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Draft: 12 November 2010

HOW CAN THE POVERTY-CLIMATE AGENDA BE A NEW

INVESTMENT AREA FOR PRIVATE BANKS?
By: Malini Thadani, HSBC India
Background Paper for Conference on the " The Environments of the Poor”, 24-26 Nov 2010,
New Delhi 1

INTRODUCTION
The Millenium Development Goals clearly establish a link between poverty alleviation
and sustainable development stating that the welfare of people depends among others on the
capacity to increase their income through improved access to resources and production factors.
Livelihoods of poor rural populations greatly depend on the natural resources they can access
to from their immediate environment. Degradation of these resources leading to irreversible
situations is often associated with extreme poverty levels. These negative environmental effects
have in turn a disproportionate negative impact on the poor.
Rising temperatures, changing weather patterns, falling land productivity, erratic rainfall, are
creating pressures of survival on communities at the bottom of the pyramid. Increasing
globalization and local economic growth will, in addition, create more stress on scarce natural
resources, in the process creating a skewed equation for communities whose livelihoods are
resource-dependent.
Sustainable reduction of global poverty and combating and adapting to climate change are
among the most important global challenges of the 21st century. A report titled Too close for
comfort, issued by the HSBC Climate Centre of Excellence in December 2009, maps the
vulnerability of G-20 member states to climate change, and presents a case study of India,
some of the findings of which are as follows:

• India is experiencing a huge loss to life as well as assets due to climate-related disasters.
Based on the disaster loss estimates for the last two decades (1988-2008), India loses
USD1.76bn annually due to climate change-related disasters.
• The report suggests that under the climate change scenario, food grain production in India
could fall significantly by about 18m tonnes annually. The biggest production fall is
estimated to be in rice, followed by wheat and coarse grains. Per capita food grain
production in India is currently estimated at 0.21 tonnes annually, which is estimated to
decrease by 21-25% by 2020.
• According to the report, per capita water availability is projected to decrease by 15%,
bringing increased water stress by 2025.
• The report estimates that climate change-related disabilities in the form of flood disabilities,
malnutrition and diarrhea caused a loss of USD2.3bn in 2000, which is expected to rise to
USD3.9bn in 2020.

1
For more information, see the conference website: http://www.adb.org/Documents/Events/2010/Environments-
Poor/default.asp
In developing countries as a whole (especially China and India) as many as 200 million people,
including some from urban areas, were affected each year of the 1990s, on average, by climate-
related disasters (floods, droughts, extreme winds, etc.). The poor tend to suffer the most as
they are least able to take defensive measures against adverse environmental trends. Climate
variability is being increasingly recognised as a significant impediment to reducing poverty.
This suggests that when we think about eradicating poverty, we should think about
creating economic opportunity that is sustainable over the long term. Economic
opportunity is not a solution in itself, rather, it is a context in which individuals can create their
own solutions, and manage their assets in ways that generate sustainable incomes and options.
Policies and programmes need to build the resilience of communities through interventions in
water, energy, livelihoods and natural resources management.
The role of financial institutions and banks is specifically important in developing and
implementing new low-carbon business and innovation models and technologies
necessary for the seminal changes which lie ahead. While public sector banks have an
extensive reach and presence across the country, which enables them to create much larger
impact through their lending, investments and social programmes, private and multinational
banks are better positioned to use innovation, research and capacity building to create climate-
resilient communities and inclusive sustainable growth.
As a foreign bank in India, HSBC realizes that without educated, entrepreneurial individuals
operating in thriving sustainable societies, our business would not have a future. For HSBC, this
means there is a clear case for investing in financial inclusion and protecting the environment
which we believe are essential building blocks for innovation and enterprise.
Using examples from HSBC’s sustainability practice and strategy, this paper focuses on three
key areas:
ƒ Capacity building and innovation for the climate-poverty agenda

ƒ Bottom of the pyramid approaches for inclusive sustainable growth

ƒ Surveying risk and building opportunity: The role of research in understanding the
financial impacts of energy, water and climate risks
HSBC aims to move towards a climate-resilient and low-carbon economy by helping develop
and/or support models that can be sustainable, create jobs, reduce poverty, lower carbon
emissions, and prepare for the worst effects of climate change.

CAPACITY BUILDING AND INNOVATION FOR THE CLIMATE-POVERTY AGENDA

Banks are implementing strategies that enhance the economic opportunity impact
through inclusive business models and strategies. These include developing human capital,
building institutional capacity and shaping public policy. In some cases, these strategies are
funded through business development and operating budgets, but in many situations they are
supported by corporate philanthropy and social investment.
In India, examples of how HSBC has adopted this approach in the environment and climate
change space have been given below:
Creating inclusive business models in the energy sector
Energy efficiency assumes significance for India in the current environment of
shortages, and concerns over climate change. Increased energy efficiency enhances energy
security, in the process leading to sustainable economic growth. Between 2003 and 2016,
India’s energy demand is expected to climb by 60 percent because of accelerated
industrialization, urbanization, and population growth. Meeting this greater demand only by
increasing supply will lead to adverse environmental, economic and security impacts.

