The effective implementation of sustainable and green finance within the broader and more recent taxonomy of “sustainable finance policy” should provide greater strength to the development of both quantitative and qualitative finance businesses. sustainable by banks and financial institutions
Sustainability is associated with the quality of growth that takes into account the economic, social and environmental aspects of progress. In this context, environmental, social and governance (ESG) issues are increasingly accepted. Investors are increasingly applying ESG as part of their process in a changing global environment to manage risk and explore opportunities.
The ‘Environmental’ criterion refers to an organization’s environmental risk management practices, the ‘Social’ pillar refers to an organization’s relationships with its stakeholders, while ‘Governance’ refers to the way an organization business is run and managed.
It is a holistic approach to sustainability that helps stakeholders understand how an organization manages risks and opportunities related to environmental, social and governance aspects. Although the term ESG is often used in the context of investing, it is relevant to other stakeholders such as customers, suppliers and employees.
There is growing evidence that ESG has beneficial effects on reducing costs, increasing productivity and making investments more efficient. It takes on even greater importance in light of recent events, particularly the Covid-19 pandemic, which has disrupted normal life and business.
Improved societal awareness on environmental and social issues demands a wider range of environmental, social and people commitments from corporate entities and business entities in Bangladesh. These companies are also associated with the achievement of the Sustainable Development Goals (SDGs).
Some companies, however, participate in a limited capacity in clean water programs, renewable energy and carbon neutral initiatives, and good agricultural practices, to improve farmers’ livelihoods. In Bangladesh, there have been several regulatory interventions by different regulators to address the issue of ESG reporting.
Despite various efforts by different regulatory bodies, the level of ESG reporting in Bangladesh is not at a desirable level. There is still a long way to go to achieve the expected level of ESG practices among business entities and companies, in order to contribute to the sustainable growth of the country.
Close association of the banking and financial sectors with sustainable growth
The sustainable growth approach fits well within the larger framework of the United Nations (UN) SDGs, which address and integrate different dimensions.
To achieve this, banks have a major role to play and the sustainable action of banks goes beyond profitability. In addition to aiming for profitability, through sustainable financing activities, a bank or financial institution can ensure sustainability on the economic, social and environmental fronts.
Sustainable finance cannot be divorced from core corporate governance concerns and corporate social responsibility practices of banks.
Traditional finance focuses solely on financial return and risk, while sustainable finance considers financial, social and environmental returns. It moves from a narrow shareholder model to a broader stakeholder framework, aiming at long-term value creation for the wider community.
Financial exclusion is one of the main policy concerns related to sustainable finance. Finance, to be sustainable, must address the challenge of financial exclusion at the individual and macro levels. Access to finance can economically and socially empower people, especially the poor, allowing them to better integrate into the economy, contribute to their development and protect themselves against economic shocks.
Financial inclusion can reduce poverty
There is evidence that a small loan, savings account or microinsurance policy can make a big difference for a low-income person or family. In addition, access to financial services is often considered essential for access to drinking water, health services and primary education. Financial inclusion issues are also associated with the social and economic inclusion of women.
Given the socio-economic benefits, agriculture and small or micro-enterprise finance cannot be separated from the scope of sustainable finance in the context of most developing countries. In most cases, progress in the agricultural and micro-enterprise sectors is associated with the socio-economic advancement of vulnerable and disadvantaged sections of society. There is no doubt that designing effective financing products and delivery channels is crucial to achieving better results for the poor. And in this context, the use of technology and digital financial services could bring about remarkable changes.
Green and climate finance: essential drivers of sustainable growth
Typically, potential sources of climate finance include commercial banks, investment companies, pension funds, insurance companies and sovereign wealth funds. Under the United Nations Framework Convention on Climate Change (UNFCCC), developed countries have pledged to provide $100 billion to developing countries most vulnerable to climate change in the form of climate finance.
Bangladesh receives funding every year from international initiatives such as the Global Environment Facility (GEF), Green Climate Fund (UNFCCC fund), Climate Investment Funds (CIF), bilateral and multilateral channels, private funding. International sources provide only a quarter of Bangladesh’s climate finance.
Green financing has been particularly encouraged by the Bangladesh Bank. Green finance activities have already passed several milestones since the country’s central bank issued its first “Green Banking Policy Framework” and “Environmental Risk Management Directive” in 2011.
Several changes and developments have taken place in the policy document over the years, in particular the introduction of the “Sustainable Finance Policy” in 2020 is a notable overhaul of the policy approach which incorporates social and sustainability related finance with green financing.
The effective implementation of sustainable and green finance within the broader and more recent taxonomy of “sustainable finance policy” should provide greater strength to the development of both quantitative and qualitative finance businesses. sustainable by banks and financial institutions. However, market players must also offer a proactive approach through their associations for optimal results.
It is recognized that limited knowledge, awareness and capacity in inclusive and green finance are major challenges. Bankers, especially those engaged at branch/field level and intermediaries/suppliers need to be motivated and need to be exposed to the use, benefits and technical aspects of inclusive and green products. Customers are likely unfamiliar with the products and may not even have heard of them at all. The financial industry needs financial literacy and a knowledge forum to optimize results.
The Bangladesh Institute of Bank Management Annual Banking Conference provides a knowledge platform to facilitate discussion by bringing together experts, scholars and researchers to exchange and share knowledge, experiences and research findings on banking issues and related. The conference slogan “Towards Sustainability” reflects the expectation to link plenary discussions to sustainability issues and concerns.