Past, Present & Future of Green Banking in Bangladesh

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Past, Present
& Future of
Green Banking

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Footer text here2
RATAN GHOSH

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Green Banking
 Green Banking is an environment friendly solution to save energy, to reduce
carbon emission, to transform waste and other natural resources into energy
and save environment from pollution.
 Green Banking means promoting environment friendly practices and
reducing your carbon footprint from your banking activities. (Bahl 2012a : 27)
 Green Banking‘ refers to the banking business conducted in such areas and in
such a manner that helps the overall reduction of external carbon emission and
internal carbon footprint. (Meena 2013: 1182)
 Green Banking is the term used by banks to make them much more
responsible to the environment. The term green banking means developing
inclusive banking strategies which will ensure sustainable economic
development. (Ahmed, Zayed and Harun 2013 : 241)
February4, 2016 Past, Present & Future of Green Banking3

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Evolution of Green Banking
The concept of green banking was developed in the western countries. Green
Banking formally started in 2003 with a view to shielding the environment.
Then the Equator Principles (EPs) were launched and were initially approved
by some leading global banks, such as Citigroup Inc, The Royal Bank of
Scotland, Westpac Banking Corporation.
In March 2009, Congressman Chris Van Hollen of USA introduced a Green
Bank Act with the aim of forming a green bank under the ownership of the US
government.
'First Green bank' is the first bank of its kind to promote positive environmental
and social responsibility with its base in Eustis and Clermont Florida USA.
After introducing the concept of Green Banking, the initial decision was to
minimize the use of paper in banking works in order to reduce the need to cut
trees for availing raw materials for paper production thus minimizing
deforestation.

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Evolution of Green Banking
 There are two ways of green banking practices : -
1) The first of which is in-house green banking;
Creating clean and hygienic banking environment, green building, reforestation, online
banking, waste management, installation of solar panel on the rooftop of the bank are
involved in the in house Green Banking.
2) And the other is the form that is practiced by the bankers in their business area;
Financing the green projects like Biogas Plant, Solar/Renewable Energy Plant, Bio-
fertilizer, Plant, Effluent Treatment Plant (ETP) and voluntary activities of banks are
major practices by the bankers in their business areas.
 Bangladesh Bank has taken initiatives for practicing green banking here, since
Bangladesh is vulnerable to risks of submerging its lower parts as well as southern parts
near to sea beach in case of climate change,
Bangladesh Bank issued a circular in February 27, 2011 on Policy Guidelines for Green
Banking. However, the green banking policy has been implementing since 2012 only.
Since then the significance of green banking has been on the rise in the financial
sector, particularly in the banking sector.

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Evolution of Green Banking…………..(Con…d)
February4,2106 Past, Present & Future of Green Banking6

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Transformation from Conventional Banking to
Sustainable Banking
Conventional Banking Green Banking
Only Profit People, Planet & Profit
Economic Benefit Social Benefit
Operational Efficiency Allocation Efficiency
InstitutionalProfit Community Profit
Organizational Commitment Ethical, Human and Social Commitment
Financial Stability Financial and Social Stability

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Background ofThe Study
 For the purpose of this presentation, we have tried to investigate the green
banking practices of the listed commercial banks (including Islamic and
conventional).
 In theory banks are not identified as environment polluting institutions
however, they finance other polluting industries like textile, tannery, food etc.
Bangladesh Bank as the governing body has imposed stringent green banking
regulations in order to ensure a sustainable future for the economy resulting in
banks being identified as highly regulated institutions.

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Motivation of the Study
 To investigate the extent of green banking practices in the listed banks.
 To show the determinants of green banking disclosures.
To show the trend of green banking adaptation in Bangladesh.
To find out the gap between the imposed rules (by Bangladesh Bank) and
green banking practices.
To present a probable accounting treatment of green banking practices.
To find the long-term effect of green banking practices.

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Prior Research
Very few studies have been conducted on the issues of green banking in
Bangladesh. Of late, there are growing numbers of studies based on green
banking (see for example, Biswas, 2011; Bahl, 2012; Rahman et. al, 2013;
Ahmad et.al, 2013; Islam et. al, 2014; Haque et.al, 2015). It indicates that the
issues of green banking are drawing attention of the researchers. In the context
of Bangladesh, green banking bears significant importance, since Bangladesh is
a highly vulnerable country to the environment and climate change.

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Prior Research………………….(Cont….d)
Recognizing Banking sectors accountability, it has been 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).

