GREEN FINANCE FOR GREEN GROWTH
Nordic Chamber of Commerce and Industry in Bangladesh
Professor Shah Md Ahsan Habib, Ph D
September 18, 2019
Sustainable future rests beyond growth. Such a future is one that results in enriched human wellbeing and social equity while significantly minimizing environmental risks. The approach of sustainable growth is very much within the broader scope of sustainable development goals (SDGs) of the United Nations (UN) that are expected to address and integrate all the three dimensions of sustainable development i.e. environment, economics and society, and their inter-linkages in a balanced way. To attain that banks have a great role to play and the sustainable action by banks goes beyond profitability. Alongside targeting profitability, through sustainable financing activities a bank or financial institution aims at addressing qualities of profitability in economic, social and environmental fronts.
Over the years, an increasing number of banks are going green by providing innovative products that cover financial services to support the activities that are environment friendly and help conserve environment. These are known as ‘Green Banking or Financing Activities’ that are pursued in such areas and in such manners that help reduce overall carbon footprint and other pollutions; and help preserving scarce natural resources for the upcoming generation. Thus, green banking related activities can contribute significantly in realizing the green growth and turn out to be a vital force on the way to transforming an economy into a ‘Green Economy’.
The Perspective Plan of Bangladesh 2010-2021 has provided the road map for materialization of the national goals of attaining the sustainable development agenda in the Vision 2021, and it is recognized in Bangladesh’s development strategy that the goal of sustainable development would not be possible to attain if environmental issues cannot be handled effectively. In Bangladesh, finance is a commanding intervention that can contribute in the process by impacting business and economic activities of the demand side remarkably. The key-note is an attempt to link green finance activities of Bangladesh with the green growth efforts of the government as part of its sustainable development agenda.
The term ‘Green Growth’ has basically been drawn from the term ‘Green Economy’ that was first coined in 1989 in a report titled ‘Blueprint for a Green Economy’ by a group of leading environmental economists for the Government of the United Kingdom. The available definitions of Green Growth highlighted environmental concerns, resource efficiency, and human wellbeing without necessarily slowing them. Green growth is an imperative, not a luxury. In the face of pressing economic and environmental challenges, national and international efforts to promote green growth have been intensified through more sustainable use of natural resources, efficiencies in the use of energy, and valuation of ecosystem services. Along with some UN and other international organizations, some developed and emerging economies have been promoting the green growth movement from the forefront.
Green growth strategies are expected to play crucial role in enhancing efficient allocation of resources for environment and natural resource management. Given that the livelihoods of poor people are largely dependent on natural resources, green growth strategies can be used to better manage natural resources to produce social benefits. As a visible change, green growth strategies are expected to bring improvement in production, consumption and livelihood in the form of promoting green production, green consumption, and better livelihood.
The potential relevance of Green Growth for developing countries is reflected in several recent research publications. A common strategy for green growth for developed and developing countries is not acceptable, and the strategies might even vary among developing and low income countries. Thus, the policy package needed to implement inclusive green growth instruments differ across countries depending upon their national priorities, important economic sectors and access to basic amenities and infrastructure.
Regarding finance, it is well recognized that banks and financial institutions can influence productions, businesses, and other economic activities through their financing activities. Through green financing banks do not only improve their own standards but also affect socially responsible behavior of other businesses. Broadly, green banking rests upon five pillars. First one is related to the ‘green vision’ of a bank. It is the basic principle. Practically, activities and operations of banks cannot completely discard environmental harm but in most cases can minimize harm. Second and third pillars are connected with banks’ in-house activities and operation and financing. These are connected with a bank’s green efforts to minimize environmental risks and saving scarce resources. Fourth pillar is concerned with supporting other stakeholders and cooperation. Transparency of a green bank is a crucial component in its sustainable operation. It is concerned with providing relevant information and responses of the stakeholders on the activities of banks. All these pillars are integrated and crucial to ensure sustainable green financing.
Generally, a section of the society directly and the entire society indirectly are the beneficiaries of the ‘external benefits’ offered through green finance activities. Very specifically, a bank converts itself into a green consumer and producer, and can contribute improving green consumption and green production practices through financing and incentives. By supporting positive externalities and global public goods, banks may also promote the lives of the marginalized. Green finance directly and indirectly contributes in achieving sustainable development goals in the context of an economy.