The Indian government recognizes conservation as an essential part of its national energy
strategy. The potential for energy savings is enormous: an estimated 183.5 billion kWh per year,
based on reports prepared by the Asian Development Bank and the Indian Bureau of Energy
Efficiency (BEE).

Growing concerns for more sustainable development and poverty alleviation have also
focused attention on the potential role of renewable energies in the sector. The World
Energy Council argues that the use of traditional energy sources by the poor (mainly
combustion of wood fuels) combined with using inefficient technologies and appliances results
in wastage of wood resources. In addition, the use of crop residue and animal waste as fuels
can be to the detriment of soil quality and agricultural and livestock productivity, as these
resources often have alternative applications as soil conditioners, organic fertilisers and
livestock fodder. Furthermore, adverse health effects of the smoke from the burning of
traditional fuels in inefficient appliances are significant, especially among women and children.
Finally, the significant time spent by women and children in collecting and using traditional fuels
could be spent on more productive tasks or education.

One way to address the need for renewable energy of the poor is to offer microloans to
suppliers or buyers of renewable energy sources. MFIs can lend directly to poor households so
they can purchase renewable sources of energy (biogas stoves, solar cookers, solar
power/energy panels, efficient cooking stoves) for cooking, lighting etc. Alternatively, they can
finance dealers/suppliers of renewable energy sources to expand their business and reach the
poor.

An example in this space is that of the HSBC- Spandana partnership in India. A special grant
from HSBC has enabled Spandana, a large MFI, to receive technical assistance from a US-
based support agency to develop and roll out a clean energy product portfolio (beginning with
solar torches) that will suit the needs of its clients. The support agency will in turn link the MFI's
microfinance clients to the global carbon credits markets and enable them to trade aggregated
credits earned by adopting clean energy. As a direct outcome, rural communities are receiving
the opportunity to meet their energy needs by gaining access to clean energy sources. This is a
first of its kind initiative that connects rural markets to the carbon credit market.

In order to enable social enterprise in the energy sector, HSBC has also partnered with Husk
Power Systems (HPS) to provide initial grant for setting up the Rural Power University. HPS
employs local people, uses carbon-neutral technology, bamboo poles and sells electricity that
saves its consumers money. The grant will provide the operational, training and the
infrastructure support to implement the HPS Franchise Model, where local entrepreneurs can
set-up HPS plants. HPS was founded in 2007 and since then it has electrified over 90 villages /
hamlets (over 100,000 people) using Rice Husk powered Gasifier - Generator Systems in 5
districts of Bihar.
However, it is essential that renewable energy technologies expand the choice of energy for
poor people. By focusing on renewables alone we are in danger of restricting the already very
limited choice of poor people. If renewables are promoted to the exclusion or detriment of
expanding other options for the poor, then we are limiting development options for the poorest
people on earth (ITDG Powering Poverty reduction 2004)

Building SME capacity on low carbon technologies

Financial institutions assume the risk of companies and plants, and can exercise
considerable influence over investment and management decisions which could be
brought into play for the benefit of the environment. An area where financial institutions,
particularly the commercial banking sector, have great potential in impacting economic
opportunity is in its relationship with Small and Medium sized Enterprises (SMEs). More than
half of the workforce in the country is part of the unorganised sector that is employed with
SMEs. SMEs are also the backbone of the Indian economy, accounting for a large part of the
country’s GDP. However, this sector demonstrates limited engagement with climate change
issues for a number of reasons: differing priorities, working capital needs for growing business
and revenues, staying competitive, among others.
For SMEs, there is a need to invest in low carbon infrastructure which will lead to micro and
macro level benefits such as improved health of staff, and the opening up of the sector and
opportunities for credit intervention. Simultaneously, there is a need to build risk appetite and
knowledge capacities for the financial sector to work with clean technology, renewables and
emerging environmental issues around low carbon. Public-private partnerships play an
important role in this regard. Under the aegis of the Earth Sciences Forum, a public-private
partnership between HSBC and the Ministry of Science and Technology and the Ministry of
Earth Sciences, Government of India, clean technology workshops for SMEs have been held to
create industry awareness and promote adoption of clean technology amongst SMEs in India.
The Living Business Awards supported by HSBC in association with TERI is another initiative
that recognises SME efforts in sustainability. The programme is aimed at enabling SMEs to
participate in the wider movement for sustainable business growth by building their capacities in
corporate social responsibility and sustainability, and the awards is a means to recognise and
share best practices in sustainable business practices adopted by this sector.
These are, however, small beginnings, and innovation in renewable energy and clean
technology is required to help reduce the dependence on carbon intensive fuels of all sections
of society. Industry will indeed have a large role to play in helping communities cope with
climate change and an equitable resource management regime will help correct the imbalance,
and allow collaborations in microfinance and renewable energy, for instance, to serve the needs
of the poor.

