Developing economies like China and India are growing at a fast pace to achieve desired economic growth, while the US and the European Union countries are consolidating their efforts to optimise the use of resources to maintain socio-economic development. “We must promote growth,” says Ian Johnson, World Bank Vice President for Sustainable Development, “but we must do so with full awareness of the natural systems on which all life depends. Economic development does not have to come at the expense of the natural environment — the two are intimately linked.”
Besides pressures to achieve better environmentally-friendly practices, financial institutions face acute pressure for a sustainably profitable business from other business sectors and within the financial sector. Today the definition of green banking is focused on, but not limited to, environmental impacts of the business or other businesses they support. Green practices, especially with respect to financial institutions, are linked to a business’s profitability, sustainable operations, and effective customer service.
Sustainable profitability
Profitability thus finds a dynamic definition for financial institutions, including financially sustainable business operations, long- and short-term returns on business investments, and the impact of business operations on the environment in which the business operates. “Our success allows us to contribute to local economies by facilitating trade, increasing human resource capabilities, supporting businesses and investing in local communities,” said Mervin Devis, CBE, Chairman of Standard Chartered Bank as he clearly defined his vision for future business in Asia, Africa and the Middle East. He added, “Our aim in building a sustainable business is to deliver value to customers and stakeholders, whilst helping to address significant social, economic and environmental issues the world is facing.”
In India, financial institutions are exploring unique ways to succeed in achieving a sustainable model of business. In the large developing economies such as India, social, economic, and environmental issues are closely interlinked. This situation presents financial institutions with a complex and challenging environment to work with and assists the country’s socio-economic growth while keeping institution operations profitable. It is a challenge for the financial institutions, especially in the developing countries to meet the business goals, profits and contribute to the sustainable growth of local communities. Indian financial institutions have gone beyond environmentally friendly buildings for their offices as a measure of green business. They have explored solutions using modern communications technologies and strengthening indigenous business models to achieve ‘sustainability’ in its real sense.
Technology plays a pivotal role
State Bank of India (SBI) and ICICI Bank are the two leading Indian banks that have adapted two unique and exciting business models for their growth. ICICI Bank, right since inception, is a techno-savvy bank. They created a niche for themselves by promoting their ‘convenient’ Internet-based services such as online banking and technology-enabled in-branch financial transactions. The bank indeed introduced Indian customers to nearly virtual banking transactions where customers hardly need to visit the branch of the ATM. The bank encourages its customers to shift from conventional transactions to e-transactions through GoGreen campaign. The small and medium enterprise section of the bank initiated the PlantLife campaign with BNHS to promote customer behaviour to shift from paper statements to e-statements and a part of savings; the bank spent the savings on planting trees in a few Indian cities.
A report published by Reserve Bank of India (RBI) states, “Rough estimates assume teller cost at ₹1 per transaction, ATM transaction cost at ₹0.45, phone banking at ₹0.35, debit cards at ₹0.20, and the Internet-banking costs mere ₹0.10 per transaction.” Unlike ICICI Bank, SBI has invested in communications technologies to substantially increase their reach. SBI maintains its position as a leader among commercial banks in credit linking of Self Help Groups (SHG) and is a prime driver for the movement. As at the end of March 2006, SBI, with a share of approximately 47% of total SHGs financed by commercial banks, is far ahead of others. Through credit-linked SHGs, SBI has successfully introduced rural communities to banking, and easy availability of funds for local businesses. SBI has, thus, increased its business but supported a socio-economic change by financing small scale local industries.
India’s participation in global efforts
Indian financial institutions are preparing themselves to benefit from the emerging opportunities such as carbon trading markets. Analysts peg the global carbon trading market at $100 billion by 2010. The Indian carbon market has the potential to supply 30-50% of the projected global market of 700 million certified emission reductions (CERs) by 2012. In August 2007, SBI Chair S.P. Bhatt announced, “the bank proposes to provide a single point delivery of services like the implementation of Clean Development Projects (CDM) projects, advisory services, and value-added products like secularization of carbon credit receivables, carbon credit delivery guarantees and escrow mechanism for carbon credits, besides finance related to carbon credits CDM, under the Kyoto Protocol, to its customers.” The business opportunity is linked to a growing global market. Industrial polluters in developed countries that cross administered emission limits of greenhouse gases fund clean technology projects in developing countries like India and China under a government-monitored trading regime.
Sustainable development can be achieved by integrating sound scientific research and social and environmental considerations with business issues. In a global economy, financial institutions play a crucial role in defining our business’s social, economic, and ecological aspects. Financial institutions are at the apex of the business pyramid and can guide the business for adapting sustainable business practices. Indian financial institutions have put in efforts to demonstrate a truly sustainable business model, which is strong enough to mitigate the economic challenges. Our financial institutions are well equipped to offering environmentally friendly business models to other industries and businesses and guiding new age businesses for a greener tomorrow; economically and ecologically.
©2009 Shripad Kulkarni