SBI strengthens its ESG policy, but will not immediately refuse bad-scoring loans

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The State Bank of India (SBI) has formulated a policy on corporate lending that complies with environmental, social and governance (ESG) standards. However, the policy, which has been put in place by the country’s largest lender, is not yet used as a reason for refusing loans.

In an interview with EF, Ashwini Kumar Tewari, SBI’s Managing Director for International Banking, Technology and Subsidiaries, said the bank applies the parameters of the Securities and Exchange Board of India’s Corporate Responsibility and Sustainability Reporting (BRSR) framework. (Sebi) to the proposals of its customers. “In terms of policy, we implemented an ESG model in September 2021 based on the BRSR framework, but we are not yet declining low-scoring loans,” he said.

SBI is part of a growing group of Indian banks developing ESG policies in a global context increasingly focused on sustainability principles. For example, HDFC Bank’s ESG policy from 2020 states that the bank will not provide financing for the establishment of new units that produce or consume ozone-depleting substances, which are responsible for the depletion of stratospheric ozone which prevents harmful ultraviolet (UV) radiation from the sun. Axis Bank’s Exclusion List lists, among others, industries that sell prohibited wildlife-related products or are engaged in the production or trade of radioactive materials or unbound asbestos fibers.

The capital market regulator’s BRSR framework, which applies to the top 1,000 publicly traded entities by market capitalization, establishes disclosure requirements in the areas of corporate responsibility and sustainability. According to Tewari, SBI is committed to sustainability as a principle, as evidenced by its green bond program, through which it has so far raised $800 million globally.

In addition, the bank is reviewing its approach to financing thermal power projects from an asset quality perspective as well. Tewari said coal project life cycles vary between 20 and 30 years. This means banks need to consider whether these assets could face challenges as India tries to meet its sustainability roadmap.

At the United Nations Climate Change Conference (COP26) held in Glasgow last November, India pledged to reduce its total projected carbon emissions by one billion tonnes and the intensity carbon in its economy by less than 45% by 2030.

However, it’s still too early for coal-based models to be phased out, Tewari said. “We still haven’t reached a stage where renewables can become the baseload source of energy, because battery storage is still not adequate. So coal could remain the baseload power for some time. “, did he declare.

Historically, much of the renewable energy investment in India has been in solar power, but SBI is now seeing some patterns emerging in the hydropower segment. “We’re also trying to fund technologies that can help reduce emissions, and an example of that is flue gas treatment at thermal power plants,” Tewari said. In the field of electric vehicles (EV), SBI is in talks with players that have been identified under the central government’s Production Linked Incentives (PLI) scheme. Axis Clean Mobility and Ola Electric Technologies are among the companies identified as part of the auto PLI.

Lately, the Reserve Bank of India (RBI) has also started emphasizing the importance of tackling climate risk in the financial sector. In a September 2021 speech, RBI Deputy Governor Mr Rajeshwar Rao said the central bank had set up a Sustainable Finance Group (SFG) within its regulatory department. Some of the initiatives being considered by the RBI include integrating climate-related risks into financial stability monitoring and advising regulated entities to have a strategy to address climate change-related risks.

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

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