Developing human capital through training

HSBC seeks to address climate change through the HSBC Climate Partnership, a 5-year global
programme that supports some of the world’s leading charities to tackle the causes and impacts
of climate change. In India, the bank has established the India Regional Climate Centre at Sirsi
(one of the global biodiversity hotspots of the world) in association with Earthwatch and the
Indian Institute of Sciences, where select employees undergo training to become Climate
Champions. This is a unique training course on climate change, sustainability and leadership
that combines outdoor forestry research with facilitated learning sessions to develop the
capacity of employees to lead change at HSBC. On return, Climate Champions are expected to
design and implement a climate change related business project. Previous Climate Champions
have been instrumental in reducing carbon emissions in their office, developing new green
products for customers and inspiring others to change their behaviour.

BOTTOM OF THE PYRAMID APPROACHES FOR INCLUSIVE SUSTAINABLE GROWTH

Banks have an important role to play in improving access to financial services for the poor. The
poor, on the other hand, require sustainable livelihoods to effectively utilise these services. The
recognition of these inter-linkages is crucial to expand economic opportunity for the poor in a
sustainable manner. This is where banks have potential to create what Michael Porter and Mark
Kramer have called “shared value”, or value for both business and society.

Water and land conservation are key environmental concerns of today. Inclusive sustainable
growth requires innovative models that link livelihoods to these concerns, and have the
community as central to the growth and development process. Examples of HSBC’s initiatives in
two areas- water and land conservation- have been used to demonstrate the role of banks in
creating a pro-poor green climate in India.

Linking livelihoods to water and land conservation

Population growth, urbanisation and changes in consumption patterns will transform how we will
produce and consume in the decades to come. We will have to manage and adapt to these new
situations, and building more resilient water management systems will be key to doing so.
India’s huge and growing population is putting a severe strain on all of the country’s natural
resources. Most water sources are contaminated by sewage and agricultural runoff. India has
made progress in the supply of safe water to its people, but gross disparity in coverage exists
across the country. Although access to drinking water has improved, the World Bank estimates
that a startling 21% of communicable diseases in India are related to the use of unsafe water.
One way of addressing this problem is by implementing good management practices and
developing and putting in place ‘no regret’ measures that help farmers cope with changes in the
climate. The key here is to strengthen the adaptive capacity of our entire land and water
management systems, including both natural and man-made production systems. Solutions to
our water challenges would also have to be people centric. While it is our negligence that can
create a crisis, only a change in the way we act can alleviate much of the problems related to
water.

In Vittalwadi, a tribal village in one of the most backward districts in Maharashtra, HSBC is
working with WOTR (Watershed Organisation Trust), a not-for-profit organisation, to address
the issues of land degradation and water scarcity. Implemented in resource-fragile and rain-fed
areas, the programme equips communities to implement practices for watershed development,
natural resource management, afforestation and water conservation. Here, Banjaras (largely
belonging to the Scheduled caste, scheduled and nomadic tribes) are being supported to
harvest rain in check dams and appropriately access groundwater through drainage line
treatment, thus increasing irrigation potential. By promoting the adoption of new and improved
agricultural practices and technologies, and formation of women Self Help Groups (SHGs) for
savings, credit and social development activities, the programme is also enhancing agricultural
production and creating livelihood and social development platforms. A unique feature of this
programme is the installation of an automated weather and hydrological data collection station
at the village to monitor data and help develop models based on cropping patterns and land and
water use patterns.
In Gujarat, HSBC is supporting the ANaRDe Foundation (ACIL - Navasarjan Rural Development
Foundation) on a project that will provide clean drinking water to the village of Vankaneda. The
project entails the installation of a Reverse Osmosis water purification plant, which will
effectively purify underground water by removing bacteria and dissolved salts, improve the
health of the villagers by preventing water-borne diseases, and reduce the amount of time spent
by the villagers to collect potable water (in the area, women on an average travel approximately
2-3 kms daily to procure water for their needs), allowing them more time for productive activities.
The maintenance of the water-treatment plant will be undertaken by otherwise unemployed
youth and the project will be managed by a women’s self-help group, while being overseen by
the ANaRDe Foundation. This innovative ownership and management structure will ensure
longevity and sustainability of the project. The plant will provide water at Rs.2 per 10 litres,
which amounts to Rs.60 per family per month.
Yet another example is a community-led effort to improve water security of poor communities in
the Marwar region of Rajasthan (a densely populated region where climatic extremes such as
droughts are a regular phenomenon). Here, HSBC has partnered with the Jal Bhagirathi
Foundation on a project that implements traditional water harvesting techniques and builds
community institutions for their management.

