The Reserve Bank of India (RBI) has recently released a framework for green deposits, which are investments meant to be used towards environmentally sustainable projects. This aims to shape the emerging market, including provisions to restrict greenwashing, according to a Mongabay-India report.
The report adds that several commercial banks offer schemes for investments in environmentally sustainable projects. Such investments are done through green deposits in sectors such as renewable energy, clean transport, green building, pollution control, wastewater management, sustainable water, etc. So far, at least six banks – the Central Bank of India (CBI), HDFC Bank, HSBC, Yes Bank, DBS India Bank, Federal Bank, and IndusInd Bank – offer such schemes. Some of the banks offer better interest rates on green deposits compared to traditional fixed deposits. Experts told Mongabay-India that the framework released by the RBI is a step in the right direction to boost the green finance ecosystem. The framework will go into effect from June 1, 2023.
The RBI has said that the financial sector can play a pivotal role in mobilising resources and their allocation thereof in green activities/projects. Green finance is also progressively gaining traction in India, RBI said as it issued the framework for acceptance of green deposits by regulated entities (REs). The purpose and rationale for the framework, the RBI said is to encourage REs to “offer green deposits to customers, protect interest of the depositors, aid customers to achieve their sustainability agenda, address greenwashing concerns and help augment the flow of credit to green activities/projects”. Further, the central bank said the allocation of proceeds raised from green deposits should be based on the official Indian green taxonomy.
Pending finalisation of the taxonomy, as an interim measure, REs would be required to allocate the proceeds raised through green deposits towards a specified list of green activities/projects. The projects must encourage energy efficiency in resource utilisation, reduce carbon emissions and greenhouse gases, promote climate resilience and/or adaptation and value and improve natural ecosystems and biodiversity.
Renewable energy, energy efficiency, clean transportation, climate change adaptation, sustainable water and waste management, and green buildings, are among the list of projects/activities where REs could allocate the proceeds raised through green deposits. The RBI has also listed ‘exclusions’ for REs. This includes projects involving new or existing extraction, production and distribution of fossil fuels; nuclear power generation; and direct waste incineration. Banks and NBFCs will have to put in place a comprehensive board-approved policy on green deposits. The framework outlines eligibility requirements for banks to offer green deposits, reporting procedures, and ways to encourage customers to invest in environmentally sustainable projects.
The RBI circular says that all banks will have to implement a Board-approved Financing Framework, which is a set of policies and guidelines, to regulate and monitor the green deposits. This set of guidelines will ensure the effective allocation of funds received as green deposits to eligible green projects, Banks will have to make these details public through their websites.
The RBI framework states that the money raised from green deposits shall be based on the official Indian green taxonomy, that defines environmentally sustainable investments for investors to make a more informed choice. Since this is not released yet, the RBI has, for now, given an interim list of such sustainable sectors and activities that encourage energy efficiency in resource utilisation, reduce carbon emissions and greenhouse gases, promote climate resilience and/or adaptation, and value and improve natural ecosystems and biodiversity.
This interim list includes sectors such as renewable energy, energy efficiency, clean transportation, climate change adaptation, sustainable water and waste management, pollution prevention and control, green buildings, sustainable management of living natural resources and land use, and terrestrial and Aquatic Biodiversity Conservation.
According to a Business Standard report, a green deposit is a fixed-term deposit for investors looking to invest their surplus cash reserves in environmentally friendly projects. This offering in the market indicates the increased awareness of the importance of environmental, social and governance and sustainable investing. With the momentum behind green banking products, many lenders have launched green deposits in India for corporates as well as individuals. The investment in this fixed tenure deposit will go towards financing eligible businesses and projects that promote the transition to a low-carbon, climate-resilient, and sustainable economy. The amount for green deposits will be subject to limits basis availability of eligible projects and businesses. These deposits provide investors a platform to fulfil their sustainability goals by investing surplus cash balances into actions that matter the most.