Recently, the Reserve Bank of India (RBI) came up with a regulatory framework for banks to accept green deposits from customers.
What are Green deposits?
Green deposits, although similar to regular deposits accepted by banks, have a notable distinction.
Banks commit to allocating the funds obtained from green deposits specifically for environmentally friendly initiatives.
This could involve utilizing the funds to finance renewable energy projects aimed at combatting climate change.
Green deposits represent a single offering among various financial products, including green bonds, designed to enable investors to contribute funds to promote ecological sustainability.
What does the RBI’s regulatory framework say?
Bank’s own rules: Banks need 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.
Major sectors: 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.
Banks will be barred from investing green deposits in business projects involving fossil fuels, nuclear power, tobacco, etc.
Prevention of greenwashing: The new rules prevent greenwashing.
Greenwashing refers to making misleading claims about the positive environmental impact of an activity.