GOVT.

TITUMIR COLLEGE,
DHAKA.
Department of Finance & Banking

Term Paper
on
‘’Green Financing in Bangladesh’’
Presented as a part of curriculum of
MBA (Final Year)
Session: 2017-2018

SUBMITTED TO SUBMITTED BY:

Md. Salahuddin Md. Sakhawat Sheikh

Associate Professor Class Roll: 01

Head of the Department MBA (Final Year)

Department of Finance & Banking Session: 2017-2018

Govt. Titumir College, Dhaka. Department of Finance & Banking

Govt. Titumir College, Dhaka.

Affiliated by University of Dhaka

Date of Submission: January, 2021.

 ‘’Preamble’’
The Dhaka university authorities have fixed the number 50
term called Term Paper for the students of the Department of
Finance & Banking in the academic year 2017-2018. I am a
regular student of Masters. I pride myself on writing about
this. I hope my Term Paper is good to the department head
and supervisor. With this objective in mind, I present the
Term Paper in a very simple, straightforward and fluent
language.

Manufacturer's signature:
Date:
 ‘’Certificate''
I certify Md. Salahuddin that the Term Paper ‘‘Green
Financing in Bangladesh’’ was completed under my direct
supervision. I have read the Term Paper and have given it
permission to present it in basic terms.

Supervised by

Md. Salahuddin
Associate Professor
Head of the Department
Department of Finance & Banking
Govt. Titumir College, Dhaka.
 ‘’Declaration’’
I declare that the Term Paper, ‘‘Green Financing in
Bangladesh’’ was written as a supplementary curriculum for
Masters. It is not presented in whole or in part to any other
degree.

Presentation
Md. Sakhawat Sheikh
Class Roll: 01
MBA (Final Year)
Session: 2017-2018
Department of Finance & Banking
Govt. Titumir College, Dhaka.
 ‘’Accepting gratefulness’’
First of all, I am grateful to the Md. Salahuddin, whose
undeserved kindness I have been able to produce a Term
Paper on the ‘‘Green Financing in Bangladesh.’’ I would
like to express my sincere gratitude as well as the other
teachers of the department, for their full support and guidance
at the right time.

Thankfully,
Md. Sakhawat Sheikh
Class Roll: 01
MBA (Final Year)
Session: 2017-2018
Department of Finance & Banking
Govt. Titumir College, Dhaka.
 Table of Contents
‘‘Green Financing in Bangladesh’’

Chapter Particulars Page No

s
Abstract 01
Introductory Aspects
Chapter 1.1 Introduction
I 1.2 Objectives of the study 02-03
1.3 Methodology of the study
1.4 Limitation of the study
Conceptual framework
2.1 Green financing & economic theory
Chapter 2.2 Probable achievements from green financing/banking
II 2.3 Imposed regulation and voluntary initiatives worked 04-10
together
2.4 Economic incentives for FIs/banks are essential
conditions
2.5 Some issues should be settled before further development

Environment financing: global experience

3.1 Basics of green financing/banking practices in global
Chapter banking industry
III 3.2 In-house initiatives taken by FIs/banks 11-15
3.3 FIs/banks offering more green products considering
environmental risks 3.4 FIs/banks acting as groups
3.5 Ground reality differs with ideology
Regulatory and supportive initiatives undertaken by
Chapter Bangladesh bank
IV 4.1 Green initiatives taken by Bangladesh bank 16-17
4.2 Supportive environment for development of green
financing/banking
Key guidelines regarding the green financing in
Bangladesh
5.1 Policy and regulation-related proposals for government
Chapter 5.2 Policy and regulation-related proposals for BB 18-21
V 5.3 Initiatives proposed for individual FIs/banks
5.4 Challenges regarding green financing
5.5 Opportunities of green financing/banking
 Conclusion 21
References 22

Abstract:

Financial Institutions (FIs), the key constituent for the development of a

country, can improve their service level along with enhanced social
responsibility through the practice of ‘green financing’. Initiatives have been
taken to practice green financing throughout the economy covering banks and
other non-bank financial institutions in Bangladesh. This qualitative study aims
to bring out the challenges & opportunities for green banking in Bangladesh
based on an examination of published information such as research papers,
sustainability reports from different banks and environmental organisations,
published documents of the Bangladesh bank and consultation with bankers. In
addition to the portrayal of current green banking practices in Bangladesh, this
paper establishes the major challenges such as the incorporation of
environmental parameters, effective policy formulation, the creation of
homogenous environments and other aspects. The findings of this study show
opportunities to improve green banking practice such as the improvement of
online financing/banking, separate green financing/banking unit, incorporation
of environmental risk with the core risks and other views of policy formulation.
 Page No 01I
Chapter

Introductory Aspects

1.1 Introduction:

A shift from profit concentration to a more socially conscious business

operation by a number of financial intermediaries/banks has been observed all
over the world recently. FIs/banks are providing innovative green products
covering financial services to support actions that are not hazardous to the
environment and help to protect the environment. People term these green banks
as ‘ethical banks’, i.e. socially responsible banks or sustainable banks. The
exact meaning of one these titles may not be the same; however, as they cover
many common activities and perceptions. Atmospheric protection, defence
against water pollution, land degradation and bio diversity loss are included
under green financing/banking. Atmospheric degradation covers air pollution,
climate change, increasing greenhouse gas, ozone layer depression, etc. (Habib,
2010a; Habib, 2010b). The idea of ‘Green Financing/banking’ advocates
considering the impact on people, planet and profit in all phases of business
operations; in short causing no harm to these entities.

