🌍 What is ESG?
ESG stands for Environmental, Social, and Governance – a framework to measure how companies/banks impact the world.
| Environmental 🌳 | Social ❤️ | Governance 📜 |
|---|---|---|
| Reduce carbon footprint, waste, and energy use. | Promote financial inclusion, healthcare, and fair lending. | Ethical practices, diverse leadership, and compliance. |
| Example: Solar energy projects. | Example: Loans for rural schools. | Example: Transparent board decisions. |
🏦 How Banks Use ESG
5 Key Practices for Banks:
- Create ESG Policies 📄
Align with global rules like the UN Principles for Responsible Banking. - Assess Risks 🔍
Check climate risks (e.g., floods) and social risks (e.g., unfair lending). - Green Loans 💸
Offer lower interest rates for eco-friendly projects (e.g., solar farms). - Report Progress 📊
Use standards like GRI or TCFD (like a sustainability report card). - Engage Stakeholders 🤝
Partner with communities for tree planting or education programs.
📉 ESG in Lending: How It Works
- Step 1: Banks check if a borrower harms the environment (e.g., pollution).
- Step 2: Reward good ESG behavior → Lower interest rates for eco-friendly businesses.
- Step 3: Monitor borrowers (e.g., track carbon emissions yearly).
🌟 Top ESG Reporting Standards
| Standard | Focus | Emoji |
|---|---|---|
| GRI | Full ESG report (environment, social, governance) | 📋 |
| SASB | Industry-specific metrics (e.g., banking vs. farming) | 🏭 |
| TCFD | Climate risks (e.g., rising sea levels) | 🌡️ |
| CDP | Carbon emissions tracking | ☁️ |
⏳ ESG Evolution Timeline
- 1960s-1990s: “Save the planet!” – Early eco/social movements.
- 2000s: UN Global Compact – Companies pledge ethics & sustainability.
- 2010s: TCFD launched – Climate risks go mainstream.
- 2020s: ESG is now mandatory for many companies.
🇮🇳 India’s ESG Commitments
- Paris Agreement: Cut carbon emissions by 33-35% (vs. GDP) by 2030.
- 40% Electricity from renewables (solar/wind) by 2030.
- National Climate Plan: Boost energy efficiency & green tech.
❓ FAQs for Exams/Interviews
Q: What’s the difference between ESG and CSR?
A: CSR (Corporate Social Responsibility) is a part of ESG’s “Social” pillar.
Q: How do banks benefit from ESG?
A: Lower risks, better reputation, and attracting eco-conscious investors.
Q: What is TCFD?
A: A framework to report climate risks (e.g., floods damaging bank branches).
📌 Key Terms to Remember
- TCFD: Climate risk reporting.
- GRI: Full sustainability reporting.
- Bancassurance: Banks selling insurance.
- UN PRB: Principles for Responsible Banking.
📝 Quick Quiz
Which of the following is NOT an example of an environmentally sustainable banking practice?
a) Promoting renewable energy initiatives
b) Supporting green buildings
c) Offering loans without assessing environmental impact
d) Reducing energy consumption
Answer: c
What is the primary focus of “sustainable financing” in banking?
a) Increasing profits
b) Reducing employee benefits
c) Financing environmentally friendly projects
d) Eliminating risk assessments
Answer: c
Financial inclusion by banks can be achieved by:
a) Restricting access to loans for rural areas
b) Providing affordable housing loans
c) Reducing technology adoption in banking
d) Eliminating community outreach programs
Answer: b
Supporting education, healthcare, and affordable housing by banks falls under which ESG factor?
a) Environmental
b) Social
c) Governance
d) Financial
Answer: b
Good governance in ESG practices requires:
a) Overlooking risk management practices
b) Transparent and ethical operations
c) Prioritizing profits over compliance
d) Avoiding board diversity
Answer: b
What is the first step for a bank to integrate ESG into its lending practices?
a) Establish an ESG Lending Policy
b) Ignore ESG considerations
c) Reduce training for loan officers
d) Eliminate stakeholder engagement
Answer: a
ESG risk assessments for borrowers should include:
a) Ignoring their environmental impact
b) Evaluating labor standards and ethical conduct
c) Assessing only financial risks
d) Focusing solely on short-term gains
Answer: b) Evaluating labor standards and ethical conduct
Which ESG reporting framework emphasizes industry-specific standards?
a) GRI
b) SASB
c) TCFD
d) CDP
Answer: b) SASB
The TCFD framework is primarily focused on:
a) Social risks
b) Carbon neutrality
c) Climate-related financial risks
d) Employee benefits
Answer: c) Climate-related financial risks
What is India’s target for electricity generation capacity from non-fossil fuels by 2030?
a) 25%
b) 40%
c) 50%
d) 70%
Answer: b) 40%
The National Action Plan on Climate Change (NAPCC) includes initiatives for:
a) Fossil fuel investments
b) Sustainable agriculture
c) Reducing community outreach programs
d) Ignoring renewable energy adoption
Answer: b) Sustainable agriculture
In which decade did ESG integration become mainstream in investments?
a) 1960s
b) 1980s
c) 2010s
d) 2000s
Answer: c) 2010
The Principles for Responsible Investment (PRI) were introduced by:
a) The Paris Agreement
b) The United Nations
c) The Financial Stability Board
d) The Carbon Disclosure Project
Answer: b) The United Nations