Challenges of selling climate change to bankers

Convincing the financial sector about the merits of sustainable finance in Bangladesh presents a huge challenge -- showing the financial institutions (FI) the benefits of such financing. The key is to link climate change -- a new concept to some -- with the activities of the financial sector. Not an easy task!
First and foremost, the main question that pop's into a banker's mind is “why climate change?” If an FI launches a product which finances energy efficiency (EE) or renewable energy (RE) will there be enough profit margin? Is the market big enough? Surely it wouldn't make sense to design and launch a product which might not fetch enough transactions. Lastly, does the FI have capable people enough to understand, design and launch a product customised for green financing? Does the frontline staff have the capacity to have meaningful discussions with the clients about, say, carbon financing?
If you speak to a biogas producer, he would say it is difficult to get financing from banks for this sort of project. On the other hand, banks that have already launched green financing initiatives complain that there is a lack of projects, and it is very difficult to find clients that are working in this field. Surely there must be a gap somewhere.
In my years of experience of working with FIs on environmental issues, I feel that the challenge of rolling out green financing products lies in motivation of top management, skill and training of front line staff and lack of credible market information. There are other market barriers like lack of service providers and consultants in this field, lack of clear cut policy and lack of best practices, which makes sustainable finance a difficult area for FIs.
For financing green projects, be it biogas or ETP or solar energy or energy efficiency -- anything that reduces carbon emission -- the first precondition for rolling it out is top management buy in. If there is no vision among the top management, if there is lack of understanding of how this market will only be growing over the years, then it will never happen.
When I first started talking to bankers about climate change there was strong skepticism about it, and they were very vocal about it. Now that media has made “Climate Change” a household phrase and people have become more familiar with it, the top management of the banks are not so vocal about their skepticism with regards to climate change.
One lesson I have learnt is never to start a discussion with bankers by saying: “Banks also have a responsibility to care for the environment of the country.” Bankers' concern is identifying profitable sectors where they can invest and recover their money with profit. So, the best way is to discuss the triple bottom line.
Even after the top management buy in, the middle management and front line staff are the key to implementation. Their understanding of the market, climate change and relationship with clients, along with sustained efforts, can make a sustainable finance project successful. When a banker with finance background joins an FI and banks don't cover sustainable finance in their credit courses, where will the understanding about green financing come from?
I remember that in a seminar on climate change and sustainable finance, after we discussed how businesses investing in EE/RE have the potential for selling carbon credits in the international market and the huge opportunity for bankers to tap this market, a senior banker asked: “What do people do with all the CO2 they buy?”
This was a major eye opener for me. We will need to customise the training programmes according to the needs of the banking professionals. Standardised training programmes will not be useful. Bankers will need to understand the theoretical basics of climate change; market opportunities; the role of the financial sector with regards to sustainable finance; the country-specific context and the market they operate in; how to deal with green financing; identifying projects; and appraising and investing, which will have to be complemented by understanding of the FI's own credit procedures which have to be in line with central bank requirements.
The last big challenge of selling climate change to bankers is answering questions like how big the market is in monetary terms, which are the potential sectors, where they are located, how we can tap into this market segment, etc etc. Arguments have to be backed by solid figures and real life examples. There are many global reports which identify potential markets in terms of sectors. In Bangladesh, certain development agencies are working on Bangladesh-specific sector reports which can help banks make an informed decision prior to designing a green product.
Global sustainability is not an easy goal to achieve, but we have to start somewhere. And every small effort has the potential to make a huge impact worldwide. We look forward to a time when climate change will be fully mainstreamed across the financial sector.

The writer is a Sustainable Energy Finance Specialist.
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