Green Banking Initiative:
Opportunities for Bangladesh

Dr. S M Ahsan Habib
Professor and
Director (Training & Research), BIBM

The paper was presented at a seminar on Green Banking at BIBM on October 14, 2010

Green Banking Initiative: Opportunities for Bangladesh

I. Introduction

Banks that were once seen only as profit motive institutions have been adjusting to a more demanding market and to a more conscious society over last two decades. An increasing number of banks around the world are going green by providing innovative green products that cover financial services to support the activities that are not hazardous to environment and help conserve environment. A green bank is also called an ethical bank, a socially responsible bank, or a sustainable bank. The exact meaning of all these titles may not be same however they cover a lot of common activities and perceptions. At least, all these banks- in various ways and at different times- have engaged themselves in making a better future (Merzio 2007). The approach to green banking (GB) varies from bank to bank, however, broad objectives of green banks are to use their resources with responsibility avoiding waste and giving priority to environment and society.

The public concern of the state of environment has been growing significantly in the last few years, mostly due to apparently unusual weather patterns, rising greenhouse gases, declining air quality etc. and society demands that businesses also take responsibility in safeguarding the planet (Zeitlberger 2008). Banks hold a unique position in an economic system that can affect productions, businesses, and other economic activities through their financing activities. Green banks do not only improve their own standards but also affect socially responsible behaviour of other businesses. The nexus between financial services and sustainable development through investment has become evident over the years and the evidences indicate that financial industry may have a major influence on who in the society gets access to financing; how financial services benefit the people; and how a financed project cause environmental destruction (Raihan and Habib 2005). However, if green banking simply results incurring additional costs by a bank, it might never be accepted as common business practices by the global banking industry. The positive relationship between green banking strategy and profitability has not always been the case. Weber (2005) examines financial performance of banks and concludes that socially and environmentally responsible banks can also be financially successful and have growth rates similar to, or even better than that of their conventional competitors. In many instances, it is also proven that with a well-managed green banking premium, consumers could be willing to pay extra in the knowledge that the products are environment friendly (Havas Media 2007). Moreover, banks that mainly do businesses with the depositors’ money cannot avoid responsibility to the society. It is well known that governments in different countries intervened to save banks using taxpayers’ money in response to 2008-09 bank failure during crisis. When the common people have to take care of banks in their bad days, banks must be made responsible to take care of the society as well.

The corporate entities in developed countries are to operate under various legislative, fiscal and other regulatory bindings; and there are incentives to promote good corporate citizenship. In response to these, a good number of financial institutions in developed countries are demonstrating their commitment to the earth through incorporating environmental risk in financing; use of recycled paper and office recycling programs; focus on energy efficiency, educational efforts, purchase of carbon offsets; and adherence to industry standards and environmental event sponsorships. Banks in these countries are encouraged to follow various guidelines and work with NGOs to improve social and environmental conditions. Some banks of USA and EU are among the frontrunners that have embraced these initiatives to protect environment. Several big banks have sustainability policies and commitments on climate change, carbon mitigation, bio-diversity, land conservation and internal use of resources. Even green activities of a good number of local level small banks in developed countries have been very inspiring and replicable. In contrast, the status of environmental management has not been satisfactory in many developing countries like Bangladesh, largely due to poor enforcement of existing laws and inadequate pressure from civil society and interest groups. And, there is no doubt that environmental protection is not in the priority list of the banks in Bangladesh till date.

On the above circumstances, green-banking practices by some banks (mainly in developed countries) could offer good lessons for the banking sector of Bangladesh. Broadly, the paper aims at a review of green banking initiatives and practices in the global banking industry to draw lessons for Bangladesh Banking Sector. There is no doubt that complete replication of these practices may not give fruitful output considering the different economic status, consumer groups, business practices, and structure of financial sectors. Moreover, independent analysis of green banking practices will not give expected outcome as it is just a component of the whole green initiatives undertaken by the stakeholders for protecting global environment. The specific objectives of the paper are: One, to review literature and examine stakeholders’ roles in developing green banking practices in global economies; Two, to identify and analyze green practices in global banking industry to draw lessons; and Three, to offer some customized recommendations for adoption by Bangladesh banking sector.

This is a qualitative research and findings are based on examinations of published information, consultation with bankers, and discussions with academicians and experts. Published literature, research papers and sustainability reports of different banks and environmental organizations were reviewed to form theoretical foundation and backdrop of the paper. Academicians from Syracuse University (USA) and bank officials from selected US banks were consulted in the process of understanding and examining GB practices. After introductory notes in section I, section II attempts to link economic theory with the green initiatives by different stakeholders. Roles and perspectives of different stakeholders in the development of GB practices of banks are discussed in section III. Section IV is about understanding and examining GB practices by global banks. Status of GB practices by banks in Bangladesh and the relevant issues are discussed in section V. Section VI offers recommendations for Bangladesh banking sector.

II. Linking Economic Theory and Green Initiatives

The environmental degradation and rectifying measures are associated with the economic theory of market failure-externalities and public goods. Business firms (supply side of goods and services) and consumers (demand side) are the main actors responsible for ‘negative externalities’[1] in the form of air pollution, water pollution, GHG emission etc. The production, processing and consumption of commodities require extraction and use of natural resources (wood, ore, fossil fuels, and water) and setting up factories whose operation sometimes create toxic byproducts, while the use of commodities themselves creates pollutants and wastes in many instances. In such a situation, it is not always easy to identify the responsible agent specifically and take appropriate internalization[2] measures. Banks/financial institutions are being made responsible on the ground of the financing these business/economic activities.

The concepts of externalities and public goods[3] are closely associated but conceptually different. In today’s world, focus on global public goods (GPGs)[4] and innovative financing mechanisms are closely related to the sustainable development (Binger 2003). The GPGs with cost is also known as Global Public Bads (GPBs). The results of the global pollutions and emissions like global warming, contamination, disruption of eco-systems etc are GPBs. The negative externalities and GPBs are the burdens of the entire society. As the theories of Economics go, the motivation for providing GPGs arises from a desire to produce or enhance positive externalities and correct negative ones. In the area of environment, reduction of emission and conservation are GPGs (Morissey et. al. 2002).

Now, where to place the global ‘green banking initiatives’? It is well known that green banking is a component of the global initiative by a group of stakeholders to save environment. The efforts are expected to bring positive changes in the environment, which are mostly non-excludable and non-rival in nature. Thus, as a whole, the ongoing green banking initiatives by different stakeholders is a GPG where the society as a whole is the target beneficiary.

What about the green banking financial products/services offered by banks? These products are designed targeting a particular group and are excludable and rival in nature. Generally these are commercial products and have features of private goods. The products that do not harm environment have neither positive nor negative externality; however, the green products that help create favorable impact on environment have positive externalities. Generally, a section of the society directly and as a whole the entire society indirectly is the beneficiary of the ‘external benefits’ offered by banks. Thus, banks have the economic rights of charging additional cost of their products. Now, the question is who is to pay the cost of the additional benefit to the third party?

Pricing a ‘green banking product’ incorporating the cost of its external benefit is not easy in the existing financial product market. Generally, the financial product market is fragmented with different regulatory implications in different parts of the world. If the cost is added to the price of a loan (with a green feature), borrowers may find it costly and may turn to other banks’ relatively cheaper products (without a green feature). Thus the green bank may loose its competitive advantage. If the cost is added to the price of a loan (with a green feature) and business firms avail that then they may shift the cost on their consumers/customers. However, are the consumers responsible enough to bear the cost? Are they ready to pay for the better environment or protecting future environment? In such a situation of collective benefits especially when it is non-excludable, positive externalities are often associated with ‘free riding problem’[5]. Free riding is usually considered to be an economic problem only when it leads to the non-production or under-production of a public good thus to ‘Pareto Inefficiency’[6]. The problem is apparent in the market for green product. If not the consumers then who will pay? In the absence of the specific knowledge of the cost payers or uncertainties, banks may loose incentive to offer green financial product. It is to be remembered that banks are business firms primarily operates for profit and Adam Smith’s ‘invisible hand’[7] may not ensure sustainable environment for human society by itself. Banks need some incentives to move with it.

In the endeavour of emission reduction and conservation, different stakeholders have been contributing in different ways. International Financial Institutions (IFIs) and Inter Governmental Organizations (IGOs) have been engaged in designing principles and undertaking environmental and awareness development programs; government (Govt.) and central banks (CBs) have been enacting relevant rules and regulations and enforcing emission trading; civil society (CS) and NGOs are engaged in the role of formulating guidelines and monitoring business firms and banks; a section of consumers are paying premium in the form of higher prices; some business firms are contributing by adopting voluntary environmental protection programs; and a section of banks and financial institutions (FIs) have been designing and offering green products.

Table-1: A Framework of Environmental Degradation and Stakeholders Endeavour

III. Development of Green Banking Practices - A Multi-Stakeholders Endeavour

The coverage and benefits of green banking are by and large recognized. Green banking clearly has a direct, positive effect on the environment, but the benefits go much further, reaching into security and cost (Javelin Research 2009). Green finance makes great contribution to the transition to resource-efficient and low-carbon industries i.e. green industry and green economy in general (Gao 2009). Banking sector has a significant impact on environment, as it provides financing support to high impact environmentally sensitive sectors[8] (Bank Track 2010). Banks, by using their commercial lending and securities underwriting, are in a position to catalyze the necessary transition to an economy that minimizes green house gas pollution and relies on energy efficiency and low/no carbon energy sources (Bank Track 2010). IFC (2010) notes, international organizations/institutions can influence the corporate practices in regard to the climate change aspects, but only banks, institutional investors, and other financial institutions have the power to change them. By incorporating sustainability issues into their lending decisions, these banks can both develop profitable lines of business and help build a cleaner, greener future (IFC 2010).

