Chapter One

Background of the study

Page | 1
1.1 Introduction
Environmental pollution and climate change leading to global warming are one of the three most
discussed issues worldwide. These issues, mostly caused by human activities, are not only
affecting our economy and our living standards, but our very existence is dependent on the efficient
management of these issues.

The geographic location of Bangladesh makes it one of the most climate vulnerable regions of the
world. Lack of awareness, environmental education, compliance and negligence on the part of the
business and the mass people are also resulting in fast deterioration of the environment. This
situation can only be improved through coordinated efforts from the government, private sector,
and individuals. And banks and NBFIs are well positioned to act as catalysts to support and
supplement these efforts aimed at a greener environment.

‘Green Banking’ is the operation of the financial sector with special focus on the environmental,
ecological and social factors, targeting conservation of nature and natural resources. The term
broadly encompasses awareness creation and promotion of environment friendly projects and
practices, and reduction of the overall carbon footprint from both its financing and in-house
operations. Through green banking, the NBFIs are not only required to improve their own
standards, but also play an active role in demanding the same from its stakeholders as well.

In Bangladesh, perhaps no worth mentioning study was conducted especially on the sustainability
of the green banking. Realizing the significance of sustainability of said sector in Bangladesh, the
researchers have become ardently engrossed to conduct an in-depth research study on this drone
issue of modern economy.

1.2 Justification of the study

Climate change is the most complicated issue in the world. Across the globe there have been
continuous en-devours to measure and mitigate the risk of climate change. As socially responsible
citizen, Bangladeshi NBFIs have a major role and responsibility to support and supplement the
government effort towards substantial reduction in carbon emission. Normally we can consider the
NBFIs as environment friendly institutions with their operational activities but it is important that
the environment can be greatly affected by the activities of their customers.

Page | 2
The NBFIs is the second major source of financing for commercial projects such as Brick field,
Steel, Paper, Cement, Chemical fertilizers, Power, Textiles etc. which cause maximum carbon
emission. Therefore the NBFIs can play intermediary role between economic development and
environment protection by promoting sustainable and socially responsible investment.

Green Banking refers to the banking business conducted in such areas, in such a manner that helps
the reduction of overall external carbon emission and internal carbon footprints. To aid the
reduction of external carbon emission, NBFIs should finance green technology and pollution
reducing project. Internally, the institutional operations have considerably increased the carbon
footprints due to their massive use of energy e.g. lighting, air conditioning, IT, high paper wastage,
lack of green building, extreme use of electrical/electronic equipment etc. Therefore, to adopting
green banking, NBFIs should adopt technology, process and products which result in substantial
reduction of their carbon footprints as well as develop sustainable business. Now-a-days global
warming is the key issue of the world and green banking might be solution of this burning question.
Assessing the available literature, it has been found that no profound work has been done on this
topics till now. As it is very novice topics for country like Bangladesh. That’s why working on this
contemporary topic is important for the greatest interest of people. In fact the work has enormous
justification from theoretical and practical viewpoints.

1.3 Objective of the study

This study mainly aims to analysis the green banking practices of the selected non-bank financial
institutions in Bangladesh. To attain the main objective, the study considers the following
objectives in particular:

1. To give an overview of green banking practices of NBFIs in Bangladesh.

2. To evaluate the green banking performance of NBFIs in Bangladesh.
3. To provide some suggestions in the implementation of green banking practices of
NBFIs.

Page | 3
1.4 Methodology:
The standardization of the report mainly depends on proper data collection sources of data,
appropriate analysis, correction, organization and explaining the same.

1.4.1 Research Design

This report research on “An Evaluation of Green Banking Policies and Practices – a Study on
Non-bank Financial Institutions in Bangladesh”. I have tried to show how much budget
allocation and utilization of several non-bank financial institutions and Bangladesh Bank by the
empirical results of green finance, environmental risk and core risk management, in-house
activities, climate risk fund and green marketing.

1.4.2 Data Source

To conduct this study, four scheduled non-bank financial institutions have been possible to choose
as sample non-bank financial institutions purposively, namely IDLC Finance Ltd., Fareast Finance
& Investment Ltd., Saudi BD Industrial & Agricultural Investment Ltd. and Prime Finance &
Investment Ltd. I also have tried to show the comparison of the NBFIs position against Bangladesh
Bank’s on a quarterly basis.

1.4.3 Collection of Data

This study is basically descriptive in nature. Data is collected from the secondary sources like
different publications of green banking, quarterly reports of different non-bank financial
institutions and Bangladesh Bank 2016-Q4, 2016-Q3, 2016-Q2, 2016-Q1 and 2015-Q4 and other
related articles. A thorough research was carried out for a period of two month when I talked with
several people from the NBFIs and finally this article is chalked. The investigation will be helpful
for the readers and researchers.

1.4.4 Data Analysis

The date have been analyzed in aspect of practices and problems of green banking of non-bank
financial institutions in Bangladesh. The findings of the study are reliable as the authentic sources
of data.

Page | 4
1.5 Scope of the Study
This reports mainly deals with the green banking practices of the non-bank financial institutions
in Bangladesh and comparative analysis between NBFIs and Bangladesh Bank. It focuses on the
quarterly financial statement of IDLC Finance Ltd., Fareast Finance & Investment Ltd., Saudi BD
Industrial & Agricultural Investment Ltd., Prime Finance & Investment Ltd. and Bangladesh Bank.
The readers will get the idea about policies and practices of NBFIs and their comparative position
against Bangladesh Bank.

1.6 Limitations of the Study

The present study may suffers from the following limitations:

 The sample size was relatively small as compared to the total population, for that it
cannot represent the overall condition of green banking’s status in NBFIs.
 The short period of time became a constraint for conducting such a critical research
regarding green banking more absolutely.
 It is too much difficult to comment and suggest based on only the report publications
and information supplied by the organization.
 Lack of essential data.
 Unstable political situation and conflicts.
 The duration of time to collect and analyze the information to prepare this report was
not sufficient.
 As the study has been fabricated only for more than two months, this short duration is
not adequate for experimental work.
 The study is based on only annual reports of the sample NBFIs. So it may not represent
the actual situation.

