Sustainable Finance Converting Risks in to Opportunities Keynote Address by SOMAK GHOSH President Corporate Finance & Development Banking YES BANK Ltd.

Paradigm Shift – Periphery to Mainstream From the intellectual labyrinth to day-to-day lexicon of global businesses and core business strategy Current thinking in Sustainability Aligned to core strategy Helps businesses understand and respond to changing social and environmental pressures/realities Enables innovation in process and products Helps identify new potential markets Lends competitive advantage

From the intellectual labyrinth to day-to-day lexicon of global businesses and core business strategy

Current thinking in Sustainability

Aligned to core strategy

Helps businesses understand and respond to changing social and environmental pressures/realities

Enables innovation in process and products

Helps identify new potential markets

Lends competitive advantage

Long-held beliefs…. “ Business of business is business ” As a ‘an artificial person’ a corporation does not have responsibilities Profits the only responsibility of business as long as it stays within the rules of the game Realisation that businesse s do not operate in a vacuum ; taking cognisance of changing market realities and mainstreaming sustainability Goal of business is to deliver long term value Focus on short-term profits, ignoring long-term sustainable growth detrimental for business Accounting for and using resources efficiently and responding to needs of society is the RESPONSIBILITY of business Paradigm Shift – Periphery to Mainstream

Long-held beliefs….

“ Business of business is business ”

As a ‘an artificial person’ a corporation does not have responsibilities

Profits the only responsibility of business as long as it stays within the rules of the game

Realisation that businesse s do not operate in a vacuum ; taking cognisance of changing market realities and mainstreaming sustainability

Goal of business is to deliver long term value

Focus on short-term profits, ignoring long-term sustainable growth detrimental for business

Accounting for and using resources efficiently and responding to needs of society is the RESPONSIBILITY of business

Business Case for Sustainability – Drivers for Sustainability Rapid Globalisation – increasing integration; what happens in one part of the world affects the rest Changing Ecosystem – rising temperatures, melting glaciers, finite natural resources, significant demand-supply mismatch pushing up cost of resources Consumer Preference – increasing awareness of and sensitivity to clean and green issues pushing up demand for clean products & services Regulation – in 2000 Brazilian state-owned company Petrobras fined $ 28 million and $ 118 million for two oil spills, highest fines ever in Latin America

Rapid Globalisation – increasing integration; what happens in one part of the world affects the rest

Changing Ecosystem – rising temperatures, melting glaciers, finite natural resources, significant demand-supply mismatch pushing up cost of resources

Consumer Preference – increasing awareness of and sensitivity to clean and green issues pushing up demand for clean products & services

Regulation – in 2000 Brazilian state-owned company Petrobras fined $ 28 million and $ 118 million for two oil spills, highest fines ever in Latin America

Stakeholders for Sustainability GE - to invest $1.5 billion a year in clean tech R&D by 2010, part of Ecomagination strategy BP – alternative energy unit spending $8 billion over 10 years for solar, wind and hydrogen Toyota – $ 8 billion for its hybrid and fuel-cell development in 2006 C O M P A N I E S Goldman Sachs – clean energy investments of $2 billion in companies such as First Solar, GridPoint, Iogen and SunEdison Kleiner Perkins Caufield & Byers (investor in in Amazon.com, Google & Netscape) created $ 200 million Greentech investment fund Vinod Khosla , Founding CEO of Sun Microsystems , picked up a 15% stake in a leading Indian microfinance institution, SKS Microfinance F I N A N C I A L I N S T I T U T I O N S Japan - 10 year programme in 1990s to fund growth of solar PV industry; today flourishing without significant subsidies Germany – significant investment in solar and biodiesel industries China – committed to investing $180 billion over 15 yrs for clean energy India – government to deliver electricity to 56% of 700 million rural residents lacking access to electric power by 2012 – 50% from renewable resources G O V E R N M E N T S

Japan - 10 year programme in 1990s to fund growth of solar PV industry; today flourishing without significant subsidies

Germany – significant investment in solar and biodiesel industries

China – committed to investing $180 billion over 15 yrs for clean energy

India – government to deliver electricity to 56% of 700 million rural residents lacking access to electric power by 2012 – 50% from renewable resources

Banks & Sustainability A bank transforms money in to place, term, size and risk in an economy and, as such, it affects economic development. This influence is not only quantitative but can be qualitative since banks can influence the nature of economic growth ( Marcel Jeucken) Source: “Sustainable Finance: Strategy Options for Development Financing Institutions,” Gilbert Heim and Oliver Zenklusen (Sept, 2005)

