This is an archived USAID document retained on this web site as a matter of public record.
Administrator J. Brian Atwood
Indian Banking Association: Seminar on Environmental Risk Management
Mumbai, India, September 29, 1997
U.S. Agency for International Development
I would like to extend a warm welcome to you all. It is a
pleasure to be here. I would also particularly like to thank the
Indian Bankers Association and the Bank of America for working
so closely with us to make this workshop a reality.
Few nations have made more impressive strides in economic
restructuring in the last several years than India. The United
States has been especially pleased to support these important steps
toward liberalizing the Indian economy and unleashing the
productive energies of the Indian people. The new National Stock
Exchange has introduced electronic trading and established a
depository system which will speed clearances and increase
administrative efficiency and transparency. Financial sector
reforms, efforts to get the private sector involved in public
infrastructure, reduced government subsidies, privatization and
putting in place the basic structures for a transparent capital
market -- all represent important breakthroughs that will help to
sustain India's economic growth into the next century.
Reforms in the energy sector and across-the-board efforts to
cut red tape and invigorate private enterprise have triggered a
cycle of growth and economic expansion. If pursued to its
logical conclusion, that cycle will place India among the world's
more dynamic economies in the next century. India is to be
saluted for its progress in market reform. Clearly, more still
needs to be done, but these initial steps have been vital.
Concurrent with these economic reforms, we also find a golden
opportunity to more honestly and scientifically assess the
costs/benefit ratio associated with environmental degradation in
areas such as agriculture, industry and mining.
There has been a great confluence of thought in recent
years. Business people and environmentalists -- two camps who
had long thought themselves diametrically opposed -- now find
themselves with a great deal in common. The clean, efficient and
sound use of resources not only is good for the environment, it is
most often good for the bottom line. By the same token, ignoring
long range environmental impact has the potential to devastate
investors and a profit margin.
Three days ago in New Delhi, I was talking to Indian
industry leaders about the importance of dealing with global
climate change. I noted that one of the U.S. Agency for
International Development's programs has brought together the
Tennessee Valley Authority, the Electric Power Research Institute
and the U.S. Department of Energy with India's National
Thermal Power Corporation in a program to improve the
efficiency of coal fired power plants and reduce pollution.
Already, the National Thermal Power Corporation has decreased
carbon dioxide emissions by 18,000 tons.
If the National Power Corporation was to replicate these
pilot programs nationwide, they would prevent 3 million tons of
carbon dioxide emissions each year. But I pointed out that for
those who thought that such ideas were abstract, they needed to
understand that such energy efficiency would save $21 million in
coal purchases annually for the power corporation. This is but
one example of the increasing agreement that sound
environmental management complements, not hampers, growth.
This seminar on Environmental Risk Management for
Bankers is a timely step in what is really a global movement of
the financial community to properly assess and manage the
environmental risk in capital investment and to set prices that
more accurately reflect the economic costs of environmental
impact. We hope that the financial community will provide
incentives and assistance to the private sector to raise the
environmental quality of investments. Investment opportunities
with greater environmental risks should face higher capital costs,
and investment opportunities with lower environmental risks
should receive lower cost capital.
The trend in quantifying environmental risk in the valuation
of investment opportunities parallels emerging trends in the
private sector to identify and manage environmental risk in
business as a whole. Industries in developed countries are
attempting to manage the cost of significant environmental
regulation and enforcement, as well as to reduce the
environmental risks in their manufacturing and marketing
networks. Managing environmental performance is becoming
increasingly complicated and absolutely critical to maintaining a
competitive advantage in the international market place.
Increasingly, businesses in developing countries are faced
with the need to achieve adequate levels of environmental
performance to maintain access to markets and become qualified
partners in the emerging global manufacturing and marketing
networks. And, as domestic markets become increasingly open to
investment and trade, businesses will need to compete
domestically at international levels by adopting best management
practices, improving product quality and safety, upgrading
production technology and efficiently managing the logistics of
their entire operations. All of these elements of a business are
subject to environmental risk. All are part of the investment
package that bankers must contemplate when asked to finance an
investment opportunity.