The financial intermediaries & FIs/banks hold a unique role in the overall
development of a country. By practicing green financing/financing/banking
FIs/banks can improve their own standard of business as well as the
responsibility of other business organisations towards society. As FIs/banks
mostly carry out business with other people’s wealth but cannot evade
accountability towards people in general. It is not necessarily the case that
FIs/banks that act as environmentally responsible loose profitability. As a
business organisation, FIs/banks need to make profit to exist in the economy. A
bank has to pay for every penny it mobilises. So, in order to pay the depositors
and to carry out administrative & other expenditures it cannot but make profits.
If environmental practices cost too much to carry out, then it may not be
accepted by the financing/banking industry.
1.2 Objectives of the study: Page No 02

Primary objective

The primary objective of this study is to bring out the opportunities and
challenges of green financing in Bangladesh.

Secondary objectives

Secondary objectives of this study are as follows:

 To evaluate the status of regulation and supervisory process regarding

green financing/banking in Bangladesh through the review of the
literature.
 To examine the current status of green financing/banking initiatives in
Bangladesh by different FIs/banks of Bangladesh.

1.3 Methodology of the study:

This paper is based on secondary information. It is a qualitative study and a

study based on examinations of published information, research papers,
sustainability reports of different banks and environmental organisation,
consultation with bankers and discussions with academicians. Secondary
documents such as the published literature, research papers, and sustainability
reports of different banks and environmental organisations have been reviewed
in order to understand conceptual issues and domestic policy initiatives in
global perspective. Websites, published documents of Bangladesh Bank (BB)
and other commercial banks, and secondary data from BB and commercial
banks have been used to attain the basic objectives of the paper. In preparing the
report, some experts in this field and some bank officials have been consulted.

1.4 Limitation of the study:

Key limitations of the study are as follows:

  This research paper only covers some conceptual aspects, current
condition of green financing/banking, related challenges and
opportunities of green financing.
 Secondary sources of data may not produce reliable data.

Page No 03II
Chapter

Conceptual framework

2.1 Green financing & economic theory:

The environmental degradation and rectifying measures are associated with the
economic theory of market failure-externalities and public goods. Business
firms (supply side of goods and services) and consumers (demand side) are the
main actors responsible for ‘negative externalities’1 in the form of air pollution,
water pollution, GHG emission etc. Manufacturing of commodities and their
consumptions requires extraction and use of natural resources such as water,
wood, fossil fuels or ore. Normally these are requirements for setting up
factories whose operations sometimes create toxic by-products, while the use of
commodities themselves creates pollutants and wastes in many instances. In
such a situation, it is not always easy to identify the responsible agent
specifically or to take appropriate internalisation measures. Banks/financial
institutions are being made responsible for the purpose of the financing these
business/economic activities.

The concepts of externalities and public goods3 are closely associated but
conceptually different. In today’s world, focus on Global Public Goods (GPGs)
and innovative financing mechanisms are closely related to sustainable
development (Binger, 2003). The GPGs with cost is also known as Global
Public Beds (GPBs). The results of the global pollutions and emissions such as
global warming, contamination, disruption of ecosystems, etc., are GPBs. The
negative externalities and GPBs are the burden of the entire society. According
to theories of economics, the motivation for providing GPGs arises from a
desire to produce or enhance positive externalities and correct negative ones. In
the area of environment, reduction of emission and conservation are GPGs
(Morrissey, 2001).
Now, where do we place global ‘green banking initiatives’? It is well known
that green banking is a component of the global initiative by a group of
stakeholders to save the environment. The efforts are expected to bring positive
changes in the environment, which are mostly non-excludable and non-rival in
nature. Thus, as a whole, ongoing green banking initiatives by different
stakeholders is a GPG where society as a whole is the target beneficiary.

What about the green banking financial

Page Noproducts/services
04 offered by the banks?
These products are designed targeting a particular group and are excludable and
rival in nature. Generally, these are commercial products and have the features
of private goods. The products that do not harm the environment but have
neither positive nor negative externality; however, green products that help
create favourable impacts on the environment have positive externalities.
Generally, a section of the society directly and, as a whole, the entire society
indirectly, is the beneficiary of the ‘external benefits’ offered by banks. Thus,
banks have the economic rights of charging an additional cost for their products.
Now, the question is that who is to pay the cost of the additional benefit to the
third party?

