The Hindu Business Line : Banks told to shoulder ‘social responsibility’

In a circular issued today, the central bank has asked banks to put in place a suitable and appropriate plan of action towards helping the cause of ‘sustainable development’, with the approval of their boards.

Spurred on by the worldwide momentum in sustainable development and the initiative being taken on various fronts by different organisations, including all major banks globally, Indian banks have been encouraged to actively look at corporate social responsibility, sustainable development and non-financial reporting.

This is of particular significance since there are companies in India, which make non-financial disclosures. Among banks in India, ABN Amro Bank was the first to put out a ‘sustainability report’ recently. It includes key indicators on the bank and its subsidiaries’ environmental (like paper, water and electricity usage) and social governance performance. Other companies, which issue sustainability reports, include ITC, Tata Tea, Dr Reddy’s and Reliance.

Sustainable development essentially refers to the process of maintenance of the quality of environmental and social systems in the pursuit of economic development. Non-financial reporting is basically a system of reporting by organisations on their activities, which includes environmental, social and economic accounting.

IFC’s principles

The RBI has asked banks to refer to the International Finance Corporation’s principles on project finance (the Equator Principles) and carbon trading. The Equator principles are a voluntary set of guidelines for managing environmental and social issues in project finance lending.

“It will be advisable for the banks/financial institutions to keep themselves abreast of the developments on an on-going basis and dovetail/modify their strategies/plans in the light of such developments. The progress made there under could be placed in the public domain along with the annual accounts of banks,” said the circular.

Crucial role

The RBI explains that the contribution of financial institutions, including banks to sustainable development is paramount, considering the crucial role they play in financing the economic and developmental activities of the world. “In this context, the urgency for banks to act as responsible corporate citizens in the society, especially in a developing country like ours, need be hardly overemphasised. Their activities should reflect their concern for human rights and environment,” the central bank said.

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