Jashore University of Science and Technology
Department of Marketing
Course Title: Banking and Insurance
Course Code: FIN-2109
Date of Submission: 06/05/2024
Term Paper
On
Green Banking and Sustainable development in Bangladesh
Submitted By Submitted To
Md. Al Fahad Rifat Zarin Khan Moon
Lecturer
ID: 212306
Department of Marketing
2nd Year, 1st Semester
Jashore University of
Session: 2021-2022 Science and Technology.
Department of Marketing
Jashore University of Science
and Technology
Abstract
Green banking, also known as sustainable banking or ethical banking, is a concept that
encompasses financial institutions' commitment to environmental sustainability and
social responsibility. It involves integrating environmental, social, and governance (ESG)
criteria into banking operations, investment decisions, and lending practices to promote
sustainable development and mitigate environmental risks.
Green banking aims to align financial activities with sustainable development goals by
prioritizing investments in renewable energy, energy efficiency, clean technology, and
environmentally friendly projects. This includes financing green infrastructure projects
such as renewable energy plants, energy-efficient buildings, sustainable agriculture, and
clean transportation initiatives.
Key aspects of green banking include:
Environmental Risk Management: Green banks assess and manage environmental risks
associated with their lending and investment portfolios to minimize negative impacts on
ecosystems, biodiversity, and climate change.
Sustainable Financing: They provide financial products and services that support
sustainable initiatives, such as green loans, green bonds, and sustainability-linked loans,
which offer favorable terms for projects with positive environmental outcomes.
Promotion of ESG Principles: Green banks integrate environmental, social, and
governance criteria into their decision-making processes, ensuring that investments and
lending activities contribute to long-term sustainability and positive social impacts.
Stakeholder Engagement: They engage with stakeholders, including customers, investors,
regulators, and communities, to raise awareness about sustainability issues and foster
collaboration in addressing environmental challenges.
Transparency and social performance metrics, demonstrating their commitment to
transparency and accountability in managing sustainability risks and opportunities.
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SL Contents Page
No. No.
1. Introduction 3
2. The Policy Formulation and Governance 3
3. The Purpose of Green Banking 3
4. Discussion and Analysis 4
5. The Role of Green Banking in Bangladesh 4
6. Bangladesh Bank Initiatives Regarding Green Banking 5
7. Performance of Islamic Bank PLS in Green Banking 7
8. Conclusion 10
9. Reference 11
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Introduction
Green banking is a sustainable and responsible way to manage your finances. It might
seem like an abstract concept, but green banking is something that you should care about!
Green banking is a new financing trend where banks shift their investment strategies to
focus on sustainable technologies and environmentally-friendly initiatives. These
financial institutions are dedicated to sustainable banking initiatives that promote clean
energy and combat climate change. It became widely popular among banks following the
Paris Climate Agreement and has since helped promote investments in renewable energy,
reforestation projects, and carbon offsets (Ferdous, 2022)
Policy Formulation and Governance
Policy Formulation and Governance: Green Banking Unit naming “Sustainable Finance
Unit” headed by a Senior Executive of the Bank with members from different Division/
Department of the Bank, is working for designing, evaluating and implementation of
relevant green banking issues across the organization within the stipulated time, as well
as for reporting to the High Power Committee time to time. Incorporation of
Environmental Risk in CRM: MBL has incorporated Environmental and Climate Change
Risk in Core Risk Management (CRM) as part of its overall credit risk methodology to
assess a prospective borrower from both side credit risk & environmental risk
perspectives. Initiating In-house Environment Management: MBL is improving its in-
house environment management continuously by reviewing the strategies of reuse,
recycling of materials & equipment and source reduction & waste minimization. Green
Finance: MBL focuses on financing in the environment friendly sectors and/or projects
and energy efficient industries. Preferences is being given to environmental infrastructure
projects including, but not limited to, adoption of renewable energy and/or energy-
efficient technology; supply of clean water; establishment of effluent and/or waste water
treatment plant, solid and hazardous waste disposal plant, bio-gas plant, bio-fertilizer
plant etc. MBL is also financing in the sectors/sub-sectors of renewable energy and
environment-friendly projects under the refinance scheme of Bangla (Repot, 2018)
The Purpose of Green Banking
Green banking is socially, and ethically responsible banking where the use of natural
resources will be less, and banking activities will be environment friendly. The
government can encourage the public to practice green banking. The government should
take the initiative in green banking practices to protect our environment. In 2011,
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Bangladesh Bank issued policy guidelines for green banking. As per the guidelines, all
commercial banks and financial institutions must take adequate measures to conduct eco-
friendly banking activities in the country; this issue also needs to be emphasized. The
green finance sectors are renewable energy, energy efficiency such as solid waste
management, green factories, etc.