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Steiner (2015) noticed a sequential economic growth in the Asia Pacific
region which has social and environmental costs. Different countries’ green
approaches contribute to the sustainable development in this region. In 2014
the clean energy investment stood in 36 percent in the developing countries.
But, public finance is not adequate for the green transition alone; the
financial markets can work as a keystone for the development of green economy.
On a comparative study Ullah (2013) argued that financial sector of
Bangladesh is playing a key role as one of the important stake-holder of the
economy enforcing the businessmen/ industrialists of the country to design
their various strategy/action plans keeping the crucial environmental issues.

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Paul and Russel (2015) suggested that as a low lying
country, Bangladesh is the worst sufferer among the lands of South Asia.
Financial sector is the only driving force to recovering from loss
occurred day by day in various industries from the perspective of
economic and environmental controversy. This sector finances a lot to
industrial development. The root of all is nothing but banking. So, it is
time to go green for which it is exigent to figure out and innovate the
models, based on which the financial sector runs.

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Ahmed et. al, (2013) found that six factors namely economic
factor, policy guideline, loan demand, stakeholder
pressure, environmental interest, and legal factor are the major
influencers of green banking practices in Bangladesh. From a factor
analysis, it has been revealed that these six factors have combined
variance of 65.25% of the decision regarding the adoption of green
banking by the commercial banks to ensure sustainable economic
development.
February 4, 2016 Past, Present & Future of Green Banking14

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In a recent study, Hossain et.al (2016) through content analysis of the annual reports of ten
sample banks, they found that Bangladeshi banks are reporting on green banking
issues, since Bangladesh Bank (the central bank of Bangladesh) have introduced green
banking program in 2011. They claimed that the level of disclosure has increased over the
years up to 2013 and the banks mostly provided ‘good news’ in their annual reports.
Bangladesh Bank Governor argued that all need to change mindset about
environmental issues for making a better future through greening financial
transactions (Daily 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).

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From the above analysis, it is now clear that there are several studies concentrating on
the green banking practices of Bangladeshi Banks. It is noteworthy to say, Bangladesh
Bank has issued a policy guidelines for commercial banks to introduce green banking in
2011. As per this guideline, banks need to fulfill it under three phases where the
deadline for the final phase was up to December 31, 2013. To the best of our
knowledge, there is no study that examined the extent of disclosures on green banking
issues after the culmination of Bangladesh Bank’s guideline. Thus, this study is an effort
to fulfill the existing gap in the literature by investigating the extent of green banking
compliance of listed banks after the termination of compliance deadlines.

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Phases of Green Banking Policy:
December
31, 2011
December
31, 2012
December
31, 2013
Phase I
Phase II
Phase III
Green Banking
Rules
(BRPD Circular 02)

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Phases of Green Banking Policy:
Initiating In-house
Environment
Management
IntroducingGreen
Marketing
Disclosure &
Reporting
Incorporation of
Environmental
Risk in CRM
Creation of
Climate Risk
Fund
Creating Social
Awareness
Policy formulation
and governance
IntroducingGreen
Finance
Online Banking
Phase I
1 32
4 5 6
7 8 9

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Phases of Green Banking Policy…....(Con..d)
Disclosure and
Reporting
Green Strategic
Planning
Setting Up Green
Branches
Improved In-house
Environment
Management
Bank Specific
ERM Guideline
Rigorous Programs
to Educate Clients
Sector Specific
Policies
Phase II
1
3
2
45
7
6

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Phases of Green Banking Policy…....(Con..d)
February 4, 2016 Footer text here20
Reporting in Standard Format
with ExternalVerification
Designing and Introducing
Innovative Products
Phase III

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Methodology
Sample selection:
 Sample consists of 30 listed banks with Dhaka Stock Exchange (DSE) in each year.
Analyzed annual reports of these banks related to the years 2013 and 2014 respectively.
Content analysis framework:
Content analysis procedure been used track the extent of disclosure on green banking practices.
Content analysis is a research technique which has specialized proceedings. It is a scientific tool
that helps in making inferences from texts and gives practical knowledge and insights about the
context (Krippendroff, 1980). In other word, it deals with the codification of both qualitative and
quantitative information into pre-determined categories so as to types of the presentation and
reporting of information can be traced (Guthrie and Abeysekera, 2006:120).

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Methodology……………….(Con…..d)
Disclosure Index:
To track the green banking practice related disclosures, a disclosure
index has been formulated. The disclosure index is formulated primarily
from the Bangladesh Bank’s green banking policy guidelines issued in
2011. As per the circular of Bangladesh Bank, commercial banks are
required to implement green banking under three phases. Three phases
include total of 18 items. We have formulated a disclosure index
customizing these items into 13 items.

