GREEN DEPOSITS
1. Context
Recently, the Reserve Bank of India (RBI) came up with a regulatory framework for banks to accept green deposits from customers. Under the new framework, banks that accept green deposits will have to disclose more information on how they invest in these deposits.
2. What are Green Deposits?
- Green deposits are not very different from the regular deposits that banks accept from their customers. The only major difference is that banks promise to earmark the money that they receive as green deposits towards environment-friendly Projects.
- For example, a bank may promise that green deposits will be used towards financing renewable energy projects that fight climate change.
- A bank may also avoid using green deposits to invest in fossil fuel projects that are considered harmful to the climate.
- A green deposit is just one product in a wide array of other financial products such as green bonds, green shares, etc., that help investors put money into environmentally sustainable projects.
3. Regulatory framework of RBI
- The RBI's framework for the acceptance of green deposits lays down certain conditions that banks must fulfill to accept green deposits from customers.
- Firstly, banks will have to come up with a set of rules or policies approved by their respective Boards that need to be followed while investing green to deposits from Customers.
- These rules need to be made public on the bank's websites and banks will also have to disclose regular information about the amount of green deposits received, how these deposits were allocated towards various green projects, and all the impact of such investments on the environment.
- A third party will have to verify the claims made by banks regarding the projects in which the banks invest their green deposits as well as the sustainability credentials of these business projects.
- The RBI has come up with a list of sectors that can be classified as sustainable and thus eligible to receive green deposits.
- These include renewable energy, waste management, clean transportation, energy efficiency, and afforestation.
- Banks will be barred from investing green deposits in business projects involving fossil fuels, nuclear power, tobacco, gambling, palm oil, and hydropower generation.
- The new rules are aimed at preventing greenwashing, which refers to making misleading claims about the positive environmental impact of an activity.
- For example, a bank may advertise that their green deposits will have a huge positive impact on the environment, while the actual impact may be minimal.
- A bank could also invest in projects that are not environment-friendly, perhaps because such projects offer higher returns, under the guise of green investing.
4. What is the Green Finance Ecosystem?
- It is the financial ecosystem that supports investments in environmentally sustainable projects and activities.
- It includes a plethora of financial products, including green bonds, green loans, green insurance, and green funds.
- It aims to create a low-carbon, resource-efficient, and sustainable economy, while also addressing the risks and opportunities associated with environmental issues such as climate change, pollution, and biodiversity loss.
5. What is the Need?
- It promotes sustainable development and creates a positive impact on the environment.
- India has committed to achieve net zero emissions by 2070.
- Our Green Deal states green finance as an enabler to accelerate decarbonization.
- In 2016, the RBI along with UNEP reported that India is on the lines of sustainable financial systems.
6. Indian Scenario
- India has commenced its journey for carbon neutrality and put forward a Green deal to be achieved by 2070.
- The Green Deal has classified green finance as an enabler to accelerate decarbonization. It emphasizes the need for an increased flow of capital from the national government and private entities to establish green infrastructure.
- In 2016, the RBI released a report in collaboration with UNEP (United Nations Environment Programme) and India on the lines of sustainable financial systems.
- The report explores various facets of financial systems in India and their role in accelerating green finance.
- Carbon trading has been introduced in the policy framework of the country through the 'Perform Achieve and Trade' scheme.
- According to the World Economic Forum, the market for green bonds could be worth more than two trillion dollars by 2023.
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For Prelims: Green Deposits, Reserve Bank of India (RBI), UNEP (United Nations Environment Programme), Green Finance Ecosystem, World Economic Forum (WEF), and Carbon trading.
For Mains: 1. Critically evaluate the concept of green deposits and their potential in promoting sustainable development in India. Also, discuss the regulatory framework in place to ensure transparency and accountability in the utilization of these deposits. (250 Words).
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Source: The Hindu