A green banking system will increase eco-friendly project financing and discourage
financing of environmentally harmful projects. Green Banking protects forest resources
through limited use of paper and ink, increasing online communication, increasing online
services, and reducing environmental catastrophe risk. The Guidelines cover the
incorporation of environmental risk management in credit management, in-house
ecological management, green financing, climate risk funds, green marketing, and online
banking. Moreover, training, research and development in green banking, sector-specific
environmental policies, green strategic planning, innovative sustainable products, and
sustainability reporting are also needed. Paperless banking has been given utmost
importance by introducing online banking in conducting internal and inter-bank
activities; In this case, the customer does not have to waste time standing in a long line
(Islam, 2023)
Discussion and Analysis
Green banking in Bangladesh is crucial for sustainable development. It promotes
environmentally friendly practices in the financial sector, encouraging investment in
renewable energy, green projects, and eco-friendly technologies. By integrating
environmental criteria into lending decisions, banks can mitigate climate change risks and
foster a more sustainable economy. Initiatives like offering green loans and financing for
energy-efficient projects help both businesses and individuals contribute to
environmental conservation while enhancing economic growth. Moreover, regulatory
support and public awareness campaigns are essential for the widespread adoption of
green banking practices across the country.
The Role of green Banking 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.
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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
minimize 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
(Khan, 2023)
Bangladesh Bank initiatives regarding Green Banking
Sustainable or green banking is a banking practice that considers all social,
environmental, and ecological issues with the aim of protecting the environment and
preserving natural resources.
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Bangladesh, due to its geography, is highly vulnerable to climate change, and Bangladesh
Bank (BB) has taken several initiatives to expand the use of sustainable financing.
Sustainable finance extended by banks rose by nearly 40 percent year-on-year to Tk
35,387 crore in the first quarter of 2023 as lenders continue to disburse a higher volume
of loans to eco-friendly businesses and industries, according to official figures.
Green finance provided by banks surged by 65 percent year-on-year to Tk 2,775 crore in
the first quarter of 2023. The figure totaled Tk 1,689 crore in the January-March quarter
of 2022.
Green credits disbursed by non-bank financial institutions (NBFIs) more than doubled to
Tk 839 crore in January-March this year compared to Tk 409 crore a year earlier.
According to the report, 56 out of 61 banks and 13 out of 34 NBFIs had exposure to
sustainable finance in the first quarter.
In an emerging economy like Bangladesh, environmental management needs to be the
key focus area of the business fraternity, especially the banking industry, which plays a
major intermediary role, according to the Quarterly Review Report.
Bangladesh Bank began its efforts to popularize sustainable financing in a broad manner
in 2011 by drawing up green banking guidelines for banks in the country.
The central bank set up a department in July 2015, replacing the previous Green Banking
and CSR Department, in order to widen the use of sustainable finance.
Bangladesh Bank selected 68 products under 11 categories so that lenders can efficiently
disburse loans under the sustainable financing program.
The major products include solar home systems, biogas and wind power plants,
biological effluent treatment plants (ETPs), wastewater treatment plants, PET bottle
recycling plants, compressed block-bricks, palm oil production, organic farming, and
more.
The banks are given targets to convert at least 5 percent of their portfolio into green
finance and at least 20 percent into sustainable finance, according to the BB.
In December 2022, green finance and sustainable finance of the banking sector accounted
for almost 5 percent of total term loan disbursements and 12 percent of the portfolio,
according to a BB official.
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Banks and NBFIs are instructed to set their green finance and sustainable finance
disbursement targets at the beginning of each year at 2 percent and 15 percent of the
previous year's net loans and advances, the official added.
BB has also instructed banks and financial institutions to allocate 10 percent of the
corporate social responsibility budget to the climate risk fund.
To motivate banks and FIs, BB introduced the Sustainability Rating for Banks and non-
bank FIs in 2020.
In 2022, BB issued a Policy on Green Bond Financing for Banks and NBFIs, creating
plenty of opportunities for them to be involved in climate financing, both for mitigation
and adaptation.
Bangladesh Bank established a revolving refinance scheme amounting to Tk 200 crore
from its own fund for solar energy, biogas, and ETP projects in 2009, and the size of the
fund was later increased to Tk 400 crore in 2020. Since its inception, a total of Tk 742.3
crore has been disbursed until March 2023.
The interest rate of the fund is 5 percent at the customer level.
