Green deposit: What are RBI regulations on green deposit?
26-08-2023
12:31 PM
1 min read
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.
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.