Page | 5
Chapter Two
Literature Review

Page | 6
In Bangladesh Bank Green Banking policy, it is stated that global warming, which is one of the
most burning & discussed issues, has the worst impact on the climate of the planet as a whole. The
rapid change in climate will be too great to be adapted by the eco-systems, since the change have
already made direct impact on biodiversity, agriculture, forestry, dry land, water resources and
human health. As such, issue of global warming calls for a global response. Due to unusual weather
pattern, rising greenhouse gas, declining air quality etc. society demands that business also take
responsibility in safeguarding the planet.

Thombre (2011) argued that environmental impact of bank’s external activity is huge though
difficult to estimate. Thus, encouraging environmentally responsible investments and careful
lending should be one of the responsibilities of the banking sector. (Sahoo and Nayak 2008). The
bank should go green and play a pro-active role to take environmental and ecological aspects as
part of their lending principle, which would force industries to go for mandated investment for
environmental management, use of appropriate technologies and management systems (Hayder
2012). Verma (2012) stated that Indian banking is gradually coming to realize that there is need
from a shift from the ‘profit, profit and profit motive to ‘planet, people and profit’. GB involves
pursuing of financial and business policies that are not hazardous to environment and help to
protect environment. The purposes of GB are to use resources with responsibility avoiding waste
and giving priority to environment and society.

Suresh Chandra Bihari (2011) elucidated that GB includes the promoting corporate social
responsibility (CSR). Its starts with the aim of protecting the environment where banks consider
before financing a project whether it is environment friendly and has any implications for the
future. A company will be given only when all the environmental safety standards are followed.
He also emphasized that GB can be efficiently implemented through the use of technology and
policy.

Page | 7
Kazi Golam Azam (2014) in his paper recommended about the environment friendly investment
in the financial project e.g. installing solar energy plant, bio-gas, bio-fertilizer plants, Effluent
Treatment Plant (ETP) etc. He also emphasized that the bank should introduce new green product
like green home loan, green car loan and increase the use of online instead of using paper. Mainly,
Bank should make their client aware about the importance of green banking and adapting in it.

Bangladesh Bank Governor argued that all need to change mindset about environmental issues for
making a better future through greening financial transactions (Star 2010). To save our planet it is
the time to take initiative for green banking. The banks should give priorities in providing loan to
the sectors that encourage environmental practices (Rashid 2010). GB is not limited within
branches green activities, but extends to facilitating green investment/ financing so that a huge
contribution to resource-efficient and low carbon industries, i.e. green industry and green economy
in general can be made.

Atiur Rahman (2012) in Rio+20 summit stated about the position of Bangladesh on GB initiatives
and how Bangladesh bank is going to deal with the environmental problem through re-financing
of renewable energy, banking automation, mobile financing service, CIB (credit information on
borrower) online, facilitating e-commerce etc.

Lalon (2015) stated in his paper that, the green banking activities of commercial banks of
Bangladesh and tried to reason why this policy was adopted, and make a comparison among the
green banking practices of the commercial banks as well.

Habib (2012) stated that much more is expected from NGOs and civil society organizations in the
form of awareness development, research activities and business monitoring. For rapid change
among consumers and businesses, a collective endeavor of government, media, NGOs will be
required.

Page | 8
 Chapter Three
Overview of Green Banking

Page | 9
3.1 Definition of Green Banking
Defining green banking is relatively easy. It means promoting environmental-friendly practices
and reducing your carbon footprint from your banking activities. This comes in many forms. Using
online banking instead of branch banking. Paying bills online instead of mailing them etc.

Green banking thus involves in two approach. Firstly, GB focuses on the green transformation of
internal operations of all NBFIs. It means NBFIs the bank should adopt the appropriate ways of
utilizing renewable energy, automation and other measures to minimize the carbon footprint from
the institutional activities. Secondly, all NBFIs should adopt environmentally responsible
financing, weighting up environmental risks of project before making financing decisions and in
particular supporting and fostering the growth of upcoming “green” initiatives and projects.
Generally GB coverage includes: Sustainable banking, Ethical banking, Green mortgages, Green
loan, Green credit card, Green saving/checking/money market accounts, Mobile banking, online
banking, Green financing etc.

3.2 Objectives of Green Banking

Broad objectives of GB are to use resources with responsibility and giving priority to environment
and society. It is not just another corporate social responsibility (CSR) activity rather all our effort
to keep this world livable without further damage.Five pillars of green banking:

 Not to Harm Environment

 Restrict on-going Environmental Harm
 Saving scarce economic resources
 Supporting other stake holders
 Maintaining transparency in green activities.

There are also other objectives i.e.

 Using organizational resources with responsibility.

 Keep the world livable for a long period of time.
 To minimize paper work as much as possible inside and outside of the NBFIs.
 To achieve the cost and time efficiency.

Page | 10
3.3 Importance of Green Banking
Until now, the business operations of financial and banking institution were not acknowledged
towards the environmental concern. Generally the environmentally degrading activities of the
financial and banking sectors’ are like obstructing or getting the way of business affair of their
clients. Nevertheless, it will risk of their business if they were dealing with the environment.
Although there are indirect cost to the NBFIs as they are directly affected by the environmental
degradation. It is due to the firm environmental regulation that is enforced by the other countries
authorities. In case of failure, the industries have to face the consequences which leads NBFIs to
its closure. The GB is important for both economy and NBFIs, by escaping the risk which is
involved in the financial sectors.

Legal Risk: - There is a relevant environmental legislation risk for NBFIs if they don’t comply
with it. More particularly, there is more lender liability risk for paying up the claims and the cost
of damages for pollution causing to the asset or depraved. NBFIs can be helped by the
environmental management by enhancing its image and reduce the cost and risk and taking the
advantages of revenue opportunity.

