Proceedings of Annual Shanghai Business, Economics and Finance Conference
3 - 4 November 2014, Shanghai University of International Business and Economics, Shanghai, China
ISBN: 978-1-922069-63-4
Adopting Green: from the Perspective of Private Commercial
Banks in Bangladesh
Tamanna Islam1, Kashfia Sharmeen2 and Sadia Rahman3
Recently, by following the footprint of developed countries, developing countries
confer considerable attentions for achieving long term sustainable development
and poverty eradication. To grab the essence of this long term sustainability,
financial intermediaries like banks in Bangladesh has gone for adopting the
concept ‘Green’ in many ways. As being a part of financial institution, bank can
affect the environment directly through their in-house use of energy and resources
and indirectly through their clients by offering a range of financial products and
services. The purpose of this paper is to highlight the reasons for adopting green
banking practices in the context of a developing country Bangladesh and try to
enlist elaborately the rational and motivational grounds for adopting ‘Green’ in
case of private commercial banks.
Keywords: Green banking, Adoption, Environmental sustainability, Private commercial bank
1. Introduction
Among many serious things in the world global warming grabbed a great concern for the
disastrous impact of floods, droughts, storms and excessive heat around the world (IDRBT,
2013). The development of human society, production and consumption of various industries
etc. are the sources of man maid gasses as hydro-fluro carbon, nitrous oxide, carbon dioxide
and methane. These man maid gasses are mainly responsible for the distortion of climate.
This distortion has a significant impact on biodiversity, forestry, agriculture, water resources,
dry land and human health. Therefore, for the environmental management a proactive
multipronged action is necessary by all the industry and business sectors, regulatory
agencies and the individuals.
Sustainable development is a paradigm of the development of natural environment for
economic prosperity. The sustainable development can be attained through the appropriate
framework of cost efficient regulations and economic instruments of the markets. The
financial institutions such as banking sector can influence industrial activity to attend cost
efficient regulations and economic growth. For economic growth banking sector can
financially invest for commercial projects. So, in promoting environmentally sustainable
development banking sector can play a crucial role.
Environmental management increases the quality of assets and value of enterprises. With
the government and the direct polluters, other stakeholders like financial institutions as banks
1
Tamanna Islam, Assistant Professor, American International University-Bangladesh(AIUB), Email:
tamanna37@gmail.com
2
Corresponding author Kashfia Sharmeen, Senior Lecturer, American International University
Bangladesh(AIUB), corresponding Email: kash.nsu@gmail.com
3
Sadia Rahman, Lecturer, American International University-Bangladesh(AIUB), Email: sadiarahm@gmail.com
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Proceedings of Annual Shanghai Business, Economics and Finance Conference
3 - 4 November 2014, Shanghai University of International Business and Economics, Shanghai, China
ISBN: 978-1-922069-63-4
can play an important role to manage the environment (Biswas, 2011). Banks are
influencing the industrial sector for lending and financing the projects. They persuade
the economic development and growth of the country. Banks need to adopt green strategies
into their operations, since the society is more concerned and aware about the environmental
issues.
Green is a symbol of Eco consciousness in a broad sense of social, ethical and
environmental dimensions in the world. Green Bank is like a normal bank (Bai, 2011). It
considers all the social and environmental or ecological factors with an aim to protect
the environment and conserve natural resources. With performing banking activities Green
Bank take an additional plan for taking care of earth‟s ecology, environment, and natural
resources including biodiversity. It‟s another name is ethical bank or sustainable bank.
Green Banking makes banks sustainable in economic, environment, and social dimensions.
In the banking sector it is playing an important role to make technological improvements,
operational improvements and changing client habits in the banking sector. Therefore, it
promotes environmental friendly practices by making banking processes and the use of IT
and physical infrastructure as efficient and effective as possible, with zero or minimal impact
on the environment.
Internationally, there are several initiatives about the role of banking and institutional
investors for environmentally responsible/socially responsible investment projects (Earth
Summit, 1992). In 2011, the central bank of Bangladesh, Bangladesh Bank developed
guidelines for environmental risk management and green banking (Rahman, 2013). In
Bangladesh, Green Banking has been found to be at the nascent stage. Bangladesh Bank
has issued guidelines to ensure environmental friendly business practices by banks and
financial institutions, to incorporate environmental risks into Core Risk Management (CRM)
and to promote sustainable financial and economic growth (Rahman, 2013). By submitting
quarterly report to Bangladesh Bank on the performance of green banking activities, banks
and financial institutions are showing their response to this „Green Banking‟ drive. With the
pressure from Bangladesh Bank to implement Green Banking, Bangladeshi banks are
adopting Green Banking for their benefit as well. Besides these, private commercial bank‟s
awareness and responsibility to the protection of the environment are the important factors
those are prompting commercial banks to adopt green banking. This paper highlights the
initiatives taken by some private commercial banks of Bangladesh in the adoption of Green
Banking practices and to enlist the significant strategies for adoption of Green Banking.
