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“Standard Chartered Pakistan have no qualms about not working with entities that have an adverse ESG impact”

Published in May-Jun 2022

Arslan Nayeem, Head Client Coverage CCIB, SCB Pakistan, on how sustainable finance can help with Pakistan’s zero-emission goals.
Photo: Arslan Nayeem, Head Client Coverage, CCIB, SCB Pakistan
Photo: Arslan Nayeem, Head Client Coverage, CCIB, SCB Pakistan

ZEENAT CHAUDHARY: Standard Chartered Bank’s global goal is to fund sustainable projects worth $300 billion by 2030 as a means of reaching zero emissions. What are the initiatives covered under this agenda in Pakistan in particular?
ARSLAN NAYEEM: The objective is to target and fund markets where sustainable financing is an inherent need. Although in the larger scheme of things, Pakistan is a low-emission country with a 0.8% contribution to global emissions, it is heavily reliant on hydrocarbon fuels, making it an attractive prospect for sustainable financing initiatives. Our overall policy is to focus on green financing in Pakistan; this will also allow us to marry our global goals with local policy initiatives. Overall, we see ample potential to expand our sustainable finance initiatives in Pakistan. We have capitalised on this potential in the global financial markets by facilitating Pakistan’s first green Eurobond issue for WAPDA (Water and Power Development Authority) to fund a hydropower project. We have also reached out to local entities to support the development of sustainable trade ecosystems. For example, Gul Ahmed are in receipt of financing to import Better Cotton Initiative (BCI) certified cotton; we are also offering financing to other certified, sustainably sourced raw materials like palm oil. Moreover, we are working on providing solar financing solutions through a State Bank of Pakistan (SBP) subsidised facility to multiple corporate clients, including Unilever Pakistan, which are using the financing to convert their factories in Punjab to solar power.

ZC: Which major industries are taking up the sustainable finance solutions SC is offering?
AN: Export-oriented companies, especially textile companies, are ahead of the curve. They have been early adopters of sustainable solutions and Environmental, Social and Corporate Governance (ESG) initiatives because of the demand coming from their buyers and end consumers. These early adopters are already convinced of the benefits of sustainable practices and, ultimately, of the sustainable financing solutions that we offer. Then there are the multinational organisations which have parent companies and global goals in terms of reaching zero emissions. What is really encouraging is that many local corporations are now aggressively pursuing sustainable practices and letting their business models be guided by ESG considerations, ranging from recyclable packaging, PET recycling and reducing their reliance on hydrocarbon fuels. What is perhaps missing is a clearly defined path and this is where we can offer our global expertise in climate transition financing, whereby we focus on sustainable financing not only for project-based funding but to finance the vertical integration of processes as a way of transitioning to sustainable outcomes.

ZC: What are the challenges banks face when it comes to sustainable finance in Pakistan?
AN: The main challenge is the absence of awareness and knowledge of sustainability as an actionable measure. Institutions with global expertise like ourselves need to create more hype around sustainable finance solutions and develop more awareness of what is on offer and eventually create demand from all levels of the ecosystem we operate in.

ZC: How does SC market their energy-related projects?
AN: Client interaction is our greatest awareness tool. This can range from client forums to word of mouth marketing. When we interact with our clients on a daily basis, we are able to explore their business processes and understand their inherent financing needs, allowing us to offer tailor-made sustainable solutions. An important change is the fact that in the past few years, whenever we have initiated a dialogue on sustainable financing solutions, many clients have already considered such solutions.

ZC: Are financial institutions in Pakistan doing enough to encourage consumers to opt for a ‘green lifestyle’? What else should they be doing?
AN: Sustainable finance solutions such as trade finance facilities, renewable energy financing and green bond issues, among other initiatives, are only one aspect of reaching net-zero emissions. A more important aspect is our lending portfolio and at SC, all the lending is subject to prior approval to an ESG filter, derived from the international finance corporations’ (IFCs) benchmark, Environmental and Social Performance Standards, and Corporate Governance Methodology. We determine the potential impact of our lending by evaluating the following: will a significant environmental risk arise as a result of this lending? Is there an inherent social risk created by the project associated with this lending? Is the entity we are lending to exhibiting overall good corporate governance? By running our lending through these filters, we are able to foster an ecosystem where access to finance is made available for the projects that feed into our net-zero goals. This has a direct and inverse impact on reducing access to finance for projects that do not incorporate ESG principles in their business models – SC have no qualms about not working with entities that have an adverse ESG impact associated with their business model.

ZC: How effective has the SBP’s Green Finance Policy been?
AN: An important reason for the increased uptake in sustainable finance solutions has been the SBP’s Green Finance Policy initiatives. Their renewable energy financing facility, which encourages banks to increase their solar financing portfolios by offering concessionary rates to clients, is a popular initiative. It is a win-win situation for clients who benefit from concessionary rates in terms of investing in solar energy – added to which is the fact that the cost of installing solar works out cheaper in the long run, compared to installing hydrocarbon fuelled energy. Furthermore banks benefit from attractive spreads and a high rate of client interest. The success of this first step by the SBP makes a compelling case for offering other sustainable finance facilities as the way forward for the Green Finance Policy.

ZC: Is SC planning further initiatives in sustainable finance?
AN: There is an ongoing dialogue with clients from various sectors about how we can engage with them with respect to innovative and integrated sustainable finance solutions. Currently, we are looking at opportunities such as water conservation financing, large-scale recycling and waste management, as well as more conventional sustainable finance offerings. We also offer collaborative funding opportunities with multilateral investors as a way of identifying innovative, sustainable finance solutions. SC Pakistan have just started ramping up their sustainable finance offerings and we look towards building on our market leadership position as we extend our offerings.

ZC: Are the Alternative Energy Development Board’s policy goals, which envision alternate energy contributing up to 30% of the overall energy mix by 2031, realistic?
AN: It is an admirable goal that we should strive towards as a global contributor towards green financing and one that we have incorporated into our policies. As a bank, SC are committed to playing their part in achieving this goal.

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