Green Banking: RBI Guideline For Conducting Social Impact Assessment Audit

 


.                                                                      * BIRENDRA  K  JHA 

Now entire banking industries in India with effect from 1st June  2023 are binded by the Reserve Bank of India guideline for mandatory audit by the Social Auditor for conducting the "Social Impact Assessment Audit" under para C clause 5 (iii) and para E, for raising "Green Capital".The RBI Guideline "Framework for Acceptance of Green Deposits" gives under Para Clause 2 standard "definitions". This "definitions" say further in the guideline: 

"All other expressions unless defined herein shall have the same meaning as have been assigned to them under  any statutory modification or re-enactment thereto or as used in commercial parlance, as the case may be". 

The "Social Impact Assessment" and "Social Impact Assessor" are not defined in the RBI Guideline Para Clause 2, the RBI Guideline connects automatically with the "standard definitions" provided for the term "Social Impact Assessment" and "Social Impact Assessor" as defined under the SEBI Law in the SEBI (LODR) 2015 and the SEBI (Issue of Capital and Disclosure Requirements) 2018, with latest amendments in 2023.  

Thus, now banks which are also listed in SEBI  shall have to mandatorily follow SEBI as well as RBI Guideline for conducting Social Impact Assessment Audit. The SEBI needs this Social Audit, performed by Qualified Social Auditor, who is registered Member of the Institute of Social Auditors of India. Hence, entire banks which are now listed in the SEBI, will have to comply now the SEBI as well as  the RBI guideline for conducting the independent third party  Social Impact Assessment Audit. For example the Bank of Baroda is listed in SEBI. This bank is binded under the SEBI as well as the RBI Guideline. 

The climate change has been recognized as one of the most critical challenges faced by the global society and economy in the 21st century. The banking  sector has important  role in mobilizing resources and their allocation thereof in green activities/projects. The same agenda is also of priority in the SEBI. The SEBI not only consider the Environment part but in totality it looks also the Social and Governance part in the BRSR Report.   

In the RBI framework Third-Party Social Impact Assessment Audit is an important part, which shall be done on an annual basis. Banks, with the assistance of external firm, shall annually audit the Social Impact Assessment Audit, to know the impact associated with the funds lent for or invested in green finance activities/projects. In case in the Social Impact Assessment Audit Report, if the auditor points out, that the bank is unable to quantify the impact of their lending/investment, then  the auditor should advise the bank to  disclose, at the minimum, the reasons, the difficulties encountered, and the time-bound future plans to address the same.

Considering the fact that Social Impact Assessment Audit is an evolving area. The RBI has made it compulsory for every banks involved in this area   to mandatorily conduct Social Impact Assessment Audit  from the financial year 2024-25 onwards. The bank  shall place the report of the Third-Party Audit Report of the Social Impact Assessment Report on their website. 

If banks violate the guideline and do not conduct third party Social Audit, then it shall be deemed as clear violation of the RBI Guideline as well as the SEBI Guideline. The RBI and the SEBI both are empowered to impose  punishment to the banks.  

( Birendra K Jha,  is a Pan India Practitioner on the "Social Impact Assessment Audit" & "ESG Audit".  He is a Qualified & Certified  Social Auditor from the ISAI (ICAI). He is Director of HR Lab, a Social  Audit firm.  He is based at Delhi-NCR. He overlooked at senior position as General Manager and Deputy General Manager in the previous South Korean MNC Company in India handling human resource and social audit of ESG practices for more than a decade. He may be approached at: birendrajha03@yahoo.com )

 

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