Reputation Risk: - As now there is more awareness about the safety of environment and bank
and NBFIs may loosen up their reputation if they involve in big projects which are indulging in
the environmental destruction. Environmental management system has a very few cases as in good
result in cost saving and increase in the value of bond. Sometimes it has lower risk, great
environmental stewardship and increase in profit. Reputation risk is involved in both ethically and
economically.

By adopting the green banking strategies NBFIs can deal with these risks. There is to component
involved in GB strategies i.e. (a) innovative environmentally oriented financial products (b)
managing risk environment. NBFIs have to make a proper arrangement for environmental
management system so that risk can be evaluate which involved in the investment project. The risk
can be adopted by recommending the distinctive techniques and rate of interest. From high risk
project bank can withdraw fund from it. Creating services and financial products is a second
component of GB which support environmental benefits with commercial benefits. There are such

Page | 11
project such as bio-diversity conservation, investment in renewable energy, investment in
technologies, energy efficiency, environmental investments in mutual funds and bonds.

Technologies which are environment friendly practically decrease the financial burden and also
building up the economic sense for the industries. Due to more awareness among the consumer in
all over the world the pollutant industries were facing resistance by the consumer which often
cause them massive boycott and close down of the industries and the cost is adding enormously.

The concerns about environment are articulated into the international policy trade and act as a
blockade of ESCs (Environmental Sensitive Goods). So affirming mode of production and
sustainable technologies are not taking as a financial burden now. Although it provides high profit
and new opportunities for the business. Green banking has neutralized the risk, save the cost and
up brings the reputation of the bank and NBFIs. So it serves the commercial objectives of NBFIs
as well as the social responsibilities.

3.4 Evolution of Green Banking

Going “Green”: Banking’s Evolution

Banking evolution although the roots of the environmental movement can be traced as far back
as 1975, much of modern history did not reflect a conscientious concern for our natural resources
and sustainable management of such until late. Just think how our progress has led to the demise
of our environment. The industrial revolution, pollution, cars, smog, are pesticides the list could
go on and on. In the 20th century environmental concern grew into popularity and recognition, and
throughout the 1970s. 80s, 90s and beyond, public awareness and the encouragement to “go
green” has experienced exponential growth in banking evolution.

As more people and businesses are recognizing the importance of preserving our environment and
adopting green practices in banking evolution, it is safe to say the movement is not a fad, but has
taken root and is here to stay. As late as 20 to 25 years ago, making ecologically friendly choices
was more of a choice attributed to the “tree hugger” types rather than a necessary and an intend
to “save the planet” by “going green” in banking evolution we must consider the impact we have
made leading to its destruction. Not only the individuals stepping up to the plate to make changes,
so are businesses across the global NBFIs.

Page | 12
“Historically the only “going green” that NBFIs cared about was the government issued currency
kind, but that too is changing in FI evolution. Even NBFIs has adopted several practices to aid in
the green movement. By doing so and encouraging customers to take advantage of said practices,
NBFIs are dramatically reducing their carbon footprints. “The private financial sector more than
any other has the ability to begin the ecological U-turn modern society so desperately needs”, said
Hyse Hogue, Director of the Global Finance Campaign at Rainforest Action Network at “Time
Magazine article” in 2005.

In last decade, people across the globe have cut down on waste and promoted earth friendly
products and services. In the financial sector, one emerging trend is a move to promote green
banking practices. According to a banking evolution survey from strategy and research, “If the
every household went paperless, it could reduce solid waste in landfills by more than 8,00,000
tons a year, help curb the release of greenhouse gases by 2.1 million tons a year and save an
estimated 18.5 million trees each year.” In 50 years, one tree recycles more than Tk.2,37,000.00
worth of water, provides Tk.2,57,000.00 worth Oxygen. A study shows that one household annual
paper statements from the banks strips square feet of forest each year to consider the cost.

What is NBFIs doing to save the planet and consumer money by banking evolution?

Through implementing “going green” strategies has given NBFIs customers an opportunity to
make a difference in the environment while completing necessary business. When NBFIs adopt
cost efficient, automated practices, they contribute to the ongoing awareness and conscious support
of environmentally friendly practices and produces greater profit. “Going green” is vital to
sustaining the planet, and when implemented effectively, can put green right where you want it
back in your pocket. It is the perfect time to join the evolution.

Page | 13
3.5 Green Banking Product and Services
NBFIs are starting to see the “top line”, money-marketing reality of delivering sustainability to
corporate and retail clients. There’s nothing like a new, successful product or service roll out to
get a banker’s, insurer’s or asset manager’s blood flowing. Product that gain traction in the market
place will delight clients, add value, build careers and boost the bonus pool. With the public and
corporate imagination worldwide, NBFIs are rushing to market with new and re-packaged product
and service offerings from green auto insurance to innovative pro-eco mortgages and new
sustainability-backing investment funds.

Most non-bank financial institutions did not practice green banking or actively seek investment
opportunities in environmentally-friendly sectors or businesses. Only recently have these
strategies become more prevalent, not only among smaller alternative and cooperative NBFIs, but
also among diversified financial service providers, asset management firms and insurance
companies. Although these companies may differ with regard to their stated motivations for
increasing green products and services, the growth, variation and innovation behind such
developments indicate that we are in the midst of a promising drive towards integrating green
financial products into mainstream financial activities.

This product and service review is divided into the following non-bank financial sectors:

 Corporate and investment banking

 Asset management
 Insurance

Green Mortgages: In general, green mortgages, or energy efficient mortgages, provide retail
customers with considerably lower interest rates than market rates for clients who purchase new
energy efficient homes and/or invest in retrofits, energy efficient appliances or green power. NBFIs
can also choose to provide green mortgages by covering the cost of switching a house from
conventional to green power, as well as include this consumer benefit when marketing the product.
These retail products some in different designs, some of which have met more success than others.

