Page 29 - Banking Finance November 2025
P. 29
ARTICLE
Sustainable
Finance in India:
The Role of ESG
in Banking and Anupama Kar
Chief Manager (Faculty)
Investments State Bank Institute of Rural
Development,
Hyderabad, India
Abstract
The concept of Environmental, Social, and Governance (ESG) has emerged as a transformative framework in the global
financial sector, driving sustainable decision-making in banking and investments. This paper examines the role of ESG
integration in Indias financial system, focusing on its application in lending and investment strategies. The study
highlights how ESG factors help financial institutions identify long-term risks and opportunities that traditional financial
analysis may overlook, such as climate change impacts, social responsibility, and governance quality. Drawing on case
examples from Indian banks, including the State Bank of Indias green bonds and HDFC Banks Sustainable Livelihood
Initiative, the paper illustrates how ESG practices are influencing capital allocation. The findings reveal that ESG
integration enhances risk management, regulatory compliance, brand reputation, and long-term profitability, while
also aligning financial activities with sustainable development goals. However, challenges such as the absence of
standardized ESG metrics, limited data availability, and greenwashing concerns hinder effective adoption. The paper
also identifies future trends, including the growing role of technology in ESG assessment, stronger regulatory mandates,
and rising investor demand for sustainable products. Overall, ESG adoption is not merely a compliance requirement
but a strategic imperative that enables financial institutions to align profitability with ethical responsibility, ultimately
contributing to a more resilient and inclusive economy.
1. Introduction its leadership structure, board diversity, and shareholder
rights.
In recent years, the importance of ESG i.e. Environmental,
Social, and Governance has grown significantly within the
financial sector. The term "ESG" refers to the three primary Financial institutions like banks and investment firms are
increasingly focusing on ESG as part of their decision-making
criteria that are used to assess the ethical and sustainable
effects of an investment in a firm. Environmental factors processes. This is because ESG criteria help assess the long-
consider how a company impacts the environment, such as term risks and opportunities associated with a business,
its carbon footprint or resource usage. Social factors look beyond just its financial performance. The integration of ESG
at how a company manages its relationships with factors into lending and investment decisions is seen as a
employees, customers, suppliers, and the community. way to ensure more sustainable, responsible, and resilient
Governance refers to how a company is managed, including financial activities.
26 | 2025 | NOVEMBER | BANKING FINANCE