International Conventions, Treaties, Guidelines and Standards Contributing a Lot

The UN Convention on Climate Change entered into force in 1994, which recognizes that the climate system is a shared resource that can be affected by industrial and other emissions of greenhouse gases. It sets a framework for intergovernmental efforts to reduce such emissions. Legally binding emissions targets and a strengthening of the provisions of the Convention were embodied in the subsequent Kyoto Protocol[9], adopted in 1997. As of January 2010, 187 states have signed and ratified the protocol under which 37 industrialized countries committed themselves to a reduction of four greenhouse gases and two groups of gases produced by them and all member countries gave general commitments. In this connection, though the 2009 Copenhagen Conference was disappointing to many, it was for the first time that the majority world leaders gathered to seriously discuss climate change (IISD 2009).

A good number of environment related principles, guidelines and standards have been developed over time by the international organizations for the improvement of the GB practices. Some examples of these include Equator Principles (EPs), UN Principles for Responsible Investment (UNPRI), UN Global Compact, UNEP Finance Initiative Statements etc. The UN Global Compact (UNGC) is a set of ten voluntary principles under which signatories promise to avoid complicity to human rights violations, adhere to labor standards, and protect the environment. The UNPRI is developed by institutional investors that recognize the increasing relevance of environmental, social and corporate governance issues that apply to asset management. The EPs are a set of voluntary standards that commit signatory banks to take social and environmental risks into account when providing project finance[10], and to adhere to the environmental and social guidelines (Performance Standards) of the International Finance Corporation (IFC). Currently 68 largest financial institutions in the world have adopted them (www.equator-principles.com). In July 2010, the new governance rules for the EPs are adopted by the Equator Principles Association[11] to improve cooperation and decision-making amongst EPs financial institutions. UNEP FI[12] Statements recognize the role of financial service sector in making global economies sustainable and commit to the integration of environmental considerations into all aspects of their operations.

Banks and financial institutions have also been involved in designing and framing guidelines and standards to be followed by the banking and financial communities. For example, UNEP Finance is a collaborative effort of UN and over 190 financial institutions that work to understand the impacts of environmental and social considerations on financial performance. The EPs are designed by a group of banks based on the environmental and social policies and guidelines of IFC. The initiative of ‘EPI-Finance 2000’[13], aims at developing environmental measurement indicators, was launched by 11 financial corporations in Germany and Switzerland.
There are important international standards and principles relevant for different environmentally sensitive sectors prepared by international organizations and NGOs. For example, the Guidelines for Investment in Operations that Impact Forests, published by WWF (World Wildlife Fund) in September 2003, help banks identify critical issues in the sector and develop a forest policy. In February 2008, the Sustainable Agriculture Network (SAN) published Sustainable Agriculture Standards. The recently launched Forest Footprint Disclosure (FFD) Project was created to help investors identify how a commercial organization’s activities and supply chains are linked to tropical deforestation (Bank Track 2010). Banks can use these guidelines in formulating their sector specific policies and strategies.

Socio-economic activities of UN and international organizations are guiding principles for many business organizations and banks. For example, although each sustainable banking measure indirectly or directly supports the UN Millennium Development Goals (MDGs), some banks explicitly state that the MDGs are the guiding principles for incorporating sustainability into their banking activities and that each sustainability effort is adapted to the financial services industry in order to support these goals (Zeitlberger 2008).

A Combination of Imposed Regulation and Voluntary Initiatives Worked

Khanna and Anton (2002) divides environmental practices of banks into two types: The type 1 includes management practices as having an environmental policy, setting internal standards, environmental auditing etc that are mainly adopted in response to regulatory requirements; and type 2 includes training and rewarding workers, evaluating the environmental performance of potential suppliers and clients etc that are related with goodwill and reputation and are generally voluntarily adopted. In reality, the banking strategies are driven by the combination of both type 1 and type 2 practices (Khanna and Anton 2002).

Before early 1990s, many banks used to consider environmental compliance by their clients as a kind of interference in the businesses of the customers. Even many European banks that are among the best performers today were not interested in environmental performance, neither in their own nor in one of their customers (Zeitlberger 2008). The attitude has changed dramatically over time. US banks are early starters that drastically began changing their policies after enforcement of the Comprehensive Environmental Responses, Compensation, and Liability Act (CERCLA) by the US government in 1980. CERCLA’s aim is to cover the costs of soil contamination and hold US banks directly responsible for contamination caused by their clients. Under the Act, liability for clean-up is imposed on the owners of contaminated sites (Weber et. al. 2008). The European banking sector started taking environmental issues into account some 15 years later, but in contrast to US more voluntarily and on ethical ground (Zeitlberger 2008). The idea of sustainable banking found the way in most developing countries mainly through the efforts of some international organization (World Bank, IFC, EBRD, and UN). Many of the major banks in developing countries developed their own green banking strategy following or accepting the principles/strategies suggested by them.

NGOs Playing the Essential Roles of Watchdogs and Torch Bearers

Increasing role of Non-government organization (NGOs)[14] as a representative of civil society in environmental governance is evident globally (Hutter 2006). Especially, after the 1992 Rio Earth Summit the environmental NGOs got rapid momentum all over the world, which was attended by over 22000 NGO representatives from 9000 NGOs (Princen and Finger 1994). It is said that banks’ approach to environmental governance is different from the approach advocated by campaigning NGOs. Watchman (2005) notes that whilst banks seek ‘mitigation of harm’ to the environment through their lending activities, NGOs and civil society propose banks should ‘do no harm’ to the environment. The study interprets this as NGOs favouring a precautionary approach to ‘do no harm’ that would ‘involve avoiding projects which create a risk of causing harm’.

Over the years, NGOs have sought strength in numbers by taking a collective stance on environmental governance. This is reflected in the release of the ‘Collevecchio Declaration’ in 2003. Endorsed by over 200 civil society groups worldwide, the declaration calls on financial institutions to commit to six principles of environmental governance: sustainability; ‘do no harm’; responsibility; accountability; transparency; sustainable markets and governance (Coulson 2009). NGOs have also been helpful to the banking community in formulating guidelines and correcting paths. For example, Bank Track (2010) published essential elements that should be part of banks’ sector[15] specific lending policies. Recently, Price Water House Coopers LLP (2010) independently reviewed how ‘Climate Principles Adopting Institutions’ are fulfilling their commitments.

NGOs have been engaged to play a role of watchdog for the banks against financing dirty companies and contributing to environmental (and social) harm. For example, Green America[16] and its allies protested the plans of financing to build 11 new coal-fired plants[17] in Texas by some USA mega-banks in 2007, which helped stopping 8 of the 11 plants. In 2001 an NGO tracked and verified the source of finance to a case of harm and demonstrate a causal connection between financial institutions providing finance to Asia Pulp and Paper and the activities of that company, which led to ‘Indonesian forest destruction’ (Matthew and Gelder 2001). In January 2010, close to a hundred civil society organizations from more than 25 countries sent an open letter to all banks and financial institutions that have adopted the Equator Principles (EPs), calling on them to drastically reform their seven year old initiative. The letter expresses severe disappointment with the performance and impact of the EPs, considered by many observers as the leading sustainability initiative within the banking sector. The letter notes, ‘we see a lack of spirit, of belief in the vast potential of the Principles amongst the very banks that have adopted them’ (Bank Track 2010).

The business firms and banks had not always been very receptive to the pressures being put on it by NGOs and environmental organizations. In fact, for most of the last century, an atmosphere of distrust existed in both camps, which often stood in the way of much progress by either group. However, the growing environmental concern has brought about a new era of communication and cooperation between the business/banks and the NGOs worldwide (Kennedy 2008). For example, Bank of America and Conservation International[18] are working together to support biodiversity conservation efforts. Very recently, representatives from 15 international NGOs and 23 global financial institutions that have adopted the EPs met during a two-day conference in Zurich in February 2010 to discuss environmental themes. The event, hosted by Credit Suisse attracted NGOs like Bank Track, WWF etc. Some NGOs have also been supporting banks through educating consumers, businesses and other stakeholders. For example, PayItGreen[19], NACHA[20] etc. are engaged in educating consumers and businesses about the positive environmental impact of choosing electronic bills, statements and payments over paper.

Policy Makers Responding to the Changing Banking Environment

Governments and central banks in many economies have been undertaking initiatives and formulating rules to support green banking activities in both developed and developing economies. Governments are also responding positively to the suggestions of stakeholders. In 2009, Green Alliance proposed to set up a Green Investment Bank in order to deliver a low carbon economy in the UK. The National Green Investment Bank would be a publicly owned bank to hold and disburse capital on a commercial basis, but exclusively to companies and projects designed to accelerate the transition towards a low carbon economy (Green Alliance 2009). In response to that the British government decided to reform the energy market and create a one billion pound (USD1.50 billion) ‘green bank’ to encourage investment in low-carbon power (Reuters 2010).

In line with the global development in green banking strategies, governments of some developing countries have undertaken bold steps to bring positive change. China is one of these countries. In 2007, a Green Credit Policy was jointly developed by the State Environmental Protection Agency, the People's Bank of China, and the China Banking Regulatory Commission. It aims to guide loan financing away from highly polluting and/or energy consuming enterprises and projects towards enterprises and organizations favouring energy conservation and emissions reduction. According to the policy, firms that fail to pass an environmental assessment or implement state environmental protection regulations will be disqualified from receiving loans from any financial institution. The policy sends a strong message to banks concerning new responsibilities towards environmental protection (Business Issues Bulletin 2009).

