Sustainable finance on the rise

According to official data, the amount of sustainable finance provided by banks increased by almost 40 percent compared to the previous year, reaching Tk 35,387 crore during the first quarter of 2023. This growth can be attributed to banks providing a greater number of loans to environmentally friendly businesses and industries.

According to the Quarterly Review Report on Sustainable Finance of Banks & Financial Institutions of the Bangladesh Bank, the total sum reached Tk 25,290 crore during the same period in January to March 2022.

The amount of money distributed in the initial quarter of 2023 was slightly lower compared to the loan sum of Tk 39,987 crore provided in the October-December quarter.

The Central Bank introduced eco-friendly banking initiatives in 2009 and released directives on environmentally conscious banking in 2011. It implemented a sustainable finance policy in 2020.

The central bank describes sustainable finance as any financial service that incorporates environmental, social, and governance factors into business or investment decisions. These services can range from investments and insurance to banking and accounting, and even include trading and economic and financial advice. The main objective of sustainable finance is to provide long-term benefits for both clients and society as a whole.

The blog section covers topics like eco-financing, environmentally-friendly farming, sustainable small businesses, responsible funding practices, financial support for green projects and initiatives, and the prominence of eco-friendly products in trade.

The banks experienced a significant increase of 65 percent in their green finance, reaching Tk 2,775 crore during the first three months of 2023. Nevertheless, this amount was lower than the Tk 4,050 crore that was reported during the previous quarter of October-December.

In the first quarter of 2022, the sum reached a grand total of Tk 1,689 crore.

The amount of green credits provided by non-bank financial institutions (NBFIs) significantly increased from Tk 409 crore in the same period last year to Tk 839 crore in the first quarter of this year.

In the year 2022, financial institutions such as banks and non-banks provided a total of Tk 12,226 crore as funds for environmentally-friendly projects, surpassing the previous year's amount of Tk 7,232 crore.

In Bangladesh, the proportion of green finance compared to all term loans distributed has increased by more than four times, going from 1.22 percent in 2019 to 4.97 percent in 2022. Furthermore, it continued to rise to 5.08 percent during the first three months of 2023.

In the same vein, the financing for sustainable projects increased to Tk 130,762 crore, up from Tk 82,551 crore in 2021. This type of funding constituted 8.04 percent of the overall loans in 2021, then rose to 11.59 percent in 2022, and further increased to 13.77 percent in the first quarter of 2023.

Based on the report, 56 out of 61 banks and 13 out of 34 non-banking financial institutions (NBFIs) were involved in sustainable finance during the initial quarter.

Rajshahi Agricultural Development Bank has claimed the top position in terms of sustainable financing among all other banks. It achieved an impressive score of 64.57 percent, with Bangladesh Agricultural Bank ranking second with 56.42 percent, Shahjalal Islamic Bank at 39.81 percent, and National Bank at 35 percent.

The NBFIs, including Bangladesh Infrastructure Finance Fund, Infrastructure Development Company, and UAE-Bangladesh Investment Company, successfully achieved their objectives.

During the first three months of the year, a total of forty-two banks and nine Non-Bank Financial Institutions (NBFIs) were involved in investing in green finance.

During the three-month period, Exim Bank, Shahjalal Islami Bank, and Shimanto Bank emerged as the leading banks in sustainable finance. At the same time, Bangladesh Infrastructure Finance Fund and Infrastructure Development Company successfully met the targets outlined by the BB (Bangladesh Bank).

From January to March, a total of 19 banks and eight non-banking financial institutions (NBFIs) exceeded the designated goal for green finance. This goal was established at a rate of 5 percent in comparison to the overall disbursement of term loans.

The mentioned financial institutions include Exim, Shahjalal Islami, Shimanto, State Bank of India, United Commercial, Islami Bank Bangladesh, Jamuna, Trust, Prime, Modhumoti, Mutual Trust, Janata, HSBC, Uttara, City, Social Islami, Eastern, Brac, and Bank Asia.

The non-banking financial institutions in Bangladesh consisted of the Bangladesh Infrastructure Finance Fund, Infrastructure Development Company, UAE-Bangladesh Investment Company, Bangladesh Finance & Investment, CVC Finance, United Finance, Agrani SME Financing, and IDLC Finance.

Moreover, a total of 15 banks and 10 non-bank financial institutions successfully achieved their sustainable finance goals in relation to the overall amount of loans disbursed.

According to the report, the primary concern for the business community in an emerging economy like Bangladesh should be environmental management. Specifically, the banking sector, which acts as a significant intermediary, needs to prioritize this aspect.

In order to ensure future development is more sustainable, it is essential to implement environmentally-friendly and sustainable strategies and systems. Establishing sustainable frameworks aligns perfectly with the overall goals of sustainable development in countries like Bangladesh.

It is stated that banks and NBFIs have a distinctive role in an economic system that has the ability to impact the production, business, and various economic activities through their financial operations and also have the power to influence the management of environmental risks in the real economy, leading to sustainable growth.

"These establishments have the potential to greatly expedite the transition towards a sustainable world."