Chowdhury Liakat Ali, director for the Sustainable Finance Department of the BB, said
BB is working to adopt guidelines for banks and NBFIs on reporting and disclosing
climate-related risks, along with managing these risks. Additionally, efforts are underway
to align the Green Bond Financing Policy with the national plan, launch a Green Credit
Guarantee Scheme, develop a policy on climate finance, implement carbon footprint
measurement and carbon trading, and last but not least, create guidelines on climate risk
management (Hawlader, 2023)
Performance of Islamic Bank PLS in Green Banking
The study has been directed to examine the relationship between Islamic banking and
green banking for sustainable development. The study tries to explore the views of
management of Islamic banks towards green banking in Bangladesh. Islam pressures on
the necessity and significance of environmental protection, i.e., living in harmony with
nature, achieving sustainable development, enriching life on earth, and making the best
use of available resources (Jaman et al., 2016). In the Quran, it is declared that Men are
the superior living being, Asraful Makhlukat, (Surah Bani Israil, 17:70, Surah al-Baqarah,
2:29 & Surah Jathiyah, 45:13) in the planet and have endowed with a sense of moral
insight (Surah ash-Shams, 91:7 - 8). Their relationship to the earth is seen as that of
custodian (Surah Hud, 11:61) (Mutahhari, 2014). The message of Islam is that the
relationship between the Allah and men is as significant as the care of the environment
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and natural resources. Therefore, the perception of management of ‘Shariah’ based banks
about green banking has analyzed.
Table 1 . Demographic Information of the Respondent
Frequency Percentage
Male 35 83%
Gender
Female 7 17%
Bellow 30 6 14%
Age 30- 45 28 67%
45-60 8 19%
Single 9 21%
Marital status
Married 33 79%
Graduation 0 0%
Education
Post-graduation 42 100%
Executive 32 76%
Designation
Manager 10 24%
In the questionnaire, there is a section concerning demographic profile to attain the
information reliability of the study. The demographic information is related to the
respondents’ gender, age, marital status, education and other factors might influence their
perception. The demographic data has presented the form of Table 1. Table 1 indicates
that 83 percent of the respondents were male and 17 percent of the respondents are
female in the study. Out of the total respondents, 14 percent of the respondents were
below 30, 67 percent of respondents were between 30 and 45 and 19 percent of
respondents were between 45 and 60 years range. 21 percent of respondents were single,
while married accounted for 79 percent. A large number of percentage (76%) were
executive level followed, maximum of them were the top executive and remaining of the
respondents are branch level managers.
This question consisting of 8 sub-questions designed to test the green banking
environment of Islamic banking. These issues have been presented to the respondents to
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explore their opinion about the components of green banking environment in Islamic
banking. The green banking preparation of Islamic banking.
Presents in Table 2.
Table 2 . Pre-conditions of green banking environment in Islamic Banks
Queries Response
Yes No
The has a separate green banking sell 100% 0%
Do you have knowledge of green banking 92% 8%
Have you participate training program on green
95% 5%
Banking
Your bank arranges green awareness program 82% 18%
The bank having any fund only for green banking 78% 22%
The bank has any climate change risk fund 62% 38%
Is there any conflict between green banking and
100% 0%
Islamic banking
The study has examined the scenario of green banking in Islamic banks of Bangladesh.
Most of the Islamic banks have developed green banking environment within internal and
external premises of the banks. The respondents provided an opinion that their banks
separate green banking cell, awareness programs, training programs, green banking fund,
and risk fund. They also answered that there is no conflict between Islamic banks and
green banking. Islamic banking is a green banking. Finally, it can be concluded that
shari’ah based banks have good green banking environment in Bangladesh. (Ahmed,
2018)
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Conclusion
The implementation of green banking principles in Bangladesh has significantly
contributed to sustainable development. Through initiatives such as financing renewable
energy projects, promoting energy-efficient practices, and supporting environmentally
friendly businesses, green banking has fostered economic growth while minimizing
environmental impact. Bangladesh's commitment to sustainable development through its
banking sector demonstrates a proactive approach to addressing climate change and
environmental degradation. However, challenges remain, including the need for stronger
regulatory frameworks, increased public awareness, and continued investment in green
technologies. Overall, the integration of green banking principles into Bangladesh's
financial system is essential for achieving long-term sustainable development goals and
ensuring a resilient and environmentally conscious economy for future generations.
References
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Ahmed, M. N. (2018). Islamic Banking and Green Banking for Sustainable
Development: Evidence from Bangladesh. Al-Iqtishad: Jurnal Ilmu Ekonomi
Syariah (Journal of Islamic Economics), 97-114.
Ferdous, J. (2022). GREEN BANKING in BANGLADESH. Bangladesh: Linked in.
Hawlader, S. (2023). Pioneering sustainability: Bangladesh Bank’s initiatives. The Daily
Star .
Islam, D. M. (2023, March 14). The Business Post. Necessity of green banking in
sustainable development.
Khan, M. T. (2023, June 23). Promoting sustainable banking for a greener future in
Bangladesh . The Business Standard.
Repot, M. A. (2018). Green Banking. Mercantile Bank.
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