Voluntary Initiatives by Businesses Complementing Regulatory Initiatives

The voluntary initiatives of business firms (the main clients of banks) have been working as a complement to strictly regulatory approaches and are crucial to the green banks. In USA, recent developments in technology have made it easier to undertake environment protection measures by a good number of corporate businesses (Bhat 2008). Today, it takes less than half the energy to produce a dollar of economic output as it did in 1970, according to a recent research from the American Council for an Energy-Efficient Economy (www.aceee.org). According to Nastu (2008), over the past 20 years, steel manufacturing has seen an energy-efficiency improvement of 167 percent and energy efficiency of computer systems has improved an incredible 2.8 million percent. Technology advances are also influencing corporations to increase the amount of alternative energy they use. And government incentives are making alternative energy, such as solar and wind power, economically feasible (Nastu 2008). Hewlett-Packard (the top ranked business firm in the Green Rankings by News Week 2009) has strong programs to reduce GHG emissions and it is the first major IT Company to report GHG emissions associated with its supply chain (News Week Web 2010). Large Japanese companies such as OKI, Asahi, Fuji, Fujitsu and Sumitomo have led the way in establishing zero emissions plants. Voluntary cleaner production initiatives have also existed for some time in developing countries like Taiwan, Thailand and China (welford 2004).

During recent years a good number of global businesses have adopted ISO 14000[21] as part of their commitment to the environment and society. Voluntary approaches of businesses are also helping governments to undertake stringent environmental regulatory measures. Rivera and Dalmas (2004) remarked, companies that have adopted a pro environmental strategy could also impose a cost on their competitors by influencing regulators to adopt more stringent regulations.

Though voluntary approach of business firms are believed to offer the best results, extra-ordinary circumstances need extensive intervention by the regulatory authority to save environment. For example, in response to the recent (April, 2010) Deepwater Horizon drilling rig explosion or BP oil spill (considered the largest offshore spill in US history which has created a devastating threat to the environment), US government forced BP to set aside USD20 billion to pay for the oil disaster in the Gulf of Mexico. President has also ordered the Justice Department to begin a criminal investigation against the company for ‘conspiracy to commit climate change’ under the guise of stopping an oil spill.

Improved but Inadequate Consumer Responses till Date

In the long run the trend towards green banking will be largely driven by the consumer behaviour and consumption patterns. In this age of consumer sovereignty, it is very difficult to change our consumption habit, which is very much a part of our lives (Vandana 2000). In the market economy the more that is produced and the more that is purchased the more progress and prosperity. As consumption increases the resources have to be used to meet demands and as a result the scope of environmental degradation expands.

Over the years, common people and consumers became increasingly aware of the responsible behaviour of businesses. Trendwatching.com (2010) has identified Eco-easy what they meant ‘Greater awareness and Environmental protection’ as one of the ten consumer trends in 2010, and found notable eco-friendly measures and corporate initiatives in response to the greater concerns of the consumers. According to the Havas Media (2007) observation, the green marketing strategies and good environmental practices are no longer a ‘nice to have’ for brands, but increasingly a ‘must have’ in terms of not only maintaining brand image but also in maintaining market share.

Consumers are calling on brands to take responsibility for reducing the impact of climate change as governments fail (only 11percent respondents strongly feel their respective government is doing enough to tackle climate change) to make progress on the critical issue, according to a major global study launched by Havas Media (2007) in Brazil, China, France, Germany, India, Mexico, Spain, UK and US. The study finds that 79 percent of consumers would rather buy from companies doing their best to reduce their impact on the environment; 89 percent of people are likely to buy more green goods in the following 12 months; 35 percent are willing to pay a premium for green goods; and 74 percent of consumers feel they can actively contribute to solving climate change. In spite of the fact that the developed world is globally perceived to be the largest contributor to global warming and pollution (table-2), the report highlights a dramatic gulf between the attitudes of the richest countries and those in the developing world. Brazil, China and India are among those who claim to be most alarmed by climate change, while respondents in the US, UK and Germany demonstrates far lower levels of concern. Likewise, consumers in China, Brazil, Mexico and India would be significantly more willing than their North American, British and German counterparts to spend extra on environment-friendly products (Havas Media 2007).

Table-2: Business Firms Respond to the Consumption Pattern and Demand

There is huge demand for Junk food in developed countries. Junk-food chains, including KFC and Pizza Hut, are under attack from major environmental groups in the United States and other developed countries because of their environmental impact. Intensive breeding of livestock and poultry for such restaurants leads to deforestation, land degradation, and contamination of water sources and other natural resources. For every pound of red meat, poultry, eggs, and milk produced, farm fields lose about five pounds of irreplaceable topsoil. The water necessary for meat breeding comes to about 190 gallons per animal per day. Overall, animal farms use nearly 40 percent of the world’s total grain production. In the United States, nearly 70 percent of grain production is fed to livestock.

The consumption demand in the developed world has contributed a lot to grow cash crops (bananas, sugar, coffee, tea etc) for export while other land is diverted for non-productive uses (tobacco, flowers etc). Additional land is also cleared and used to grow things like cattle for beef exports. The cost to the environment and local populations is borne not by the consumers of the products, but by local people instead. It is true that all global economies are collectively responsible for environmental degradation. However, contributions of a few developed countries are most in the presence of huge consumption inequalities between developed and developing countries. The UN resource consumption statistics mentioned that 86 percent of the world’s resources being consumed by just the world’s top 20 percent.

Source: Vandana 2000.

Consumer awareness and responses improved over the years, however, a lot more is expected for the betterment of environment and society. A study by Javelin Research (2009) observes, consumers have more of interest in ‘thinking’ green than actually ‘acting’ green. The study finds that while environmental issues have grown in importance with consumers, green banking habits have yet to take hold. The report notes that most consumers want to do the right thing, but if the process appears confusing or inconvenient, they simply are not going to bother changing their banking habits. This is largely because consumers are not aware of how they can make a difference and financial institutions have yet to find incentives that compel consumers to participate (Javelin Research 2009). IBT Market Pulse Survey (2008) on USA notes, 86 percent of financial services executives surveyed said being green is important to their clientele. However, sometimes responses of consumers or clients are inadequate to have remarkable positive changes. For example, nearly all (90 percent) respondents reported having paper avoidance programs like electronic billing, statements and online applications in place for their customers, however, 58 percent of executives reported less than a quarter of their customers utilize such programs, and only 16 percent said the majority of their customers take part in the programmes (IBT 2008).

Table-3: Role of Stakeholders in the Development of Green Banking

Market Based Economic Incentives for Banks are Essential Conditions

‘Sufficient Incentives’ is a crucial condition for the development of environmental practices by corporate- both positive and negative. Policy and regulatory supports exist in most industrialised economies in favour of developing a congenial atmosphere for providing green products by banks. For example, legislation set forth by the federal government has been playing a role in shaping green development in USA. Banks engagements in environmental and community development activities are entitled to receive incentives from US Department of Treasury. The Treasury offers certification to banks as a Community Development Financial Institution (CDFI) and access to CDFI Fund. CDFI funding increases a bank’s capacity to provide commercial loans to the renewable energy, green building, fishing, foods and agriculture industries (www.cdfifund.gov). Banks are also receiving funding from the USA Small Business Administration (SBA)[22] and making loans to businesses, including a family farm that grows organic vegetables, a restaurant that serves only locally-grown produce, an installer of solar panels or home insulation products, a manufacturer of biofuels or a renewable energy entrepreneur (Fed Atlanta 2009).

In the past, environmental regulations were either absent or there were lack of enforcements in developing countries. Nowadays, environmental liabilities are starting to represent real economic risks and environmental legislation in many developing countries is rapidly converging, following the path of industrialized countries. However, the mandatory provisions or legal imposition may not work for long and will not bring optimum result. Economic incentives like greater market share and new economic opportunities are often needed to change the behaviour of companies. It is important to convert regulation driven approach of corporate to market based approach for long run effective environmental protection.

Growing recognition of environmental risks by banks in their financing is an important determinant for integrating environmental issues with their project financing. ‘Environmental liability’ is one reason why lenders are exposed to credit risk, should the borrower have difficulties repaying. In fact, many different types of costs can arise as a result of pollution or compliance with environmental laws. Properties assigned as collateral for loans also risk depreciation if they are exposed to pollution. In Columbia, Banco de Colombia was held responsible for cleaning up a site received from the National Federation of Cotton Growers in payment of a loan. The property was contaminated with agro chemicals (Mercier and Oliver 2002). Even in the absence of the enforcement of environmental regulations, market risks matter. According to a World Bank study (1998), in Argentina, Chile, Mexico and the Philippines, stock markets react negatively to citizens' protests reported by the economic press. In many instances, stock prices reward the announcement of superior environmental performance such as greater pollution control or the adoption of cleaner technologies.

Besides credit and market risks, damage to an institution’s reputation often represents an important driver for international banks. A study by Mercier and Oliver (2002) notes, for many financial institutions however, credit and market risks have not been the primary motivation for adopting an environmental program. A Senior Executive Vice-President for group risk management at ABN AMRO states ‘I believe that environmental damage is primarily a risk to our reputation rather than a credit risk’ (ABN AMRO 2001).

