Banking on a Green Sri Lanka: HNB calls for collective industry-wide action on sustainability

The evolution of human civilisation is rapidly approaching an extremely crucial juncture beyond which any further progress will only be achieved through drastic and sustained action in order to reorient our economies, marketplaces, cities and homes towards a more sustainable path. While these challenges can appear multifarious and monolithic at first, breakthroughs in technology, and more crucially, in the implementation of major green initiatives across the globe are beginning to show real promise in their potential to create lasting solutions and open up a new trajectory for humankind. 

Jonathan Alles MD  CEO HNB

At the root of many of our current difficulties are the interlinked problems of energy, and sustainability. How do we ensure that growth and development takes place in a manner that ensures that future generations will be able to enjoy a similar or better quality of life to what we ourselves have enjoyed? While debate does continue at the far fringes of the scientific community and – quite unfortunately – in the halls of power of certain nations, the truth of climate change is already upon us. 

The challenges ahead

In 2016, global temperature records were set for the third consecutive year and we are already well past the halfway mark of carbon emissions necessary to trigger the 2-degree temperature limit established by the Paris Climate Agreement. As a small island nation dotted with vibrant coastal cities, the long term implications of climate change and rising sea levels are too serious to ignore while even today, we already feel the deadly impacts of global inaction on climate change. We see it in the catastrophic floods and landslides just one month ago, that resulted in the deaths of  212 Sri Lankans, and left over  700,000 displaced, and in the aftermath of 2016 floods which resulted in 101 lives lost and 100 missing. 

These terrible tragedies will only increase in frequency and intensity for as long as we continue to buttress our global civilisation with fossil fuels. Particularly given the scale of our nation and our economy relative to some of the world’s largest carbon emitters, it is understandable that some would feel disheartened but this need only be true for as long as we lack a better, more progressive, and ultimately, more sustainable future. 

Avoiding drastic global warming would likely require a complete overhaul of our global energy system. Fossil fuels currently provide 87% of the world’s energy. To zero out emissions this century, we’d have to replace most of that with low-carbon sources like wind, solar, nuclear, geothermal, or carbon capture.

That’s a staggering task, and there are huge technological and political hurdles standing in the way. As such, the world’s nations have been slow to act on global warming – it’s a genuinely difficult issue to tackle, and efforts to revamp the energy system often encounter heavy opposition.

In that context, I believe that the size of our country, and the size of our population is actually one of our strongest advantages. Our nation holds the potential to serve as a global pioneer in renewable energy. Our geographic size and location means that we can become an ideal testing ground for innovative new technologies, business and financing models, all of which are based around the creation of a truly sustainable energy mix that makes optimum use of renewable energy. As Sri Lankans, we have had the privilege of being heirs to a priceless cultural and environmental legacy and we are pleased to note that there have already been many positive initiatives implemented over the past decades and more in the pipeline, which could serve to preserve and enhance this legacy for future generations.     

According to its most recently stated goals, Sri Lanka is, at a policy-level, targeting a complete switch to renewable energy capacity by 2030 where Sri Lanka’s Long-Term Generation Expansion Plan anticipates installed renewable energy capacity to reach 1,897 MW by 2034. Wind energy is expected to overtake mini hydro in terms of installed capacity to reach 719 MW by 2023, where mini-hydro which is already nearing saturation point, will achieve 673 MW, followed by biomass-based power and solar power with 279MW and 226MW respectively. In this manner, the Government aims to elevate Sri Lanka into the status of an ‘energy empowered’ nation and we commend the Government for setting such a progressive sustainability energy agenda. 

Nevertheless, with 35.7% of Sri Lanka’s energy being sourced from coal power, and a further 31.5% from fuel oil during 2016, one fact becomes immediately clear, namely: We have a significant amount of work ahead of us if we are to achieve a truly Green Sri Lanka. 

Examples to emulate

While the situation is dire, we should take great encouragement from the strong state-led initiatives taking place in countries like India, China and in nations across the European Union, with regard to the establishment of substantial new renewable energy capacity. It is particularly noteworthy that such substantial investments took place despite the historic lows in crude oil prices that took place over the past two years. 

In China’s 13th Five Year Plan on energy development, the country – which is one of the largest contributors to global emissions, but also the world’s largest investor in renewable energy – announced plans to lower coal energy consumption from 62% of its energy mix down to 58% while aiming for higher contributions of renewable energy with wind and solar energy set to reach over 210 GW and 110GW respectively. In total, China will invest $ 493 billion on green energy by 2020. 

Similarly, India is driving a remarkable transition away from fossil-fuel based energy, and plans to reach 60% renewable energy by 2027, well in excess of targets established by the Paris Climate Agreement. 

Crucially, this forecast reflects not just the bold and highly commendable stance of the Indian Government with regard to renewable energy, but also the substantial private sector efforts that are driving vital progress in this sector. 

Meanwhile in the European Union, despite notable socio-political volatility across the region, the high priority that governments in the region have allocated towards renewable energy is impressive with most nations being on track to meet 2020 targets. Under the Paris climate deal, the bloc plans to make renewable energy account for 27% of energy use by 2030, and to cut greenhouse gas emissions by 40% compared to 1990 and down a further 80% by 2050.

As a final example of the potentials that renewable energy can unlock, we must also look to Africa, a continent that has an abundance of solar, wind and hydro energy capacity waiting to be tapped. With the right strategy for placing solar and wind farms, and with international sharing of power, most African nations could lower the number of conventional power plants – fossil fuel and hydroelectric – they need to build, thereby reducing their infrastructure costs by perhaps billions of dollars.

