Green Financing by Banks in Bangladesh

Abstract

Environmental pollution is a severe challenge to human existence and comfortable living now a-days. It is a great concern globally from the last few decades. The western and some other developed countries had adopted green financing and green efforts as remedial measures to environmental degradation from a number of years before. The developing and least developed countries (LDCs) are yet to start the race with full impetus. Bangladesh stepped into the race by adopting green financing in the year 2011. The government of Bangladesh provided patronage to the initiative by reducing the interest rate of bank loan in a package titled ‘Green Financing’. The campaign has passed more than a decade from 2011 to till now. As implementation agent, the commercial banks of the country expanded loan facilities for green projects under the supervision of the central bank of the country. Bangladesh Bank has adopted initiatives to impose the Green Banking for saving the people of the country. The Bangladesh Bank (BB), central bank of Bangladesh, has taken special programs to promote “green banking”, and issued policy guidelines and formulated 5-year strategic plan for 2010-2014 period to launch green banking in the country. Green Banking is an active agenda under this plan. Bangladesh Bank (BB) has emphasized that all commercial banks (Public and Private) should finance in the environmental projects and all should be disclosed in their annual reports. Green Banking has changed the way banks were rendering their services. Commercial banks of the country have been successful in financing a number of green projects from effluent treatment plant (ETP) to green industry. The performance of the green financing efforts is appreciable, but not satisfactory. As the mission in green financing is environmental protection and long-term human welfare, it is ~ ~ ix against banks’ higher profitability and against borrowers’ urgent necessity. So, the real picture of green finance taking and project implementations is below expectation. The effect of green financing on some variables had been tried to find out. A correlation between green finance and net profit after tax was found out. There is low positive correlation (r = + 0.146) between green finance and net profit after tax. There exists low positive correlation between green finance and log of deposits (r = + 0.211). Multiple regression model shows there is significant impact of independent variables (green finance) on the dependent variables (RoA, Lod, CL, etc.). The Durbin-Watson statistic is 2.14 which show that there is positive autocorrelation between the variables. Green Finance is contributing positive impacts on economic and environmental aspects, ecosystems, social dimensions of Bangladesh. Under Sustainable Development Goals (SDGs), United Nations is emphasizing Environmental, Social and Governance Reporting (ESG Reporting). By the end of 2030, Bangladesh would achieve sustainable performance in the field of economic, social and environmental areas by green financing. The study also focusses on the sustainable financial system. For ensuring sustainable financial system, we should focus on policy based financial institutions, fully digital banks, other digital financial institutions, green credit, green insurance, green bonds, green venture capital and green investments. Findings based on opinion survey, focus group discussion (FGD) and key informant interview (KII) were also attempted. Through factor analysis, the researcher has found that there are eight factors that are influencing green finance significantly. Those factors are environmental, social, governance; Green bonds, Green Credits and other sustainable financial products, mismatch of time horizon and its impact on long-term decision-making; Governance of sustainable investment and green financing; Green products and its impacts on ~ ~ x Environment; Credit ratings’ impact on Green Finance, Insurance companies’ roles in green finance; and Insurance companies’ role in enhancing green finance. There are other six factors which the researcher has studied, but factor analysis showed that these are less significant for enhancing green finance in Bangladesh. Those are – mobilizing the private financing in green projects; Bangladesh Bank motivations and incentives for green financial projects; green finance’s effect on the climate change and impacts, carbon emission, etc. Bangladesh Bank’s regulatory framework has been proved to be very effective. Green Finance is contributing a lot for achieving SDGs in Bangladesh. Lastly, the selected 10 Banks are enhancing their earnings and corporate image by extending green credits for green products. The incentives given by the government in green financing are reduction of interest rate and noble encouragement, which are not adequate to offset the loss or additional cost incurred by the banks or the borrowers. As a result, in spite of high optimism of environmental up-gradation by green financing, it is yet to achieve certain level even after a decade of launching green initiative. To achieve the target of green environment with possible up–gradation, government should provide more incentives, such as, interest free green financing, tax incentives, cash incentives, etc. for the banks and also cash or profit incentives for the borrowers for taking green projects, like, effluent treatment plant, solar panel for solar or renewable energy and other measures. Above all, the present trend of green financing should be continued for sustainable and environment-friendly development.