Page | 14
Green Home Equity Loans: Reduced rate home equity loans, sometimes referred to as second
mortgages, can help to motivate household to install residential renewable energy technologies. In
designing and offering these incentive-based products, a number of NBFIs have also partnered
with technology providers and environmental NGOs.

Green Car Loan: With below market interest rates, many green car loans encourage the car that
demonstrate high fuel efficiency. The number of these products has increased in recent years. Most
green car loans are offered by credit unions, as innovative vehicle lending has proven to be an
ideal niche for smaller NBFIs.

Green Commercial Building Loans: Attractive loan designs and arrangements have started to
emerge for green commercial buildings, characterized by lower energy consumption, reduced
waste and less pollution than the traditional buildings. Some appraisers are now recognizing
reduced operating expenses, improved performance and longer lifetimes associated with these
green functions and features. Lower project cost also improve net operating income of the
company.

3.6 Guideline of Bangladesh Bank

Being a responsible and corporate citizen and with a view to developing green banking practices
in the country, Bangladesh Bank issued a circular on February 27, 2011 on Policy Guideline for
Green Banking towards NBFIs stating “to adopt a comprehensive Green banking policy in a formal
and structured manner in line with the global norms so as to protect environmental degradation
and ensure sustainable banking practices.” In line with the instructions of Bangladesh Bank, all
NBFIs have taken initiatives to formulate its Green banking policy with an aim to inculcate
practices towards optimum usage of natural resources and make every effort for environmental
friendly activities.

The central bank of Bangladesh has issued policy guidelines for green banking aiming to protect
environmental degradation and ensure sustainable banking practices. Under the guidelines, the
NBFIs will formulate and adopt broad environmental or green banking policy and strategy
approved by their board of directors.

Page | 15
The non-bank financial institutions will approve a considerable fund in their annual budget
allocation for green banking. ”NBFIs shall comply with the instructions stipulated in the detailed
guidelines on environmental risk management (ERM) in consideration of a part of the green
banking policy,” the guideline said, adding the NBFIs in the incorporate environmental and climate
change risk as part of the existing credit risk methodology prescribed to assess a perspective
borrower. The guideline also said, the NBFIs should take steps to save energy from corporate
business travel and encourage employee to purchase energy-efficient car (that consume less fuel)
that can reduce gas and petroleum consumption.

“Eco-friendly business activities and energy efficient industries will be given preference in
financing by NBFIs. Environmental infrastructure such as renewable energy projects, clean water
supply projects, wastewater treatment plants, bio-gas plants, bio-fertilizer plants should be
encouraged and financed by NBFIs,” It added. The NBFIs should determine a set of achievable
targets and strategies, and disclose these in their annual reports and websites for green financing
and in-house environment management as well.

“”The Bangladesh Bank will award points to FI on management component while computing
CAMELS rating, while there will ultimately be a positive impact on overall rating of a FI.” It
added.

Then central bank declares the name of the top non-bank financial institutions for their overall
performance in green banking activities on its website, the guideline said, adding that it would
actively consider green banking practices of a NBFIs while giving permission for opening a new
branches.

Page | 16
 As per circular of Bangladesh Bank, NBFIs are to implement Green banking guideline in three
phases. They are:

Phase-I Phase-II
Deadline: 31.11.12 Deadline: 31.12.12
•Policy Formulation and •Sector Specific
Governance Environmental Policies
•Incorporation of •Green Strategic Planning
Environmental Risk in CRM •Setting up Green
Phase-III
•Initiating In-house Branches
Deadline: 31.12.13
Environment Management •Improved In-house
•Designing and
•Introducing Green Finance Environment
Introducing Innovative
•Creation of Climate Risk Management
Products
Fund •Formulation of Bank
•Reporting in Standard
•Introducing Green Specific Environmental
Format with External
Marketing Risk Management Plan
Verification
•Online Banking and Guidelines
•Supporting Employee •Rigorous Programs to
Training, Consumer Educate Clients
Awareness and Green Event •Disclosure and Reporting
•Disclosure and Reporting of of Green Banking
Green Banking Activities Activities

Figure 3.6 Green banking policies of Bangladesh Bank for no-bank financial organizations.

Phase-I
NBFIs are to develop green banking policies and show general commitment on environment
through in-house performance. The time lining for the actions to be taken under Phase-I should
not exceed June 30, 2014.

Page | 17
1.1 Policy Formulation and Governance

NBFIs shall formulate and adopt broad environmental or Green Banking policy and strategy
approved by their Board of Directors. A high powered Committee comprises of directors from the
Board in should be responsible to review the NBFIs’ environmental policies, strategies and
program. NBFIs shall approve a considerable fund in their annual budget allocation for green
banking. NBFIs are required to establish a separate Green Banking Unit or Cell having the
responsibility of designing, evaluating and administering related green banking issues of the
NBFIs. A senior executive should be assigned with the responsibility of heading the unit. The unit
will report to the high powered committee time to time.

1.2 Incorporation of Environmental Risk in CRM

NBFIs shall comply with the instructions stipulated in the detailed guidelines on Environmental
Risk Management (ERM) in consideration of a part of the Green Banking Policy. NBFIs shall
incorporate Environmental and Climate Change Risk as part of the existing overall credit risk
methodology prescribed to assess a prospective borrower from both credit and environmental risk
point of view. This will include integrating environmental risks in the checklists, audit guidelines
and reporting formats. All of this will help to mainstream Environmental Risk that cover possible
sources of Environmental Risk such as Land use, Climate change related events (cyclone,
drought), animal diseases/pathogens such as avian influenza, solid waste including waste feed,
animal waste, carcasses, sediments, wastewater discharges, hazardous materials, etc. will be
reviewed under Environmental Due Diligence (EDD) checklists.

