From UPSC perspective, the following things are important :
Prelims level : Principles of Responsible Banking (PRBs)
Mains level : Not Much
Global banks are pledging to report annually on the carbon emissions linked to the projects they lend to in an extension to the Principles for Responsible Banking (PRBs).
What are PRBs?
- The PRBs are a unique framework for ensuring that signatory banks’ strategy and practice align with the vision society has set out for its future in the SDGs and the Paris Climate Agreement.
- It was created in 2019 through a partnership between founding banks and the United Nations.
- The framework consists of 6 Principles designed to bring purpose, vision and ambition to sustainable finance.
- Signatory banks commit to embedding these 6 principles across all business areas, at the strategic, portfolio and transactional levels:
Note: India’s YES BANK Limited is the only Indian signatory to this framework.
Significance of the PRBs
- Banks can contribute to solving the climate crisis from two angles: their lending and their investments.
- Many bank policies concentrate their investments on securities that were focused on sustainability.
Issues with PRB
- Being a signatory to the PRBs is a limited commitment.
- Signatories have four years to comply with the principles.
- Even then, everything is voluntary and non-binding, so signatories are not penalized or even named and shamed for failing to live up to the principles.
- When signatories to the PRBs are lending money, they are supposed to carry out environmental impact assessments and to measure the greenhouse gas emissions of projects.
- This is not a minor issue considering that such work is beyond the traditional competencies of banks and will significantly affect their operational costs.
- Signatories are also supposed to ensure that loans go to projects that are carbon neutral.