (MSME) and climate finance portfolios – key for growth opportunities as the country recover from the pandemic.

Shyam Srinivasan, MD & CEO of Federal Bank said, “After the Bank’s board approved the issuance of shares to the IFC group to an extent of 4.99 percent of the bank’s paid-up capital, IFC has become a significant shareholder of the bank. The addition of this marquee name to the list of our prominent shareholders reinforces the trust and confidence reposed by the IFC group in the bank and its management. The infusion of quality capital further strengthens Tier 1 and overall CAR of the bank.”

IFC will also consult with the bank on developing a new Environmental and Social Management System (ESMS) that will be applied to its entire portfolio. IFC will also implement an E&S technical advisory program.

Roshika Singh, Acting Country Manager for IFC in India, said, “This move is in line with IFC’s strategy to support green growth by spurring investments to build back better and greener, seizing the opportunities to help India meet its climate goals and build a greener, resilient future.”

Additionally, India’s MSMEs have faced increasing difficulty gaining access to the financing they need. Around 63 million MSMEs typically contribute nearly 30 percent to GDP, but about 11 million MSMEs remain fully or partially excluded from India’s formal financial system with an estimated financing gap of around $400 billion. The COVID-19 pandemic has further hampered the availability of funding for MSMEs.

India ranks third globally in terms of greenhouse gas (GHG) emissions, with the country needing substantial investments to meet its goals under the Paris Agreement to reduce GHG emissions by 2030. IFC estimates a total climate-smart investment opportunity of $3 trillion in India by the year 2030.



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With $25 billion Citi frames sustainable finance strategy for Asia Pacific, BFSI News, ET BFSI

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In the first half of 2021, Citi has raised over US$25bn for Asia Pacific clients from global and local capital markets to support their sustainable financeng needs. Citi has been working on managing and reducing the direct environmental impacts of its operations by tracking energy use, greenhouse gas emissions, water use, waste, and green building initiatives. Citi has initiated this process in close to 100 markets where it is present.

“As a global, value-driven firm, Citi is supporting the transition to a low-carbon economy. We view sustainable financing both as a mandate and as an opportunity to partner with our clients across geographies — to help them decarbonize their operations and achieve their enterprise sustainability goals,” said Peter Babej, Citi Asia Pacific CEO.

The bank has raised finances from various clients. The first half include Alibaba Group’s US$5bn four-part offering in February, which included a 20-year sustainability tranche — its debut sustainable capital markets transaction. From the hardware sector, SK hynix issued a US$2.5bn bond in January with a 10-year green tranche. Citi likewise led a US$3bn sukuk for the Republic of Indonesia in June, which included a 30-year green tranche — the longest-ever green offering in Islamic format.

The capital raised for Asian clients is part of Citi’s overall global financing targets. In 2019, the bank met its $100 billion Environmental Finance goal four years early. In April 2021, the bank announced a US$500 billion environmental finance goal, as part of the US$1 trillion sustainable finance goal, all by 2030. As the partnership with clients evolves, the dialogue though is widening further away from just financing.

“The scope of our sustainable financing efforts is growing continuously, and covers all client segments – from investors repositioning their portfolios toward greener industries, to corporates realigning their business models through acquisitions and divestitures. Our institutional commitment to building a greener future cuts across all these activities,” added Babej.

Recently Citi has installed 360 solar panels at their main office in Hong Kong. The rooftop Installation also includes a wind turbine, which generates electricity on-site for local use.



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