These days it has become a mandatory for every company to bring in the concept of go green/ eco-friendly to their products/services. In general, financial markets also avail an opportunity to play a key role in Green and Renewable sector with their wide range of policy instruments. Without getting the government policies and bodies into consideration, there are a number of ways through which the financial institutions interact with the environment.
Act as Pioneer by unique product/services:- Considering the global changes these days it is very important to have innovation in the approach. It can be innovation in services offered, innovation in means of offering the services, innovation in product development, innovation in advertising the products/services etc. Hence innovation can be anywhere and everywhere. Aligning to it the financial institutions play a key role in developing new financial products to encourage sustainable development. Ex: Energy Potency
Act as Backer: - They support the enterprises/organizations by providing investments through which they can attain a sustainable development over a long run. In India, taking the competition within banking services into consideration, getting a financial support to a business model has become much simpler than what it used to be in the past decade. The investments are not just done through credit facility but also through mutual collaborative investments or through venture capitalists.
But ultimately it is the idea which really matters for someone to get convinced and support the initiative abiding to their rules and regulations. In most of the cases, though the investments are expected to be high, the business models that are evolving in today’s trend are much more profitable because of the niche market. And moreover these days most of the urban populations have become sensible compared to the past in consuming products that are environment friendly. Either it may be in the automobile sector or white goods or in construction industry etc. Just to validate the statement, many companies have already added a tag line to their products, either as “eco-friendly” or “go green” irrespective of the industry there belong to.
Act as Powerful stakeholders:- It always need not always be a public or private company that looks for an IPO and get listed but there can always be a probability for the financial institutions to partner with the companies as shareholders and lenders can exercise considerable influence over the management of companies.
Act as Valuers :– For any investment valuation is must and abiding to the valuation process and norms is a mandatory for any financial institution. The role of valuers is to calculate the risks in various pricing structures as well as in estimating the returns for companies/various projects. For example, according to the Institution of Valuers’, if a property is of value Rs 1, 00,000 then the valuer’s fee is Rs 125. But it is an observation that the financial institutions are not abiding to it. It may or may not be true in all the cases but yes it is a real concern to drill down for a validated solution.
The Commercial Banking Sector:-
One of the major advantages of the commercial banking sector in India as well as across the globe is their connectivity to small and medium sized enterprises where they act as highly influential players in providing adequate information about their suitable services and also about their lending practices. By default they (bankers) always have a scope for influencing the consumers and their behaviors through their own financial services/products. But definitely their impact/ influence of commercial banks on giant companies is comparatively less because of several reasons.
The Investment Sector:-
In the same way the advantage of the investment sector is highly influenced by the giant/large companies which are multi-national. They can certainly indicate the price of the new capital for various companies and in the process they can directly use the rights either as shareholders or as prospective owners.
Just to add, even the environment not for profit organizations across the country have started targeting the investors and bankers for their collaboration/association with huge companies that are not eco-friendly and are threat to the environment. Though they failed to create a major impact, as mentioned above they have slowly started influencing the sectors. So it is always a major concern for the investment sector to improve the performance of investments over the environmental performance.
The insurance sector can achieve sustainable growth only when they can have various types of pricing over the environmental risk for which they should pay even for the environmental damage.
The Environment Business Sector:-
This sector ranges from traditional environmental business like waste management or emerging “green” pioneers, such as renewable energy and introducing the concept of eco-tourism globally. Though the role is very critical it is certainly essential to attain sustainable growth and thereby ensuring the access to private sector and other private financial institutions.
There is always a diffident and discreet scope to circumscribe environmental issues in many areas because it is never evident that the environmental risks are adequate to authorize special treatment by regulators/ governing bodies.
Improvising the flow of information can also be an effective way to help the financial institutions to ease their environmental considerations and there by incorporating them. But there is still a definite potential to reinforce the relationship between environmental and financial performance, especially through the use of economic instruments like as environmental taxes.