Role of Banking in Sustainable Financing: Impact on

Achievement of Sustainable Development Goals in

Bangladesh

Md. Julker Naim, MPhil, DAIBB Khadiza Begum

Assistant Director, Bangladesh Bank & Officer, Fareast Finance & Investment Ltd.
Adjunct Faculty of European University, Bangladesh [email protected]
[email protected]

Abstract
Banking is considered as a fundamental element to carry on different modern economic activities both
in developed and developing nations all over the world. In the case of emerging nations like Bangladesh,
implementing sustainable financing projects to provide maximum access to different sustainable financing
commodities are difficult for various reasons. Without the better financial environment, it would be very
difficult to implement any energy-related projects domestically. The main objective of this paper is to discuss
how banking institutions can provide assistance for implementing sustainable banking projects in Bangladesh
effectively.

Keywords: Sustainable Financing, Development, Bangladesh.

Introduction:
Bangladesh, a country from South Asia is one of policies. The rest of the paper has the following
the fastest growing economies in the world. The structure. The next section provides the brief
county achieved the tag “New Asian Tiger” and also literature review. The sequent section discusses the
considered as one of the “Next Eleven Economies importance of financing energy projects followed by
(N-11)”. The Government of Bangladesh (GoB) the role of financial institutes, challenges, and case
has precise goals for development. Two of the studies. The last section provides a conclusion and
most ambitious goals are vision 2021 and 2041 in policy recommendations.
which Bangladesh wishes to become upper middle One such element is the financial institutes’ role
income and developed country respectively. To towards energy-related issues. In an economy, banks
fulfill these objectives, different financial institutions or other financial institutes occupy a unique and
of Bangladesh’s role is important because without noteworthy place. These institutions can influence
the financial support different energy projects may different economic activities, for example national
not be able to meet the demand for the objectives. output, expansion of business, ensuring sustainable
Our primary objective will be to discuss effective investment environment and many more. These
roles of these institutes as well as recommending actions eventually assist to enhance the further

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development process. On the other hand, a weak Methodology:
collaboration of financial institutes with other The study is based on both primary and secondary
sectors can hamper the ongoing sustainable sources. In order to know the current prospects of
development process. As the significant portion of sustainable financing, a primary survey on 100 entry
the gross domestic product (GDP) of the emerging level bankers was conducted.The facts have been
countries is backed by the manufacturing sector presented after the discussion with colleagues. The
which is highly energy incentive, the role of financial secondary data were collected on perusal of the
institutes is more critical in this case. Therefore, selected available research work, text book, articles,
for emerging nations, it is important to fix a policy journals, newspaper analysis, related websites
guideline for the role of the monetary institutes and analysis of reported case decisions. The data
regarding energy projects to avoid any sudden are tabulated and analyzed by the researchers
distortions. afterwards.

Background of the study: Literature review:

Historically banks have been viewed solely as financial Alice Mani (2011) mentioned that as a socially
institutions, which should concern themselves responsible corporate citizen (SRCC), there is a
with all things financial. Morality has not entered major role and responsibility for the increase in
the equation. This public view has allowed banks government initiatives for substantial reductions
significant leeway with concern to ethical standards. in carbon emissions. For sustainable development,
This is because they have not been associated with banks can implement and initiate green banking.
the actions taken by the businesses they lend to. The authors reviewed and compared the green loan
Banks have also stated that a reason for not mounting policy by the Bangladesh Bank in the light of their
the new challenges that sustainability presents is acceptance and commitment to environment and
that such inspection would require interference environment friendly projects.
in the activities of clients. However with changing
social demands, and as more is known about the Davidson Kathryn (2011) has conducted the study
effects that banks can have through their lending on “Reporting Systems for Sustainability: What Are
policies, banks have begun to feel pressure from the They Measuring?” This study discusses whether
general public, NGOs, governments, and the like to sustainability indicators in the Australian context
go beyond conventional business management. For are derived from an epistemologically consistent [9]
example in the mid-1990s the Cooperative Bank framework. It is argued that the validity of current
asked 6,000 customers what their thoughts were on sustainability reporting systems is contestable.
ethical banking; 84% responded that it was a good Douglas (2008) found four key findings: (a) banks are
idea. In fact the cooperative bank was formed in discussing the opportunity to trade climate change
response to the growing consumer base looking for in their annual report, (b) many banks calculated
ethically oriented banks. their greenhouse gas emissions; (c) demand for
climate-friendly financial products and services
Sustainable Financing concept has been developed
are increasing, and (d) investment banks support a
by the modern banking approaches. Being part of
trading system of emissions and play a leading role
society, a bank has to work for society‘s people.
in introducing new risk management products. In
They have to think about the society as well as our
other side results indicate that monetary policies
environment because as part of society banking
contribute to long-term sustainable investments.
institutions must work for the environment‘s
wellbeing and society‘s progressions. So green Khan, M. T. (2015) finds that banking sector in
banking has been actually derived from the ethical Bangladesh responds relatively late in case of
sustainability reporting. There is this common
banking.
perception among the bankers that banks are in
general relatively environment-friendly entities,
Objectives: in terms of emissions and pollution. But, given the
At this backdrop the proposed research is an attempt bank's detail analysis of safety of their investor's and
to focus the role of Banking in Sustainable Financing depositor's money, the banks are surprisingly slow to
of Bangladesh. Moreover, in the study, efforts were analyze the environmental footprint of their clients.
made to identify the benefits of sustainable banking A stated reason behind this was such that in doing
for the banking sector to achieve Sustainability sustainability reporting and including their clients in
Development Goals (SDGs). it meant "interference" in the clients' activities.

