Lenders mull building expertise for ESG financing | The Financial Express

Lenders mull building expertise for ESG financing

Banks intend to draw on expertise from multilateral organizations like the World Wildlife Fund and ADF, and domestic entities like IFCI and SBI Caps, the sources said. They

Lenders mull building expertise for ESG financing
Currently, individual banks are undertaking various exercises to bolster their internal mechanism for sustainable financing. (IE)

As sustainable financing is gaining prominence by the day, lenders under the aegis of the Indian Banks’ Association (IBA) are planning to expand capacity to better prepare for growing credit requirements for ESG (environmental, social and governance) projects, banking sources told FE.

Banks intend to draw on expertise from multilateral organizations like the World Wildlife Fund and ADF, and domestic entities like IFCI and SBI Caps, the sources said. They are also reaching out to industry chambers like Ficci for this purpose.

“The broader idea is to build not just adequate knowledge base for such financing but also sensitise borrowers and other stakeholders about the possibilities in this segment. The IBA is spearheading this initiative,” said a senior banker.

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Currently, individual banks are undertaking various exercises to bolster their internal mechanism for sustainable financing. They have stepped up focus on sectors like renewable energy, electric vehicles and rooftop solar panels, etc. However, these activities are mainly limited to few large banks, and small lenders usually have limited wherewithal to gain expertise in this area swiftly.

“So, there is a need to share such experiences among banks. This will also enable all banks to submit better feedback to the Reserve Bank of India for any ESG-related regulation,” said another banker.

Already, State Bank of India has put in place a policy on ESG-compliant lending to firms, which draws from the parameters of the Securities and Exchange Board of India’s business responsibility and sustainability reporting framework.

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Similarly, according to HDFC Bank’s ESG policy of 2020, the bank won’t extend loans for setting up of new units, which produce or consume ozone depleting substances, responsible for the depletion of stratospheric ozone that keeps out harmful ultraviolet (UV) radiation from the sun. Axis Bank doesn’t extend finance to industries that deal in banned wildlife-related products or are engaged in production or trade in radioactive materials or unbonded asbestos fibres.

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First published on: 09-11-2022 at 01:00 IST