Effectiveness of Green Banking in Attaining Environmental

Sustainability in Bank Financing: A Case Study of Selected State-run

and Private Commercial Banks of Bangladesh

Proposal Submitted
by
Md. Afsar Ali

for
Doctor of Business Administration (DBA) Programme
Institute of Business Administration (IBA)
University of Dhaka

July 2013
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Introduction
The current world has been facing tremendous challenges from diverse sources, including
environmental hazards despite attaining very clear advancements in the fronts of science and
technology, etc. Among them, large scale degradation of environment across the developing
and developed world has emerged as the serious most challenge in recent years. Problems like
global warming and climate change, loss of biodiversity, degradation of air or water quality,
deforestation, desertification, acid rain, etc. are now synonymous in the current development
paradigm. With such changes, quality of human life, particularly a safe and healthy life,
sustainability of economic activities in the long run, irreversible loss of natural resources are
getting deteriorated with time. These have tremendous impacts on peoples life and livelihoods
across the world. Thus, the question of attaining a better environmental standard and
sustainability in resource use and management has emerged as serious policy challenges across
the world economies.
The question of sustainability in resource use and management is thought to be an effective
instrument against checking environmental hazards. As most environmental hazards are
anthropogenic in nature, ensuring environmentally sustainable human activities and peoples
active involvement are thought to be essential for attaining sustainability in resource use and
management. But slowing down human economic activities, particularly those activities which
are directly linked to economic progress and prosperity, is never a solution for managing
environmental threats; rather it is important to make human actions and their behaviours
rational and responsible to environment. But obviously this is not an easy task to accomplish.
This demands mass participation and an all encompassing approach in achieving a minimum
ecological standard in human economic activities which are more responsible for todays
environmental degradation. But for doing so and particularly by a developing country, the task
is enormous and really challenging. A balance between economic progress and environmental
sustainability is a difficult task for any developing country that needs to focus more on higher
growth, poverty reduction, creating employment opportunities for the masses, etc. But it is no

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late for any country to start thinking about this important issue keeping in mind long term
sustainability of ones own economic progress.
Like other developing countries, Bangladesh too has its own share of environmental challenges
and misgovernance. It is in fact now in a far dangerous situation compared to many of her
counterparts that the country is not only climatically one of the most vulnerable ones, but also
has a very fragile state of environment where degradation of waterbodies and airspace, loss of
biological resources, deforestation, contamination of surface and groundwater, and particularly
a delicate urban environment have made the overall situation quite uncomfortable for the
economy. For an expanding economy like Bangladesh it is extremely important to check and
make a balance between it economic activities, growth and development with its
environmental sustainability. But for doing so, one single step or method can never be enough;
rather a holistic approach is highly warranted which will ensure a healthy environment without
compromising growth and development.
For any economy out of all types of economic activities which are directly or indirectly linked to
environmental degradations, responsible financing for development activities may play a very
crucial role as financing for economic activities in most cases in a country like Bangladesh are
not often taken keeping in mind its environmental impacts. This can clearly be seen if we simply
analyze the relationship between the state of its expanding economic activities and
environmental degradations. In this country, many industrial units do not follow environmental
standard like setting effluent treatment plants (ETPs) as guided by regulations and ends up in
destroying the nature. Misgovernance and widespread malpractices are mainly responsible for
this where most of the people are not involved at all. Yet the ultimate sufferers are the people,
countrys environment and its economic sustainability in the long run. Thus, for an expanding
economy like Bangladesh responsible financing in environmentally hazardous economic
activities may play a significant role in addressing environmental challenges and ensuring

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economic progress and prosperity in a sustained manner. Keeping this very in mind, the
Bangladesh Bank (BB) has launched a comprehensive Green Banking1 initiative since 2011.
Bangladesh Bank in its instruction to the commercial banks has rightly identified that bank
financing practices can crucially influence the speed of adoption of environmentally sustainable
output practices for a real economy. Socially and environmentally responsible practices in the
financial sector are, thus, highly warranted (BB, 2011). Bangladesh Banks Green Financing
Guidelines (2011) further instructed that all operating banks and financial institutions in the
country have to adopt green banking practices in three phases- both internally and externally,
by December 2013.
Green banking initiative by the commercial banks and financial institutions as instructed by the
central bank has two steps to follow:
(a) at the first step, the focus should be given on the green transformation of internal
operations of all banks, which may include for example, appropriate ways of utilization
of renewable energy, automation to minimize carbon footprint, etc.
(b) the next step is that all banks should adopt environmentally responsible financing.
As a part of green banking activities, thus all banks and other financial institutions of the
country need to carry out environmental risk assessment of environmentally hazardous
projects and financing those that meet environmental safeguards guidelines; provide green
loan to promote solar energy, biogas plants, ETPs and other energy saving output practices;
develop green banking products for clients; promote growth of mobile and online banking and
include environmental sustainability support initiatives in corporate social responsibility
programmes. These guidelines are currently under implementation by the banks in the country.

