State Bank of India set to measure carbon risk of its Rs 33 trn loan book

The bank plans to engage a consultant or advisor to measure the carbon footprint in its domestic lending portfolio according to internationally accepted norms

State Bank of India (SBI), the country’s largest lender, has drawn up plans to measure the carbon footprint of its Rs 33 trillion loan portfolio at the account level. The initiative is aimed at mitigating climate risks and providing sustainable financing. 

The lender will begin with an assessment of the carbon impact of its loans to large enterprises. These companies usually have formal policies and commitments for climate risks and sustainability. However, the bank will not just rely on the submissions made by such customers, but will do due diligence regarding steps taken on ground for climate and carbon risk goals, a senior executive of the bank told Business Standard, requesting anonymity. 
 

The ambit of carbon footprint assessment would be expanded in the long term to include retail and micro, small and medium enterprises, the executive added.  
 

Currently, the bank is working on reducing its direct emissions (termed as Scope 1 emissions) such as running vehicles, and indirect emissions (Scope 2 emissions) like thermal-based electricity for heating and cooling. These emissions are produced by the lender or on its behalf. There are also indirect emissions that occur because of the bank’s operations but from sources not owned or controlled by it. These emissions, termed as Scope 3 emissions, have larger implications. Hence, as a lender it wants to undertake steps in a conscious manner to reduce them. Data for Scope 3 emissions may be difficult to obtain, so quantifying such emissions is not as straightforward as it can be for Scope 1 and 2. 
 

“Being the largest lender, the regulator and the government expect us to take lead in these matters for the banking system,” the SBI executive said. The bank plans to engage a consultant or advisor to measure the carbon footprint in its domestic lending portfolio in accordance with the internationally accepted norms. The task will cover providing a comprehensive solution with a timeline, according to documents seeking interest from prospective advisors, seen by Business Standard.  
 

The bank did not respond to the newspaper’s queries on its plans till the time of going to press. Rama Patel, director, CRISIL Ratings, said that in the absence of a standardised framework, banks with large loan portfolios across diverse sectors were finding it difficult to assess and disclose climate risks. 
 

So far, very few banks have provided details about financed emissions, while less than half of all have a board-level environmental, social, and corporate governance (ESG) committee, Patel added. Namita Vikas, founder and managing director, auctusESG, said Indian banks were increasingly aware of ESG/climate risks and their broader impact on business and financial position. Yet, many of them still face challenges in applying it to their internal risk management methodologies and appraisal processes. SBI’s aim is to build and develop templates to ensure that periodic emissions calculations are maintained by the bank, and to create arrangements to track emissions through a dashboard. 
 

The advisor would assist SBI in benchmarking the lending portfolio mix based on high and low emitting sectors, taking into account the portfolios of other local and global peers. While there would be many short and intermittent milestones, the advisor would assist in fleshing out the long-term agenda by identifying top climate priorities for SBI and enumerate the climate strategy blueprint. Developing a road map to achieve net-zero targets and identifying sector-specific interventions would also form part of the advisor’s brief. There would also be interventions for system-wide development of climate risk skill capability in the bank’s staff through climate training workshops.
 

Given the interdisciplinary nature of ESG/climate topics, the push from the top is needed to ensure actions transcend across hierarchies and departments. 
 

Capacity-building needs to start from the top, and specialist service providers should be engaged to provide both training and implementation advice, said Vikas.
 

Ahead of building a road map, the bank formulated a green loan scheme in 2022-23. One such scheme is Surya Shakti Solar Finance to give term loans for solar projects for captive use, with capacities of up to 1 MW. It entails a maximum loan amount of Rs 4 crore and a comfortable repayment option of up to 10 years, according to SBI’s annual report for 2022-23.
 

The bank has signed memorandum of understandings with companies like Tata Power Solar Systems, Waaree Energies, Mahindra Solarize, and Havells India to finance companies that need solar PV systems.

Going Green
 

- To track emissions through a dashboard

- Benchmark lending portfolio with high, low emitting sectors

- Identify top climate priorities and prepare strategy blueprint