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Finance institutions support a low carbon future for India

Date
16 April 2009

What role might banks play in supporting a low carbon economy in India? The Climate Group's Rajeev Palakshappa and Damandeep Singh write in the The Times of India....

Money is in tight supply these days. Despite bail-out packages running into hundreds of billions of dollars banks are still reluctant to lend. What does business as usual look like in this brave new world and are we bold enough to look at innovative solutions to chart a path to a low carbon future?

CleanTech group, a research and data firm, estimates that in the last quarter of 2008 clean technology firms in India received in the vicinity of $6.3 million from venture capitalists investing across India, China, America and Europe. With growing government focus on climate change it is logical that this number will grow - as will the opportunities for banks to act as enablers of low carbon solutions. Indian companies have been actively pursuing energy efficiency and clean energy projects particularly where they generate additional revenue streams through earning carbon credits.

Carbon markets too have not been able to escape the turmoil seen in the international finance markets. The price of a carbon credit generated under the Clean Development Mechanism (CDM) now being worth somewhere in the vicinity of 8 Euros from previous highs of around 20 Euros. This fall in price is also played out against the backdrop of some uncertainty as to what a successor international agreement might look like beyond 2012, when the first commitment period of the Kyoto Protocol comes to an end. While the carbon markets will continue to be an important part of action on climate change, banks in the near term need to ensure that business cases for innovative low carbon solutions requiring financial support are not solely judged on the ability to generate revenue through a price on carbon.

Building engagement

 

It is clear that finance institutions have an important role to play in supporting and enabling innovative approaches and technologies that combat climate change. The Climate Group, an international not-for-profit group that aims to build leadership amongst companies to accelerate low carbon solutions, recently launched 'The Climate Principles' with a group of leading financial institutions that recognize their role and are committed to addressing the challenge.

Two of the banks that have adopted the principles, HSBC and Standard Chartered, have significant operations in India. To find out more about the role banks could play in supporting a low carbon economy in India, The Climate Group organized a meeting with leading finance institutions including HSBC India; IDBI Bank, ILFS Ecosmart, Punjab National Bank and ABN-AMRO Bank. They met in January to explore the opportunity for low carbon development and to identify the barriers that need to be overcome.

All banks present at the initial meeting had in some way been involved in the nascent market for carbon credits, either through funding projects, developing projects themselves or using carbon credits for the purposes of carbon neutrality.

The banks identified a number of barriers and challenges for effectively invigorating investment in clean energy and energy efficiency beyond its current levels. Awareness and understanding will need to happen both at the banking level for staff as well as increasing understanding amongst companies to whom the banks lend that there are viable cleaner technologies that are able to be invested in when making capital investment decisions. Participants reiterated the need for both private and public banks to be able to work together to develop products and solutions that enable investment in lower carbon technologies as well as fostering greater understanding of the opportunities across sectors. Strong guidance and regulation from the RBI is also required.

There are a large number of innovative projects and programmes in the clean energy and energy efficiency space in India and a great opportunity for the financial community to play a more central role as markets for clean technologies develop. An attempt in this direction has been made by the India Banks Association who convened a working group to look at India specific issues relating to carbon credits. For a cohesive approach to develop and be successful there is a need for ongoing engagement at the highest levels from banks to understand and capitalize on the opportunities of moving towards a lower carbon economy.

The Climate Group's policy initiative 'Breaking the Climate Deadlock' provides a platform for Indian financial institutions to factor in concerns during the discussions on a new international policy framework in the upcoming Conference of Parties in Copenhagen in December this year.

We are in a tumultuous time and leadership is required to invigorate and deliver on growth opportunities across various sectors. Finance institutions play a unique stewardship role in our economy and will need to be fully engaged to make a low carbon economy a reality. It is not only a sound business proposition to do so, but the need of the hour.

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