Pricing a ‘green banking product’ incorporating the cost of its external benefit is
not easy in the existing financial product market. Generally, the financial
product market is fragmented with different regulatory implications in different
parts of the world. If the cost is added to the price of a loan (with a green
feature), borrowers may find it costly and may turn to other banks’ relatively
cheaper products (without a green feature). Thus, the green bank may lose its
competitive advantage. If the cost is added to the price of a loan (with a green
feature) and business firms avail that then they may shift the cost on their
consumers/customers. However, are the consumers responsible enough to bear
the cost? Are they ready to pay for the better environment or protecting the
future environment? In such a situation of collective benefits especially when it
is nonexcludable, positive externalities are often associated with ‘free riding
problem’. Free riding is usually considered to be an economic problem only
when it leads to the nonproduction or under-production of a public good thus to
‘Pareto Inefficiency’. The problem is apparent in the market for green products.
If it is not the consumers then who will pay? In the absence of the specific
knowledge of the cost payers or uncertainties, banks may lose their incentive to
offer green financial product. It is to be remembered that banks are business
firms primarily operating for profit and Adam Smith’s ‘invisible hand’ may not
ensure sustainable environment for human society by itself. Banks need some
incentives to move with it. In the endeavour of emission reduction and
conservation, different stakeholders have been contributing in different ways.
International Financial Institutions (IFIs) and Inter Governmental Organisations
(IGOs) have been engaged in designing principles and undertaking
environmental and awareness development programmes; government (Govt.)
and central banks (CBs) have been enacting relevant rules and regulations and
enforcing emission.

2.2 Probable achievements from green financing/banking:

The coverage and benefits of green financing/banking are by and large

recognised. Green banking clearly has a direct, positive effect on the
environment, but the benefits go much further, reaching into security and cost.
Green finance makes a great contribution in the transition to resource-efficient
and low-carbon industries, i.e. green industry and green economy in general
(Gao, 2009). The banking sector has a significant impact on the environment, as
it provides financing support to high impact environmentally sensitive sectors
(Bank Track, 2010). Banks, using their commercial lending and securities
underwriting, are in a position to catalyse the necessary transition to an
economy that minimises greenhouse gas pollution and relies on energy
efficiency and low/no carbon energy sources (Bank Track, 2010).

2.3 Imposed regulation and voluntary initiatives worked together:

Khanna and Anton (2002) divide environmental practices of FIs/banks into two
types: Type 1 includes management practices as having an environmental
policy, setting internal standards, environmental auditing, etc., which are mainly
adopted in response to regulatory requirements; and type 2 includes training and
rewarding workers, evaluating the environmental performance of potential
suppliers and clients, etc., that are related with goodwill and reputation and are
generally voluntarily adopted. In reality, the banking strategies are driven by a
combination of both type 1 and type 2 practices (Khanna and Anton, 2002).

Before the early 1990s, many banks used to consider environmental compliance
by their clients as a kind of interference in the businesses of the customers.
Even many European banks that are among the best performers today were not
interested in environmental performance, neither in their own nor in one of their
customers. That attitude has changed dramatically over time. US banks are early
starters that drastically began changing their policies after the enforcement of
the Comprehensive Environmental Responses, Compensation, and Liability Act
(CERCLA) by the US government in 1980. CERCLA’s aim is to cover the costs
of soil contamination and hold US banks directly responsible for contamination
caused by their clients. Under the Act, liability for the clean-up is imposed on
the owners of contaminated sites (Weber et al., 2008). The European banking
sector started taking environmental issues into account some 15 years later, but
in contrast to the USA more on voluntarily and on ethical grounds.

Page No 06
The idea of sustainable banking found its way into most developing countries
mainly through the efforts of some international organisations (World Bank,
IFC, EBRD and UN). Many of the major banks in developing countries
developed their own green banking strategy following or accepting the
principles/strategies suggested by them.

Policies are changing with the changing environment

Governments and central banks in many economies have been undertaking

initiatives and formulating rules to support green banking activities in both
developed and developing economies. Governments are also responding
positively to the suggestions of stakeholders. In 2009, the Green Alliance
proposed to set up a Green Investment Bank in order to deliver a low-carbon
economy in the UK. The National Green Investment Bank is designed to be a
publicly owned bank to hold and disburse capital on a commercial basis, but
exclusively to companies and projects designed to accelerate the transition
towards a low-carbon economy (Green Alliance, 2009). In response, the British
government decided to reform the energy market and create a one billion pound
(USD1.50 billion) ‘green bank’ to encourage investment in low-carbon power
(Thomson Reuters, 2010).

In line with the global development in green banking strategies, governments of

some developing countries have undertaken bold steps to bring about a positive
change; China is one of these countries. In 2007, a Green Credit Policy was
jointly developed by the State Environmental Protection Agency, the People’s
Bank of China, and the China Banking Regulatory Commission. It aims to
guide loan financing away from highly polluting and/or energy-consuming
enterprises and projects towards enterprises and organisations favouring energy
conservation and emissions reduction. According to the policy, firms that fail to
pass an environmental assessment or implement state environmental protection
regulations will be disqualified from receiving loans from any financial
institution. The policy sends a strong message to banks concerning new
responsibilities towards environmental protection.