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Nieminen and Niskanen (2001) in his voluntary European banks did not measure the performance
environmental report mentioned about which of indirect aspect (customer and financial products).
was mostly limited to the agency from the high Vigano (2006) concluded that the OECD-Europe
environmental impact industry in the industrialized region was developed on environmentally friendly
countries. In KPMG's report in 2002, it has been products and services. The sustainable evaluation
found that recent reporting methods show that results of six UK banks show that most banks have
environmental communications are becoming reached the prevention banking level when the
common in non-industrial sectors and in different two banks reached the high level of objectionable
regions of the world. However, environmental banking.
reports are still exist in the United States, Japan, Yadav (2016) observes that the sustainability
Germany and the UK.And chemicals, pharmaceuticals, reporting scenario is still in primary stage. He
electronics and automotive industries are among the conducts a research on Indian commercial banks on
lowest positions in industries. Similarly, the size of the basis of the state of their sustainability reporting.
the company is also determinant of environmental He concludes that in India, sustainability reporting is
disclosure. in nascent age. There is lack of policy support and
Smith (2007) and Alrazi (2009) described that the guidelines. Although many of the corporations are
disclosure of environmental data is not a priority for coming forward to include sustainability reporting
the companies in Malaysia. However, the company in their reporting practices, trying to follow the
expresses environmental concerns for the creation GRI guideline, most of them lack consistency and
of a "good corporate citizen" image. Studies in comparability. This commendable initiative is in need
Boniyamin (2010) shows that companies operating of proper legislative support.
in environmentally sensitive industries are fewer
than the volume of environmental disclosure and Conceptual Framework:
low quality and large-scale environmental data and Many different criteria frameworks that aim to
environmental data released. address the concept of sustainable development
Jones (1998) opined that the popularity of the in different sectors are available in the literature.
Internet and the World Wide Web has encouraged From an analysis of the different approaches, a
more organizations to use them for environmental framework has been introduced (Labuschagne et
disclosure. al., 2005b) that focuses on large-scale resource-
Thompson (2004) concluded that although banks oriented technologies (see Figure 5).The framework
might seem to occupy a privileged informational emphasizes that the operational initiatives in
position, they might be supportive of extensions industry must be evaluated separately in terms
in environmental disclosure practice, whether it is of internal and external economic, social and
voluntarily or required by legislation. environmental performances. However, the internal
Strandberg (2005), from January to March 2005, fifty operational sustainability must also be ensured, e.g.
international corporate social responsibility finance technology management practices, and a fourth
thought leaders were interviewed for CSR's future dimension of sustainable development has been
opinion and stability of money and investment. suggested (Labuschagne et al., 2005b; Mulder
According to the report, they mostly believe that and Brent, 2006). Therefore, it is proposed that
the moral consumer market will increase and will be technology management, as it relates to sustainable
driven by product awareness, assessment and social development, should be conceptualized as a
and environmental degradation. Human resource triangular-based pyramid (see Figure 6). The three
management benefits derived from CSR are an conventional dimensions of sustainable development
important way to improve financial performance. form the base or foundation of the pyramid, and
Seuren (2009) and Hoepner (2010) highlighted supports sustainable technology management
the importance of risk management, social issues, practices at the top of the pyramid. The conceptual
environmental problems and moral problems framework indicates two planes of influence. First,
for the performance of banks and other financial technology management practices (at the firm level)
institutions. Studies generally indicate that the banks influence other internal operations, but sustainable
follow the rules in Western European countries and development aspects, e.g. economic forces, natural
take initiative for their sustainable development. resource constraints, and social behavior, may
They gave three indicators of society, environment also influence internal operations. In turn, internal
and economy almost the same value. The RARE operations do exercise influence on different
organization research shows that most of the sustainable development aspects. Similarly, there is

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interaction between internal operational Phase -out Resource Provision Product life cycle De -
& disposal Product Usage Operations/ Maintenance commissioning Construction Process/technology
life cycle 630 IAMOT Proceedings 2007.