A bank, which can differentiate itself and see a greater financial return because of its environmental practices, is likely to move in the direction of sustainability and restoration much more quickly than a financial firm that will suffer economically. For that matter, responses from the consumers are essential. And consumers or business firms are more likely to accept environmentally sound financial products if it does not have an associated economic cost, or is, in fact, more affordable than the environmentally degrading alternative. Over the years, greater consumer awareness and voluntary environmental activities of an increasing number of business firms have been contributing towards creating an environment of better economic and market based incentives for green banks. Best practice analyses and awards are some incentives to the banks that may also work as marketing tools and recognition. For example, Financial Times and IFC recognize the Best Sustainable Bank for every year[23]. A number of awards are also given at national and local levels in different countries. In USA, Green Power Leadership Award[24]; in Canada Globe Corporate Awards[25]; and in California (USA), Environmental Leadership Award[26] are presented to recognize the sustainable banks.

Some Issues are Complicated and yet to be Settled

For bank it is not easy to be truly green. It requires a thorough appraisal of all aspects of the businesses in order to be truly green (Harvey 2007). Refusing to lend to ‘dirty’ industries is one thing and making a commitment to clean up one’s own act is even harder (Goth 2008). Sometimes it is difficult for the banks to balance environmental concerns and business demands

There are two common standpoints related to the product ecology. The first one is that the banks should be 100 percent liable for the use of their products. The other extreme is that the user should be made fully liable to use the product not the bank. There are arguments for both however these extreme stands do not seem to be practicable. The right way lies somewhere in between. Finding the right path is one of the major challenges of sustainable banking (Zeitlerger 2008).

One crucial debatable issue is ‘how should banks govern the environment?’ It is argued that a major barrier posed to open governance is incorrectly generalizing bank behaviour. In many instances, NGOs have taken collective action in an attempt to influence bank behaviour, but the ability of banks to respond collectively has been limited, if for no other reason than constraints imposed on them by legal governance frameworks (Coulson 2009).

IV. Understanding Green Banking Practices in Global Banking Industry

Today the question is no longer whether banks should address the sustainable development aspects of the activities they support rather the issue is how they should do it (Coulson 2009). Over the past several years, more and more conventional banks have been adopting green banking for their products or policies (Kaeufer 2010). However, the extent of their activities and performances vary widely. Kaeufer (2010) observes five levels of green banking activities of global banks: At level 1, banks sponsor ‘green’ events and undertake public relations activities that are not related to the core business; banks develop isolated products or activities that they add to their conventional banking portfolio in level 2; at level 3, green principles and practices underlie most of the banks’ products and processes; strategic eco- system innovation broadens the focus of the bank’s activities from its own direct client interaction to include the larger system or eco-system in level 4; and at level 5, a green bank is a ‘hybrid’ company whose purpose is not ‘avoiding a negative scenario’ but addressing the core challenges of the time by innovating at the level of the whole eco-system.

Today, banks of all sizes have joined the green movement. According to a survey on selected banks by Jeucken (2001), close to 60 percent of the banks worldwide have an environmental policy statement: looking at the regional differentiation this applies to 67 percent of the European banks, 50 percent of the banks in North America and 25 percent of the banks in Oceania. Basically, banks have been getting aware of environmental risks since the beginning of the 1990s, and about 56 percent of the banks started paying close attention to environmental aspects when setting up credit and financing agreements by 2000 (Jeucken 2001). In recent years, understanding the responses from consumers and common people, GB practices of banks came up as part of their marketing tools known as ‘Green Marketing’[27]. For example, Bank of America has a ‘Bank Better Live Greener’ marketing campaign.

Ceres (2008) evaluates how 40 world’s largest banks (16 US, 15 European, 5 Asian, 1 Brazilian and 3 Canadian banks) are addressing climate change through board oversight, management execution, public disclosure, greenhouse gas emissions accounting and strategic planning. The study observes that most leading banks are addressing climate change as a risk management issue as they do other credit, operational and reputation issues. European banks are at the forefront of integrating climate change into environmental policies, risk management and product development. The majority of other banks in this study, including many of the leading US banks, are working towards better disclosure of climate risks as an essential first step toward embracing a changing regulatory and economic environment. This study finds that of the 40 banks, 23 include a reference or discussion of climate change in their latest annual shareholder reports. Collectively, these banks have written nearly 100 research reports on climate change and related investment and regulatory topics; and 26 of these banks are signatories to the Carbon Disclosure Project (Ceres 2008).

In-house Performances marked Tremendous Improvement

The banking sector is generally perceived to be a relatively environment friendly industry however energy and water efficiency and waste reduction are of high concern for many big banks. Big banks are also engaged in carbon offsetting which refers to the effort of canceling out the climate-changing effects of their own green house gas emissions by funding emission reduction in other places (Zeitlerger 2008). Greenhouse gas neutrality is one of the most emphasized issues today as part of the sustainability of banks.

Strategies for in-house GB performances of banks generally center on certain aspects. For example, HSBC centers its sustainability strategy on carbon offsetting. It therefore endeavored to go carbon neutral in 2006, which means that its worldwide operations contribute net zero carbon dioxide emissions in the atmosphere (Harvey 2007). In 2006, ABN AMRO tried to decrease its carbon dioxide emissions by installing new solar panels (ABN AMRO 2006). Paper consumption is a major key point of sustainable banking for Bank Sarasin. The Swiss financial institution achieved to reduce paper consumption by 3.3 percent from 2005 to 2006 (from 205 kg in 2003 to 153 kg per employee in 2006). Bank Sarasin partially managed this by replacing old with new copy machines, which have a duplex print function. Simultaneously to reduce the amount of paper used, Bank Sarasin increased the proportion of recycled paper used by 6 percent. The amount of waste decreased by 3.3 percent while the bank’s total waste sent for recycling increased by 4.5 percent. This proved the newly introduced waste sorting scheme successful (Bank Sarasin 2006). Research activities, compilation of environmental impact, and related disclosure are other important components of green or sustainable banking. The Swiss Group published a comprehensive assessment of its impact on the environment through its in-house activities in its 2005 Energy and Material Report.

A recent IBT Market Pulse survey (2008)[28] on USA financial intuitions reveal that 93 percent executives work in buildings that use fluorescent lighting and/or skylights, 47 percent high efficiency plumbing, 43 percent eco-friendly heating and air conditioning and 43 percent energy-efficient windows. Some of the green initiatives of their financial institutions include: 81 percent using energy-efficient lighting; 62 percent encouraging ride-sharing or public transportation for employees; and 46 percent using environment friendly cleaning products. About 74 percent of banks and financial institutions are having recycling programs in place and with such programs office papers, toner cartridges, electronic office equipments, newspapers, aluminum, tin, plastic and glass are recycled (IBT 2008). Use of environment friendly technology by some banks also saved their costs. For example, financial conglomerate Citigroup, with a real estate portfolio equaling 8.5 million square meters worldwide, has adopted power-saving measures as turning off escalators in the lobbies of buildings and redesigning bank branches to include more natural lighting and recycled materials. The company says it can save as much as USD1 per 0.09 square meter a year, or nearly USD100 million annually, by making its offices use less energy (Nastu 2008).

Banks Considering Environmental Risks and Increasingly Introducing Green Products

Green Banks are engaged in creation of socially responsible investment funds and sustainable project finance activities. In project finance, banks may exercise their powers in two ways: one, banks could assume their role as environmental policeman and ensure that their borrowers comply with the environmental standards and exclude those who do not comply; two, banks could choose to enter into a partnership with different industry sectors and encourage companies to be more sustainable (Thompson 1998). Today growing number of banks has been assessing environmental risk while selecting a project for financing. Three different aspects of environmental risks are considered by the banks: one, direct risk which materializes if banks are held directly responsible for cleaning up for insolvent borrowers; two, indirect risk which constitute a case where a borrower jeopardizes his/her ability to repay the loan through activities which harm the environment; three, the reputational risk that affect the future streams of revenues of lenders (Zeitlerger 2008).

Online banking is an important element of ‘green banking strategy’ of many banks. Online statements and bill pay eliminates paper waste, saves gas and carbon emission, and reduce printing costs and postage expenses. Deforestation by encouraging paperless billing is great for the environment. A recent survey by Javelin Strategy and Research (2009) shows that if all US households are engaged in electronic bill payment: 16.5 million trees would be saved annually; 3.9 billion tons of carbon dioxide emissions would be eliminated; and 1.6 billion pounds of solid waste would not be generated. Electronic banking solves storage space constraints, makes data retrieval faster and easier, enhances reporting, make collection times shortened, enhance cash flows, and provide businesses a better opportunity to invest idle cash. Businesses likewise benefit from electronic advances while improving the quality of the environment (NACHA, www.nacha.org).

A good number of US banks have been offering eco-friendly financial products. IBT (2008) survey observes, 19 percent US banks have eco-friendly car loans, 17 percent offer eco-friendly home financing, and 8 percent have ‘green’ credit cards (where financial institutions make contributions to green initiatives based on spending). USA has above eight thousand smaller community banks and growing number of these banks have been playing leadership roles in supporting green development. For example, Shore Bank Pacific is a Washington-based bank that provides deposits, loans and consulting services to help businesses grow and become more environmentally sustainable. It works with a business called Farm Power Northwest, which is recycling local farm and food waste into renewable electricity. With funding from the USA SBA, these banks are making loans to small businesses and activities including growing organic vegetables, running organic store, manufacturing biofuels etc. (Fed Atlanta 2009). Almost all the banks (90percent) of the country have environment friendly paper avoidance programs like electronic billing, statements and online applications in place for their clients (IBT 2008). Many US banks nationwide are now providing financing incentives for the purchase of hybrid cars. With rising energy costs, banks are recognizing the value of making loans for cars that are more likely to hold their resale value. Some banks, including Bank of America, are offering forgivable loans to their associates for the purchase of hybrid cars as an employment bonus. Practically, energy-efficient mortgages have become the most common green finance product. Some banks are providing incentives for buyers of energy-efficient homes. For example, Bank of America offers USD1000 off closing costs for customers who buy Energy Star-compliant homes. Several banks also finance energy-efficient improvements such as solar panels, new windows, better insulation and more effective heating systems (Fed Atlanta 2009). Based on certain observations about big banks in USA, Green American (www.greenamericatoday.org/pubs/realgreen/articles) formed the opinion that some smaller community banks are true green banks.