1.3 Initiating In-house Environment Management

NBFIs shall prepare an inventory of the consumption of water, paper, electricity, energy etc. by its
offices and branches in different places. Then it should take measures to save electricity, water and
paper consumption. A 'Green Office Guide' or at least a set of general instructions should be
circulated to the employees for efficient use of electricity, water, paper and reuse of equipment. In
place of relying on printed documents, online communication should be extensively used (where
possible) for office management and make sure that the printers are defaulted to duplex for double
side printing to save papers. NBFIs may apply Eco-font in printing to reduce use of ink, use scrap

Page | 18
paper as notepads and avoid disposable cups/glasses to become more eco- friendly. Installation of
energy efficient electronic equipment and automatic shutdown of computers, fans, lights, air
coolers etc. will help reducing electricity consumption. Energy saving bulbs should replace normal
bulbs in branches/offices of the NBFIs. NBFIs should make plan to use solar energy at their
premises to save electricity. NBFIs should take steps to save energy from corporate business travel
and encourage employees to purchase energy efficient cars (that consume less fuel) can reduce gas
and petroleum consumption. NBFIs should give more emphasis to make the easiest way to help
environment by eliminating paper waste, saving gas and carbon emission, reducing printing costs
and postage expenses.

1.4 Introducing Green finance

Eco friendly business activities and energy efficient industries will be given preference in
financing by NBFIs. Environmental infrastructure such as renewable energy project, clean water
supply project, wastewater treatment plant, solid and hazardous waste disposal plant, bio-gas plant,
bio-fertilizer plant should be encouraged and financed by NBFIs. Consumer credit programs may
be applied for promoting environmental practices among clients.

1.5 Creation of Climate Risk Fund

NBFIs should finance the economic activities of the flood, cyclone and drought prone areas at the
regular interest rate without charging additional risk premium. However, NBFIs should assess their
environmental risks for financing the sectors in different areas for creating a Climate Change Risk
Fund. This will be used in case of emergency. NBFIs would ensure regular financing flows in
these vulnerable areas and sectors. The fund could be created as part of NBFIs’ CSR expenditures.

1.6 Introducing Green Marketing

Green marketing is the marketing of products that are presumed to be environmentally safe. Green
marketing incorporates a broad range of activities, including product modification, changes to the
production process, packaging changes, as well as modifying advertising. It refers to the process
of selling products and/or services based on their environmental benefits. Such a product or service
may be environmentally friendly in itself or produced and/or packaged in an environmentally

Page | 19
friendly way. NBFIs should use environmental causes for marketing their services to consumer.
Green marketing is expected to help awareness development among common people.

1.7 Supporting Employee Training, Consumer awareness & Green Event

Employee awareness development and training on environmental and social risk and the relevant
issues should be a continuous process as part of the NBFIs’ Human Recourse Development.
Awareness development among consumers and clients would be a continuous job of a FI under its
public relation department.

1.8 Disclosure and Reporting of Green Banking Activities

NBFIs shall report on the initiatives/practices to Green Banking and CSR Department of
Bangladesh Bank in specified format (Annexure-A) on quarterly basis and disclose in their
respective websites. NBFIs have to submit the report within the next 15 days of each quarter.

Phase-II
The time lining for the actions to be taken under Phase-II should not exceed December 31, 2014.

2.1 Sector Specific Environmental Policies

NBFIs need to formulate strategies to design specific policies for different environmental sensitive
sectors such as Agriculture, Agri-business (Poultry and Dairy), Agro farming, Leather(Tannery),
fisheries, Textile and Apparels, Renewable Energy, Pulp and Paper, Sugar and distilleries,
Construction and Housing, Engineering and Basic Metal, Chemicals (Fertilizers, Pesticides and
Pharmaceuticals), Rubber and Plastic Industry, Hospital/Clinic, Chemical Trading, Brick
Manufacturing, Ship breaking etc.

2.2 Green Strategic Planning

A FI should determine green targets to be attained through strategic planning. NBFIs should
determine a set of achievable targets and strategies, and disclose these in their annual reports and
websites for green financing and in-house environment management as well. For in-house
environment management, the target areas should cover attaining energy efficiency in the form of

Page | 20
the use of renewable energy, reduction of electricity, gas, and petrol consumption, reduction of
Green House Gas (GHG) emissions, issuance of e-statements, electronic bill pay, saving papers,
environment friendly office buildings etc. For Green Financing, the target areas should cover
reducing loans for certain environmentally harmful activities, attaining a particular percentage of
environmental loans as percentage of total, introducing eco-friendly financial products etc.

2.3 Setting up Green Branches

A Green Branch should be featured by the provision of the maximum use of natural light, use of
renewable energy, use of energy saving bulbs and other equipment, reduced water and electricity
use, use of recycled water etc. Such a branch of a FI would be specifically designated as a ‘Green
Branch’. A Green Branch will be entitled to display a special logo approved by Bangladesh Bank.
The criteria for certification of a ‘Green Branch’ will be circulated by Bangladesh Bank in due
course of time.

2.4 Improved In-house Environment Management

Strategy of reuse, recycling of materials and equipment, and source reduction and waste
minimization strategy should be part of in-house environmental management in Phase-II. NBFIs
should increasingly rely on virtual meeting through the use of video conferencing in lieu of
physical travel which would help saving cost and energy.

2.5 Formulation of FI Specific Environmental Risk Management Plan and

Guidelines

A FI should develop and follow an environmental risk management manual or guidelines in their
assessment and monitoring of project and working capital loans. In addition to the compliance of
national regulation the NBFIs may set internationally accepted higher environmental standards. In
this connection, Green initiatives by a group of NBFIs will not only be effective but will also offer
competitive advantage. NBFIs’ alliances may prepare standard and guidelines for themselves for
improving Green Banking practices.

Page | 21
2.6 Rigorous Programs to Educate Clients

Clients and business houses should be encouraged and influenced to comply with the
environmental regulations and undertake resource efficient and environmental activities. NBFIs
should introduce rigorous programs to educate clients.

2.7 Disclosure and Reporting of Green Banking Activities

NBFIs should start publishing independent Green Banking and Sustainability reports showing past
performances, current activities, and future initiatives. Updated and detailed information about
NBFIs’ environmental activities and performances of major clients should be disclosed.