Page No 07
Voluntary initiatives by businesses organisations

The voluntary initiatives of business firms (the main clients of banks) have been
working as a complement to strictly regulatory approaches and are crucial to the
green banks. In the USA, recent developments in technology have made it
easier to undertake environmental protection measures by a good number of
corporate businesses (Bhat, 2008). Today, it takes less than half the energy to
produce a dollar of economic output than it did in 1970, according to a recent
research from the American Council for an energy-efficient economy (see
www.aceee.org). According to Nastu (2008), over the past 20 years, steel
manufacturing has seen an energy-efficiency improvement of 167% and energy
efficiency of computer systems has improved an incredible 2.8 million percent.
Technology advances are also influencing corporations to increase the amount
of alternative energy they use. Government incentives are making alternative
energy, such as solar and wind power, economically feasible (Nastu, 2008).
Hewlett-Packard (the topranked business firm in the Green Rankings by News
Week, 2009) has strong programmes to reduce GHG emissions and it is the first
major IT company to report GHG emissions associated with its supply chain.
Large Japanese companies such as OKI, Asahi, Fuji, Fujitsu and Sumitomo
have led the way in establishing zero emissions plants. Voluntary cleaner
production initiatives have also existed for some time in developing countries
such as Taiwan, Thailand and China (Welford, 2004).

Recently, a good number of global businesses have adopted ISO 14000 as part
of their commitment to the environment and society. Voluntary approaches of
businesses are also helping governments to undertake stringent environmental
regulatory measures.
Though voluntary approaches by business firms are believed to offer the best
results, extraordinary circumstances need extensive intervention by the
regulatory authority to save the environment. For example, in response to the
recent Deepwater Horizon drilling rig explosion or the BP oil spill (considered
the largest offshore spill in US history which has created a devastating threat to
the environment), the US government forced BP to set aside USD20 billion to
pay for the oil disaster in the Gulf of Mexico. The President has also ordered the
justice department to begin a criminal investigation against the company for
‘conspiracy to commit climate change’ under the guise of stopping an oil spill.

2.4 Economic incentives for FIs/banks

Page Noare
08 essential conditions:

‘Sufficient incentives’ are a crucial condition for the development of

environmental practices by corporations – both positive and negative. Policy
and regulatory support exist in the most industrialised economies in favour of
developing a congenial atmosphere for providing green products by banks. For
example, legislation set forth by the federal government has been playing a role
in shaping green development in the USA. When banks engage in
environmental and community development activities they are entitled to
receive incentives from US Department of Treasury. The treasury offers
certification to banks as a Community Development Financial Institution
(CDFI) and access to a CDFI Fund. CDFI funding increases a bank’s capacity
to provide commercial loans for renewable energy, green building, fishing,
foods and agriculture industries (see www.cdfifund.gov). Banks are also
receiving funding from the USA Small Business Administration (SBA) and
making loans to businesses, including a family farm that grows organic
vegetables, a restaurant that serves only locally grown produce, an installer of
solar panels or home insulation products, a manufacturer of bio fuels or a
renewable energy entrepreneur (Fed Atlanta, 2009).

In the past, environmental regulations were either absent or there was a lack of
enforcement in developing countries. Nowadays, environmental liabilities are
beginning to represent real economic risks, and environmental legislation in
many developing countries is rapidly converging, following the path of
industrialised countries. However, the mandatory provisions or legal imposition
may not be effective for a long time and will not bring optimum results.
Economic incentives such as greater market share and new economic
opportunities are often needed to change the behaviour of companies. It is
important to convert from a regulation-driven approach to corporations towards
a market based approach for long run effective environmental protection.

2.5 Some issues should be settledPage No 09

before further development:

For banks it is not easy to be truly green. It requires a thorough appraisal of all
aspects of the businesses in order to be truly green (Harvey, 2007). Refusing to
lend to ‘dirty’ industries is one thing and making a commitment to clean up
one’s own act is even harder. Sometimes it is difficult for the banks to balance
environmental concerns and business demands.

There are two common standpoints related to product ecology. The first one is
that the banks should be 100% liable for the use of their products. Another
extreme is that the user should be made fully liable to use the product not the
bank. There are arguments for both; however, these extreme stands do not seem
to be practicable. The right way lies somewhere in between. Finding the right
path is one of the major challenges of sustainable banking.

