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Source Name: Assocham

Financial Sector: Playing a Stewardship Role in Addressing Climate Change

Aug 20, 2014   18:15 IST 
ASSOCHAM believes that the recent release of the Inter-Governmental Panel onClimate Change’s (IPCC) Fifth Assessment Report (AR5) in India comes at a critical time as India is facing a delayed monsoon, falling crop levels and flash floods, amongst several other environmental concerns.
The release of the report underscores climate change as a global risk; the variegated effects of which need to be understood and addressed by all stakeholders. For the financial sector, these impose significant reputational and credit risks which have an incremental impact on the institution’s risk portfolio. To that extent, it is not just its own ecological footprint that the financial sector must regulate, but regularly measure the ecological health of its clients.
It is hence important for the financial sector to play a stewardship role to meet short term profitability, while simultaneously delivering triple bottom line impact to ensure long term sustainability. The Chamber believes that the sector must focus on 5 crucial aspects to trigger this positive triple bottom-line impact:
  • Integrating environmental and social due diligence parameters into lending decisions
  • Customising financial products and services to address environmental and social concerns
  • Proactively directing investments towards mitigation and adaption projects - across the sustainability spectrum
  • Instituting Sustainability Management Frameworks
  • Including environmental and social parameters within core training programs
Innovation in financial models is the most critical factor to facilitate climate change adaptation and mitigation. For instance, increasing the uptake of renewable energy to grids will also require a transition towards smarter grids, which in turn will enable access to mainstream capital. 
As highlighted by the Hon’ble PM during his Independence Day address, there is an immediate need for innovations in PPP models in areas of sustainable development such as village upgradation, sanitation in schools, improvement in air and water quality, better waste management and increasing awareness for ‘Jan Bhagidari’. The newly announced National Adaptation Fund is a high potential opportunity which must leverage appropriate frameworks for execution, co-ordination and accounting.
As conduits of capital, the sector has the power to influence stakeholders to align with sustainability principles, thus ensuring its own long-term sustainability. Progressive financial institutions have moved towards a systematic approach which amalgamates fundamental quantitative analysis with carbon-risk research to optimize the risk-return profile. ASSOCHAM is confident that investment decisions by financial institutions will work as critical signals in determining how the ecosystem responds to climate change.
Rana Kapoor
President, ASSOCHAM

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