Phase-III
A system of Environmental Management should be in place in a FI before the initiation of the
activities of Phase-III. NBFIs are expected to address the whole eco-system through environment
friendly initiatives and introducing innovative products. Standard environmental reporting with
external verification should be part of the phase.

The time lining for the actions to be taken under Phase-III should not exceed June 30, 2015.

3.1 Designing and Introducing Innovative Products

Alongside avoiding negative impacts on environment through banking activities, NBFIs are
expected to introduce environment friendly innovative green products to address the core
environmental challenges of the country.

3.2 Reporting in Standard Format with External Verification

NBFIs should publish independent Green Annual Report following internationally accepted
format like Global Reporting Initiatives (GRI) targeting their stakeholders. There should be
arrangement for verification of these publications by an independent agency or acceptable third
party.

Page | 22
Chapter Four
Data Analysis

Page | 23
 4.1 Budget for Green Banking Activities
Non-bank Financial Institutions (NBFIs) shall approve a considerate amount for green banking in
their annual budget, which will include:

(i) Budget for Environment Risk Management and Core Risk Management
(ii) Budget for Green Finance
(iii) Budget for Climate Risk Fund
(iv) Budget for Marketing and Capacity Building for GB
(v) Budget for Online Banking

4.1.1 Budget Allocation

The NBFIs and Bangladesh Banks budget allocation for ‘Quarter’ 2016-Q4, 2016-Q3, 2016-Q2,
2016-Q1 and 2015-Q4 are following:

Non-bank Financial Institutions Bangladesh Bank % against

Bangladesh
Quarter IDLC Fareast Saudi BD Prime Total Total
Bank
Finance Finance & Industrial & Finance &
Ltd. Investment Agricultural Investment
Ltd. Investment Ltd.
Ltd.
2016-Q4 250.24 75.0125 15.75 36.25 377.2525 25,764.81 1.46%

2016-Q3 250.75 75.0125 15.75 36.25 377.7625 23,524.68 1.61%

2016-Q2 250.04 60.0125 15.75 36.25 362.0525 20,436.78 1.77%

2016-Q1 250.15 40.0125 15.75 36.25 342.1625 18,275.83 1.87%

2015-Q4 251.30 30.0125 17.5 - 298.8125 24,641.00 1.21%

Table 4.1.1 Budget Allocation (Amounts in Million BDT)

Sources: Quarterly Green banking report of NBFIs and Bangladesh Bank

Page | 24
 Allocation of Fund for GB Acitivities
30000

25000

20000

15000 Financial Instituton

Banglades Bank
10000

5000

0
2016-Q4 2016-Q3 2016-Q2 2016-Q1 2015-Q4

Figure 4.1.1 Budget Allocation (Amounts in Million BDT)

Above the graph we can see that, in budget allocation the difference between selected non-bank
financial institutions and Bangladesh bank’s budget is too large. In 2016-Q4, 2016-Q3, 2016-Q2,
2016-Q1 and 2015-Q4 NBFIs allocated 377.2525 (million in Taka), 377.7625 (million in Taka),
362.0525 (million in Taka), 342.1625 (million in Taka), and 298.8125 (million in Taka) which is
1.46%, 1.61%, 1.77%, 1.87%, and 1.21% against Bangladesh Bank budget allocation respectively.

Page | 25
 4.1.2 Budget Utilization
The NBFIs and Bangladesh Banks budget utilization for ‘Quarter’ 2016-Q4, 2016-Q3, 2016-Q2,
2016-Q1 and 2015-Q4 are following:

Non-bank Financial Institutions Bangladesh Bank % against

Bangladesh
Quarter IDLC Fareast Saudi BD Prime Total Total
Bank
Finance Finance & Industrial & Finance &
Ltd. Investment Agricultural Investment
Ltd. Investment Ltd.
Ltd.
2016-Q4 114.6029 843.15 - - 957.7529 3,577.41 26.77%

2016-Q3 145.222 733.81 - 8.50 887.532 3,087.52 28.75%

2016-Q2 187.27 450.00 - - 637.27 5,158.17 12.35%

2016-Q1 340.1177 150.00 - 40 530.1177 2,875.59 18.44%

2015-Q4 123.1057 573.20 - - 696.3057 4,688.00 14.85%

Table 4.1.2 Budget Utilization (Amounts in Million BDT)

Sources: Quarterly Green banking report of NBFIs and Bangladesh Bank

Page | 26
 Utilization of Fund
6000

5000

4000

3000 Financial Institutions

Bangladesh Bank
2000

1000

0
2016-Q4 2016-Q3 2016-Q2 2016-Q1 2015-Q4

Figure 4.1.2 Budget Utilization (Amounts in Million BDT)

Above the graph we can see that, in budget utilization the difference between selected Non-bank
Financial Institutions and Bangladesh bank is lesser than the allocation of fund. In 2016-Q4, 2016-
Q3, 2016-Q2, 2016-Q1 and 2015-Q4 NBFIs utilized 957.7529 (million in Taka), 887.532 (million
in Taka), 637.27 (million in Taka), 530.1177 (million in Taka), and 696.3057 (million in Taka)
which is 26.77%, 28.75%, 12.35%, 18.44%, and 14.85% against Bangladesh Bank budget
utilization respectively.

4.2 Environmental Risk Rating and Core Risk Management:

Environmental risk is not part of credit risk, but it is facilitating element of credit risk when it is
liked with the credit risk due to environmental condition or climate change. A strong credit risk
graded project or business deal may be weakened by high environmental risk rating because of
high environmental risk therein. Environmental risk in this case has greater impact over credit risk
in the overall credit risk methodology. NBFIs are now assessing environmental risk rating as per
the environmental due diligence checklist of environmental risk management guideline.