One critical arguable topic is ‘how the environment should be governed by

banks?’ It is argued that a key barrier posed to open governance is incorrectly
generalising bank behaviour.
 Chapter III
Page No 10
Environment financing: global experience

3.1 Basics of green financing/banking practices in global banking industry

Today the question is no longer whether FIs/banks should address the

sustainable development aspects of the activities they support rather the issue is
how they should do it (Coulson, 2009). In the past, more and more conventional
FIs/banks have been adopting green financing/banking for their products or
policies (Kaeufer, 2010). However, the extent of their activities and
performances varies widely. Kaeufer (2010) observes five levels of green
financing/banking activities of global FIs/banks: at level 1, FIs/banks sponsor
‘green’ events and undertake public relation activities that are not related to the
core business; FIs/banks develop isolated products or activities that they add to
their conventional financing/banking portfolio in level 2; at level 3, green
principles and practices underlie most of the FIs/banks’ products and processes;
strategic ecosystem innovation broadens the focus of the bank’s activities from
its own direct client interaction to include the larger system or ecosystem in
level 4; and at level 5, a green bank is a ‘hybrid’ company whose purpose is not
‘avoiding a negative scenario’, but addressing the core challenges of the time by
innovating at the level of the whole ecosystem.

Today, FIs/banks of all sizes have joined the green bandwagon. According to a
survey on selected FIs/banks by Jeucken (2001), close to 60% of the FIs/banks
worldwide have an environmental policy statement: looking at the regional
differentiation this applies to 67% of the European FIs/banks, 50% of the
FIs/banks in North America and 25% of the FIs/banks in Oceania. Basically,
FIs/banks have been becoming aware of environmental risks since the
beginning of the 1990s, and about 56% of the FIs/banks started paying close
attention to environmental aspects when setting up credit and financing
agreements by 2000 (Jeucken, 2001). In recent years, understanding the
responses from consumers and common people, Green Banking (GB) practices
of FIs/banks came up as part of their marketing tools known as ‘Green
Marketing’. For example, Bank of America has a ‘Bank Better Live Greener’
marketing campaign.

Cogan (2008), in a Ceres Report evaluates how the 40 world’s largest FIs/banks
(16 US, 15 European, five Asian, one Brazilian and three Canadian FIs/banks)
are addressing climate change through board oversight, management execution,
public disclosure, greenhouse gas emissions accounting and strategic planning.
The study observes that most leading FIs/banks are addressing climate change
Page No 11
as a risk management issue as they do other credit, operational and reputation
issues. European FIs/banks are at the forefront of integrating climate change
into environmental policies, risk management and product development. The
majority of other FIs/banks in this study, including many of the leading US
FIs/banks, are working towards better disclosure of climate risks as an essential
first step towards embracing a changing regulatory and economic environment.
This study finds that of the 40 FIs/banks, 23 include a reference or discussion of
climate change in their latest annual shareholder reports. Collectively, these
FIs/banks have written nearly 100 research reports on climate change and
related investment and regulatory topics; and 26 of these FIs/banks are
signatories to the Carbon Disclosure Project (Cogan, 2008)

3.2 In-house initiatives taken by FIs/banks

The financing/banking sector is generally perceived to be a relatively

environmentally friendly industry; however, energy and water efficiency and
waste reduction are of high concern for many big FIs/banks. Big FIs/banks are
also engaged in carbon offsetting which refers to the effort of cancelling out the
climate-changing effects of their own greenhouse gas emissions by funding
emission reduction in other places. Greenhouse gas neutrality is one of the most
emphasised issues today as part of the sustainability of FIs/banks.
Strategies for in-house GB performances of FIs/banks generally centre on
certain aspects. For example, HSBC centres its sustainability strategy on carbon
offsetting. It therefore endeavoured to go carbon neutral in 2006, which means
that its worldwide operations contribute net zero carbon dioxide emissions in
the atmosphere (Harvey, 2007). In 2006, ABN AMRO tried to decrease its
carbon dioxide emissions by installing new solar panels (ABN AMRO, 2006).
Paper consumption is a major key point of sustainable financing/banking for
Bank Sarasin. The Swiss financial institution managed to reduce paper
consumption by 3.3% from 2005 to 2006 (from 205 kg in 2003 to 153 kg per
employee in 2006). Bank Sarasin partially managed this by replacing old with
new copy machines, which have a duplex print function. Simultaneously, to
reduce the amount of paper used, Bank Sarasin increased the proportion of
recycled paper used by 6%. The amount of waste decreased by 3.3% while the
bank’s total waste sent for recycling increased by 4.5%. This proved that the
newly introduced waste sorting scheme was successful (Bank Sarasin, 2006).
Research activities, compilation ofPage No 12
environmental impact, and related disclosure
are other important components of green or sustainable financing/banking. The
Swiss Group published a comprehensive assessment of its impact on the
environment through its in-house activities in its 2005 Energy and Material
Report.