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Researchers such as Prado-Lorenzo, 2009; Belal et.al. (2010), Hossain et.al, 2016 used
un-weighted disclosure. Another approach is weighting of the items, as performed in
some studies (Pirchegger and Wagenhofer, 1999). In our study, we have used weighted
index, even though there is some arbitrariness inherent to the use of any weighted index
(Giner, 1997). Moreover, studies that use both weighted and unweighted indices draw
similar conclusions from both type of indices (Choi, 1973; Chow and Wong-boren, 1987).
For data codification, we have used weighted disclosure index where
‘0’ is assigned for no disclosure,
1 is assigned for general disclosures and
 2 is assigned for substantive disclosures.

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(IFIC, 2014)……………….Content Disclosure of 2.
“More emphasis has been given on the bank’s operational policy, as reflected in the
allocation of its budget for promoting green finance, environmental risk rating, and
online banking, ATM, internet and Mobile/SMS banking "(ICB Islamic Bank
Limited, 2013)…………….Content Disclosure of 1.

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Research Methodology……………….(Con…..d)
The rationale behind using weighted disclosure index is to penalize those
items which are not disclosed comprehensively. Since, the disclosure items are
derived from the Bangladesh Bank’s guidelines, it is expected that all the banks
comply with this guideline.
To properly portray the real implementation of this policy, we have awarded
those items which are disclosed comprehensively. Moreover, while coding the
data, we have adopted very careful measures to make sure the acceptability of
result. At first, we have analyzed 10 banks annual reports and then we have
analyzed the differences of our coding. Deviations were sorted out after discussing with
the authors.

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Research Methodology……………….(Con…..d)
1. Establishment of Green Banking Unit
2. Establishment of Green Banking Policy
3. Climate Change Responsibility
4. Climate Change Fund
5. Green Finance
6. Energy Efficiency
7. Water Consumption
8. Online Banking
9. General Statement on Climate Change & Global Warming
10. Green Banking Products
11. Social Awareness Creation
12. Sector Specific Green Banking Policy
13. Incorporation of Environmental Risk in CRM

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Data Index (2013)

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Disclosure Index Analysis (2013)
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Disclosure Index
DisclosureIndex

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Data Index (2014)

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Disclosure Index Analysis (2014)
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
ABBANK
CITYBANK
IFIC
ISLAMIBANK
NBL
PUBALIBANK
RUPALIBANK
UCBL
UTTARABANK
ICIBANK
EBL
AL-ARAFABANK
PRIMEBANK
SOUTHEASTB
DHAKABANK
NCCBANK
SIBL
DUTCHBANGLA
MTBL
STANBANKL
ONEBANKL
BANKASIA
MERCANBANK
EXIMBANK
JAMUNABANK
BRACBANK
SHAHJABANK
PREMIERBANK
TRUSTBANK
FIRSTSBANK
Disclosure Index

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Element Index (2013)
0
10
20
30
40
50
60
Series1

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Element Index (2014)
0
10
20
30
40
50
60
Series1

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Implementation of Green Banking in Bangladesh
By Service
Provided
By In-House Practices By Financing
Online Banking Using Solar Panel in Branches By Direct Financing
Internet Banking Using Solar Panel in ATM Booths By Indirect Financing
SMS & Mobile Banking Using Electronic System Instead of Papers

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Online Banking in Bangladesh
Bank type Year 2012 Year 2013 Year 2014
SCBs 177 839 1887
SDBs 77 113 81
PCBs 3116 3469 3655
FCBs 75 73 476
NSBs 0 63 173
Source: Bangladesh Bank
0
500
1000
1500
2000
2500
3000
3500
4000
SCB SDB PCB FCB NSB
Year 2012
Year 2013
Year 2014

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Internet Banking In Bangladesh
SCBs 21 21 27
SDBs 0 0 0
PCBs 666916 932763 1296300
FCBs 149541 164974 188470
NSBs 0 0 1035
0
200000
400000
600000
800000
1000000
1200000
1400000
SCB SDB PCB FCB NSB
Year 2012
Year 2013
Year 2014

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SMS/Mobile Banking In Bangladesh
0
50
100
150
200
250
300
350
SCB SDB PCB FCB NSB
Year 2012
Year 2013
Year 2014
SCBs 1,353 3,270 3,231
SDBs 0 0 9,324
PCBs 1,971,106 4,441,270 9,242,790
FCBs 165,978 156,101 234,739
NSBs 0 4,348 46,586

