Global Governance and Green Banking Catalyzing Sustainable Development

Raghavan Seetharaman

The concept of sustainable development has achieved importance at the global level. Economies need to integrate the principles of sustainable development into their policies and programs and reverse the loss of environmental resources. United Nations Framework Convention on Climate Change (UNFCCC) led deliberations on fighting global warming has already reached at crucial stage. The ongoing 20th Session of the Conference of the Parties (COP 20) in Peru is an essential step to reach a meaningful agreement in Paris, in 2015.

Global Governance through G20 will work together to adopt successfully a protocol or an agreed outcome with legal force under the UNFCCC that is applicable to all parties at the COP 21. The United Nations has also defined the future global development framework through creation of Post 2015 development agenda, which will succeed UN Millennium Development Goals (MDGs). In November 2014 the U.S. and China made an announcement of their respective post- 2020 actions on climate change. Such actions are giving a decisive momentum to the global climate negotiations and inspire other countries to join in coming forward with ambitious actions.

At the G20 meeting in November 2014, the United States made a commitment of $3 billion towards Green Climate Fund and Japan pledged it would contribute $US1.5 billion to the climate fund. G20 agreed to a plan to reduce the gap between men and women in the workforce by 25% over the next 10 years. This has the potential to bring 100 million women into the global workforce. G20 supported the initiatives to prevent, detect, report early and respond rapidly to infectious diseases like Ebola and make sure basic public health system prevails, which allow for early warning when outbreaks of infectious disease occur. The G20 Food Security and Nutrition Framework will strengthen growth by lifting investment in food systems, raising productivity to expand food supply, and increasing incomes and quality jobs. G20 will support efforts in the United Nations to agree an ambitious post-2015 development agenda. These measures of Global Governance has indeed provided momentum to sustainable development.

Renewable Energy Investment and Beyond

Renewable energy sources such as solar and wind could supply up to 80% of the world’s energy needs by 2050 and will play a significant role in fighting global warming. According to Global Trends in Renewable Energy Investment 2014 – produced by the Frankfurt School-UNEP Collaborating Centre for Climate & Sustainable Energy Finance, the United Nations Environment Programme (UNEP) and Bloomberg New Energy Finance – total renewable energy investments fell in 2013 by 14% to $214 billion worldwide, partly due to the falling cost of solar photovoltaic systems and the impact of policy uncertainty. Investment in wind energy was $80 billion, while that in solar was $114 billion. Biofuels was $5 billion, while biomass and waste-to-energy was $8 billion, small hydro-electric was $5 billion and Geothermal was $2.5 billion. The major investors in 2013 were China: $56 billion, Europe: $48 billion, US: $36 billion, Middle East & Africa: $9 billion, India: $6 billion and Brazil: $3 billion. The major sources of renewable energy in Gulf Cooperation Council (GCC) countries are solar and wind. If the GCC countries allocate 0.5% of their 2.5 million square kilometers area for the generation of solar power, and assuming their equipment has an efficiency of 20 percent, they can generate enough power for the year. In case of wind energy, the average wind velocity in the Gulf region is around seven meters per second at 80 meters high, which is very suitable to operate windmills economically.

The banking environment operates within the global standards of lending or investing. Such standards have been revised after the global financial crisis both in terms of liquidity and capital adequacy. The going–concern and gone–concern capital has been redefined and suitable buffers have also been developed taking into consideration the liquidity and systematic issues. In addition to above, banks, as socially responsible instituion, have a role to play in protecting the environment and contribute to sustainable development. Hence every bank should earmark a minimum 10% of Tier 1 capital subject to a cap of 10% of risk weighted capital towards green banking or clean development mechanism or any sustainable development projects taking into consideration the carbon emissions prevailing in the economy in which the bank operates. The initiatives may be in the form of lending or investing.

Green Banking for Sustainable Development

This forms the basis for green banking and brings prudency into the capital framework. The Clean Development Mechanism (CDM) allows developed countries, or companies within those countries, to invest in projects that either reduce greenhouse gas emissions or sequester carbon in forests in developing countries. Some of the CDM projects includes renewable energy: wind farms, hydroelectric power, reducing emissions in industrial and manufacturing processes and sequestering carbon through afforestation and reforestation.

Every bank should earmark a minimum 10% of Tier 1 capital subject to a cap of 10% of risk weighted capital towards green banking or clean development mechanism or any sustainable development projects taking into consideration the carbon emissions prevailing in the economy in which the bank operates.

There are various green banking initiatives brought at the global forum which includes Equator Principles, UN Principles for Responsible Investment (UNPRI), UN Environment Programme (UNEP) Finance Initiative Statements and UN Global Compact (UNGC). Equator Principles define the set of voluntary standards that commit signatory banks to take social and environmental risks into account when providing project finance. UNPRI was developed by institutional investors that recognize the increasing relevance of environmental, social, and corporate governance issues that apply to asset management. UNEP Finance Initiative Statements recognize the role of financial service sector in making global economies sustainable. This promotes investment in clean and renewable energy by financial institutions and other investors. UNGC are a set of voluntary principles under which signatories promise to avoid complicity to human rights violations, adhere to labor standards, and protect the environment.

As a forward-thinking and socially responsible institution, Doha Bank has embraced sustainable business practices and promote solid environmental stewardship. Doha Bank advocates and practices Green Banking, which is one of the core business philosophies. The Bank has worked on “ECOSchools Programme,” conducted Green Quiz and seminars, hosted Green fun run and support tree planting activities to generate awareness of environmental preservation and protecting the natural environment.

Since investment in renewable sector is one of the crucial factors in tackling the issues of climate change, actions of socially and environmentally conscious financial institutions are creating a good platform to the global climate negotiations and inspiring a new era of global governance that would support the sustainable development.

Raghavan Seetharaman, Ph.D. is the CEO of Doha Bank

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