A recent IBT Market Pulse survey (2008) on US financial intuitions revealed

that 93% of executives work is in buildings that use fluorescent lighting and/or
skylights, 47% high efficiency plumbing, 43% eco-friendly heating and air
conditioning and 43% energy-efficient windows. Some of the green initiatives
introduced by financial institutions include: 81% using energy-efficient lighting;
62% encouraging ride-sharing or public transportation for employees; and 46%
using environmentally friendly cleaning products. About 74% of FIs/banks and
financial institutions are introducing recycling programmes and with such
programme’s office papers, toner cartridges, electronic office equipment,
newspapers, aluminium, tin, plastic and glass are recycled. Use of
environmentally friendly technology by some FIs/banks also saved on costs. For
example, the financial conglomerate Citigroup, with a real estate portfolio
equalling 8.5 million square metres worldwide, has adopted power-saving
measures as turning off escalators in the lobbies of buildings and redesigning
bank branches to include more natural lighting and recycled materials. The
company says it can save as much as $1 per 0.09 square metre a year, or nearly
USD100 million annually, by making its offices use less energy (Nastu, 2008).
3.3 FIs/banks offering more green products considering environmental
risks

Green FIs/banks are engaged in the creation of Socially Responsible Investment

Funds and sustainable project finance activities. In finance projects, FIs/banks
may exercise their powers in two ways: first, FIs/banks could assume their role
as environmental policeman and ensure that their borrowers comply with the
environmental standards and exclude those who do not comply; second,
FIs/banks could choose to enter into a partnership with different industry sectors
and encourage companies to be more sustainable (Thompson, 1998). Today
growing number of FIs/banks has been assessing environmental risk while
selecting a project for financing. Three different aspects of environmental risks
are considered by the FIs/banks: first, direct risk which materialises if FIs/banks
are held directly responsible for cleaning up for insolvent borrowers; second,
indirect risk which constitutes a case where a borrower jeopardises his/her
ability to repay the loan through Page No 13which harm the environment; third,
activities,
the reputational risk that affects the future streams of revenues of lenders.

Online financing/banking is an important element of ‘green financing/banking

strategy’ of many FIs/banks. Online statements and bill paying eliminates paper
waste, saves gas and carbon emission, and reduces printing costs and postage
expenses. Deforestation by encouraging paperless billing is great for the
environment. A recent survey by Javelin Strategy and Research (2009) shows
that if all US households are engaged in electronic bill payment: 16.5 million
trees would be saved annually; 3.9 billion tons of carbon dioxide emissions
would be eliminated; and 1.6 billion pounds of solid waste would not be
generated. Electronic financing/banking solves storage space constraints, makes
data retrieval faster and easier, enhances reporting, makes collection times
shortened, enhances cash flows, and provides businesses a better opportunity to
invest idle cash. Businesses likewise benefit from electronic advances while
improving the quality of the environment (NACHA, see www.nacha.org).

3.4 FIs/banks acting as groups:

In response to growing expectations for FIs/banks to address the climate change

impact of their lending and investment activities, a number of major financial
firms have made headway in developing industry standards for climate risk
management. In February 2008, Citigroup, JPMorgan Chase and Morgan
Stanley launched the Carbon Principles, a voluntary framework aimed at
addressing climate risks associated with financing carbon intensive projects in
the US power sector. Bank of America, Credit Suisse and Wells Fargo also
endorsed the principles later that year. By signing on to the carbon principles,
FIs/banks commit to using an enhanced due diligence process when financing
carbon intensive projects, such as coal-fired power plants. While these standards
do not exclude such projects from the FIs/banks’ lending portfolios, they do
ensure a more rigorous evaluation process that acknowledges the regulatory and
environmental risks associated with financing carbon-intensive projects. In
December 2008, a second group of global financial institutions including Credit
Agricole, HSBC, Munich Re, Standard Chartered and Swiss Re announced their
adoption of the Climate Principles, a set of commitments on climate business
strategies developed by the Climate Group, a UK-based climate advocacy
group. The Climate Principles offer a broader set of best practices for engaging
with clients and customers across different financial businesses from asset
management to insurance and investment financing/banking.

3.5 Ground reality differs with ideology:

The green movement is gaining momentum in some corners of the financial

industry and many FIs/banks include green and ethical commitments in their
manifestos – but there are differences in their commitments and in many
instances the ground reality is concerning. For example, under EPs, lenders
promise to hold back from unsustainable development in emerging markets,
such as logging in rainforests and strip mining. So far, green groups say there is
little evidence that the policies make any difference. Sometimes they are
financing really controversial transactions. TXU Corp. of Dallas sparked the
battle in 2007 when it announced an USD11 billion plan to build 11 coal-
burning power plants in Texas. Merrill Lynch and Co. Inc., Citigroup and
Morgan Stanley three FIs/banks that have embraced the EPs – were leading the
debt and stock transaction.

Recently, Credit Agricole, France’s biggest bank, is being attacked by the

environmental lobby for its advertising campaign that highlights its green
credentials. The campaign is part of the bank’s efforts to expand its business
outside France and includes full-page advertisements in international
newspapers. It also includes television advertisements depicting dramatic scenes
of planetary destruction. Scarred landscapes are blown away by wind turbines
and give way to a gleaming Credit Agricole skyscraper and intone: ‘back to
common sense, it’s time for green financing/banking.’ In reality, Credit
Agricole’s investment-financing/banking arm is one of the primary funders of
oil exploration in the developing world. In 2009, it led a syndicate of FIs/banks
that lent USD520 million to Trafigura, the Swiss oil giant that was caught
dumping toxic waste off the Ivory Coast. Friends of the Earth, the campaign
group, called the marketing push ‘the worst example of greenwash we’ve ever
seen’.