Corporate responsibility strategy

Operational initiatives Societal initiatives

Economic sustainability Environmental sustainability Social sustainability

Financial health Economic performance Potential financial benefits Macro social performance

Components of Sustainable institutions (NBFIs) involved in green finance.

However, as per contribution of total green
Finance: finance signifies that the major contribution by
a) Financial Inclusion: The concept of financial
private commercial banks (PCBs) which is 77.64%
inclusion caters more scopes to the wide range
whereas the contribution of foreign commercial
of unbanked people to avail tailor made banking
banks (FCBs) is 18.51% follows by NBFIs is 2.54%
facilities at a considerable low rate which is
and state-owned commercial banks is 1.32%. The
expected to lead the way towards financial
following Table-1 shows the direct & indirect
literacy among the people and in long run result
green finance by banks of Bangladesh and Table-2
into a sustainable financial system. Though banks
signifies the green finance by the banks and
operate to offer financial services still its CSR
financial institutions in different products in the
activities for financial inclusion increases the
financial year-2017 respectively.
efficiency to understand and compare financial
f) Energy conservancy: This indicates the
products and markets.
ecologically responsible activities that include
b) Energy Conservancy: This indicates the identification and management of process to
ecologically responsible activities that include reduce direct and indirect impact of different
identification and management of process to activities on the environment, reduce energy
reduce direct and indirect impact of different consumption and also efficient utilization of
activities on the environment, reduce energy energy resources.
consumption and also efficient utilization of g) School Banking: In November 2010, Bangladesh
energy resources. Bank instructed to all commercial banks in
c) Waste Management and Recycling: Bangladesh has to open school banking branches
Encouraging work flow automation to minimize to bring students under the umbrella of banking
use of paper and also use biodegradable services which will help the economic activities
papers produced from recycle and also policy of the nation and will have contribution towards
formulation towards paperless activities and also sustainable development. The primary aim of
encouraging e-mail based communication, web- school banking program is to inspire savings and
based activities and less printed documents. encourage the savings habit among the students
d) Green Banking: Green Banking covers a wide as future citizen. Till December 2017, number
area of banking activities that have positive of total school banking accounts in Bangladesh
impact on society and environmental protection raised to 1,46 million having a deposit amount of
and finally leads towards sustainable banking. BDT 13629.60 million (USD 164.81 million).
e) Green Finance: A total amount of BDT 548.6
billion (USD 6.61 billion) was disbursed during
Need for the Study:
In Bangladesh, currently, the power generation
FY 2017 by 50 banks and Non-banking financial
capacity has reached 15,773 MW. Within 2021,

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2031 and 2041, the goal of GOB wants to reach the Accounts, Green Money Market Accounts, Green
power generation capacity of 24,000 MW, 30,000 Mobile Banking Accounts, Online Banking, Remote
and 60,000 MW respectively to meet the per capita Deposit, Waste Management, Roof Gardening and
demand. The following table shows the amount of Green Financing are come under the umbrella of
investment needed in the energy sector. Green Banking.
Table 1: Three Phase Investment Plan The main objective of BB’s refinancing scheme is the
Investment Investment Investment Total promotion of renewable energy and protection of
Year in in in Investment
Generation Transmission Distribution Required
the environment. The refinancing program includes
39 banks and other 19 financial institutions. These
USD 10 USD 7 USD 4 USD 21
2017-2021 institutions are in agreement to disburse loans
Billion Billion Billion Billion