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Branches Powered By Solar Energy
0
50
100
150
200
250
300
350
SCB SDB PCB FCB NSB
Year 2012
Year 2013
Year 2014
SCBs 21 16 38
SDBs 22 37 23
PCBs 169 255 323
FCBs 3 3 4
NSBs 0 1 25

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DirectGreen Financing of Banks
SCBs 3,513 445 1,039
SDBs 1,803 13 47
PCBs 5,624 6,909 5,456
FCBs 881 32 1,217
NSBs 0 0 224.6
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
SCBs SDBs PCBs FCBs NSBs
Year 2012
Year 2013
Year 2014

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Indirect Green Financing of Banks
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
SCB SDB PCB FCB NSB
Year 2012
Year 2013
Year 2014
SCBs 2,994 806 630
SDBs 6,402 1,382 100
PCBs 173,187 79,062 91,150
FCBs 76,517 17,323 18,459
NSBs 0 0 20,689

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Customized Elements Ranking
1. Climate Change Responsibility
2. Climate Risk Fund
3. Incorporation of Environmental Risk in CRM
4. Energy Efficiency
5. Green Finance
6. Social Awareness Creation
7. Sector Specific Green Banking Policy
8. Water Consumption
9. Green Banking Products
10. Online Banking
11. Establishment of Green Banking Policy
12. Establishment of Green Banking Unit
13. General Statement on Climate Change & Global Warming

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ElementWise ResultAnalysis
Reason Behind implying Green Banking Rules:
 Institutional Theory
Stakeholder Theory
 Resource Dependency Theory
 Strategic Response Theory
0
20
40
60
0
20
40
60
2013
2014

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ElementWise ResultAnalysis………….(Con……d)
Reason Behind incomplete & improper practice of Green Banking:
 Lack of Effective Monitoring of Bangladesh Bank
 Top Management’s intention
 Family Ownership
 Political Influence
 Long Temporal Spread
 Absence of Proper Incentives System
Differences in Commitment
 Less Qualified HR

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ComparisonScenario
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
2013 2014 Column1

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AverageGrowth in Green Banking Disclosure
0.49
0.495
0.5
0.505
0.51
0.515
0.52
0.525
0.53
2013 2014
Bank
Bank

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ProbableAccounting Reporting ofGreen Banking
The Environmental Cost Categories by UN are :
 Waste & Emission Treatment
 Prevention & Environmental Management
 Waste & Emission Control Cost
 Prevention & other Environmental Management Cost
 Research & Development Cost
 Less Tangible Cost

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The four Probable allocation keys are: (Schaltegger and Muller 1998)
• volume of emissions or waste
• toxicity of emission and waste treated
• environmental impact added (volume x input per unit of volume) volume of the
emissions treated and
• the relative costs of treating different kinds of emissions.
Additional:
 Reduction of Fresh Water Consumption
 Reduction of Paper Consumption
 Huge amount of Green Marketing Cost

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Example:
From Annual Report of MutualTrust Bank, 2014

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From Annual Report of Standard Bank, 2014

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In this Example of MTB & SBL, we found that MTB is disclosing more about
its green banking activities specifically water consumption which is subject to
some additional cost whereas SBL is giving a statement about this.
Proposed Incentive System:
Water Harvesting Cost of MTB is 6,00,000 taka. If the Regulators give an
opportunity to MTB to capitalize this amount and deferred the cost for the
following two years, MTB will be motivated to invest more in green banking
activities. Whereas SBL or other Banks (with least GB activities) will come
forward to invest more in environment friendly projects.

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Recommendations
Sustainable
growth
Creating
Awareness
Imparting
Education

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Recommendations……………………………(Con…..d)
Creating
awareness
Internal
Subsystem
Target groups
-Managers
-Personnel
Means of
creating
awareness
-E-learning
-Banks news
letter
External
Subsystems
Target groups
-Clients
-General Public
Means of
creating
awareness
-Road Shows
-Media

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Recommendations………………………….(Con…..d)
Imparting Education
Internet E-learning programs
Participations conferences and
meetings
Annual Environmental Report

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FutureGuidelines for GB
• Meaningful Disclosure Approach
• Green Credit Policy as a floor, not ceiling
• International Guidelines for Green Banking
• Manufacturing Sectors can be included
• Mandatory Environmental Audit

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ThankYou
Footer text here54

Past, Present & Future of Green Banking in Bangladesh

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