Deloitte's Baumann Urges Financial Sector To Embrace 'Bold Action' For Green Financing Market
The cost of raising bonds or deposits for green initiatives is significant in India as well as in most marketplaces, Baumann said.
Strong leadership is crucial worldwide for the green financing market to gain traction, according to Neal Baumann, the global financial services leader at Deloitte.
In an interview with NDTV Profit, Baumann highlighted the need for senior leaders of banks and insurance companies around the world, including India, "to be adventurous, to be bold, and not be gun-shy" in efforts to transition to green energy.
"In a country like India, in particular, the leadership position that the leaders of these financial institutions take, I think, will really make a difference in how quickly and successfully we go through this carbon footprint transition that we clearly need to undertake," Baumann said.
Developing and scaling the green financing market worldwide is "complicated and very hard," Baumann said, while underscoring the challenges related to behavioral choices. "The reality is we need to be mindful of scope 1 and scope 2, as well as internal scope 3 requirements around greening. But we also have unclear signals in many places about our responsibility to influence our customers' behavior," he added.
Scope 1 comprises direct emissions owned or controlled by a company, whereas scope 2 and 3 are indirect emissions resulting from the activities of the company but occurring from sources not owned or controlled by it.
It will take a long time to experiment and understand the roadmap to reduce carbon emissions and achieve a net-zero target in the absence of a strategy, Baumann said. "Let's be honest... Influencing customer behaviour is hard," he said.
Another key determinant for investors is returns or costs.
Considering the rate of return on green financing products is either at par with or below other products, garnering a wide investor base is tough. The cost of raising bonds or deposits for green initiatives is significant in India as well as in most marketplaces, Baumann said.
"...we obviously need to rebalance our profit and societal obligations, and that's a challenging thing... Like everything else, costs will start to come down the more efficient we become around these things. Costs will start to come down as innovation is sparked to accelerate this transition," Baumann said.
India is a key market to develop innovation in the green financing market, with an immense potential for growth and scale in the financial services industry, Baumann said. India relies majorly on coal for its power requirements, but a collective effort is necessary in the field of innovation to shift away from fossil fuels in the years to come, he added.
"The problem is everybody goes and helps the easy targets. It creates a distortion that's economically not good from a profit perspective... Small businesses in India, for example, make that transition at scale. So, how do we use new technologies as large financial institutions to build them into the offerings that we take to the marketplace to bring a more equal transition pathway into the Indian economy, is the way that I think about it," he said.
While India's senior executives from the financial industry have shown "massive commitment" towards a net-zero transition, the way forward is to be fearless when it comes to innovation and experimentation, according to him.
"I think the costs will sort itself out over time, the finance in the green transition. Again, we just want to encourage people to have that bold innovation mindset and apply it to this opportunity," Baumann said.