Green banking is promotion of environment-friendly practices that aid banks and their clients in identifying and managing environmental risks as well as reducing their carbon footprint and related socially adverse actions.
According to SBP, while primary responsibility to ensure compliance of environmental laws & regulations rests with the board of directors and management of the respective borrowers, these guidelines are expected to reduce potential losses of banks and DFIs through proper management of environmental vulnerability of their financing portfolios.
These guidelines will also augment banks and DFIs' profitability by increasing investments in relatively untapped segments of environmentally-compliant, resource-efficient and socially-responsible businesses. The State Bank expects the banks and DFIs to implement these guidelines within a year of issuance of the same. The State Bank will also play its due facilitative role in implementation of these guidelines through such measures as regular review of implementation status of banks and DFIs, trainings and awareness sessions and other support measures.
These guidelines will deal with the three areas including risk management, for increasing financial stability through understanding, management and mitigation of environmental exposures of financing portfolios. Secondly, business facilitation, for fostering development of 'green' market through actively tapping the emerging viable business opportunities of financing to clean energy and resource efficiency projects and thirdly, Own Impact Reduction for potential re-engineering of banks and DFIs' internal operations and procedures with a view to reducing the impact on environment and society.
According to SBP, the guidelines, at hand, are the first step of a series of interventions leading to a sustainable economic environment in the banking sector. Each of the coming stages will complement the GBG by addition of such components, in a phased manner, as social issues or green lending levels, allowing banks/DFIs adequate adjustment time before the GBG become regulations.
The GBG run in parallel to other guidelines such as the Code of Corporate Governance and Corporate Social Responsibility (CSR) and Voluntary Guidelines issued by the Securities and Exchange Commission of Pakistan (SECP) in 2013.
The purpose of the GBG is to serve as guiding principles for banks/DFIs on how to implement the objectives. They are designed to provide an overview of actions banks/DFIs are expected to take and consequently are not intended to detail every procedure and business initiative. Thus, the Guidelines should serve as guiding principles of best practices establishing a fair and competitive businesses environment for banks/DFIs.
Fully implemented, banks/DFIs should have a system in place that includes a policy on green banking, which informs stakeholders such as banks/DFIs' clients, investors and employees, authorities and peers that environmental considerations are part of the overall banking activities and how this will impact the mutual business relationship.
In addition, an internal structures that provide for administrative procedures so that employees are in position to manage green banking requirements. This includes procedures to identify, assess, mitigate, monitor and report on old and new environmental risks. It may include modifications to the current internal approval systems.
The SBP also asked for arrangements to periodically review banks/DFIs overall portfolio as to its environmental risk positions and report to relevant stakeholders, such as higher management, shareholders and relevant authorities.
The guidelines are specifically addressed to all banks/DFIs. Nonetheless, the microfinance banks licensed to operate at national level are also encouraged to implement provisions of the guidelines related to green business facilitation (Section 4) and operational realignments for own impact reduction (Section 5).
The GBG at hand are expected to be implemented within 12 months. State Bank will monitor progress of implementation on a regular basis. Standard reporting procedures will be developed in co-ordination with banks/DFIs.
Copyright Business Recorder, 2017