Banks Performing as Groups

In response to growing expectations for banks to address the climate change impact of their lending and investment activities, a number of major financial firms have made headway in developing industry standards for climate risk management. In February 2008, Citigroup, JPMorgan Chase and Morgan Stanley launched the Carbon Principles, a voluntary framework aimed at addressing climate risks associated with financing carbon-intensive projects in the US power sector. Bank of America, Credit Suisse and Wells Fargo also endorsed the principles later that year. By signing on to the Carbon Principles, banks commit to using an enhanced due diligence process when financing carbon-intensive projects, such as coal-fired power plants. While these standards do not exclude such projects from the banks’ lending portfolios, they do ensure a more rigorous evaluation process that acknowledges the regulatory and environmental risks associated with financing carbon-intensive projects. In December 2008, a second group of global financial institutions including Credit Agricole, HSBC, Munich Re, Standard Chartered and Swiss Re– announced their adoption of the Climate Principles, a set of commitments on climate business strategies developed by the Climate Group, a UK-based climate advocacy group. The Climate Principles offer a broader set of best practices for engaging with clients and customers across different financial businesses from asset management to insurance and investment banking.

Ground Reality is not always in Line with the Ideology

The green movement is gaining momentum in some corners of the financial industry and many banks include green and ethical commitments in their manifestos - but there are differences in their commitments and in many instances the ground reality is concerning. For example, under EPs, lenders promise to hold back from unsustainable development in emerging markets, such as logging in rain forests and strip mining. So far, green groups say there is little evidence that the policies make any difference. Sometimes they are financing really controversial transactions. TXU Corp. of Dallas sparked the battle in 2007 when it announced an USD11 billion plan to build 11 coal-burning power plants in Texas. Merrill Lynch and Co. Inc., Citigroup and Morgan Stanley - three banks that have embraced the EPs - were leading the debt and stock transaction (Giannone and Lee 2007).

Recently, Credit Agricole, France’s biggest bank, is being attacked by the environmental lobby for its advertising campaign that highlights its green credentials. The campaign is part of the bank’s efforts to expand its business outside France and includes full-page advertisements in international newspapers. It also includes television advertisements depicting dramatic scenes of planetary destruction. Scarred landscapes are blown away by wind turbines and give way to a gleaming Credit Agricole skyscraper intones: ‘back to common sense, it’s time for green banking.’ In reality, Credit Agricole’s investment-banking arm is one of the primary funders of oil exploration in the developing world. In 2009, it led a syndicate of banks that lent USD520 million to Trafigura, the Swiss oil giant that was caught dumping toxic waste off the Ivory Coast. Friends of the Earth, the campaigning group, called the marketing push ‘the worst example of greenwash we’ve ever seen’ (CQuestor New Letter 2010).

In a letter Bank Track (2010) shares the civil society concerns regarding Barclays’ involvement in the Omkareshwar Dam Project in the Indian State of Madhya Pradesh. As the Omkareshwar Dam was already turned down by a number of international banks and financial institutions, it was surprising that Barclays is willing to risk its reputation by becoming involved with this controversial project. Among the institutions that turned down the Omkareshwar project are the World Bank’s Multilateral Investment Guarantee Agency (MIGA), Deutsche Bank and ABN AMRO. The letter to the CEO of the bank notes ‘in view of the role of Barclays as one of the initiators of the Equator Principles, we are especially disturbed that your bank has opted to back a project violating of these principles’ (Bank Track 2010). Moreover, many so-called responsible banks hardly disclose information that can be used to assess their conformity with the accepted principles. Environment advocates and some investors complain that banks do not share enough data so outsiders can determine if green policies are being honored (Giannone and Lee 2007).

Transparency and Environmental Reporting Need More Attention

Generally, the issue of environmental transparency and disclosure received inadequate attention to the banks and concerned groups (Bank Track 2010). Like other businesses, banks use different means for their environmental reporting and conveying environmental information to stakeholders. Among these are newsletters, press release, magazine and corporate booklets. Nevertheless, annual report has been the primary means of corporate reporting. Initially, environmental information was reported in one of the sections in the report and later as separate section. Subsequently, the practice grew with the introduction of ‘Stand-alone’ environmental reports (O’ Donovan 1999).

In some developed countries environmental reporting has been made mandatory. For example, Denmark regulated the matter in 1996; the Netherlands and Norway in 1999; and Sweden made the environmental disclosure mandatory. In USA, companies having more than 10 employees are required to report on specified toxic emission to the US Environmental Protection Agency (Pramanik et. al. 2008). However, generally, environmental disclosures are encouraged through the voluntary local and international guidelines, such as, the Coalition for Environmentally Responsible Economics (CERES) Principles[29], the European Union Eco-Management and Audit Scheme[30], Greenhouse Gas Protocol Initiative[31] and Global Reporting Initiative (GRI) that are relevant for banks. These guidelines design and build acceptance of a common framework for reporting environmental information in sustaining corporate public accountability. Of these, the G3 Reporting Framework – developed by the GRI[32] – is a useful framework for producing annual sustainability reports, prompting banks to not only describe policies, but also to measure their implementation. The framework contains principles to define report content (materiality, stakeholder inclusiveness, sustainability context, and completeness); principles to define report quality (balance, comparability, accuracy, timeliness, reliability, and clarity); and guidance on how to structure the report. To address the financial services sector, the GRI and the UNEP FI published various financial services sector supplements on issues such as product responsibility, human rights and environment (Bank Track 2010).

Some very big and reputed global banks have adopted voluntary principles however use of these frameworks remains very limited. The trends of reporting also vary from region to region. Jeucken (2001) notes that environmental reporting by banks appears to be very much a European phenomenon. Banks in other regions lag behind. Bank Track (2010) observes that the use of external verification has been very limited in reporting practices; and not all signatories of the GRI are users of the ‘GRI framework’ for reporting. In general, there is significant scope for improving the status of the environmental reporting and disclosure in developing economies.

V. Green Banking Practices by Banks in Bangladesh- Relevant Issues and Stakeholders’ Role

The South Asia region is especially vulnerable to environmental degradation and climate change. According to the Intergovernmental Panel on Climate Change Fourth Assessment Report (IPCC 2007), crop yields could decrease up to 30 percent by the mid-21st century due to environmental change. Sea level rise and more severe typhoons pose major threats to coastal areas of the region. By 2050, more than a billion people could be adversely affected by the loss of Himalayan glaciers that feed seven large rivers in the region. One in five people in the region already lack access to safe drinking water (IPCC 2007). The water supplies of the region are also under threat from weakening monsoons, and Bangladesh and India are already facing difficulties from flooding and famine in some areas.

In the context of Bangladesh, there are many dimensions of environmental degradation. Urban air pollution, ground water contamination with arsenic, surface water pollution, encroachment of rivers and other water bodies, improper disposal of industrial, medical, and household waste, deforestation, loss of open space, loss of bio-diversity, and noise pollution are just a few examples, and in many cases, the extent of degradation has reached crisis proportions (Islam 2002). However, Bangladesh is a low carbon dioxide emitting country even among the developing countries. The per capita carbon dioxide emission is estimated at 0.2 ton per year, while the average for developing countries is 1.6 ton per year. However, Bangladesh is likely to be one of the worst suffers of Global Warming. In the first half of April 2007, the Intergovernmental Panel on Climate Change (IPCC) of the UN met in Brussels, where the scientists predicted that the global warming will make Bangladesh, Maldives, and other coastal regions more vulnerable. Huge number of population and lack of capacity of the governmental agencies are deteriorating the environmental condition of Bangladesh (Ahsan et. al. 2009).

Enforcement of Relevant Rules/Regulations Remains Week

Key environmental legislations in Bangladesh include Water Pollution Control Ordinance, 1970[33]; The Environment Pollution Control Ordinance 1977[34]; The Bangladesh Environment Conservation Act 1995[35]; The Environmental Conservation Rules 1997[36]; and The Environment Court Act, 2000[37]. To protect the environment, government also formulated Environmental Policy in 1992 and made commitments as a signatory of a number of Multilateral Environmental Agreements[38]. In December 1997, Bangladesh along with 160 other countries, completed negotiations of Kyoto Protocol. The Kyoto Protocol allows Annex-B Countries[39] to reach their emission reduction targets in different ways through Flexibility Mechanisms. These include Emission Trading (trading of emission between developed countries); joint implementation (transferring emission allowances between developed nations linked to a specific emission reduction project); and Clean Development Mechanism (CDM). Through CDM both developed and developing countries would be benefited. According to the action plan of Bangladesh government (GOB 2007), with a view to developing management of waste of the city of Dhaka under the auspices of CDM, 700 MT of decomposable waste will be collected from kitchen markets of various locations to prepare compost fertilizers. Such a program will facilitate the Dhaka City Corporation in saving its cost in respect of waste collection and transportation and, simultaneously ensure availability of environment-friendly organic fertilizers produced from the collected kitchen market wastes. Through the CDM, GHG emissions can be reduced in three major sectors in Bangladesh, namely energy, waste, and forestry (GOB et. al. Undated). In regard to infrastructure projects, recently developed Environmental and Social Management Framework (ESMF) by IIFC is a safeguard instrument to determine and assess future potential environmental and social impacts of different projects and other activities associated with the projects regardless of funding agency. The framework sets out mitigation, monitoring and institutional measures to be taken during design, implementation and operation of the project activities to eliminate adverse environmental and social impacts, offset them, or reduce them to acceptable levels. This framework is part of the overall due diligence that will be conducted once a Participating Financial Institution has applied for IPFF funding and recommendations for corrective actions, including a corrective action plan (IIFC 2010).

