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Some steps can open new window for green banking


Published : 27 Aug 2019 08:18 PM | Updated : 06 Sep 2020 04:02 PM

Nizam Chowdhury

Green banking is very crucial and important for sustainable economy of Bangladesh. Listed companies can be directed to disclose information about the social and environment impact of their investments in standardized formats in their annual financial report. Regulations can be formulated to incentivize better performing companies in this regard through giving better rating in various market indicators. 

This step can open a new window where a significant portion of the enlisted private sector participants will be made accountable for their investment impacts. 

It will also create additional demands of direct green finance from banks as companies will be more interested in investing in environment friendly projects. Companies Introducing IPO/ debt issuance for a green project can be also incentivized through concessional registration and transaction costs.

Developing new equity and debt instruments can be considered as another way of raising green finance through private sector funds. Bangladesh should consider introducing green bonds as a next step in green financing. Though it will require set of standards and support mechanisms to properly function, regulators should consider it a priority intervention.

The development of green finance is directly linked to market innovations. The demand for greener and cleaner industries has led to the need for and development of, environmentally friendly Technology. However, replacing existing technology is expensive and incurs risks from the viewpoint of the sustainability of businesses. As a result, introducing incentives for manufacturers through Financing mechanisms is crucial for promoting green transformation. Green banking incentives and Green refinance schemes provide private sector manufacturers and service providers the means to become greener, minimizing the risks of transition. Thus a sustainable private sector led green Transformation can only happen if there is a supportive financial system is in place.

Bangladesh Bank has introduced several support schemes for Small and Medium Enterprises (SME) in recent years with a special focus on women SME entrepreneurs. Utilizing the grants received from different development partners and funds derived from own sources, financing mechanisms like credit Wholesaling, credit guarantee, refinancing through concessionary fund supply etc. have already been in place to support emerging small and medium enterprises. This is the appropriate stage to start ensuring these facilitative financing schemes also contribute to greening of the SME sectors. Several priority sectors have been identified by BB for extending SME financing supports. 

Green transformation of transportation system requires long term coordinated strategic actions between different agencies. The initial step can be carefully designing public sector funded projects to minimise long term environmental risks. Innovations for promoting green transportation especially in the urban areas can be experimented. A set of policy mix combining incentives and disincentives is also essential to channel private sector funds in this sector.

 Several plans and interventions have been devised to accelerate the implementation of scalable power generation through renewable energy in Bangladesh. Also, strategies and schemes to promote green finance for expanding renewable energy have been introduced. But at the same time, the government has planned for substituting gas with coal as the primary fuel for electricity generation. 

The Government has conducted a comprehensive assessment of renewable energy technologies in consultation with the relevant stakeholders, including MDBs. The technologies include: utility-scale solar PV; grid-connected solar rooftop; solar home system; solar irrigation; solar mini-grid; wind; biomass; biogas; waste-to-energy; small hydro; geothermal; hydrokinetic; tidal; and improved cook stoves. This is an area where Bangladesh has already achieved great success, but there is scope to scale up renewable energy programmes with the use of the right mix of technology and finance. The urban centres in Bangladesh are hotspots of solid and liquid wastes. A large volume of liquid waste is released from households and industries into the water systems around Dhaka. The solid waste is often dumped in open air. Both the solid and liquid wastes have huge potential to pollute water, soil and air. In this capacity, green finance could be an option to clean the cities following the 3R (Replacement, Reduction, Refinement) principle. To adopt green banking banks might face the some challenges. These include high operating cost, start-up pace, diversification problem, credit risk and reputation risk.

Through green banking, the financial institutions are not only required to improve their own standards, but also play an active role in demanding the same from its stakeholders as well. Green Banking play an active role to environmental and ecological aspects as part of their lending principle Green banking comparatively a new development in the financial world. It is such a banking practice that takes into account the social and environmental impacts and its main motive is to protect and preserve environment. The aim of Green banking is to promote environmental friendly practices and preserve reduce carbon footprint from banking activities. 

Banks affect the environment indirectly by financing intermediaries who are the major source of long term funding to various industries that pollute the environment heavily. Hence, it is    operative to need for sustainable practices for banking.