At present, climate change is the most complicated issue the world is facing. Across the globe there have been continuous endeavors to measure and mitigate the risk of climate change caused by human activities. Many countries all over the world have made commitments necessary to mitigate climate change. Although banks are considered environment friendly and do not impact the environment greatly through their own 'internal' operations, the 'external' impact on the environment through their customers' activities is substantial.
The banking sector is one of the major sources of financing industrial projects such as steel, paper, cement, chemicals, fertilizers, power, textiles, etc., which cause maximum carbon emission. Therefore, the banking sector can play an intermediary role between economic development and environmental protection, for promoting environmentally sustainable and socially responsible investment. 'Green banking' refers to the banking business conducted in such areas and in such a manner that help the overall reduction of external carbon emission and internal carbon footprint.
Environmental Risk Management Guidelines for banks and financial Institutions (FIs) issued vide BRPD Circular No.01/2011 to assess environmental risk in their credit and policy guidelines for Green Banking for Banks issued vide BRPD Circular 02/2011. In 2012, Bangladesh Bank introduced a uniform reporting format for reporting green banking activities in a structured manner for banks. In 2013, 'Policy Guidelines for Green Banking' were also issued (GBCSRD Circular No. 04/2013 and GBCSRD Circular Letter No. 05/2013) to the FIs and the banks scheduled in 2013 where they were brought under the structured reporting system as well.
To expedite the ongoing initiatives of banks and FIs at faster pace for sustaining the environment compatible to climate change risk, minimum target of direct green finance is set at 5 percent of the total loan disbursement/ investment from January 2016 onwards for all banks and FIs (GBCSRD Circular No.04/2014).
Banks and FIs were instructed to form a 'Climate Risk Fund' according to the above mentioned policy guidelines for green banking. To ensure the movement towards sustainability against the climate change, Banks and FIs shall allocate at least 10 percent of their Corporate Social Responsibility budget for Climate Risk Fund & this funding can be done in both ways- by providing grants or financing at reduced rate of interest (GBCSRD Circular No. 04/2015). Meanwhile, Banks and FIs have been instructed to set up Solid Waste Management System, Rainwater Harvesting and Solar Power Panel in their newly constructed or arranged building infrastructure (SFD Circular No. 01/2016).
To broaden the financing avenue for green products like solar energy, bio-gas plant and effluent treatment plant, etc., BB established a revolving refinance scheme amounting to Taka 2 billion (200 crore) from its own fund for solar energy, bio-gas and effluent treatment plant (ETP) in 2009. BB enhanced the product line to 50 under 11 categories (Renewable Energy, Energy Efficiency, Solid Waste Management, Liquid Waste Management, Alternative Energy, Fire Burnt Brick, Non Fire Block Brick, Recycling and Recyclable Product, Green Industry, Ensuring Safety & Work Environment of Factories and Miscellaneous) since 2009 till date.
An on lending scheme namely "Financing Brick Kiln Efficiency Improvement Project", was established in BB supported by ADB with a view to reducing greenhouse gas emissions and refine particulate pollution from brick fields throughout the country and building environment friendly brick fields through development of efficiency of brick kiln with usage of appropriate technology and energy in 2012. In this scheme, total amount of loan from ADB is 50.00 million USD/converted to equivalent BDT for local use. It has two parts: Part-A: 30.00 million USD for conversion of Fixed Chimney Kiln (FCK) to Improved Zigzag Kiln and Part-B: 20.00 million USD for establishment of new Vertical Shaft Brick Kiln (VSBK), Hybrid Hoffman Kiln (HHK) and Tunnel Kiln.
In September 2014, BB introduced a refinance scheme funded by liquidity of Shariah based banks and FIs in excess of their requirement which will be explicitly utilized for direct green finance of the said banks and FIs. These banks and FIs can utilize this fund for financing in the 50 products identified under BB Refinance scheme according to GBCSRD Circular No. 06/2014. Under this scheme, 4 banks and 1 FI have signed participation agreement with BB till June 30, 2016.
Bangladesh Bank (BB) intends to provide long term financing for private sector firms, mainly midsize manufacturing firms under the Financial Sector Support Project (FSSP) financed by the International Development Association (IDA). An Environmental and Social Management Framework (ESMF) has been developed to ensure the sustainability of financing of this facility (FE Circular No. 18/2015).
The latest step of Bangladesh bank in fostering sustainable finance is to create Green Transformation Fund. In February 2016, BB has announced its intention to create a new longer term refinancing window naming Green Transformation Fund (GTF) of 200 million USD.
The fund will be used to ensure sustainable growth in export oriented textile and leather sectors conducive to transformation of green economy in the country (FE Circular No. 02/2016). This review report has highlighted the activities of refinance schemes of BB. Thus, this review report is the consolidated reflection of the quarterly reports of all scheduled banks and FIs of April-June, 2016 and the activities of refinance schemes of BB for green products of the same quarter.
All 56 banks and 32 of 33 FIs (Recently licensed FI named CAPM Venture Capital and Finance Limited has not started their activities yet) have formed their own Green Banking Policy Guidelines as well as have prepared own Green Office Guide for conducting their in-house green activities approved by their respective Board of Directors/Competent authority. They also have their own Green Banking Unit (GBU) for pursuing Green Banking activities.
"Financing Brick Kiln Efficiency Improvement Project" has been established in Bangladesh Bank under financing of Asian Development Bank (ADB) for reducing greenhouse gas emissions and fine particulate pollution from brick fields of the country and building environment friendly brick field through efficiency development of brick kiln with appropriate use of energy. Relending facilities are extended to the Participatory Banks and Financial Institutions (PFIs) in this purpose. 35 banks and 19 financial institutions so far have signed participation agreement with Bangladesh Bank.
Up to June, 2016, Bangladesh Bank has released total USD 16.21 million (BDT 125.95 crore) to 5 PFIs against their financing for eight sub projects. Liquidation application has been completed through ADB for the said amount. ADB has extended the project by 15(fifteen) months i.e. March 31, 2017.
The green banking activities of Banks and FIs in the quarter ended on June 30, 2017 evidences increasing scenario in total green Finance for both Banks and FIs comparing the previous quarter. This increase has been pushed up by indirect Green Finance increasing from Tk. 119.21 billion to Tk. 134.52 billion. Although not so significant as Indirect Green Finance, Direct Green Finance also increased from Tk. 7.23 billion to Tk. 8.69 billion.
The amount of investment and expenditure in direct green finance of banks and FIs will expectedly be heightened in the upcoming years. Thus, BB anticipates the more rigorous and effective performance of banks and FIs in mainstreaming green banking activities especially in direct green finance.
Dr. A.Q. Adeleke is a Senior Lecturer in Universiti Malaysia Pahang and Md. Julker Naim is an MPhil Fellow of Bangladesh University of Professionals
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