Banks can promote businesses that are environment-friendly and hold back finances to others that are polluting the environment.
Shamsul Huq Zahid
Businesses do need finance. The small and marginal ones may avoid taking loans. But most medium and large scale business enterprises can hardly do without it. So, their dependence on banks is almost absolute.
Thus, banks hold a unique position in an economic system where they can dictate terms on the borrowers who have something to do with the environment. Banks can promote businesses that are environment-friendly and hold back finances to others that are polluting the environment.
However, banks in this part of the world are unlikely to do anything on their own for protection of the environment. Until 2009 the banks had never considered the job of environmental protection their cup of tea. However, it is difficult to say that they are considering so even now.
With the launching of Tk 2.0 billion refinance scheme, styled, ‘Green Banking’ on August 09, 2009, the Bangladesh Bank reminded the banks that they too had a proactive role to play for environmental protection. The scheme was meant for the banks to finance renewable energy projects.
The refinance scheme was undertaken in line with the government’s plan to meet 5% of total electricity demand of the country from ‘green’ energy by 2015 and 10% by 2020.
A total of 24 state-owned and private banks and one non-banking financial institution had signed deals with the BB to disburse loans to environment-friendly projects. The banks borrow funds from the central bank at 5% and they lend the same to projects at between 10- 11%.
However, the utilization of the fund, which is revolving in nature, has been slow. After long six years, the utilization, according to a central bank source, has reached nearly 90%. But the rate of recovery of the loans at the BB’s end has been remarkable, about 100%.
The man at the helm of the central bank is very much interested in making the banking institutions quite aware of the need for promoting environment-friendly lending. The policy guideline the central bank announced on August 11, 2013 on Green Banking is a testimony to that fact. In the guideline the BB explained why banks of one of the most vulnerable countries, in terms of degradation of the global climate, should exercise wisdom while lending.
What the BB has asked the banks is to remain alert while funding projects that have the potential of harming the environment around them.
But the fact remains that prior to the issuance of the guideline, the banks in the past had financed scores of projects, particularly in textile sector, that are contributing to pollution of environment. Reports are often published in newspapers how textile mills and other chemical factories are releasing pollutants in rivers and other water bodies. Most factories concerned do not have the effluent treatment plants.
It has been made mandatory for the sponsors wanting to set up new mills and factories to obtain clearance from the department of environment. But the sponsors usually consider the expense on pollution control component of their projects unnecessary. Thus, during the implementation of the project they skip that component to save money. However, instances of using bribe money to secure environmental clearance certificates are also there.
It also remains a matter of scrutiny as to how the banks and financial institutions gives importance to the environmental risk clearance certificate while funding projects.
The BB guideline on Green Banking, divided into three phases, is more or less exhaustive in nature. The phase one is aimed at ensuring commitment towards protecting environment in-house, the second phase relates to formulation of policies involving different environmental sensitive sectors and phase three encompasses the introduction of an efficient environmental management system, covering eco-friendly initiatives and products.
The BB guideline promises rewards for the banks during their CAMEL ratings if they are found compliant with the Green Banking guidelines. The central bank also promised to take into consideration the Green Banking activities of the banks concerned at the time of scrutiny of the prayers for opening new branches.
The Green Bank guideline had asked the banks and financial institutions to complete the actions included in its phase two by December last year. It is, however, not known whether the central bank has taken stock of the situation as far as the implementation of the phase two is concerned.
It is understood that the banks and other financial institutions of the country are yet to take the issue of environmental protection seriously. But they are required to keep in mind that since they are the major stakeholders in the industrial sector, any environmental impact might affect the quality of their assets and the rate of return from their investments.
Thus, it is not for the sake of others but also for their own sake the banks are required to go green and play a proactive role in integrating the environmental and ecological aspects into their lending principles.
If the banks and financial institutions do this, the sponsors of industries would be forced to ensure measures to protect the environment around them through necessary investments. The financial institutions, if they want to do so, can even force the existing environment-polluting industries to take remedial measures with a view to stopping the latter from causing further damage to environment.
Undeniably, the central bank has produced an exhaustive and doable guideline on Green Banking. But in this country there is no dearth of similar guidelines, laws and rules. The problem lies in their enforcement and follow-up actions. In the absence of proper enforcement nothing is working in right direction, which has always frustrated the people here.
The central bank exercises enough regulatory authority over the financial institutions, particularly those operating in the private sector. There are provisions of imposing penalties for violating rules and circulars issued by it from time to time. But the guideline on Green Banking is seen just as an advisory note that if complied with would earn a few positive points for the banks concerned. Any breach of it does not make the banks or other financial institutions liable for punishment. So, the BB should consider the ‘Carrot and Stick’ policy as far as compliance with Green Banking is concerned.