Page | 27
 The NBFIs and Bangladesh Bank’s financial amount disbursed for the rated project for ‘Quarter’
2016-Q4, 2016-Q3, 2016-Q2, 2016-Q1 and 2015-Q4 are following:

Non-bank Financial Institutions Bangladesh Bank % against

Bangladesh
Quarter IDLC Fareast Saudi BD Prime Total Total
Bank
Finance Finance & Industrial & Finance &
Ltd. Investment Agricultural Investment
Ltd. Investment Ltd.
Ltd.
2016-Q4 3,437.74 5,334.64 - 1,418.57 10,190.95 27,015.28 37.72%

2016-Q3 2,654.64 188.13 - 1,123.40 3,966.17 25,274.60 15.69%

2016-Q2 2,385.03 609.31 233.32 873.72 4,101.38 37,293.74 10.998%

2016-Q1 3,194.71 1,479.81 79.22 762.57 5,516.31 30,147.51 18.298%

2015-Q4 1,767.85 576.00 61.38 - 2,405.23 28,561.70 8.42%

Table 4.2.1 Environmental Risk Rating (Amounts in Million BDT)

Sources: Quarterly Green banking report of NBFIs and Bangladesh Bank

Page | 28
 Environmental Risk Rating (ERR)
40,000.00

35,000.00

30,000.00

25,000.00

20,000.00 Financial Institutions

Bangladesh Bank
15,000.00

10,000.00

5,000.00

0.00
2016-Q4 2016-Q3 2016-Q2 2016-Q1 2015-Q4

Figure 4.2.1 Environmental Risk Rating (Amounts in Million BDT)

Above the graph we can see that, number of projects applicable for EDD, number of projects rated,
the number of project financed and the amount disbursed in the rated project are increasing in
every quarter. In 2016-Q4, 2016-Q3, 2016-Q2, 2016-Q1 and 2015-Q4 NBFIs disbursed in the
rated project 10,190.95 (million in Taka), 3,966.17 (million in Taka), 4,101.38 (million in Taka),
5,516.31 (million in Taka), and 2,405.23 (million in Taka) which is 37.72%, 15.69%, 10.998%,
18.298%, and 8.42% against Bangladesh Bank’s disbursed amount in the rated projects
respectively.

Page | 29
4.3 In-House Environment Management:
Types of NBFIs & No of Branches No. of branches No. of ATM/SME
BB powered by Solar units powered by
Energy Solar Energy
Bangladesh Bank 207 3 2
IDLC Finance Ltd. 34 2 2
Fareast Finance & 3 - -
Investment Ltd.
Saudi BD Industrial 1 1 -
& Agricultural
Investment Ltd.
Prime Finance & 5 - -
Investment Ltd.

Table 4.3.1 Solar Powered Branches and ATM/SME Units of NBFIs and BB

4.4 Green Finance:

Eco friendly business activities and energy efficient industries will be given the preference in
financing by the NBFIs. Environmental infrastructure such as renewable energy projects, clean
water supply projects, wastewater treatment plants, solid and hazardous waste disposal plants, bio-
gas plants, and bio-fertilizer plants should be encouraged and financed by NBFIs. Consumer credit
programs may be applied for promoting environmental practices among clients.

Page | 30
 The NBFIs and Bangladesh Bank’s amount disbursed for green finance for ‘Quarter’ 2016-Q4,
2016-Q3, 2016-Q2, 2016-Q1 and 2015-Q4 are following:

Non-bank Financial Institutions Bangladesh Bank % against

Bangladesh
Quarter IDLC Fareast Saudi BD Prime Total Total
Bank
Finance Finance & Industrial & Finance &
Ltd. Investment Agricultural Investment
Ltd. Investment Ltd.
Ltd.
2016-Q4 157.62 150.00 - - 307.62 3,576.70 8.60%

2016-Q3 80.27 450.00 - - 530.27 3,086.20 17.18%

2016-Q2 72.2 733.81 - 8.50 814.51 5,157.72 15.79%

2016-Q1 47.5 843.15 - - 890.65 2,874.17 30.99%

2015-Q4 32.00 573.5 - - 605.15 4,685.35 12.92%

Table 4.4.1 Green Finance (Amounts in Million BDT)

Sources: Quarterly Green banking report of NBFIs and Bangladesh Bank

Page | 31
 Green Finance
6000

5000

4000

3000 Financial Institutions

Bangladesh Bank
2000

1000

0
2016-Q4 2016-Q3 2016-Q2 2016-Q1 2015-Q4

Figure 4.4.1 Green Finance (Amounts in Million BDT)

Above the graph we can see that, there is a lot of fluctuation in the amount disbursed for green
finance (direct and indirect) in both NBFIs and Bangladesh Bank. In 2016-Q4, 2016-Q3, 2016-
Q2, 2016-Q1 and 2015-Q4 NBFIs disbursed 307.62 (million in Taka), 530.27 (million in Taka),
814.51 (million in Taka), 890.65 (million in Taka), and 605.15 (million in Taka) which is 8.60%,
17.18%, 15.79%, 30.99%, and 12.92% against Bangladesh Bank green finance (direct and indirect)
budget utilization respectively.

4.5 Climate Risk Fund:

Non-bank Financial Institutions should addresses environmental issues and assesses
environmental risks (high/moderate/low) of projects or businesses of different sectors in different
areas and create climate risk fund. The fund to be allocated or created for “Green Banking” may
be used as a part of CSR activities at the time of emergency.

Page | 32
The target area of “Climate Risk Fund” would be climate-vulnerable areas, namely flood, cyclone
and draught prone area in Bangladesh. Areas also may include, but not be limited to, post-disaster
rehabilitation, skill development and alternatives livelihood, climate adaptability, climate resilient
housing facilities etc.

From the analysis, we can see that only the IDLC Finance Ltd. has the budget allocation and
utilization of climate risk fund where the other financial institution has no record of climate risk
fund in their green banking financial statements.

In 2015, the IDLC Finance Ltd. utilized 1.762 (million in Taka) and 0.671 (million in Taka) in
2016 in the fund for part of CSR activities like social awareness competition and campaign and
tree plantation activities in the different school, college and university around the Dhaka city.