A bank transforms money in to place, term, size and risk in an economy

and, as such, it affects economic development. This influence is not only

quantitative but can be qualitative since banks can influence the nature of

economic growth ( Marcel Jeucken)

Banks & Sustainability Equipped to weigh risks, can attach prices to risks and use price differentiation to foster sustainability Can use carrot & stick approach – lend at higher rate to environmental laggards and lower rate to environmental front-runners Sustainability – Risk Mitigant for Banks Source: “ Just a Fad?”, Oliver Zenklusen and Gilbert Heim, Ecofact AG, Zurich (2005)

Equipped to weigh risks, can attach prices to risks and use price differentiation to foster sustainability

Can use carrot & stick approach – lend at higher rate to environmental laggards and lower rate to environmental front-runners

Sustainability @ YES BANK Cognizant of responsibility as a Public Trust Institution to mainstream sustainability within the Indian context Vision to create a commercially viable financial institution that incorporates sustainability in core business focus through Fourth Generation Sustainability not Philanthropy Identifying and fostering sustainable businesses in sunrise sectors including Infrastructure Information Technology Bio-tech and Pharma Agriculture Social Infrastructure Sustainable Livelihoods

Cognizant of responsibility as a Public Trust Institution to mainstream sustainability within the Indian context

Vision to create a commercially viable financial institution that incorporates sustainability in core business focus through

Fourth Generation Sustainability not Philanthropy Identifying and fostering sustainable businesses in sunrise sectors including

Infrastructure

Information Technology

Bio-tech and Pharma

Agriculture

Social Infrastructure

Sustainable Livelihoods

SUSTAINABILITY @ YES BANK Deal Generator Deal Generator SUSTAINABILITY in ACTION Deal Generator Not for profits Microenterprises Responsible Banking (CSR & Sustainability Initiatives) Agri & Rural Banking (ARB) Sustainable Investment Bank (SIB) Idea Formation “ development finance in thought ” Projects Microfinance Investment Banking Rural Lending Alternative Energy & Environment Carbon Finance Social Enterprises Microfinance Institutions Group (MIG) YES SAMPANN : Direct Lending Thought Leadership / Advisory Lending Lending Advisory / Private Equity / Funding SUSTAINABILITY in THOUGHT

Sustainability Financing – Suzlon Suzlon Energy Ltd – ‘ house banker’ to Suzlon, among worlds top 5 wind turbine manufacturer Managed IPO in 2005 Sole Strategic & Financial Advisor to raise USD 25 mn. growth capital in 2004 (entry at a business valuation of USD 120 mm approx, grown to USD 3 bn. appx) Sole Advisor on key acquisitions Hansen Transmission ( USD 565 mn) 2006 & RE Power Systems ( USD 1.2 Bn) 2007 Advisory Date: Over 2004-2007 Bank’s Exposure to Company: USD 25-30 mil Region/Sector: South Asia / Wind Energy

Suzlon Energy Ltd – ‘ house banker’ to Suzlon, among worlds top 5 wind turbine manufacturer

Managed IPO in 2005

Sole Strategic & Financial Advisor to raise USD 25 mn. growth capital in 2004 (entry at a business valuation of USD 120 mm approx, grown to USD 3 bn. appx)

Sole Advisor on key acquisitions Hansen Transmission ( USD 565 mn) 2006 & RE Power Systems ( USD 1.2 Bn) 2007

Honey Beekeeping – structured trade transaction solutions to augment sustainable livelihoods of over 2000 honey beekeepers winning the EUROMONEY Deal of the Year Paramparik Karigar – structured trade facility to Paramparik Karigar, NGO of Indian craftsmen, enabling 27 craftsmen to exhibit indigenous Indian handicrafts at “ Gateway of India Exhibition” held in New York, March 2007 Sustainability Financing – Select Initiatives

Honey Beekeeping – structured trade transaction solutions to augment sustainable livelihoods of over 2000 honey beekeepers winning the EUROMONEY Deal of the Year

Paramparik Karigar – structured trade facility to Paramparik Karigar, NGO of Indian craftsmen, enabling 27 craftsmen to exhibit indigenous Indian handicrafts at “ Gateway of India Exhibition” held in New York, March 2007

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