In fact the awareness build up and conservation effort started in Bangladesh in 1980’s when several developments took place, and during that period a separate Ministry called Ministry of Environment and Forest (MoEF) and The Department of Environment (DoE) have been established (Islam, 2002). The Department of Environment (of the Ministry of Environment and Forest) developed a sector-wise industrial guidelines and Standards on the requirements of the Environment Conservation Rules, 1997 under the Environment Conservation Act, 1995 which is known as ‘Environment Impact Assessment (EIA) Guidelines for Industries’.[40] The Environment Conservation Act, 1995 became effective in the country since June 1995 and stipulates that ‘No industrial unit or project shall be established or undertaken without obtaining environmental clearance from the Director General, Department of Environment (DOE) in the manner prescribed by the rules’. EIA is an instrument of environmental planning of new projects that is expected to carry out the process of clearance[41] that rests on DOE. Through a screening process, EIA is designed to help identify the type of projects that are not likely to cause environmental adverse effects. It is to be noted that the clearance from the DOE is one of the requirements for obtaining finance from commercial banks for the industrial units grouped under different categories of EIA. Till date the enforcement of these provisions remains weak.

Response of Businesses is Slow and Consumer Remains Unaware

Environmental responsibility comes as part of CSR practices among businesses in Bangladesh. Studies on the area covering Bangladesh businesses are very limited. Capturing a set of CSR issues[42] based on primary and secondary survey of three stakeholders[43] group, a CPD (2003) study observes that 64 percent of the business firms[44] have a ‘sustainable development policy’. The data of the CPD study indicate, about two-thirds of the civil society representatives are dissatisfied with the state of corporate responsibility as practiced by companies in Bangladesh. Around 67 percent of the companies have a formal policy on health and safety issues, but the implementation of such policies were found only among 27 percent, and public reporting system was very rare as 9 percent of the companies practice such reporting.

In regard to environmental responsibility, CPD (2003) analysis shows that only 49 percent of the corporations recognize their responsibility in protecting the environment, and very insignificant proportion of companies has policies or strategies related to environment. While only 16 percent of the companies have the policy of preventing and minimizing hazardous waste, only 11 percent of them have a system in place to implement the policy. The study revealed quite an outstanding difference between company policy to manage the waste generated and existing system for their implementation. Practically, environmental pollution and violation of related regulations are widespread in the country. However, the number of companies in the survey who were found violating environmental legislation, and for that reason experienced penalty, is very limited (only 9 percent). The situation indicates weak enforcement of regulations and poor performance of the law-enforcing agencies that are responsible for penalizing environment polluters. The circumstance has not changed much over the years.

One relevant vulnerable area in Bangladesh is consumer responses and awareness among consumers on the issue. Consumer awareness is still very low with limited market surveillance by consumer organizations and there is no consumer representation in any standardization activity (Consumer International, www.consumersinternational.org). The Consumers Association of Bangladesh (CAB), a consumer organization in the country, is not active for building consumer consciousness concerning green products (Shamsudoha 2005). In 2008, Consumer International and UNIDO undertook initiatives to raise public awareness on quality (in terms of safety, health, performance, reliability, environment, and consistency) standards and to encourage informed choice (as part of Bangladesh Quality Support Program of UNIDO) in the country. Shamsudhoha and Alamgir (2009) observes, though green marketing seems to be getting popular, it has not been very successful in practice in Bangladesh either attracting customers or in helping the environment till date. The study notes, extremely modest promotional activities have been undertaken by the government and its agencies to improve environmental awareness among consumers. A survey by Shamsudha (2005) observes, neither customers know nor producing organization clearly state environmental benefits of any products. The study adds, consumers are not found to be committed to improve their environment and may be looking to lay too much responsibility on industry and government.

Few Active NGOs with Inadequate Support

There are probably more and bigger NGOs in Bangladesh than in any other country of a similar population in the world (Ahmed 2003). A few NGOs are actively involved in the environmental sectors of Bangladesh by doing research & advocacy[45], and as pressure group. These are implementing several projects with government and international donor agencies and international environmental NGOs[46]. A good number of NGOs have collaborated with the government in formulating NEMAP (National Environmental Management Action Plan in 2007). Some of these are now engaged in implementation of NEMAP related and other environmental projects. However, it is clear that these efforts and projects are not proving adequate for the environmental challenges, which are being faced by Bangladesh.

Considering the insignificant roles of government in environmental protection in the country, some environmental NGOs[47] are trying to put pressure on the government to undertake protective measures to save critical sectors like wetland conservation, pollution control and biodiversity protection. They are also trying to motivate the people, and in some cases the government is accepting their ideas (Ahsan et.al. 2009).

Research, advocacy and campaign on environmentally responsible practices of banks or green banking are extremely limited. The issue is not in the priority list of the environmental NGOs of the country till date. CSR or ER practices of businesses also found priority in an insignificant number of research activities. Centre for Policy Dialogue (CPD), a policy research organization conducted an informative and comprehensive study on corporate responsibility practices by businesses in Bangladesh in 2003 in association with TERI-UK[48]. Manusher Jonno Foundation[49] sponsored some research activities on social accountability of businesses[50] and banks[51] in recent years. Bangladesh Enterprise Institute[52] conducted some research and published some guidelines on Corporate Governance, CSR and ER of Bangladesh covering business sector including banks. Sponsored by Katalyst [53], BEI conducted a survey to develop guidelines for financial institutions in promoting environmentally and socially responsible business practices in 2005. The study came up with a proposed framework for socially and environmentally responsible practices by banks in Bangladesh.

Green Banking Practices are Not Among the Priorities of Banks in Bangladesh
‘Environmentally responsible practices’ or green banking practices is generally seen as part of CSR practices in the banking sector of Bangladesh. Most financial institutions in Bangladesh have not integrated CSR in their routine operation; rather they are in the form of occasional charity or promotional activities (Rahman 2009). Bangladesh Bank (BB) has taken initiatives in respect of formalizing CSR and issued an elaborate directive to the banks on June 01, 2008.
BB has introduced Taka 2.0 billion refinance line in FY 10 against bank loans for environment friendly investments in solar energy, biogas plants and effluent treatment plants. Recently, BB switched over to solar-powered lighting by setting up a 20 kilowatt solar panel, as a move towards encouraging green energy in Bangladesh. A new refinance facility of Taka 5.0 billion has also been introduced to capacitate jute sector, the age-old green pillar of Bangladesh economy (Rahman 2010). Though BB guidance circular suggests embracing of CSR with decisions taken at the highest corporate level (board of directors of the bank), and to choose action programs and performance targets, only 12 PCBs and 3 FCBs reported to have embraced CSR with decision at the highest corporate level, and none of the government controlled banks and specialized banks reported to have done anything in this regard (BB 2010). The philanthropic activities of banks generally cover education, health, disaster relief, sports, art & culture, environment etc. According to the Bangladesh Bank (2010), only one local private commercial bank and one foreign commercial bank have direct interventions on environmental issues. However, 75 percent government controlled commercial banks and 97 percent private commercial banks have reported about their CSR initiatives in their annual financial reports in accordance to the directive of Bangladesh Bank. Some banks have set up CSR unit or cell however banks generally do not have separate environmental or green banking cell. The expenditure under the head of philanthropic activities is also not very significant. Generally banks do not publish separate reports of their CSR programs and activities and do not use comprehensive standard formats such as the GRI (Bangladesh Bank 2010). One notable exception is HSBC in Bangladesh, which has published Sustainability Report 2009 covering some environmental issues[54] recently.

Till date, Bangladesh Bank has limited intervention with regards to providing a guideline targeted to the environmental or green banking practice issues. The management and operational tools used for granting big loans, i.e. Credit Risk Management (CRM) and the earlier version Lending Risk Analysis (LRA)[55] do not have any risk associated with environmental or social aspects. Only business/lending types as logging, mineral extraction/mining and other activities that are ethically or environmentally sensitive have been discouraged in the Credit Risk Management Manual[56].

Bangladesh Bank has been helping the government in implementing the provisions of the Environment Conservation Act 1995. In June 1997, the central bank asked all commercial banks (BRPD 1997)[57] to undertake necessary steps, in light with the implementation of certain decisions as regards environmental conservation, and the protection of environmental pollution by the National Environment Committee. Commercial banks were asked to ensure that steps have been undertaken to control environmental pollution before financing a new project or providing working capital financing to the existing enterprises. According to a Bangladesh Bank circular (1997) the industrial units (that may cause environmental pollution) to be established under bank credit would get the permission to open Letter of Credit to import machineries only after ensuring that the list of machines include equipments to set up waste treatment plant[58]. However, enforcements of all these provisions appear to be weak. Practically, the existing rules and guidelines, enforcement of regulations, and business environment are not adequate to provide incentive to undertake green banking practices or provide disincentive not to undertake environmentally harmful practices in Bangladesh. Banking market does not have objectively designed green products, and environmental risks are not part of the risk management of banks. Integration of environmental practices with in-house operation like energy conservation, building green offices, saving papers to save trees etc. are not at all visible in the banking operation of Bangladesh. Banks are generally aware of the necessity of adopting online banking to serve their customers, however, using online application as a tool to protect environment is not part of the banking strategy in Bangladesh till date.

