Sustainability issue has got new traction across the world. The global lockdown during the early Covid-19 pandemic has shown us how far we have gone to damage our environments. According to the International Energy Agency, Covid related restrictions brought about 6% drop in energy related carbon-dioxide emissions last year. Globally, the decline in road activity accounted for 50% of the fall in demand for oil, and the slump in aviation for 35%.
According to UNEP, green financing is to increase level of financial flows (from banking, micro-credit, insurance and investment) from the public, private and not-for-profit sectors to sustainable development priorities. Global Sustainable Investment Alliance (GSIA) confirmed that global green finance investment reached to $30.7 Trillion in 2019, an increase of over 34% from 2016. Europe is one the largest contributors in green finance thanks to its leadership position in issuing green bonds.
Bangladesh, a developing economy, is one of the most vulnerable countries to climate change. In the recent past, we have experienced the rise in droughts, floods, tsunami, water scarcity, rising sea level, water, air and sound pollution. Economic growth has brought negative externality along with prosperity. Unsustainable growth has caused enormous damage to our environments. Although we are not the biggest emitter of carbon-dioxide in the region but we have to deal with the growing climate risk. To mitigate this risk Bangladesh has adopted Sustainable Development Goals (SDGs) and developed National Sustainable Development Strategy (NSDS 2010 – 2021).
Financial sector, banks and non-bank financial institutions (NBFIs), has been playing a pivotal role in economic development. For example, domestic credit to private sector already surpassed 45% of GDP in 2019. As of June 2020, there are 60 banks and 34 NBFIs where total assets of banks stood at 17147.8 Billion Taka of which 67% belongs to private commercial banks (PCBs). At the same time, capital market is gradually becoming efficient in capital mobilization.
Green finance can play an instrumental role in promoting sustainable development of Bangladesh. The latest quarterly report of Bangladesh Bank confirmed that green finance crossed over BDT 110 Billion in 2020 as banks are required to invest at least 5% of their total investments in green sectors with an interest rate of 7-8%. To promote this policy initiative, Bangladesh Bank has increased revolving refinance scheme from BDT 2 Billion to 4 Billion. Initially, only 6 green products or initiatives got refinance scheme facilities but later the list has been extended to 55 different schemes.
Bangladesh Bank issued Environmental Risk Management and Policy Guidelines for Green Banking for financial institutions including banks and NBFIs in 2011. Accordingly, financial institutions have given more priorities for this sector. Consequently, investments under green financing are mainly geared towards the green establishment, transportation infrastructure, urban water management, agriculture, waste management and renewable energy. International Finance Corporation (IFC), an organ of World Bank, in their latest report pointed out that development of green finance in Asia and praised Bangladesh for doing better than other regional players.
We have seen the rise of sustainability reporting or green financing disclosure across the world. In line with that, Financial Stability Board (FSB), a global group of regulators, set up Task Force on Climate-Related Financial Disclosures (TCFD) in 2015. Financial firms make up almost half of the over 1800 companies that back the TCFD’s recommendations. US Securities and Exchange Commission has recently created a task-force to examine environment, social and governance (commonly known as ESG) issues. Since September last year regulators in Britain, New Zealand, and Switzerland have said they plan to make such climate-related disclosure mandatory. Stock exchanges in Hong Kong, South Korea and London are also planning to do so. The EU is not very far behind.
However, many financial institutions in our country are still not taking this issue seriously and reluctant to disclose information related with green financing. A growing number of studies show that in spite of having uniform reporting standards most of the financial institutions are not providing full disclosure. A very few financial institutions incorporate their green financing data in their integrated reporting section. Most of them disclose only partial information and some even do not bother to disclose any information at all. In addition to that, the lack of knowledge and awareness at the operational level has greatly hindered the development of green financing initiatives equally in the industry.
The world has experienced an unprecedented move towards sustainability and green finance is an important instrument to achieve it. Bangladesh has also joined the race as we are at the frontline of climate risk. To mitigate this unforeseeable risk we need a concerted effort from all fronts. It is more than evident that green finance can play a major role in sustainable development. Financial institutions should allocate more funds in this sector on priority basis. Bangladesh Securities and Exchange Commission (BSEC) should come forward to formulate mandatory ESG disclosure for all listed companies along with financial institutions. Finally, it is the high time to take initiatives to raise awareness among all the stakeholders.
Dr. Akther is an Assistant Professor of School of Business at the University of Creative Technology Chittagong. Email: [email protected]