Banking industry in the green equation

Updated July 22, 2019


For more than a decade, the buzz word in the majority of industries has been “green”. — AFP/File
For more than a decade, the buzz word in the majority of industries has been “green”. — AFP/File

For more than a decade, the buzz word in the majority of industries has been “green”, pertaining to environmentally-friendly practices. The eco-friendly business ideology has not only been a key promotional tool for brands but also a solution to the constant natural resource degradation and climate change problems. Unfortunately, the green management principles have taken a longer time to be adopted in Pakistan as compared to other countries, even the South Asian countries. Moreover, one of the most important economic agents of the country, i.e. that banking sector, has been largely ignored in the planning of a ‘clean and green Pakistan’.

Green banking is a paradigm shift in the business-as-usual banking ideology. It consists of minimising bank’s direct and indirect adverse environmental impacts. It focuses on greening the bank’s daily operations through initiatives such as Green Information Technology, Green Banking Products and Services, Green Human Resource Management, Green Marketing, Green Mortgage and Green Buildings. It also involves reducing bank’s environmentally adverse financing portfolio and increasing lending to projects such as renewable energy generation.

As a paradigm shift in the business-as-usual ideology, it consists of minimising the banks’ direct and indirect adverse environmental impacts

Globally, green banking is being adopted at a fast pace due to continuously increasing stakeholders pressure. Bangladesh has made these practices mandatory for all banks since 2013. China became a leading green bond market by issuing $42.8 billion green bonds in 2018. German banks financed 72 per cent of its green energy revolution and made it the ‘world’s first major renewable energy economy’.

The State Bank of Pakistan (SBP) became a member of the International Finance Corporation’s Sustainability Banking Network in 2015. The SBP issued Green Banking Guidelines on 9th October, 2017 instead of the deadline of June 2017. A year was given to banks and development finance institutions to adopt the guidelines and move on to the next phase of green banking adoption.

The one-year-mark passed several months ago but no further policy/guideline/regulation has been issued by the central bank yet. A review of the banking industry’s financing activities shows a continuous increase towards the financing of various polluting industries such as paper, coal, chemicals, mining, etc. A minimum target should be given to banks by the SBP, such as in Bangladesh where all banks have a 5pc green financing target as part of their total financing portfolio.

By not greening the banking industry, Pakistan is at a risk of offsetting any advancement in natural environmental restoration being made by the steps taken by the current government. Despite the great potential of green banking in Pakistan, the question arises as to why this sector has not yet played its due role in the country’s green revolution.

Researchers have identified a number of barriers towards green banking adoption, including insufficient government support, difficulty in attracting clients towards clean energy projects, reluctance in stopping financing of high pollution industries such as the coal or oil sector, lack of practical examples in this field, inadequate knowledge of its business case, and high cost of certain green initiatives, such as biodegradable ATM cards and green internet technology.

Among these barriers, the most relatable to an economy like Pakistan is the low level of stakeholder awareness regarding its importance. The majority of the bank branches cannot be converted into green branches because of incompatible locations, old architecture and other issues. Many branches do not even have the infrastructure for the installation of solar panels. In the light of these issues, the SBP should not issue a license for opening a new bank branch unless it meets the international green building standards, such as World Wildlife Fund Green Initiative, Leadership in Energy and Environmental Design, Building Research Establishment Environmental Assessment Method, etc.

Currently, the most important part of green banking adoption is the creation of awareness and knowledge among all stakeholders. It is the responsibility of the SBP to provide effective training to the banks’ staff for green banking adoption and implementation. Banks should provide training and knowledge to their corporate and small and medium-sized business clients on the importance and advantages of green banking. The SBP can facilitate the adoption and implementation of the green banking model using the experience gained during the adoption and implementation of the Islamic Banking model.

Regardless of the obstacles, Pakistan’s banking sector is currently at a stage where the bank that initiates the green movement will have a competitive advantage. Based on the country’s current environmental status, green banking needs to be adopted and implemented with total commitment and in true spirit.

Currently, the country has a number of environmental laws. Pakistan is a signatory to various international environmental accords and agreements, including the Vienna Convention, Montreal Protocol, Kyoto Protocol and the Paris Agreement. The country does not need more laws rather it needs dynamic, cohesive and a holistic commitment from all the stakeholders towards not just the survival, but the sustainable future of our land and the future generations.

The writer is currently doing PhD in green banking from Universiti Sains Malaysia

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