Are the Banking Sector and Stakeholders Ready for a Positive Change?

Government of Bangladesh has taken some measures for improving environmental governance in recent years. In response to the global development, the government has undertaken the National Capacity Self-Assessment (NCSA) initiative to assess the capacity needs and prepare a capacity development action plan in sustainable environmental governance in the year 2007. Along with some other environment related objectives it targets to link country action to the broader global environmental management and sustainable development framework. As part of the work, capacity development needs in all thematic areas have been identified at individual, institutional and systemic levels. The steps are expected to offer an enabling environment for creation of relevant policy, economic, regulatory, and accountability frameworks within which institutions and individuals operate.

It is a good sign that Bangladesh Bank, the regulator and supervisory authority of the banking sector of Bangladesh, has started taking stock and tracking progress of socially and environmentally responsible practices by banks. In April 2010, the central bank of the country published its first annual review of CSR practices in the financial sector in Bangladesh covering scheduled banks’ socially and environmentally responsible practices for 2008 and 2009. This is the first publication of this kind by the central bank. In the ‘foreword’ of the publication, Governor of Bangladesh Bank notes, ‘As elsewhere, awareness of issues in socially and environmentally responsible business and organizational practices is increasing among users of financial services in Bangladesh. Banks and financial institutions will therefore be well advised to adopt CSR practices in formal, structured manner in line with global norms. Socially and environmentally responsible practices will, besides fulfilling the moral obligations involved, also help preserve competitive edge in client bases sensitive to these concerns.’

As regards the perception of the positive impact of ER practices (revealed in a BEI survey by Raihan and Habib 2005), the businesses are in general in agreement that ER practices are beneficial to the performance of the society and companies. Respondents of companies also admit that financial institutions can play a role in encouraging businesses for ER practices. It is encouraging that no financial institution disagrees, environmentally and socially responsible practices enhance goodwill of their institutions, and at the same time national and international market access. Absence of proper guidelines/policies is termed as one of the constraints by the greater section of respondents. The survey also reveals that 76 percent of the financial institutions have willingness to incorporate CSR for credit analysis/loan proposals (Raihan and Habib 2005).

Awareness, adequate information, and economic conditions are important determinants of consumer responses. This is about understanding and acceptability of ‘less environmentally harmful’ and ‘environment friendly’ products and services in all economic sectors. In Bangladesh, consumer awareness level is believed to be reasonably low. Inadequate or absence of product information (about negative or beneficial impact), low literacy rate, and relatively higher level of poverty made the situation difficult and vulnerable.

VI. Green Banking Opportunities for Bangladesh- Recommendations

Major stakeholders need to play active roles for the development of GB practices in Bangladesh covering environmental management and governance, environmental risk management, in-house environmental performance, voluntary and leadership activities, and environmental reporting. The paper prescribes the following recommendations:
One, Banks should formulate and adopt broad Environmental or Green Banking Policy and Strategy approved by their Board of Directors. A High Powered Committee comprises directors from the Board should be responsible for reviewing the bank’s environmental policies, strategies and programs.

Two, A separate Green Baking Unit or Cell should be established and assigned with the responsibility of designing, evaluating, and administering related issues of the bank. A senior executive should be assigned with the responsibility of heading the Unit. The Unit will report to the High Powered Committee of the Board. Employee awareness and training on environmental and social risk and the relevant issues should be a continuous process as part of the bank’s human resource development.

Three, Bank should formulate strategies to design specific polices for different environmentally sensitive sectors in the country like agriculture, leather, fisheries, forestry, mining, gas, power generation, pharmaceuticals, constructions, textile, jute etc. In this connection, published materials of environmental NGOs might offer valuable guidelines. Banks should also determine short and long term targets to be attained as part of strategic environmental planning. Target areas may cover attaining energy efficiency, issuance of e statements, electronic bill pay, saving papers, environment friendly office buildings etc.

Four, It is time to incorporate ‘Environmental Risk’ as part of the existing risks prescribed to assess a prospective borrower by a bank in the Credit Risk Management (CRM) Manual for granting big loans. Bangladesh Bank may play an important role in this connection. It seems logical to identify environmentally sensitive lending sectors for assessing environmental risks and fix up a comfortable threshold level of lending above which environmental risk management would be applicable.

Five, As a starting point, a bank should prepare an inventory of the consumption of water, paper, electricity, energy etc by its offices and branches in different places for in-house environmental management. Then it should take measures to save electricity, water, and paper consumption. A ‘Green Office Guide’ may be introduced for the employees for efficient use of electricity, water and paper and reuse of equipments. In place of relying on printed documents, online communication should be extensively used (where possible) for office management to save papers. Installation of energy efficient electronic equipments (at least in the newly constructed offices) and automatic shutdown of computers, fans, lights, AC etc. will help reducing electricity consumption. Filtered water in place of bottled water will save water, environment and costs. Banks should take steps to save energy and restrict GHG emission from corporate business travel. Introducing employee vehicles and encouraging employees to purchase energy efficient cars (that consume less fuel) can reduce gas and petroleum consumption. Strategy of reuse, recycling of materials and equipments, and waste minimization strategy should be part of in-house environmental management in near future.

Six, Environmental infrastructure such as clean water supply and wastewater treatment as well as solid and hazardous waste disposal should be encouraged and financed by banks. Eco-friendly business initiatives and energy efficient industries may be preferred in financing activities. Consumer loan programs may be used for promoting environmental practices among clients. For example, through Car Loan Program banks may promote purchase of fuel-efficient vehicles by the clients. Discount interest rates may be offered to the clients who use loans to buy vehicles with high mileage.

Seven, Converting to online banking is the easiest way to help environment by a bank. Introducing online banking and e statement help saving papers and trees. Online statements and bill pay not only eliminate paper waste but also help reducing printing costs and postage expenses.

Eight, The crucial task of awareness development among consumers and clients should be a continuous job of a bank under its public relation department. For this, banks may have alliance with environmental NGOs and media. Banks may also support public green events like campaign, sponsoring educative programs on environment, sponsoring tree plantations, celebration of Earth Day etc. Clients and business houses may be encouraged and influenced to comply with the environmental regulations and undertake resource efficient and environmental activities. Banks may use environmental causes for marketing their services to consumers that are interested in doing business with environmentally proactive companies. Success of consumer awareness is an important determinant of the success of green marketing in Bangladesh.

Nine, Cooperation among environmental NGOs with banks may help bringing a congenial atmosphere for green businesses, products, and activities. Banks may support environmental initiatives and research activities through green financial products. For example, a debit card (a green debit card) may generate donations for nonprofit organizations. Green initiatives by a group of banks will not only be effective but also offer competitive advantage. Bank alliances may also prepare standards for themselves for improving green banking practices. Popular enviromental guidelines and principles like Equator Principles, UNEP Finance Statements, CERES Principles are valuable gudelines for developing such standards.

Ten, Banks should create disclosure policies and practices that would require clients to make information about environmental and social impacts available to affected communities. Social and environmental disclosure should not be avoided through the claim of client confidentiality.
At this stage online reporting and at least a section in the annual reports should cover environmental activities of banks. In the log run banks should make plan to publish independent environmental annual report following internationally accepted format like GRI targeting their stakeholders with arrangement for external verification.

Development of environmentally responsible practices by banks or green banking is the result of a collective effort of all stakeholders. Government should take necessary steps to enforce existing environmental regulations and formulate appropriate rules to ensure ‘Polluter Pays Principle’ in the country. The Central Bank of Bangladesh can play a pro-active role in formulating a national level ‘Green Credit Policy’ and creating a sound incentive structure for performing ER practices by banks. A discount window may encourage banks to undertake green financing. Much more is expected from NGOs and civil society organizations in the form of awareness development, research activities, and business monitoring. ‘Consumer Awareness’ is the area where Bangladesh needs remarkable change, because green banking is largely driven by consumer behavior and consumption patterns. For rapid change among consumers and businesses, a collective endeavor of government, media, NGOs, and banks will be required. An isolated effort by banking communities may not bring much. The success of the proposed framework would depend upon the pro-active role of all stakeholders and a sound incentive structure.

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[1] Activities that degrade environmental qualities and affect third parties.

[2] When the cost associated with a negative externality is effectively attributed to the responsible agent/agents the externality is regarded as internalized.
[3] A public good, as defined in economic theory, is a good that, once produced, can be consumed by an additional consumer at no additional cost.
[4] GPGs are public goods with benefits or costs that extend across countries and regions and across rich and poor population groups, and even across generations (Inge et. al. 2003).
[5] ‘Free Riders’ are those who consume more than their fair share of a public resource, or shoulder less than a fair share of the costs of its production.
[6] An allocation is Pareto Inefficient if there is some way to make the users (people) better off.
[7] The key to conservative arguments on the free market is a concept called the ‘invisible hand’ by Adam Smith, which represents all the social good incidentally caused by individuals pursuing their own self-interest. For example, a business firm that wants to maximize profit must first come up with a product that is beneficial, pleasing and desired by thousands of customers. By pursuing his own interest, the firm also benefits society.