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Proceedings of Annual Shanghai Business, Economics and Finance Conference
3 - 4 November 2014, Shanghai University of International Business and Economics, Shanghai, China
ISBN: 978-1-922069-63-4
2. Literature Review
2.1
Green Banking: International Initiatives
Due to unusual climate change, environmental degradation etc. with increasing awareness
urgent measures are required by stake holders for sustainable development and thereby
save the planet. In an economy, banking system can contribute to protect
environment/climate from pollution by affecting production, business and other economic
activities through their procedure for financing activities.
From early 1990s, the UNEP Finance Initiative (UNEPFI) introduced by the United Nations
Environment Programme (UNEP), working to integrate the environmental and social
dimension to the financial performance and risk associated with it in the financial sector.
Along with the US Export-Import Bank regularly reviews each project for environmental
assessment. It will be noteworthy to mention that some of the big international banks like
Netherland-based ABN Amro, Deutsche, Standard Chartered, HSBC Bank etc. look at
environment issues discussed under Kyoto Protocol. In company with the other banking
activities, starting green banking Chinese banks are enhancing their capacity quickly and are
becoming an emerging force on the international financial stage (Robinson and Hilson,
2011).
It is difficult to estimate the environmental impact of bank‟s external activity. Therefore, for
the banking sector, encouraging environmentally responsible investments and careful lending
should be one of the responsibilities (Pravakar and Nayak, 2008). The bank should go
green and should take environmental and ecological aspects as part of their lending
principle, to force industries to go for mandated investment for environmental management
(Hayder, 2012). Verma (2012) stated that Indian banking is gradually coming to green. Since
in India the banks are one of the major sources of financing instrument for commercial
projects, so they can play a major role in promoting environmental sustainability by
funding the socially and environmentally responsible investment projects. Therefore, for
saving climate Green banking involves pursuing of financial and business policies. The
purposes of Green Banking are to use resources with responsibility and giving priority to
environment and society.
2.2 Bangladesh Bank's Initiatives
Bangladesh Bank (BB) is well aware of the environmental degradation situation. It has
already given time to time directions to all scheduled banks. Banks have been advised to
finance in Solar Energy, Bio-gas, ETP and Hybrid Hoffman Kiln (HHK) in brick field under
refinance programme of BB. In the Corporate Social Responsibility (CSR), a comprehensive
guidelines bank have been asked to concentrate hard on linking CSR at their highest
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Proceedings of Annual Shanghai Business, Economics and Finance Conference
3 - 4 November 2014, Shanghai University of International Business and Economics, Shanghai, China
ISBN: 978-1-922069-63-4
corporate level for ingraining environmentally and socially responsible practices and
engaging with borrowers in scrutiny of the environmental and social impacts. Considering the
adverse effects of Climate Change, banks have been advised 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 locked 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 fertilizer, insecticides by natural
means instead of using chemical fertilizer and pesticides (Ullah, 2013).
Since Bangladesh is a developing country, here Green Banking system can create brand
image and awareness amongst the stakeholders about the environment as well as
environmental friendly business practices i.e. solar equipments, ETP, Bio-gas Plant, Hybrid
Hoffman Kiln (HHK) etc. (Ullah, 2013). Therefore, the banks should give priorities in providing
loan to the environmental practices sectors (Rashid, 2010). Banks can make profit under the
purview of E-commerce with a view to providing the customers with online-banking facilities
covering payments of utility bills, money transfer and transactions in local currency through
internet as well.
The share of global greenhouse gas (GHG) emission of Bangladesh in comparison with other
developing and developed countries is insignificant. In spite the reason, Bangladesh falls into
the group of most climate change vulnerable countries in the world (Rahman, 2013). Now it is
the high time for the banks to adopt a comprehensive Green Banking Policy in a formal and
structured manner in line with global norms so as to protect environmental degradation and
ensure sustainable banking practices.
3. Methodology
The study is conducted mainly based on secondary data. The sources of secondary data are
annual reports of Bangladesh Bank, websites of Commercial Banks, and related articles etc.