Today, India is the recipient of more foreign direct
investment than at any time in its history. Additionally, private
sources of capital represent a larger share of total investment than
ever before. Certain industrial sectors, such as the automobile
component manufacturing sector, are growing at phenomenal
annual rates of 20 percent or more.
India is an emerging strategic player in the global market
place. Already the United States is India's largest trading partner,
and American enterprises are the largest investors in India,
accounting for 40 percent of direct foreign investment in crucial
areas such as electronics manufacturing, software development,
power, consumer products, and telecommunications. The United
States and India do over $8 billion of trade annually, and this
figure will continue to expand.
Nothing is more symbolic of the march towards
"globalization" than the sometimes volatile trends in global
capital investment. The flow of capital in and out of countries
and around the world, can be disruptive and painful, which we
have witnessed during recent corrections in places such as the
Philippines and Thailand. However, this flow of capital has also
been a very positive force in establishing common standards and
practices for markets across the globe.
The global market place increasingly takes policies, laws,
and regulations of one country or trading bloc and extends them
to others. Witness the German laws prohibiting the import of
textiles and garments manufactured with AZO dyes, and the
resulting impact on dye stuff manufacturers and textile processing
houses around the world, including India. World class multi-national companies, such as Eastman Kodak, Motorola, National
Semiconductor, and Ford Motor Company, have established and
implemented worldwide corporate environmental policies in an
attempt facilitate efficient worldwide operations. When these
world class companies make multi-million dollar investments in
developing countries, they need to ensure that the systems in
place are capable of complying with environmental laws and
regulations, not just today, but over the 20 or 30 year lives of
major projects.
These trends tend to raise environmental standards around
the world, rather than contribute to the "race to the bottom" that
some had feared.
Distinguished financial institutions, such as the many
represented here today, have a unique opportunity to play a
strong positive role in this process and indeed may serve as
national environmental leaders. There is a larger role for
bankers, as critical stewards in the process of capital formation,
to establish and implement policies that effect the environmental
quality of future investment. Financial globalization, like other
forms of globalization, brings to Asia its own set of best
practices. The international banking community's awareness of
environmental risk has helped create a sense of environmental
diligence that is increasingly becoming the norm. In essence,
financial rigor has created an environmental ethic. Embracing
this ethic cannot but help to have an increasingly positive
environmental effect on the thousands of billions of rupees of
project financing and infrastructure investment yet to take place in
India.
The benefits should be substantial. The design of India's
rapid industrialization can incorporate the world's best
environmental practices and cleanest technologies. Over time,
banks will be increasingly reluctant to sign off on a credit without
taking a close look at the environmental impact of a project.
We are bound by a healthy dose self-interest, and there is
nothing wrong with that. Environmentalists can call it sustainable
development. Bankers can call it cash flow risk, security
impairment and contingent liability. But at the end of the day,
both banker and environmentalist stand to gain by minimizing
environmental impact.
As this gathering demonstrates, increasingly the banking
leaders of India are racheting up their environmental standards,
be it by more intensive risk analysis, looking for cleaner process
technologies or taking on more engineers to establish internal
environmental units. As the financial institutions of India deepen
environmental due diligence in their lending and project
financing, the bottom lines of the balance sheet and the
environment will both benefit.
The governments of the United States and India have entered
into an agreement entitled the Common Agenda for the
Environment. The work is primarily being pursued in the form
of clean cities, clean energy and clean industry initiatives.
USAID is the lead American agency in implementing the
Common Agenda, and through programs such as the US-Asia
Environmental Partnership, we are pleased to support this effort
and happy to be able to work with the highly regarded India
Banker's Association and Bank of America to share some of the
best practices currently available.
To date, we have held events similar to this one in Thailand,
Indonesia, and the Philippines and plan to continue working with
the financial community on environmental challenges. We
believe that corporate leadership and responsibility is a
tremendously powerful resource that can be even more fully
utilized. We believe your leadership deserves wider recognition
and we want to work with you to promote environmentally sound
economic growth. Thank you and I wish you a successful
workshop.
This is an archived USAID document retained on this web site as a matter of public record.
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Last Updated on: July 18, 2001
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