On what determinants are based the credit risk management procedures applied to green loans that are granted by commercial banks to finance pro-environmental and/or pro-climate, sustainable, green business ventures?
In recent years, commercial banks have been providing financing in the form of loans for pro-environmental, pro-climate, green investment projects and/or for the development of sustainable economic activities. Such credit offerings by commercial banks are referred to as green loans. Since in recent years the issue of the climate crisis is becoming one of the key topics and influential factors vis-à-vis the future development of civilization, so the scale of pro-environmental and pro-climate awareness of citizens is growing. More and more companies and enterprises are adding to their missions and development strategies the issue of achieving certain sustainable development goals and implementing pro-environmental business ventures. More and more economic entities are complicit with their green business in the issue of carrying out a pro-environmental and pro-climate transformation of the classic growth, brown, linear economy of excess to a sustainable, green, zero-carbon zero-growth and closed-loop economy Commercial banks have been building and improving their credit risk management procedures for many years, in Poland since about the mid-1990s, including procedures for analyzing the creditworthiness of potential borrowers applying for a bank loan and analyzing the credit risk taken by the bank in the situation of granting a loan. However, the growing pro-environmental and pro-climate economic activities, green investments, green businesses, green finance, green credit is a relatively new issue in Poland. Pro-environmental and pro-climate business ventures have been developed in Poland for a short time and are still a small part of the overall economy. Pro-environmental and pro-climate transformation ventures in the energy sector, including primarily the development of renewable and emission-free energy sources, have been developing particularly slowly in Poland over the past few years. The policy of blocking the development of renewable and zero-emission energy sources and the small relative to the possibilities financial subsidies offered to citizens under government public assistance programs have led to a low scale of green energy transformation, a high share of dirty combustion energy in the energy source mix, a low level of energy security and a high scale of negative effects of the energy crisis in the country. As a result, commercial banks in recent years have begun to offer green loans, with the help of which borrowers implement pro-environmental, pro-climate, pro-environmental business ventures within the framework of their chosen new strategy and mission, according to which they conduct green business, pursue sustainable development goals and their business activities are characterized by pro-environmental corporate responsibility. In terms of banking credit risk management procedures, a particularly important issue is the measurement of risk, the analysis of individual impact factors, the probability of their occurrence, the scale of negative impact on the borrower's enterprise, the scale of impact on the finances of the business entity, etc. Considering the implementation of pro-environmental, pro-climate, green investment projects, banks should also take into account new risk categories related to the specifics of sustainability, pro-environmental, etc. of green business ventures and investment projects. When new green technologies and eco-innovations are applied to investment projects, new categories of operational and other risks emerge. Various categories of environmental risks may be taken into account and arising from the ongoing process of global warming and the various negative effects of climate change taking place, as well as increasing levels of environmental pollution, dwindling supplies of clean water, increasingly severe periods of drought, etc. Such new categories of risk in a situation of high levels may cause the bank to change its credit policy and no longer lend to certain types of business ventures. For example, in some countries, commercial banks avoid lending to tourist companies operating in the mountains, hotels, restaurants, companies operating ski lifts and ski slopes due to the falling scale of snowfall in the winter. On the other hand, the emergence of new risk categories can be an important factor in the changes made in the credit risk management process, including those relating to green lending activities.
In view of the above, I address the following question to the esteemed community of researchers and scientists:
On what determinants are based the credit risk management procedures applied to the green loans that are granted by commercial banks to finance pro-environmental and/or pro-climate, sustainable green economic ventures?
What is your opinion on this issue?
Please answer,
I invite everyone to join the discussion,
Thank you very much,
Best regards,
Dariusz Prokopowicz
Dear Darius,
Very good question.
It feels to me, being feeling under hopeless kind of state, looking for any possibilities! Pardon me I see as such!
Banking is essential . Yes, why not to go green!
"the growing pro-environmental and pro-climate economic activities, green investments, green businesses, green finance, green credit is a relatively new issue in Poland. Pro-environmental and pro-climate business ventures have been developed in Poland for a short time and are still a small part of the overall economy. Pro-environmental and pro-climate transformation ventures in the energy sector, including primarily the development of renewable and emission-free energy sources, have been developing particularly slowly in Poland over the past few years. The policy of blocking the development of renewable and zero-emission energy sources and the small relative to the possibilities financial subsidies offered to citizens under government public assistance programs have led to a low scale of green energy transformation, a high share of dirty combustion energy in the energy source mix, a low level of energy security and a high scale of negative effects of the energy crisis in the country. As a result, commercial banks in recent years have begun to offer green loans, with the help of which borrowers implement pro-environmental, pro-climate, pro-environmental business ventures within the framework of their chosen new strategy and mission, according to which they conduct green business, pursue sustainable development goals and their business activities are characterized by pro-environmental corporate responsibility".
I wrote previously suggestion Ruskins theory with Hayeks to be brought in implementing. We certainly needs political parties leading government to be into the scene for safety for justice by political correctness. Globalization has to be sustained.
Corporal Banking cannot be separated per it is the vital (cooking pot) the institute of fiscal brewery, We can say. Then again, to totally rely on corporal Banking system without governing linking, law making, would you expect to trust upon?
Surely not, as we understand the monopoly game system and risky of beaurocratic manipulations.
Loans we talk about, the banks borrow from Landers. Those borrow there are two splits. A) Totally burdened down under debt in failing to ruling up. b) fill up pockets at the cost of labourers deprivation and sweat.
Then again. Why Individuals alone to take on burden of borrowing for environmental and climatic cause ?
Certainly time has come to refer back to traditionalism with the techno advancement, to be bringing the knowledgeable and wise, into policy making, board of director, and observations, for example of scientific and academics to be brought into also.
Regards,
Fatema Miah
Dariusz, this is a very good question.
In lending to commercial enterprises, a bank has to base its decision on a case by case basis and on sound prudential principles. Whenever banks lend on overall concepts or follow current opinions, problems arise. A good example is the 2008 crisis which was largely based on "Real Estate never crashed".
Right now, if a bank decides to enhance its "green" image, the best course of action would be to decrease lending to polluting industrial sectors. This is also the safest route as it is clear that regulations and public perception will make life difficult for these industries in the years ahead and therefore increase the risk of lending to them.
As for proactive lending to the sector, it can be done with companies with an established business but as far as new companies are concerned, it is still risky because of a lack of visibility on the energy of the future. At this stage, financing new green companies is still the domain of venture capital.
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