Financial Services
Green finance: Aligning profitability with environmental responsibility
One of the most significant areas of concern in the modern day and age is climate change. According to a projection made in 2023, the likelihood of the average global temperature to rise above 1.5 degrees centigrade has increased to nearly 50% for the period between 2022 and 2026.
Climate change has a huge impact on the way businesses operate, how developing nations obtain resources, and how we rebuild communities suffering the aftermath of natural disasters and global warming.
Today governments, investors, businesses, and individuals are taking steps in response to this issue. This is where the concept of green finance for sustainable development steps in!
What is Green Finance?
Green finance refers to the financial transactions involved in giving loans or investing in activities like purchasing ecologically friendly goods/services, construction of green infrastructure, and other such projects that have a positive impact on the environment.
Green finance includes an array of loans, debt products, and investments that enhance sustainable development. This can be achieved either by supporting green projects, minimising the impact of climate on regular projects, or using a combination of both approaches.
Green finance investment endeavours to provide economic and environmental benefits to everyone. The chief objective of green finance investment is to broaden the access to environmentally-friendly products and services to individuals and businesses.
Sustainable development focuses on projects relevant to renewable energy, energy efficiency, pollution prevention, biodiversity conservation, sustainable use of natural resources, etc.
Sustainable development supported by green finance has gained a lot of traction and impacted businesses worldwide. Adopting sustainable practices has become imperative for businesses in recent times. Disruptive technologies like Artificial Intelligence (AI), Robotic Process Automation (RPA), etc., enable businesses to follow sustainable practices. These technologies have ushered in an era of paperless offices, electric vehicles, etc., reducing the carbon footprint.
When examining the banking industry's role in promoting green investment, it becomes apparent that digital technologies enhance multiple operational facets within businesses. The critical query that arises is: "Can technology accelerate green finance while bolstering bank profitability?"
Business process management (BPM) in the banking industry holds the key to answering this important question!
BPM in the banking industry refers to tools and techniques that make banking services more flexible and efficient. Streamlining workflows with BPM enables banks to align their operations with their green initiatives.
The confluence of technology with financial services is also known as fintech. The rise of the fintech industry in the past few years has completely transformed the way the financial sector functions. Major public and corporate entities are backing fintech initiatives, contributing to the advancement of a robust and sustainable economy.
The banking industry plays a pivotal role in steering the economy towards a sustainable future. BPM in the banking industry can help businesses assess and minimise their environmental impact. Powered by technologies like blockchain, AI, data analytics, etc., the banking sector can influence investors to channel their operations towards more sustainable assets by green lending. Technologies like AI and data analytics have enhanced the integration of ESG factors in investment decision-making. The Internet of Things (IoT) technology can be deployed for sensing energy usage in different appliances and optimising it.
Banking institutions engage in green lending by offering financial products and services that take environmental aspects into account when making loan decisions, overseeing, and managing risks. This practice encourages responsible investments in the environment and the adoption of low-carbon technologies. Some examples of green finance products are green car loans, green home equity loans, green cards, etc.
At an individual level, green banking initiatives include aspects such as tracking the carbon footprint of individual purchases, credit cards made from sustainable materials, or credit cards made by issuing institutions that contribute to sustainable practices, etc. Sustainable project finance and green loans are some elements of commercial banking.
One of the most prominent green products offered by banks is the green bond. Green bonds facilitate raising capital for environmentally friendly projects while also meeting the demands for socially responsible investments.
While green finance for sustainable development has made an impact at different levels, there is scope for further enhancements in areas such as:
- Switching the focus of investment from fossil fuel sources for energy to renewable energy sources.
- Tracking emissions and behavioural changes at the individual and corporate levels.
- Financing sustainable energy and transport infrastructure.
- Mitigating climate risks.
Backed by technology, green finance investments are making huge strides. Data reveals that the sustainable financial market size which was valued at $ 4.2 trillion in 2022 is forecast to grow at a CAGR of 22.4% between 2023 and 2032. This growth has been fuelled by the rise of impact investing where investors strive for financial returns along with measurable social and environmental impact.
How can Infosys BPM help?
The BPM solutions offered by Infosys streamline and augment banking processes to minimise costs and boost speed. BPM tools and techniques help banks identify sustainable projects accurately in a quick time. These insights enable banking professionals to offer customised green banking products to investors.
BPM solutions provided by Infosys not only facilitate green finance investment but also enhance the efficiency of banking processes thereby aligning banking profitability with environmental responsibility.
