Most banks fail on policies of climate change, human rights; inaction leaves sector vulnerable to investment risks: Report

New Delhi: Most Indian banks fail on policies of environment and human rights and this inaction leaves the Indian banking sector vulnerable to investment risks arising due to climate emergencies, according to the first edition of Fair Finance Guide India scorecard.

The scorecard, that analysed environmental, social and governance (ESG) policies, disclosures and commitments of various banks in India, noted that Indian banks have policies on financial inclusion and corruption, but are found wanting on social, environmental and human rights issues in their investment policies.

Representational image. Reuters.

Fair Finance Guide India is a group of civil society organisations to create an ecosystem amongst financial sector actors to recognise the ESG risks in their investments.

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The scorecard is an assessment of policy disclosures of a sample of eight Indian banks (public and private) — State Bank of India, Federal Bank, Punjab National Bank, Bank of India, Indian Overseas Bank, IDFC Bank, HDFC Bank and Yes Bank.

The assessment covers ten themes across ESG domain — nature and climate change, labour rights, human rights, gender equality, financial inclusion and arms, transparency and accountability, corruption and tax.

As per the Fair Finance Guide India scorecard, three out of eight Indian banks have scored high on parameters of financial inclusion and corruption.

However, seven out of eight banks scored zero on the themes of climate change and environment. The banks also scored poorly on the themes of labour rights and human rights.

"Indian banks demonstrate their leadership on issues of financial inclusion and tackling corruption. However, their inaction to deal with climate emergency and human rights issues are very worrying," said Namit Agarwal, private sector engagement lead at Oxfam India.

Agarwal further noted that "this inaction leaves the Indian banking sector vulnerable to investment risks arising due to the climate emergency. The sector is also likely to be directly or indirectly linked to human rights violations caused by the companies they finance".

As per the report, banks can have a positive impact on the environment and reduce risks of climate change by screening for companies that are committed to protecting biodiversity, reducing their greenhouse gas emissions and supporting a low carbon economy.

"Banks can choose to support companies that support living wages, integrate labour rights in their supply chains, respect human rights and protect the environment. This way the banking sector can contribute to making India a truly sustainable and inclusive economy," the report said.

Fair Finance India is a civil society coalition led by Oxfam India, Partners in Change, Environics Trust, Cividep, Praxis and Openspace.