It refers to banking practices that foster environmentally responsible financing practices and environmentally
sustainable internal processes minimizing green house gas (GHG) emissions (Bangladesh Bank, 2012).

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It is reported that almost all commercial banks in the country by now have come up with green
banking practices as instructed by Bangladesh Bank. The role of the central bank in this regard
is found to be very really proactive and forward looking. Many opine that this is also a timely
initiative. The Central Bank by now disbursed a whipping 838.4 million taka for this purpose, of
which 56.3 per cent was for solar energy, 30.8 per cent for biogas, 9.1 per cent for Hybrid
Hoffman Kiln and remaining 4.8 per cent for ETP projects. It is expected that the initiative would
bring much positive outcomes if their implementation are made as per the guidelines. Despite
green banking initiative is relatively a new one for Bangladesh, there is an urgent need to have
an assessment of the initiative and understand its effectiveness in the context of environmental
sustainability which does not undermine economic growth and prosperity of the country.
Goal and Objectives of the Study
With the above discussed rationality for introducing green banking in mind, the present project
is designed to understand the state of green banking practices by commercial banks and other
financial institutions in Bangladesh and also evaluate its environmental effectiveness. More
specifically, the objectives can be further elaborated as follows:
1. To assess the need of introducing green banking scheme by Bangladesh Bank in the
present context of Bangladesh economy;
2. To study and understand how far commercial banks and other financial institutions in
the country have followed BBs instructions on green banking in their prescribed
financial operations, both internally and externally;
3. To undertake a few case studies taking from 4 (four) selected state-run and private
commercial banks and assess their green banking projects for a detail analysis to
understand how far environmental sustainability has been achieved by these projects as
expected;
4. To identify possible obstacles, if any, facing by the commercial banks and other financial
institutions in the country in implementing their green banking initiatives; and finally
5. To suggest possible policy measures to improve attaining environmental sustainability in
the financial sector of Bangladesh.
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Hypotheses
Keeping these objectives in mind, the study proposes the following null hypotheses for testing:
(a) All commercial banks and other financial institutions in Bangladesh are following the
green banking guidelines both internally and externally as prescribed by BB.
(b) All projects financed by the commercial banks and other financial institutions in
Bangladesh under the green banking scheme have been following prescribed
environmental safeguard measures.
(c) All projects financed by banks and other financial institutions in Bangladesh under the
green banking scheme are found to be environmentally sustainable projects.
Data Sources and Methodology
The study is expected to use both primary and secondary data as required. Thus to fulfill the
above objectives and test the three set hypotheses for the study, it will depend on data
collected from Bangladesh Bank, various commercial banks and other financial institutions,
Ministry of Finance of the Government of Bangladesh and international sources like IMF and
World Bank besides collecting primary data on selected green banking projects using structured
questionnaire. Besides these sources, primary data will also be collected through expert
opinions, surveying on bankers and other professionals involved in green banking practices in
various commercial banks. Loanees who are extended loans under this scheme would also be
surveyed and their experiences and opinions would be collected.
The collected data will then be analyzed, using standard quantitative and qualitative analytical
measures. Besides descriptive analysis, advanced quantitative techniques like regression
analysis will also be undertaken, if required, at a later stage in consultation with supervisor(s)
for understanding the effectiveness of green banking initiative in attaining environmental
sustainability in economic activities as expected by the Bangladesh Banks initiative from
financing by commercial banks and other financial institutions for financing in hazardous
development projects. Furthermore, established experts in these areas will also be consulted
for identifying other possible techniques in analyzing data for this study.
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Scope and Limitations of the Study

The present study aims to understand and evaluate the green banking initiative taken by the
Bangladesh Bank to attain minimum environmental standards and environmental sustainability
in economic activities financing by commercial banks, plans to adopt a case study-based
approach in answering the above questions set out. Use of both primary and necessary
secondary data is thus warranted for carrying out the task. The approach of the work will be
rather than studying all projects financed under the green banking scheme by the commercial
banks, a purposive sampling in selecting a few cases from both state run and private
commercial banks will be drawn and then study in detail their effectiveness in regards to
environmental sustainability. Possible suggestions and policy guidelines may be suggested at
the end, based on scientific analysis of the works and also within the scope of an academic
work like this.

Reference
1. Bangladesh Bank, Green Banking in Bangladesh: Fostering environmentally sustainable
inclusive growth process, Dhaka 2013
2. Bangladesh Bank, Policy Guidelines for Green Banking, Dhaka 2011
3. Bangladesh Bank, Guidelines on Environmental Risk Management, Dhaka 2011
4. Biswas, Mr. N, Sustainable Green Banking Approach: The Need of the Hour, Business
Spectrum, 2011

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