4. Analysis of the Findings
Ethically, there should not be any reason for adopting „Green‟ other than goodness and
morality. Still, we can see diverse other rationales behind the adoption. According to our
findings, the fundamental motive for adopting green is the directive of central bank of
Bangladesh. Bangladesh Bank has intervened GB in a timely manner in order to contribute to
the mitigation of environmental sustainability and recommend banks to facilitate their clients
with utmost care in opening environmental sustainable projects (BB, 2012). As a part of
Bangladesh Bank‟s indicative „Green Banking Policy‟, PCBs (Private Commercial Bank) in
Bangladesh have developed Strategy Framework which is scheduled to be implemented
gradually latest by June, 2015. The three phases of BB (December 31, 2011; December 31,
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Proceedings of Annual Shanghai Business, Economics and Finance Conference
3 - 4 November 2014, Shanghai University of International Business and Economics, Shanghai, China
ISBN: 978-1-922069-63-4
2012 and December 31, 2013) approaches work as a basis for all commercial banks for
reporting as well as implementing Green Banking activities by deadline (BB, 2011; Ullah,
2013). Under the directive of BB, PCBs are bound to start GB which is one of the crucial
reasons for the adoption of green banking in Bangladesh. Along with that, Refinancing
Scheme of BB also stimulates them to finance in environmental sustainable projects. In
refinancing, banks get a portion of interest rate (eg. 5%) from BB and along with that portion
they add the rest of the interest rate (eg. 4%) and finally impose the final interest rate (eg.
9%) to issue a loan in sustainable project (Figure 1). Hence, if the client‟s project fail, PCBs
has to bear loss for only their own portion which eventually encourage banks to implement
green as a part of Bangladesh bank refinance program.
Figure 1: Minimizing credit risk.
Another strong motive for adopting green is to comply with the environmental and social
standards of IFC, FMO-DEG and GCPF financing. In Bangladesh private banks need to
comply with the environmental sustainable issues related condition and can get financing
funds with a low interest of 4 to 5% whereas if banks go for other two main creditors- public
and sponsor, they have to bear 9 to 12% interest. In this case, PCBs usually issue loan to the
clients in two approaches- direct (eg, ETP establishment) and indirect (eg, ABA group that
complies with environment sustainable standard) investment.
Revenue generation by cost minimization is also an important fact behind the green practice
in banks. Here, PCBs practice cost consciousness through reduction of carbon footprint and
energy consumption. Like any other enterprises, as consumers of natural resources, banks
directly interact with the environment (IDRBT, 2013). For instance, banks contribute towards
the carbon emission directly in their day-to-day operations in terms of use of paper,
electricity, lighting, air conditioning, electronic equipment and other things (IDRBT, 2013).
Hence, some PCBs are in the way of introducing Green Data Centre where the main aim is
to create low carbon footprint and high energy conservation by having environmentally sound
information technologies and MIS structure, air cooling systems, all sort of machineries
arrangement, the water re-purification etc. which automatically minimize the operating cost of
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Proceedings of Annual Shanghai Business, Economics and Finance Conference
3 - 4 November 2014, Shanghai University of International Business and Economics, Shanghai, China
ISBN: 978-1-922069-63-4
the organization. Most of the banks already take initiative to apply some sort of the above
conditions which lead to a greater revenue generation at the end of the day.
Finally, Morality comes to the plot for banks which encourage them to adopt green practices
for the better future. In our observation we have seen that ethical ground employ here in
more of paper work rather that from internal drive.
All the reasons that we have discussed can be visualized by the following Figure 2-
Figure 2: Reasons for adopting green
5. Conclusion
As a developed country Bangladesh is one of the severely affected countries of world
environmental pollution through industrialization of the western countries. In order to protect
our future generation from this extreme environmental threat, we need to create pressure on
global community to reduce global carbon dioxide emission. On the other hand, we will have
to consider our internal pollutions. Like other organizations and corporations, banks can
contribute in the economic development of the nations by providing various SocioEconomic activities like Job creation, wealth generation, poverty eradication,
entrepreneurial activity etc. Therefore, Bangladesh Bank has issued guidelines for green
banking. PCBs are also considering BB‟s refinancing scheme to make profit for financing in
environmental sustainable projects. Again PCBs are adopting Green Banking for the fund
provided by IFC, FMO-DEG, GCPF and for generating revenue through cost minimization as
well. Therefore, we can conclude that with PCBs if all other banks in Bangladesh consider
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Proceedings of Annual Shanghai Business, Economics and Finance Conference
3 - 4 November 2014, Shanghai University of International Business and Economics, Shanghai, China
ISBN: 978-1-922069-63-4
every small 'GREEN' step taken today would go a long way in building a greener future and
that each one of them can work towards to better global environment.
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Proceedings of Annual Shanghai Business, Economics and Finance Conference
3 - 4 November 2014, Shanghai University of International Business and Economics, Shanghai, China
ISBN: 978-1-922069-63-4
Verma, M K 2012, Green Banking: A Unique Corporate Social Responsibility of India
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