What are the economic and social agents that may contribute to green and sustainable growth through green finance? Practically, fruitful green finance needs support of other stakeholders [International Financial Institutions (IFIs)/ Inter Governmental Organizations (IGOs); Government; Central bank; Media; Environmental NGOs, Business or Production units, and Consumers] to contribute, and the contributions are channeled through green investment, green production and green consumption.
Bangladesh government started the awareness build up and environment conservation effort mainly in 1980s by establishing a separate ministry and to protect the environment, government formulated Environmental Policy in 1992. Environment Conservation Act (ECA) 1995 and Environmental Conservation Rules (ECR), 1997 were adopted to conserve and improve the environmental standards in the country. To give a push to the energy sustainability, in 2012 government initiated to set up Sustainable and Renewable Energy Development Authority (SREDA) and several relevant policies and acts were enforced. Especially, in recent years, activism increased remarkably at the public forums and amongst policy makers. The development approach underlying the Seventh Five Year Plan (7th FYP) of the country is consistent with the global agenda for higher growth in developing countries with appropriate measures to protect environment, and for that matter several fiscal incentive packages were offered.
In response to the policy initiatives, Bangladesh achieved notable success in some economic and social indicators that are associated with sustainable growth of the country. Bangladesh has made commendable progress in respect of ensuring access to basic amenities and improved living standards. The country made progress towards environmental sustainability by integrating the principles of sustainable development into country’s policies and programs to reverse the loss of environmental resources. Its recent progresses on a number of indicators have surpassed its neighboring developing nations in South Asia (Social Progress Imperative 2014), and pulled itself to the list of low middle income developing countries. In 2015, the honourable Prime Minister of Bangladesh Sheikh Hasina has been announced as one of the winners of the United Nations highest environmental accolade, in recognition of Bangladesh’s far-reaching initiatives to address environmental issues.
Though, ‘environmental risk management’ or ‘green finance’ as titles came up only in recent years in the circulars of BB, several earlier circulars of the Central Bank clearly identified some relevant concerns. Banks and NBFIs of the country were advised by BB to take steps in financing to control environmental pollution back in 1997. Green financing received significant impetus in the country following the issuance of two key circulars in the year 2011 by the Banagdlesh Bank: ‘Policy Guidelines for Green Banking’ and ‘Guideline on Environmental Risk Management (ERM)’. In 2017, BB redesigned ERM and named Environment and Social Risk Management Guideline (ESRM) which covered both social and environmental risk issues in bank’s investment. Green products introduced in the country so far are policy driven. Bangladesh Bank introduced refinance schemes for renewable energy, energy efficiency and some other green financing schemes of BDT 200 crore from its own source to offer term loan facilities that are very much relevant and usable by the industrial units. The BB refinancing for renewable energy and green financing schemes have been made available through Islamic banks since 2014. Government constituted a loan fund in Bangladesh Bank to support the RMG and other export oriented factories through medium to long term finance under the ‘Program to Support Safety Retrofits and Environmental Upgrades’ under which participating financial institutions (PFIs) are offered pre-finance for disbursing the credit to eligible industrial units. BB’s CSR related initiatives may also be tagged with the promotion of green financing.
Banks and NBFIs responded to the policy and regulatory initiatives to a great extent, though outcome has not always been up to the level of expectation. As per BB requirement, banks and NBFIs have established ‘Sustainable Finance Unit’, and all have their approved Green Banking Policy Guidelines and Green Office Guide, as claimed. The data on disbursement of total finance by banks and NBFIs show evidences of increasing trends. During the January-March, 2019 quarter 48 Banks out of 58 and 11 FIs out of 34 have had exposure in green finance (BB Quarterly, 2019). Though as a whole the exposure is insignificant (less than 2%), most of the credit facilities are disbursed in the areas of renewable energy, energy efficiency, alternative energy, waste management and green establishment. Some banks are showing keen interest to push the regulatory drives. Of the NBFIs, the contribution of IDCOL is particularly noteworthy. Efficiency and grant based and concessional donor funds helped IDCOL developing an effective product design that has already received recognition. Green financing is complimenting government’s efforts to attain other development goals. Responses of a good number of industrial units and business houses are also encouraging.