2022-2031 USD 13 USD 6 USD 5 USD 24 regarding different renewable and environment-
Billion Billion Billion Billion
friendly projects all over Bangladesh.These institutes
USD 20 USD 10 USD 10 USD 40 are ordered to allocate 5% of the loan portfolio for
2032-2041 Billion Billion Billion Billion
Total USD 85
green energy projects. On the other hand, banks and
Amount: Billion other financial institutions are required to utilize
Source: Power cell (2017) 10% of the Corporate Social Responsibility (CSR)
From the table we can see that until 2041, an budget for climate risk management. Table 2 Shows
estimated total amount that needs to be invested in the loan disbursement scenario during April-June
the energy sector for generation, transmission and quarter of 2016.
distribution purpose is USD 85 billion. However, only Table 2: Product-wise Disbursement
USD 22 billion has been acquired so far.To reach the Item BDT in Million
goal, GOB is on the search for different investment
Biogas 20.154
options. On the other hand, the energy sector
has intended to start energy efficiency program Effluent Treatment Plant (ETP) 31.56
to reduce the extra usage of different energy
commodities. Sustainable and Renewable Energy Solar Home Service (SHS) 6.65
Development Authority or SREDA has prepared
Vermicompost 0.25
a master plan (2015) for energy efficiency and
conservation up to 2030. According to this master Total Amount 58.61
plan, Bangladesh wishes to save 15% and 20% of the
Source: Bangladesh Bank, 2016
primary energy consumption per capita and by 2021
and 2030 respectively. The Baseline for this project Furthermore, BB with the help of Asian Development
is the primary energy consumption of FY-2013- Bank (ADB) has established the Financing Brick Kiln
2014. Besides, there is a plan to reduce the energy Efficiency Improvement Project. In 2016, BB has
intensity by 20% within 2030 compared to the value released USD 16.21 million to five chosen financial
of energy intensity value in 2013. To overcome the institutes to carry one of their projects (Bangladesh
goals of the master plan, different programs have Bank, 2016). BB also gave guidelines to banks
been designed. However, implementing different on educating the borrowers on environmental
programs need high budgets and government alone regulations so that there is no scope of asymmetry
cannot provide assistance. Thus, alternate options information between two parties.
for financing are important to widen the inflow of
funds. Such alternatives can be commercial banks, Major findings and observations:
capital markets, non-bank financial institutes etc. In order to know the current prospects of
sustainable financing, a primary survey on 100 entry
Bangladesh Bank’s Green Banking level bankers was conducted and some important
findings are given below:
Initiatives:
Green Banking covers a wide area of banking It has been found that about 95% respondent
activities that have positive impact on society and bankers are aware of sustainable financingwith
environmental protection and finally leads towards only 5% remaining ignorant of the issue. Out of the
Sustainable Banking. Therefore all the activities respondents, 94% bankers think that public should
that cover principled banking activities like Energy be made aware of sustainable financingas people
Efficient Mortgages, Green Credit Cards, Green may be misguided by the alluring amount of profit
Loans, Green Savings accounts, Green Checking and, eventually, incur loss.

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 Fig 1: Are you familiar with sustainable and its complexity is also a major limitation. Since
financing? the independence, Bangladesh has walked a long
way. The nation was once considered a bottomless
basket but now considered as one of the most
successful nation in terms of economic prosperity
95% 5% and socio-economic development. In the upcoming
decades, the country wishes to achieve her desired
development goals with efficiency. Energy is a crucial
constituent in this regard. Access to energy and how
efficiently energy is being used will determine the
speed of the development.
Yes No
Now-a-days sustainable banking for sustainability
reporting practices has become the best practice
Fig 2: Do you think that public awareness is across the world today.With a focus on sustainability,
needed about sustainable financing? organizations can manage their environmental and
social impacts while improving natural resource
stewardship and operational efficiency and letting
it remain a critical component of employee,
6% stakeholders and the relation with them for going
the extra miles and the banks understand that
Yes
the sector will play a critical role in achieving the
No
Sustainable Development Goals (SDGs). From the
94% research study, it has been observed that while all
of the SDGs can be inspirational for organizations,
focusing on those that align best with the business
Source: Survey Data
strategy and existing corporate responsibility
priorities likely will be most impactful for the
The survey also illustrates that; 20% interviewed banking industry. Banks in Bangladesh are mapping
bankers came to know about sustainable business activities through sustainable & green
financingone year of its existence while 30% of them banking process adopting sustainability reporting
learnt within the following year. Moreover, 45%
under GRI method to achieve key SDGs.
of the intervieweesbecame aware of sustainable
financingwithin three years of its existence and the References:
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40%
Jeucken & Bouma (1999). “The Changing Environment of Banks”. In GMI
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Recommendations: Dhaka.
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as well as its future prospect in socio-economic Taylor, R. P., Govindarajalu, C., Levin, J. and W. A. Ward (2008), Financing Energy
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