4.6 Green Marketing:

Green marketing is the marketing of products that are presumed to be environmentally safe. Green
marketing incorporates a broad range of activities including product modification, changes to the
production process, packing changes, as well as modifying advertising. It refers to the process of
selling products or services based in their environmental benefits. Non-bank Financial Institutions
should use environmental causes for marketing their services to their consumer. Green marketing
is expected to help awareness development among common people.

From the analysis of green banking quarterly financial statement of NBFIs, almost all the NBFIs’
budget allocation and utilization for green marketing is in under processing. Only the IDLC Green
Desk put emphasis on IDLC’s commitment towards sustainability and attended several workshops
and other related activities as a part of green marketing & capacity building program.

Page | 33
4.7 Disclosure of green banking activities:
Disclosure in Non-bank Financial Institutions Bangladesh
IDLC Fareast Saudi BD Prime Bank
Finance Ltd. Finance & Industrial & Finance &
Investment Agricultural Investment
Ltd. Investment Ltd.
Ltd.
Annual Yes Yes Yes No Yes
Report
Website Yes Yes Yes Yes Yes
Media Yes No No Yes Yes
Preparation Yes No No Yes Yes
of
Independent
GB &
sustainability
report

Table 4.7.1 Disclosure in green banking activities

Page | 34
 Chapter Five
Summary and Conclusion

Page | 35
5.1 Findings
This report will give a clear idea about the NBFIs’ position in green banking in Bangladesh.

 There are 33 NBFIs in Bangladesh. 19 out of 33 financial institution have their own green
banking policy and guidelines. Other 14 NBFIs have not yet taken any step to adopt the
policies.
 Only five out of 33 NBFIs have published green banking financial statement which is yet
to complete.
 There is no budget allocation and utilization for climate risk fund of any scheduled NBFIs
except IDLC finance Ltd.
 On the comparative scale against Bangladesh Bank, NBFIs’ implementation on green
activities is very low and unsatisfactory.
 Many NBFIs doesn’t have any concern of green activities and have no intention to adopt
green banking policies.

5.2 Recommendations
 Government should carefully monitor and supervise the green banking policy in
Bangladesh.
 Bangladesh bank must monitor the adherence of green banking guidelines by the NBFIs.
 Bangladesh bank should force the NBFIs to adopt the green activities for the sake of the
world.
 Government should encourage the general people about green banking initiatives through
electronic and print media.
 Encouraging borrower or consumer to go green.
 Develop a culture within the organizations based on environmental governance.
 Speeding up awareness and effective capacity building.
 Awareness of top management to “go green”.
 Further integration of credit risk management in the overall credit risk methodology.
 Apply quantitative approach for environmental risk rating.

Page | 36
5.4 Conclusion
Global warming is the most talkative topics in the present days and Bangladesh is one of the most
vulnerable countries to global warming in the world. The lower areas of Bangladesh will go under
water in near future because of the rising of sea level which is caused by climate change. So,
alongside with commercial bank, NBFIs should take necessary steps for the sake of our own
existence. From the comparative analysis between NBFIs and Bangladesh Bank, it can be said that
the green banking practices of NBFIs in Bangladesh are in an unsatisfactory level. The above study
portrayed a picture of IDLC’s role in socio-economic development which is far better than any
other NBFIs. In the line of global development and response to global warming, Green banking
plays a significant roles. Government have to force NBFIs to take initiatives in respect of green
banking practices for protecting our environment. Government should encourage general people
about the green banking practices. The central bank should monitor and supervise the NBFIs
whether they are practicing green banking or not. So, every NBFIs has to participate and contribute
to green banking practices in today’s extreme national and global banking competition.

Page | 37
References
 Azam, Shakil, Raju (2014), ‘An Evaluation of Green Banking Practices in Bangladesh’,
European Journal of Business and Management, Vol.6, No.31, 2014.
 Ullah, M. M. (2013), ‘Green Banking in Bangladesh: A Comparative Analysis’, World
Review of Business Research, Vol. 3, No. 4, pp. 74-83.
 Thombre, Arjunrao, Kailash, 2011, ‘The New Face of Banking: Green Banking’, Research
Paper Commerce, Vol.1, Issue. II, ISSN No-2032-5063.
 Sahoo, P. and Nayak, B.P., 2007, ‘Green banking in India’, Indian Economic Journal, Vol.
55, No. 3, pp. 82–98.
 Rahman, A. 2012 ‘Green Banking and Sustainable Development: the Case of Bangladesh’,
UN Conference on Sustainable Development (Rio+20 Summit) Rio de Janeiro, Brazil,
June 19, 2012
 Bihari, Chandra, ‘Green Banking – Socially Responsible Banking in India’, The India
Banker, Vol. VI, No, 1, 2011.
 Lalon, ‘Green banking: Going green’, - International Journal of Economics, Finance and
Management Sciences, Volume 3, Issue 1, February 2015, Pages: 34-42.
 Habib, ‘Green banking practices and sustainable energy in Dhaka city’, - THE
SUSTAINABLE CITY 2013, Volume: 179, DOI: 10.2495/SC130692.

Quarterly Report:

 Statement on green banking as of 31/12/2016, 31/12/2015, IDLC Finance Ltd.

 Statement on green banking as of 31/12/2016, 31/12/2015, Fareast Finance & Investment
Ltd.
 Statement on green banking as of 31/12/2016, 31/12/2015, SABINCO.
 Statement on green banking as of 31/12/2016, Prime Finance & Investment Ltd.
 Bangladesh Bank quarterly report of green banking, 2016 and 2015.

Page | 38
Websites:

 http://www.aupc.info/
 https://www.crimbbd.org/
 www.iiste.org/journals/
 https://en.wikipedia.org/
 https://www.bb.org.bd/pub/puball.php
 http://www.thedailystar.net/
 https://www.bangladesh-bank.org/
 http://www.icommercecentral.com/

Page | 39