Addressing upcoming challenges are crucial to ensure contribution of green finance to the green and sustainable growth of the country. Measures needed to connect demand and supply side, and underutilization of the available green finance. Limited knowledge, awareness, and capacity on the green interventions and products are critical challenge. Bankers and borrowers need information related to both green products and some technical aspects of equipment. As part of the risk management process, banks must have efforts to gather reliable data on borrower; and a collective effort on the part of banks is essential to ensure information availability. Bankers especially that are engaged at the branch/field level and the intermediaries/suppliers of support services need motivation and exposure on the use, benefits and technical aspects of green products. Quality of equipment and reliable NGOs/MFIs and service providers are required to be ensured for effective delivery of certain green products. Bankers and financial service providers, and the borrowers also need adequate incentive to undertake due initiatives and ventures. Green finance may also be linked with the emergent establishments of special economic zones. Ideally, a well-coordinated national green strategic structure should serve and be participated by the stakeholders-Bangladesh Bank, concerned Ministries and Departments, special economic zone authorities, banks and financial institutions, academicians, researchers, and trade/business associations; and green finance intervention should be seen as a key part of the comprehensive whole.
 Habib, Shah Md Ahsan et.al (2019) Review of the Sustainable Banking Activities in Bangladesh, July, Dhaka.
 UNDESA (2012) ‘A Guidebook to the Green Economy Issue 1: Green Economy, Green Growth, and Low-Carbon Development – History, Definitions and A Guide for Sustainable Development, UNDESA.
 OECD (2012) ‘Green Growth and Developing Countries A Summary for Policy Makers’, OECD.
OECD (2015), “Work on Green Growth”, France, September, OECD.
 In June 2009, Ministers from 34 countries signed the Green Growth Declaration, stating that they will strengthen their efforts to pursue green growth strategies as part of their responses to the crisis and beyond, acknowledging that green and growth can go hand-in-hand (OECD, 2015, Work on Green Growth); now the number is 42 including the Nordic Countries (www.oecd.org).
For example, RMGs with green building certification have lower tax obligation.
 Social Progress Imperative (2014) Database and analyses available in: http://www.socialprogress imperative. org/ accessed on October 10, 2014.
 The World Bank’s latest estimates (July, 2015) of Gross National Income per capita (GNI) categories Bangladesh as low-middle income countries.
 The award ‘Champion of the Earth’ recognizes outstanding visionaries and leaders in the fields of policy, science, entrepreneurship, and civil society action; the Visionary policy leaders who have demonstrated and inspired global political will in promoting initiatives and policies that advance inclusive and sustainable growth (http://web.unep.org/champions/about).
 BB BRPD Circular No-12 dated October 08, 1997; BRPD Circular No-21, November 10, 1999.
 BB BRPD Circular No-2, February 27, 2011.
 BB BRPD Circular No-1, January 30, 2011.
 BB SFD Circular No-3, dated march 16, 2017 (the Master Circular declared all the previous circular on the schemes since 2013 as void excepting the circular on the refinance schemes by the Islamic banks issued in 2015).
 BB GBCSRD Circular-No 6, 2014.
 SMESPD Circular No- 01, March 31, 2019.
 On August 20, 2015 Bangladesh received USD 3.56 million Carbon Credit from UNFCCC for its fast growing SHS. Bangladesh became the first country to receive funds from UN for SHS. The fund has been given to two Bangladeshi organizations named Infrastructure Development Company Ltd (IDCOL) and Grameen Shakti. The UNFCCC has issued 212,482 carbon credits to the IDCOL and 182,804 credits to Grameen Shakti.
 For example, government is working to implement National Financial Inclusion Strategy (NFIS) which is clearly aligned with the goals of sustainable and green finance.
 The country now has 108 green factories and establishments, of which 95 are in RMG and textile sector; and of the top 10, six are in the country. Green factories are also getting popularity in shipyard, shoes and electronic industries (Prothom Alo, September 02, 2019).
Shadow Banking and InnovationOctober 10, 2020