Changing weather patterns will affect crop patterns, and farmers will need to diversify crops and
adopt sustainable agricultural practices to mitigate the consequences of climate change and
sustain their livelihoods. With N M Sadguru Water and Development Foundation in Dahod,
Gujarat, HSBC is supporting an innovative model that links livelihoods and climate change by
bringing about dual output - carbon sequestration and income generation for the rural poor.
Communities have directly benefited through projects in agro-forestry, floriculture, rain-water
harvesting and vermi-composting. The agro-forestry and fruit orchards have started producing a
steady annual income for farmers, estimated to increase every year, and simultaneously help
sequester carbon in the region. In a span of one year, 708 villagers were trained on sustainable
agro-forestry practices and natural resources management; 1,61,870 seedlings were planted,
20 nurseries, 100 vermi compost units, 614 fruit vegetable and seasonal flower cultivation plots
were planted and developed; and farmers’ income from seasonal flower cultivation plots
increased by 4-6 times from .1 ha land.

By supporting community- centric models that enable diversification in crop management

systems, adoption of sustainable agro- forestry practices, and better management of water
systems, the bank links natural resource management with the creation of sustainable livelihood
opportunities and reduction in health costs, thus creating an inclusive model for the expansion
of economic and social opportunity for the poor. The Sadguru association is also a good
example of public- private partnership at the grassroots level, with benefits of expanded impact
and improvement in the efficiency of service delivery and management of natural resources.
Surveying risk and building opportunity

Certain economic sectors may become more or less profitable as the environment changes due
to global warming, or as certain economic activities are increasingly regulated to mitigate their
climatic impacts. This has wide reaching consequences for communities and people employed
in such climate-sensitive sectors, especially the poor. The role of research is critical in
understanding the financial impacts of such risks, especially in the sectors of energy, and water,
much in advance, so that sectors can create sustainable solutions while adapting to a changing
climate.

The HSBC Climate Change Centre of Excellence, established in 2007, is one such example of a
research centre that stimulates greater understanding of the scientific, regulatory and economic
dimensions of climate change. With a team of analysts based primarily in Bangalore, the Centre
has pioneered a new macro research agenda on climate change that has become integrated
with other key outputs from HSBC Global Research. The resulting Climate Service has been
quickly recognised by our investing clients as a leading source of expertise. In addition, the
Centre has supported other parts of the Group to understand the physical and policy risks of
climate change, as well as the opportunities flowing from the shift to a low carbon economy.
Early this year, the Centre, in a partnership with World Resources Institute (WRI) – an
environmental think tank, jointly published three reports that analysed the impact of climate
change on food and beverages (F&B), power, and real estate sectors in Southeast Asia. The
reports also carried case studies on Indian companies.

SUMMARY

Today, climate change is a business reality and represents a clear and unprecedented
challenge for human society. However, it also is our greatest opportunity. While private banks
can focus on how best they can address environmental needs of their customers in the area of
clean technology and energy efficiency, in communities, they can help build climate adaptation
and resilience through water harvesting and community afforestation projects. At the policy
level, public-private partnerships and collaborations will help drive the clean technology and low-
carbon agenda. As banks continue to deepen their engagement with environmental issues,
employees will form an important mainstay of active learners and volunteers who, through their
contribution and diligence in community efforts, ensure that they are able to ‘walk the talk’. The
microfinance business can also be explored as an avenue to engage rural communities in
adapting to renewable energy, and social enterprises will ensure that capacity building support
creates investment grade environmental entrepreneurs that serve the bottom of the pyramid.

I would like to conclude by saying that the role of institutions like ADB in facilitating platforms for
sharing of inclusive business model innovations, and in providing technical assistance, grants,
advice and knowledge towards the aim of reducing poverty and improving the quality of life of
people is critical. I would like to extend my appreciation to ADB for giving me an opportunity to
share HSBC’s experience in addressing the poverty-climate agenda, and I hope it has given you
an indicator to the role private and multinational banks can play in this space. Thank you.

LITERATURE/ REFERENCES
Too close for comfort- The HSBC Climate Vulnerability Assessment – mapping risks for the G-
20 in 2020, HSBC Global Research, 2009

The Role Of The Private Sector In Expanding Economic Opportunity Through Collaborative
Action- A Leadership Dialogue, Harvard University, 2007

Urban Infrastructure for Poverty Reduction and Environmental Sustainability: The Role of the
Bilateral Development Banks, Issue Paper 2006

Improving rural poor access to renewable energy through secondary crops biomass production
Document prepared for the Biomass-Asia Workshop Panel Session on Future Collaboration for
Asian Biomass Utilization, 2005

www.centerforfinancialinclusion.org

www.microfinancehub.com