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Chapter IV

Regulatory and supportive initiatives undertaken by Bangladesh bank

4.1 Green initiatives taken by Bangladesh bank

Bangladesh bank has undertaken certain initiatives to help implement the

relevant provisions of environment-related acts enacted by the government of
the country. In 1997, commercial FIs/banks of the country were asked by the
central bank to undertake necessary steps to implement certain decisions in
regard to environmental conservation and protection by the National
Environment Committee. FIs/banks of the country were asked to ensure that
steps have been undertaken to control environmental pollution before financing
a new project or providing working capital financing to the existing enterprises.
According to the BB requirements, the industrial units (that may cause
environmental pollution) to be established under bank credit would get
permission for opening LC to import machinery only after ensuring that the list
of machines includes equipment to set up waste treatment plant. A
comprehensive guideline on Corporate Social Responsibility (CSR) has been
issued by BB where FIs/banks have been asked to concentrate hard on linking
CSR at their highest corporate level for ingraining environmentally and socially
responsible practices and engaging with borrowers in scrutiny of the
environmental and social impacts.

Online financing/banking has been the starting point of GB in many instances.

Bangladesh bank has been encouraging commercial Is/banks to undertake
online financing/ banking activities. FIs/banks have been brought under the
purview of e-commerce with a view to providing the customers with online-
financing/banking facilities covering payments of utility bills, money transfer
and transactions in local currency through internet as well.

Considering the adverse effects of climate change, FIs/banks have been advised
by BB to be cautious about the adverse impact of natural calamities and
encourage the farmers to cultivate salinity-resistant crops in the salty areas,
water-resistant crops in the water logged and flood prone areas, drought-
resistant crops in the drought prone areas, using surface water instead of
underground water for irrigation and also using organic fertiliser, insecticides
by natural means instead of using chemical fertiliser and pesticides. Bangladesh
bank has also been taking initiatives for the rehabilitation of cyclone and other
natural disaster-affected people of the country from time to time.

4.2 Supportive environment for development of green financing/banking

Page No 16
Other than policies and guiding support from BB, a congenial market
environment with active support from government, businesses, NGOs and
consumers are crucial for the development of GB practices in the country. The
Government of Bangladesh has under taken some notable measures to improve
environmental governance in recent years. Alongside the enactment of a pool of
environmental regulations, the government has undertaken the National
Capacity Self-Assessment (NCSA) initiative to assess the capacity needs and
prepare a capacity development action plan in sustainable environmental
governance in the year 2007. Recently, a Monitoring and Enforcement Section
has been set up in the DOE to monitor the compliance of conditions set out in
the environmental clearance certificate. Creation of the ‘Climate Change Trust
Fund’ is a very positive step on the part of the government. The fund has been
created in order to mitigate the effects of disasters and natural calamities
through capacity building with a total of Tk. 1400 crores. Another fund titled
‘Bangladesh Climate Change Resilience Fund (BCCRF)’ with a total of USD
113.5 million has also been created with financial support from different
development partners. Two projects resourced from this fund have been
undertaken to establish cyclone centres and carry out afforestation. For the
budget of FY2011–2012, a target has been set to create block gardens in 16,000
hectares of land, strip forests covering 3500 km of land and to distribute around
35 lakh plants. Moreover, a special project named as ‘Clean Air and Sustainable
Environment’ has undertaken to identify the sources of air pollution and work
out necessary action plans to reduce the pollution level in the capital city Dhaka.

Page No 17
Chapter V

Key guidelines regarding the green financing in Bangladesh

Here are some of the recommendations on the topic of initiating green

financing/banking in a wide arena. The comments are categorised according to
focus as follows.

5.1 Policy and regulation-related proposals for government

Environmental parameters should be incorporated in the business certificates

like Tax Payer’s Identification Number (TIN). Thus, the supervision of projects
should be ensured by government. This is one pragmatic step that the
government can initially undertake. Besides, corresponding authorities should
impose enforcement to move environmental hazardous industries to remote
areas. The government can introduce rewards and impose punishments in
corresponding cases.

5.2 Policy and regulation-related proposals for BB

BB should undertake initiatives such as formulating policies, for sector
divisions according to hazard or environmental risk. These policies should be
formed in such manner as to ensure a homogenous environment for all the
FIs/banks in green financing/banking implementation progress. The
environmental risk issues may be included in CRM guideline in this connection.
Above all, their initiatives should be parallel to the steps taken by the
government.

5.3 Initiatives proposed for individual FIs/banks

The best action of one individual institution is to build self-awareness. It can

help the environment through small initiatives like promoting car sharing,
promoting the environment through their advertisements, instead of cell
formation one person could be held responsible for environmental compliance,
setting some environmental standard to be maintained while providing loans
and many others.

