The term ‘green banking’ is gaining more and more popularity in recent years all over the world. It is becoming a popular part of the public relations strategy of many financial institutions, but apart from that behind the advertisement, there are initiatives and efforts within the banks to justify it.
Green banking is defined as an ‘Eco-friendly and socially responsible banking‘ which not only plays the role of financing intermediary but also works on achieving objectives towards a healthy environment for the present and future generation as well. It has been implemented in several level ped countries promoting the slogan ‘Be green, Go green’. It is a very useful starting point for developing countries like Bangladesh to follow.
Green banking means promoting environment-friendly practices and reducing the carbon footprint from banking activities. It is also called ethical banking or sustainable banking. Green banking is a process practiced by the banks to make the earth environmentally appeasing and safe habitable for all the species on the earth. It involves the tenets of sustainability, ethical investing, conservation of energy efficiency to protect the environment and natural resources.
The banking sector is one of the major sources of financing industrial projects such as steel, paper, cement, chemicals, fertilizers, power, textiles, etc. which causes maximum carbon emission. Therefore the banking sector can play an intermediary role between economic development and environmental protection for promoting environmentally sustainable and socially responsible investment.
The concept of green banking was originally developed by Reed Hundt and Ken Berlin, as a part of the 2008 Obama-Biden Transition Team’s efforts to facilitate clean energy development. A similar concept was adopted as an amendment to the federal cap and trade bill, called the American Clean Energy and Security Act, introduced in May 2009. In 2009 cap and trade legislation finally failed to pass the Senate, green bank advocates in the US focused on the state level.
Connecticut (The southernmost state in the New England region of the United States) established the first state green bank in 2011 which was followed by New York in 2013. The United Kingdom, Australia, Japan, and Malaysia have all created national banks dedicated to leveraging private investment in clean energy technologies.
The core objective of green banking is to ensure customer services, internal environment management through adoption and compliance of environment-friendly banking policy. Other objectives are –
Some practices of green banking are given below
Green banks while adopting green banking face the following challenges.
Diversification Problems: Green banks restrict their business transactions to those business entities who qualify screening process done by green banks. With the limited number of customers, they will have a smaller base to support them.
Startup Face: Many banks in green business are very new and are in startup face, generally it takes 3 to 4 years for a bank to start making money thus it does not help banks during the recession.
Higher Operating Cost: Green banks require talented, experienced staff to provide proper services to customers. Experienced loan officers are needed with additional experience in dealing with green businesses and customers.
Reputational Risk: If banks are involved in those projects which are damaging the environment they are prone to loss of their reputations. There are also a few cases where an environmental management system has resulted in cost-saving, increase in bond value.
Credit Risk: Credit risks arise due to lending to those customers whose businesses are affected by the cost of pollution, changes in environmental regulations, and new requirements on emissions levels. It is higher due to the probability of customer default as a result of uncalculated expenses for capital investment in production facilities, loss of market shares, and third-party claims.
Bangladesh Bank issued policy guidelines for green banking on February 27, 2011. As per the guidelines, all commercial banks and financial institutions must take adequate measures to conduct eco-friendly banking activities in the country.
At present, emphasis is being laid on making the offices of the bank branches eco-friendly. One of these examples is Shahjalal Islami Bank Limited. It built its 17 storied corporate Head Office Building at Gulshan Avenue. The first green building in the banking sector is gold certified by the US Green Building Council (USGBC).
The building is 35 percent energy and water-efficient, as well as the roof of the building, is decorated with trees. In the same way, Mutual Trust Bank has constructed the MTB Tower at Bangla Motor having the facility of the solar panel system and less consuming water and electricity system.
Al-Arafah Islami Bank Ltd has also rendered services of its more than 60 branches through solar panel systems as a symbol of a green banking environment. Islami Bank Bangladesh Ltd is the largest bank in our country considering Islamic finance and investment.
The maximum area of its Head Office is running under the solar panel system and its more than 58 branches across the country are rendering services under the solar panel system.
This bank has planted 10 million saplings all around the country to make a green environment through its Rural Development Scheme in 2018 and this process is running thereafter every year. Green banking refers to the initiatives taken by banks to encourage environment-friendly investment.
Green banking as a concept is a proactive and smart way of thinking towards future sustainability. The banks need to be proactive and accelerate the rate of the growth of the economy. As there is a continuous change in the environmental factors, banks need to apply morality, sustainability, and responsibility to their business model.
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