Green Deposits

Context: 

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 these deposits.

About Green Deposits:

• Difference with the Regular 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. 

• Purpose: 

• • 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.

RBI’s Regulatory Framework:

• Setting up Rules: 

• • 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 deposits from customers. 
  • These rules need to be made public on the banks’ websites

• Information Disclosure: Banks will also have to disclose regular information about

• • the amount of green deposits received
  • how these deposits were allocated towards various green projects
  • the impact of such investments on the environment. 

• Third-­party Verification: A third-­party will have to verify the claims made by banks regarding

• • the projects in which the banks invest their green deposits 
  • sustainability credentials of these business projects.

• RBI’s list of sustainable sectors eligible to receive green deposits:
  renewable energy, waste management, clean transportation, energy efficiency, and afforestation
• Sectors not allowed:Banks will be barred from investing green deposits in business projects involving fossil fuels, nuclear power, tobacco, gambling, palm oil, and hydropower generation.
• Prevention of greenwashing: The new rules are aimed at preventing greenwashing, which refers to making misleading claims about the positive environmental impact of an activity.

Doubts on utility of Green Deposits:

• There are challenges, for the range of projects in which green funds can be invested by the bank is limited by design.
• Critics argue that green investment products are often just a way to make investors feel good about themselves and that these investments don’t really do much good to the environment.
• Green investing is criticised as “a feel­ good scam” that enriches only consultants. 
• In a complex world where any action involves second order effects that are difficult to see, it can be extremely hard to know if a project is really environmentally sustainable.                                                                                                                                                             

News Source: The Hindu