Abstract-
It is axiomatic that contemporary human development is not without cost. A prominent constituent of this cost is that which is borne by the environment. However, with the burgeoning of several primordial tenets, such as ‘intergenerational equity’ and the ‘precautionary principle’, several institutions, State-run and otherwise, have taken up the torch in combating climate change through efficacious policy. Foremost among these institutions are banks and other primary lending institutions. The relatively novel conception of ‘Green Banking’ posits that banks should not remain aloof from the causes that they finance, and therefore, where a financial undertaking involves potential environmental desecration, banks should exercise ‘environmental due diligence’ before disbursing funds forthwith. This article is thus a probe into this ‘environmental due diligence’, the liability of banks (if any) for not exercising it, and other concomitant aspects of ‘Green Banking’.
Keywords: Green Banking, Green Bonds, Due Diligence, Lender Liability, Statutory Regulation
Introduction
Ogden Nash’s infamous ‘Bankers Are Just Like Everyone Else, Except Richer’ featured in the New Yorker typifies an almost ubiquitous sentiment that prevailed at a certain point in time when banks and the like were anathema to the general public. What Nash, perhaps, could never have envisaged was that the very same penny-pinching banks would one day be at the fore of environmental justice. As a custodian of public wealth, the bank has the inviolable imperative of prudential investment and maximising the benefits that accrue to the general public from this investment.1
In an era when the threat of environmental desecration looms large over the world, the everyman is extremely leery of the big corporations and entities that contribute to this desecration. These corporations generally look to big banks for the considerable capital required to finance their environmentally questionable ambitions. Therefore, a germane question is whether any liability is or should be imputed to a bank if it finances an enterprise that causes actionable damage to the environment.
The classical form of banking entailed a mechanical economic assessment of a proposal, whereby regard was had mainly to the consideration of ‘counterparty risk’ and not to ‘ancillary’ concerns of what the counterparty would do with the finance so obtained and the potential environmental damage that might be occasioned thereby.3 A later rendition saw banks vetting proposals on environmental risks; however, only on a de minimis basis, viz., so long as a loan-seeker obtained the requisite environmental clearance for a proposal, it was eligible for a loan. Howbeit, this was less out of environmental concern than out of self- interest because if a project funded by a bank loan were to be closed for want of environmental compliance, the bank’s money would be frozen and thus rendered infructuous.
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