[8] Like agriculture, fisheries, forestry, oil and gas, and power generation as environmentally sensitive sectors.

[9]The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change, aimed at fighting global warming. The UNFCCC is an international environmental treaty with the goal of achieving stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.
[10] During last five years, project finance is applied more frequently in the environmentally sensitive sectors like electricity generation (45%), oil and gas (34%), and mining (8%). It means that the EP applies to a considerable share of a bank’s activities in the financing of these specific sectors (Ceres 2009).
[11] Equator Principles Association has been established to confirm the purpose, operation and management structure of the Equator Principles.
[12] The UNEPFI promotes investment in clean and renewable energy by financial institutions and other investors. The UNEP Statement by Financial Institutions on the Environment & Sustainable Development applies to all financial services.

[13] The EPI-Finance 2000 proposed indicators covering four categories of financial services - commercial banking; investment banking and project financing; asset management; and insurance - relating to integrating environmental issues into core business, and development of environmental products for financing.
[14] It is very difficult to define NGO but in the broadest sense NGOs mean nongovernmental, non-profitable organizations that serve the disadvantageous groups of the society. Here the NGOs are mainly devoted to improving public health standards, promoting sustainable development and protecting the environment.
[15] Covers agriculture, fisheries, forestry, mining, oil & gas and power generation.
[16] Green America is a not-for-profit membership organization founded in 1982 with a mission to harness economic power—the strength of consumers, investors, businesses, and the marketplace—to create a socially just and environmentally sustainable society.

[17] There’s no doubt that climate change presents a serious threat—so it makes no sense to continue building carbon-spewing coal-fired power plants.
[18] Conservation International is dedicated to conserving global biodiversity, emphasizing cutting-edge science, comprehensive partnerships and concern for human well-being.
[19] PayItGreen's mission is to reduce paper's impact on the environment by promoting electronic billing, statements, and payments.
[20] NACHA brings together payments system stakeholder organizations to encourage the efficient utilization of the ACH Network and develop new ways to use the Network to benefit its diverse set of participants. It represents nearly 11,000 financial institutions through 18 regional payments associations and direct membership.
[21]The ISO 14000 family addresses various aspects of environmental management. The very first two standards, ISO 14001:2004 and ISO 14004:2004 deal with environmental management systems (EMS). ISO 14001:2004 provides the requirements for an EMS and ISO 14004:2004 gives general EMS guidelines.

[22] The US SBA was created in 1953 as an independent agency of the federal government to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation.
[23] For 2010, Sustainable Bank of the Year was Co Operative Financial Service, UK, and runner up was HSBC, UK; Itau Unibanco, Brazil was adjusted winner in the Emerging Market Sustainable Bank of the Year.
[24] The awards serve to recognize the leading actions of organizations, programs, and individuals that significantly advance the development of green power sources.
[25] Royal Bank of Canada was honoured with the 2010 GLOBE Corporate Award for Environmental Excellence.

[26] Bank of America received California Governor’s Environmental Leadership Award 2008.
[27] Green or Environmental Marketing consists of all activities designed to generate and facilitate any exchanges intended to satisfy human needs or wants, such that the satisfaction of these needs and wants occurs, with minimal detrimental impact on the natural environment (Polonsky 1994).
[28] Conducted in April 2008, the 2008 IBT Market Pulse Survey is an online survey among a nationwide sample of executives with financial institutions. Of the 124 participants, 21 percent are president/CEO/chairman, 38 percent vice presidents and 34 percent senior management employees.
[29] ‘Audit and Report’ is one of the ten principles, according to which bank will conduct an annual self-evaluation of its progress in implementing other principles; will support the timely creation of generally accepted environmental audit procedures; and will annually complete the Ceres Report, which will be made available to the public.

[30] The EU Eco-Management and Audit Scheme (EMAS) is a management tool for companies and other organisations to evaluate report and improve their environmental performance.
[31] The Greenhouse Gas Protocol Initiative is a multi-stakeholder partnership of businesses, NGOs, governments, and others convened by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). Launched in 1998, the Initiative’s mission is to develop internationally accepted GHG accounting and reporting standards for business and to promote their broad adoption. The GHG Protocol Initiative comprises two separate but linked standards: GHG Protocol Corporate Accounting and Reporting Standard and GHG Protocol Project Quantification Standard.
[32] Developed by UN GRI aims to standardised sustainability reporting procedure. It was conceived in 1997 by Coalition for Environmentally Responsible Economies (Ceres) to adopt environmental practices.
[33] An ordinance to provide for the control, preservation and abatement of pollution of water of Bangladesh.
[34] An ordinance to provide for control prevention and abatement of pollution of the environment of Bangladesh.

[35] An act to provide for conservation of the environment, improvement of environmental standards and control and mitigation of environmental pollution.
[36] To exercise the powers conferred by section 20 of the Bangladesh Environmental Conservation Act, 1995, the Government of Bangladesh passed this rule.
[37] An act to provide for the establishment of environment courts and matters incidental there to.
[38] Bangladesh is a signatory of the Rio Conventions (RCs), i.e. United Nations Framework Convention on Climate Change (UNFCCC), Convention on Biological Diversity (CBD) and United Nations Convention to Combat Desertification (UNCCD).

[39] Annex B countries are defined in Annex B of the Kyoto Protocol. These are industrialised countries with greenhouse gas emissions limitations (which may nevertheless be a net increase in emissions) or a reduction commitment.
[40] Under EIA, industries have been divided into 4 categories: Green, Amber-A, Amber-B, and Red sequencing from less polluting to severely polluting industries. Any industry of these lists cannot be set up in residential area (Ministry of Environment and Forest, BEI Guidelines for Industries, June 1997).
[41] Application for environmental clearance require documents like NOC for local authorities for Green and Amber-A categories, and in addition require Environment examination report, Pollution Minimisation Plan etc. for Amber-B and Red categories of Industries.
[42] Sustainable development, Business Ethics, Human Rights, Legal compliance, Corporate Governance, Stakeholders Dialogue, Fair Employment, Health & Safety, Labour Standards, Community Relations, Environmental Responsibilities.
[43] Companies/Employers, Civil Society Groups, Employees.
[44] A total number of 151 business enterprises that include RMG, Energy, Leather, Pharmaceuticals, Constructions, Textiles, Jute, Ceramics, Plastic, Software, Engineering, Food and Agro-based industry.
[45] Bangladesh Centre for Advanced studies (BCAS) and Centre for Natural Resources Studies (CNRS) are basically involved in relevant research activities.
[46] International NGOs like Greenpeace, IIED, ACOPS, IUCN, Actionaid, Winrock International are working in Bangladesh with collaboration of the governmental agencies and national and local environmental NGOs.

[47] Bangladesh Poribesh Andolan (BAPA), Bangladesh Environmental Lawyers Association (BELA), Ongikar Bangladesh are examples of such types of NGOs.
[48] The Energy and Resources Institute (TERI) works for solutions to global problems in the fields of energy, environment and current patterns of development, which are largely unsustainable.
[49] Manusher Jonno Foundation is a Bangladeshi based group of NGOs to promote human rights and good governance in Bangladesh.
[50] For example, Raihan, Ananya conducted a study on Social Accountability: Prospects and Challenges for the conference organized by Manusher Jonno in 2005.
[51] For example, a case study by Shah Md. Ahsan Habib was prepared on Social Accountability of Bank: Role and Challenges for a Conference organized by Manusher Jonno in 2005.

[52] Bangladesh Enterprise Institute is a non-profit centre for research and advocacy work focusing on the growth of private enterprise in Bangladesh.
[53] Katalyst is a market development project funded by some donor agencies in Bangladesh.
[54] HSBC in Bangladesh initiated a carbon footprint management study at the Bank’s Dhanmondi branch. The footprint study is being managed by Waste Concern Consultants Ltd.
[55] LRA, initiated by FSRP in 1993, made mandatory for commercial banks for granting loans for above Tk. 1crore by Bangladesh Bank. Broadly, LRA covers assessment of Business and Security risks. Business risk includes Industry risk, Company risk, Company Position risk and Management Risk.
[56] As part of Bangladesh Bank ‘Managing Core Risks in Banking’.
[57] BRPD circular No-12 dated October 8, 1997.
[58] BRPD Circular No-12, 1997.

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Business Firms

Banks/Financial Institutions

Finance

Production

Air Pollution,
Water Pollution,
Soil Contamination,
GHG Emission etc

Society as a Whole

Negative Externality

Output

Global Warming,
Contamination from Pollution,
Disruption of Eco-system etc

Global Public Bads

Regulatory Control,
Emission Trading

Govt.
CB

Premium

Consu-mer

Global Public Goods

Reduction of Emission and Conservation

CS/ NGO

Monitoring
(Watchdog)

IFIs/ IGO

Env. Programs, Awareness

Green Products

Voluntary Initiatives

Business Firms

Banks/
FIs

Consumers

Consumption

Business Firms voluntarily accepting environmental principles and pay premium to banks

Consumers becoming aware and increasingly ready to pay premium to banks and business firms

Central Bank formulating guidelines, promoting green products & supervising activities

NGOs develop guidelines for banks and monitor activities

Green Products/
Financing

Environmental Risk Assessment in Financing

Environmental Programs

Internal Environment Management

Environmental Reporting

IFIs/ IGOs developing principles, offering policy suggestions, & promoting treaties and conventions

Environmental Policies and Strategies

NGOs developing guidelines for banks & monitoring banks’ activities

Govt. formulating regulation and providing incentives

Banks/Financial Institutions