There are extremely valuable lessons that we can learn from each of these examples, and if we as a nation resolve ourselves to seriously drive our own clean energy revolution. The strong, clear and systematic direction taken by the Governments that are leading the charge in renewable energy must be emulated in order to establish a feasible path towards a national grid that is fully independent of fossil fuels. 

The innovative approaches to securing funding for such projects, as seen across Africa through international investments, and through intensive private sector engagement in India, must be analysed, adapted to meet the needs of the Sri Lankan economy, and then implemented on an urgent basis. This will require the mobilisation of significant efforts, resources, and investment but we must all keep in mind that the cost of inaction will always be much greater. We must take note of the EU approach that requires regular reporting on sustainability initiatives which in turn results in greater accountability. 

A common standard for the banking industry

 In 2015, HNB together with our respected colleagues in the Sri Lankan banking industry joined together with the Sri Lanka Banks Association (SLBA) and set about the historic goal of establishing the Sri Lanka Sustainable Finance Initiative (SFI).    

This forum created one of Sri Lanka’s first platforms for industry alignment while building industry wide capacity in the area of environmental and social risk management. 

Bringing together 18 banks to secure a sincere commitment from each of them towards sustainable financing, the SLFI achieved tremendous progress and is now ready to move on to Phase II  to expand upon these initial commitments and in so doing, chart out a new vision for the Sri Lankan economy that is focused, primarily on environmental and social sustainability.  

When establishing the SLBFI, HNB, together with our colleagues across the banking industry were cognisant of the fact that long periods of inactivity or mere reactivity to the realities of climate change would result in our nation, our fellow citizens, and future generations of Sri Lankans having to pay a heavy cost.  

While the discussion around what can be done about climate has become more intensive, it will ultimately be the actions we take which determine our fate. In that regard we believe that the time is now right for Sri Lanka’s private sector to put its best foot forward and commence making concerted efforts towards enabling a more sustainable, secure energy future for our country. 

In the 129 years that HNB has been active, our bank has witnessed several remarkable transitions in the Sri Lankan economy and we note that in many cases, it has been the banking industry itself which has paved the way for new technological innovations. This role as a first adopter of best systems and best practices – from the adoption of computerised systems to the first implementation of online and mobile technology, it is often a nation’s banking industry that leads the way into new and unexplored paradigms. 

Particularly over the recent past, HNB has been significantly expanding its investments into renewable energy. We are pleased to report landmark progress on this front, with HNB over the recent past having implemented Sri Lanka’s largest roof-top solar project, covering 69 locations with approximately 2 MWp of clean, renewable energy. These initiatives were made through a substantial investment of Rs. 350 million to date, and has resulted in a drastic reduction of our carbon footprint by approximately 1,215 tonnes per annum.  

Moving forward we aim to expand this important initiative to 100 locations by the end of 2017, and we are fully committed to continue this process until we have achieved full coverage of our entire network of 252 customer service centres.

From our rapidly deepening expertise in the establishment of solar energy capacity, we have seen that the key to shortening the period for Return on Investment (ROI) is scale. Together with our industry colleagues we have a vital role to play as custodians of the Sri Lankan banking industry, and in this regard, I believe we have an unprecedented opportunity before us to reorient our people and our organisations in order to expedite this transition as much as possible. As at 31 December 2016, HNB has allocated over Rs. 2.85 billion towards the funding of sustainable energy initiatives. 

In the first half of 2017, three new green energy projects of solar and hydro were financed with an exposure totalling Rs. 1.8 billion. HNB’s most recent involvement has been as lead arranger to a syndicated loan of Rs. 9 billion towards the construction of a 10MW garbage-to-energy power plant that will contribute to the national grid through the conversion of between 500-700 metric tonnes of garbage into energy. 

Promoted by the Aitken Spence Group of companies, the project represents a vital and much needed solution to the growing problem of Colombo’s municipal solid waste. Moving forward we must seek out similarly innovative methods to achieve sustainable solutions to the challenges facing our nation.   

What we are therefore proposing, is that our industry now take its role as a steward of technological progress to the next level by facilitating Sri Lanka’s Green Revolution. We have already seen several Sri Lankan corporates take bold individual steps, and we count HNB’s roof-top solar project among these initiatives, however moving forward, it is imperative that we take these sustainable initiatives forward in a concerted and systematic manner. Hence, while we were the first to achieve renewable energy capacity on this scale, we cannot be the last to do so. 

In that regard, HNB looks forward to working together with our colleagues in the Sri Lankan banking sector to support a new wave of growth in renewable energy and sustainable initiatives, in a two-pronged strategy encompassing internal and external stakeholders. 

Such initiatives must be emulated and expanded with a view towards facilitating direct and indirect investment into sustainable energy and energy efficient technologies that in turn will translate into a meaningful reduction in carbon footprints.

At the same time, we must look internally in order to root-out inefficiencies and take forward initiatives that improve the sustainability of our own organisations, particularly in relation to resource consumption and carbon emissions. Such efforts must also be supplemented by further initiatives aimed at spreading awareness of expertise in sustainable initiatives like rainwater harvesting, and reforestation programs.       

We reiterate however that while these investments are good for the environment, and for future generations, they also make good sense for the bottom-line. Hence we are not only calling for  enterprises to do what is morally right, we are also asking them to do what is right for their businesses, particularly over the medium-long term. 

A new age is dawning for humanity and we must not be left unprepared. It is only through partnership that we will achieve the progress we seek.