Green deposit: What are RBI regulations on green deposit?

What’s in today’s article?

• Why in News?
• What are Green Deposits?
• The RBI’s Regulatory Framework for Green Deposits
• Will Green Deposits help Depositors/Investors and the Environment?

Why in News?

• Recently, 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.

What are Green 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.
• For example, a bank may promise that green deposits will be used towards financing renewable energy projects that fight climate change.
• A green deposit is just one product in a wide array of other financial products such as green bonds, green shares, etc., that help investors put money into environmentally sustainable projects.

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The RBI’s Regulatory Framework for Green Deposits:

• It lays down certain conditions that banks must fulfill to accept green deposits from customers.
• Firstly, 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.
• The banks will also have to disclose regular information about the
  • Amount of green deposits received,
  • How these deposits were allocated towards various green projects, and
  • The impact of such investments on the environment.
• A third ­party will have to verify the claims made by banks regarding the projects in which the banks invest their green deposits.
• The RBI has come up with a list of sectors that can be classified as sustainable and thus eligible to receive green deposits.
  • These include renewable energy, waste management, clean transportation, energy efficiency, and afforestation. 
• The new rules are aimed at preventing greenwashing, which refers to making misleading claims about the positive environmental impact of an activity.
  • For example, a bank may advertise that their green deposits will have a huge positive impact on the environment, while the actual impact may be minimal.

Will Green Deposits help Depositors/Investors and the Environment?

• Depositors who care about the environment may get some satisfaction from investing their money in environmentally sustainable investment products.
  • However, there are challenges, since the bank is only able to invest in a certain number of projects with green funds..
• When it comes to protecting the environment, green investing enthusiasts believe that putting money into green projects may be one of the best ways to help the environment.
  • However, critics call green investing “a feel-good scam” that enriches only consultants. 
  • In a complex world, it can be extremely hard to know if a project is really environmentally sustainable.

Q1) What is Greenwashing?

Greenwashing is the act of making false or misleading statements about the environmental benefits of a product or practice.

Q2) What is Environmental, Social, Governance (ESG)?

ESG refers to a collection of corporate performance evaluation criteria that assess the robustness of a company’s governance mechanisms and its ability to effectively manage its environmental and social impacts.

Source: What are RBI regulations on green deposit?