Promoting sustainable banking for a greener future in Bangladesh

Since the issuance of the "Policy Guidelines for Green Banking" by the Bangladesh Bank in February 2011, significant changes have been observed in the banking sector. 

The focus is on environmentally responsible financing practices and sustainable internal processes which are aimed at minimising greenhouse gas emissions and carbon waste.

Sustainability has become a mainstream consideration in the financial sector, calling for convergence on terminology among market participants and wider stakeholders. To achieve global targets set through the Paris Agreement and the United Nations Sustainable Development Goals (SDGs), Bangladesh Bank initiated the sustainable finance policy. 

This policy ensures that all participants and stakeholders utilise a common and transparent vocabulary in the sustainable finance arena.

Bangladesh Bank has been a pioneer in addressing sustainability issues through its policies and regulations, guiding banks and financial institutions to incorporate environmental, social, and governance (ESG) factors into their financing portfolios and credit/investment management. The concept of sustainable banking operations, which aims to integrate ESG factors into decision-making processes, is gaining traction globally and in Bangladesh.

The banks have taken various measures to improve their environmental management indexes. They have embraced solar power, implemented better water and resource management strategies, and achieved an overall reduction in energy consumption. 

To minimise paper usage, banks have introduced smart printers and adopted double-sided printing practices. Additionally, they are transitioning to more energy-efficient lighting systems and replacing desktop computers with laptops to reduce carbon emissions.

In line with the commitment to sustainability, many banks in Bangladesh have installed advanced cash recycler machines (CRM) in all branches, including agent banking points in rural areas. These machines are capable of accepting cash, counting notes, authenticating them, and crediting the amount to accounts on a real-time basis. Furthermore, almost all banks in the country now provide online facilities, significantly reducing paper and electricity wastage.

While sustainable banking practices have made significant strides in Bangladesh, there are still several challenges that must be addressed to achieve a fully sustainable future. 

Firstly, there is a lack of awareness and education on sustainable finance, hindering individuals and institutions from understanding the importance of environmentally responsible financing practices. Secondly, there is a shortage of technical expertise to design and implement sustainable banking practices. And thirdly, there is a lack of investment opportunities in sustainable sectors, making it difficult for banks and financial institutions to incorporate sustainable investments into their portfolios.

However, despite these challenges, Bangladesh has made remarkable progress in promoting sustainable finance policies and regulations. With continued efforts, the country can pave the way for a greener and more sustainable future. 

If the country can address these challenges and raise awareness of sustainable banking practices, it has the potential to become a global leader in sustainable finance, ensuring a better future for generations to come.

In the face of climate change, modern civilisation is confronting a significant challenge. However, various potential solutions exist today to address the climate crisis, with a key focus on reducing pollution and cutting industrial carbon emissions. 

Reshaping businesses to align with environmentally friendly practices is not an easy task, as it requires significant effort and investment, and may involve potential trading losses. Nevertheless, it is crucial to find ways to reshape industries and promote sustainable practices.

To encourage businesses to adopt eco-friendly practices, banks worldwide have been offering green loans for the past decade. These loans incentivise businesses to operate in a manner that minimises harm to the environment, aligning economic activities with sustainability goals while providing financial support to environmentally conscious enterprises. 

According to a Reuters report, global borrowing through green bonds, loans, and equity funding for green projects increased from $5.2 billion in 2012 to an astonishing $540.6 billion in 2021. This highlights the growing importance of sustainable finance in addressing climate change.

In Bangladesh, where the impacts of climate change are already evident, banks have taken proactive measures to promote sustainable finance. According to a report published in a leading daily, from July to September of the fiscal year 2022-23, banks had provided Tk 2,670 crore to green initiatives such as bringing energy efficiency at factories and eco-friendly brick kilns and agricultural schemes. 

It is evident that loans to environmentally friendly businesses are experiencing significant growth. This trend indicates progress in aligning financial activities with sustainable initiatives.

In order to further encourage banks and financial institutions, the Bangladesh Bank has introduced several initiatives. Annually, it evaluates and ranks banks and non-bank financial institutions based on their disbursement of green loans. 

This ranking system serves as a driving force for lenders to amplify their backing for sustainable projects. Additionally, the Bangladesh Bank has established refinance schemes financed by its own resources, providing green loans at lower interest rates. 

This serves as an added incentive for businesses to embrace sustainable practices. This prioritises businesses that establish eco-friendly industrial units in accessing green finance.

The global banking sector is witnessing a growing trend of adopting sustainable financing practices as part of the collective effort to address climate change. In Bangladesh, commercial banks are forming strategies and performance criteria to align with the objective of fostering sustainable development. 

Furthermore, the Bangladesh Bank has placed a strong emphasis on providing green loans specifically to cottage, micro, small, and medium enterprises (CMSMEs) as well as the agriculture sector. By directing financial support towards these sectors, the Bangladesh Bank aims to promote sustainability and facilitate their contribution to a greener economy.

Overall, the efforts to promote sustainable finance in Bangladesh demonstrate a strong commitment to tackling climate change. By encouraging green loans and supporting environmentally friendly businesses, banks play a vital role in fostering a sustainable future. 

The central bank has played a pivotal role in promoting sustainable finance policies and regulations, ensuring that banks and other financial institutions prioritise the protection of the environment and adopt sustainable practices. 

It is essential that we take proactive measures to ensure the well-being of our planet and its inhabitants. Our actions today will have far-reaching implications for future generations, and it is our collective responsibility to create a sustainable future for all.

Md Touhidul Alam Khan is the additional managing director of Standard Bank Limited. 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.