5.4 Challenges regarding green financing

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Challenges regarding green financing:

There are many challenges regarding the implementation of a green financing

policy:

 Formulating appropriate policies such as sector division according to

hazard or environmental risk by the Bangladesh bank will be difficult
because the BB have to work in opposition to strong corporate bodies.
 Ensuring supervision of projects by government personnel of
corresponding sectors.
 Creating a homogenous environment for all the FIs/banks in the green
financing/ banking implementation progress.
 Increase the amount of contribution to the green financing/banking
initiatives.
 FIs should have the ethical strength to invest in green projects.
  FIs should offer green products to the public.
 Promote car sharing.
 Corresponding authorities should impose enforcement to move
environmentally hazardous industries to remote areas.
 Strong enforcement to old industries to set up ETP.
 Motivating the FIs by giving ratings, like introducing new parameters
involving green activities in the CAMELS rating.
 Formation of special monitoring cells for the most hazardous industries
such as the brick-making fields and the dying industry.
 Making installation and maintenance of renewal energy technologies easy
and cost effective.
 Encouraging research initiatives by local academics and the government.
 Increase expertise to formulate policies for individual FIs/banks. Physical
training for personnel should be arranged in a bank which has
implemented policies involving green financing/banking.

5.5 Opportunities of green financing/banking

Page No 19
Many opportunities of green financing/banking exist. These opportunities are
more like the recommendations for better green banking practices in
Bangladesh. Major stakeholders need to play active roles for the development of
GB practices in Bangladesh covering environmental management and
governance, environmental risk management, in-house environmental
performance, voluntary and leadership activities and environmental reporting.
This paper prescribes the following recommendations:

 Improve online financing/banking. This is important for banks to support

their green financing/banking strategy. Online statements and bill paying
eliminates paper waste, saves gas and carbon emission and reduces
printing costs and postage expenses.
 FIs should formulate and adopt a green financing policy approved by the
board of directors and ensure that the board will be responsible for
reviewing and adjusting the policy.
 A separate green financing/banking unit will add an extra feature because
it will have a greater scope of work such as designing, evaluating, and
administering related issues of the FIs/banks. Employee awareness and
training about environmental and social risk and the relevant issues
should be a continuous process as part of the bank’s human resource
development.
 Environmental risk should be incorporated within the core risks. It should
be considered at the time of granting loans.
 As a starting point, a bank should prepare an inventory of the
consumption of water, paper, electricity, energy, etc., by its offices and
branches in different places for its in-house environmental management.
Then it should take measures to save electricity, water and paper
consumption. A ‘Green Office Guide’ may be introduced for the
employees for efficient use of electricity, water and paper and reuse of
equipment. In place of relying on printed documents, online
communication should be extensively used (where possible) for office
management to save papers.
 Greening of the portfolio of the bank. When the bank designs their
portfolio then it is very important for the bank to emphasis the green
sector and if possible omits the bad sector in all cases. Environmentally
sensitive sectors in the country such as agriculture, leather, fisheries,
forestry, mining, gas, power generation, pharmaceuticals, constructions
and textile should be emphasized by the bank.

 Eco-finance should be preferred in financing activities. Consumer loan

programmers may be used Page No 20
for promoting environmental practices among
clients. For example, through a car loan programme FIs/banks may
promote purchase of fuel-efficient vehicles by the clients. Discount
interest rates may be offered to the clients who use loans to buy vehicles
with high mileage.

 In case of opening an L/C for green products (solar energy technology,

ETP, CNG-driven, environmentally friendly technology) the
commission/charge should be lower than for other products, so that
business holder or importer would be motivated to use the green product.
  An international community for green financing/banking activities could
be established. They will be the regulatory authority of the green
financing/banking activities. Like the Basel committee (formulate capital
adequacy for the bank) formulates the green activities of FIs/banks. High-
powered people will join this committee. The countries which are more
affected by the environment should be higher posted in the committee.
Conclusion

Though many large and influential companies have started to introduce

themselves as highly committed to sustainability, they still have a long way to
go. Financial industries can be efficient and lucrative even following the
principles of sustainable development. But it must also initiate wide-ranging
risk management systems which will lead to the effective implementation of
policies. Banks and financial institutions are supposed to play a key role in
adopting environmental and ecological facets as an integrated component of
their lending standards. This is expected to compel industries to incorporate
environmental issues as an integrated part of their investment. The key players
of the industry will be motivated to use environmentally friendly technologies
and appropriate management systems. As our financial sector is still in the
policy formulation phase, it is very difficult to measure how far our banking or
financial industry has reached towards the ‘Green Financing’ vision. But this
sector enjoys a great opportunity to lead towards a green economy for a
developing country such as Bangladesh. No individual financial institution can
claim full adoption of sustainable development in their operations. But this is
the crucial time where the central authority or the policy makers of Bangladesh
and the individual financial institutions should come forward to implement a
green financing concept for a sustainable economy.

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