A high level panel discussed how ESG principles can be embedded in the investment and financing processes at FIBAC 2022, the flagship banking conference of Federation of Indian Chambers of Commerce and Industry and Indian Banks Association. The discussion focused on the role that banks could play in this transition.
The session was moderated by Mr Yashraj Erande, Managing Director & Partner, Boston Consulting group, the knowledge partners at the event.
Mr Ashwini Kumar Tewari, MD, State Bank of India, felt that from the regulatory side, India was at an early stage, with SEBI having come out with a reporting framework and RBI having issued a questionnaire that all banks had responded to. What was needed was a standard framework for the banking industry. There were several opportunities in the renewable energy space, but relatively less had been done in other spaces. He cited potential opportunities in areas such as reducing thermal emissions, creating storage capacity, etc. "There is a lot of opportunity not only in the renewable energy space, but also in terms of the other elements plus a lot of transition opportunities which we haven't looked at." Hence SBI was also striving to measure the emission of its portfolio. They were talking to players who do this, he disclosed. But support of guarantee for bankable projects would be required, especially in newer areas.
"Climate financing has become fashionable over the last few years," said Mr Rajiv Anand, DMD, Axis Bank. He stated that Axis Bank was the first in India to establish an ESG committee at the board level. Every loan that they disbursed required due diligence in terms of ESG. He proudly announced that no proposal had been rejected on environment issues. "The next level growth avenue for all of us is the SME sector," he declared. They had come out with ESG 81 Sustainable Bonds, which were prevalent in only two countries in Asia. He called for a system in which banks could work with multilateral agencies that could give guarantees that would make project proposals bankable, in order to go forward. He suggested that if the bankability of a project was attractive, investment solutions would fall into place.
Mr Debadatta Chand, ED, Bank of Baroda, agreed that his bank too had greater focus on renewable energy. "What we have been doing is to have energy efficient measures within that." They were encouraging customers to lower their carbon footprint. A better ESG roadmap was needed in order to drive the entire country to a lower carbon footprint. He also disclosed that Bank of Baroda had instituted a green initiative: "Any new housing loan I give, I plant a tree; across India, 74 thousand trees have been planted as of today," he said. He felt that the entire country could move towards an ESG framework. "We are riding the curve and possibly a couple of years from now will be in a position to have zero carbon mapping." He also suggested that banks encourage zero carbon footprint rather than efforts to merely reduce it. That would make it more attractive.
Mr KVS Manian, WTD & Member of Group Management Council, Kotak Mahindra Bank said, "We need to hasten the walk compared to the talk".. What was needed was a framework of benefits and incentives. The transformation would be difficult without that. While renewable energy was a priority sector, many more areas could be included as priority sectors. Significant regulatory and Government action would be required to enable banks to complete this transformation. He also called for creation of investment pools in India, similar to the ones present in Europe.
But Mr Raj Balakrishnan, MD & Co-head - Investment Banking, India, Bank of America, was bullish about ESG in the finance space. His bank was highly committed, and all personnel were involved in meeting these goals. "We have been active in the green and renewable space," he said. He agreed that the right regulatory framework was required. The initial investments would need to come from risk capital, and the transformation would continue as long as the regulatory framework was enabling. But expanding the priority sector ambition for green financing should not diminish support for other large projects, he cautioned. He also wondered whether it was possible to create a regulated venture that brings private wealth into the market.