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The sustainable banking approach is based on certain principles that not only consider profit but also economic and social benefits. The main objective of sustainable banking is to maintain financial and social stability. As part of the guidelines on Corporate Social Responsibility (CSR), Bangladesh Bank (BB) has been pursuing policy and instructions in all possible areas of sustainable banking for the past five years. The sustainable banking initiatives of BB have been undertaken under three broad categories: green banking, corporate social responsibility and financial inclusion.
On February 27, 2011, the BB published a policy, titled 'Guidelines for Green Banking' that was to be followed by the scheduled banks. According to the guidelines, commercial banks are required to produce their sustainability reports for their stakeholders under Independent Annual Sustainability Report (IASR), while following internationally-accepted Global Reporting Initiative (GRI) principles. To monitor the activities of banks on sustainable banking, the BB has already formed a Sustainable Finance Unit (SFU).
Sustainability reporting measures disclose corporate performance in environmental, social and economic terms. It is required to report on any issue that affects business stakeholders including employees, community, government, shareholders, finance providers, among others. These issues include environmental protection, environmental liabilities, renewable and recycled materials used, energy consumption, defined benefit plan obligations, structure and composition of the board, competencies of members of highest governing body, tenure of governance body, conflicts of interest and more. The Global Reporting Initiative (GRI) recognises the necessity for financial institutions to be accountable for their social, economic and environmental impacts and has put in place the financial services sector disclosures.
BB supports any activity of commercial banks related to corporate social responsibility. Meanwhile, the rising concern for global warming has raised the importance of sustainable development activities in all aspects of business. This has inspired the banking sector of Bangladesh to formulate new strategies towards achieving the Sustainable Development Goals (SDGs). Though the number is still small, some private commercial banks publish annual report to detail their yearly activities that are in line with sustainable development.
The concept of sustainability in banking has evolved from the idea of making banking social and environment-friendly. By using some broad categories of green banking criteria, CSR activities, role in financial inclusion, BB has initiated following measures to integrate sustainability reporting into the mainstream banking structure:
GREEN BANKING: Green Banking covers a wide area of banking activities that are aimed at ensuring positive impacts on society and environmental protection through sustainable banking. All banking activities including energy efficient financing & incentives, green credit cards, green loans, green savings accounts, green checking accounts, green money market accounts, green mobile banking accounts, online banking, remote deposit, waste management, roof gardening, green financing and more fall under the umbrella of sustainable banking for overall sustainable development.
GREEN FINANCE: As per BB data, around BDT 548.6 billion (USD 6.61 billion) was disbursed during FY 2017 by 50 banks and Non-Banking financial institutions (NBFIs) involved in green finance. From this, the major contribution to green finance came from private commercial banks (PCBs) -- 77.64 per cent. Contribution of foreign commercial banks (FCBs) was 18.51 per cent, NBFIs 2.54 per cent and state-owned commercial banks 1.32 per cent.
POLICY INITIATIVES: BB's first policy instruction titled 'The Guidelines on Environmental Risk Management' (ERM) for all banks was revised to "Environmental & Social Risk Management" (ESRM) in 2017. As per guidelines, the banks were to be compliant in climate risks and are expected to have a minimum five per cent in green finance of its total loan portfolio. Banks are also required to ascertain that factories have Effluent Treatment Plant (ETP) before taking financial decisions on loans and more.
INVESTMENT UNDER REFINANCE SCHEME IN GREEN PRODUCTS: According to BB statistics, 50 banks and NBFIs engaged in green banking in Bangladesh had disbursed BDT 348.80 million (USD 4.12 million) during FY-2017. Bangladesh Bank re-finances the commercial banks for financing these green investments every year. Bangladesh Bank selected 51 green products like solar energy, bio-gas plant, effluent treatment plant that are eligible for refinancing facilities under this scheme.
Following on the Millennium Development Goals (MDGs), to bring an end to poverty, to save the environment and to warrant human development, the SDGs are 17 that address new areas like global warming, financial disparity, modernisation, utilisation, and good governance.
While reviewing the annual reports of different commercial banks of Bangladesh, the following sustainability measures were noted:
i) 1) CONSERVING ENERGY: These include the ecologically responsible tasks like identification and management of processes that can reduce direct and indirect impact of different activities on the environment, reduce energy consumption and also efficient utilisation of energy resources.
ii) II) WASTE MANAGEMENT AND RECYCLING: Encouraging work flow automation to minimise use of paper, using biodegradable papers produced from recycling, encouraging e-mail based communication, web-based activities and less printed documents.
iii) ADEQUATE WORK ENVIRONMENT: A proper work environment that will ensure personal development, promote team work and increase efficiency.
iv) FINANCIAL INCLUSION: Under this, strategies are developed that will attract unbanked people to banking. Though banks operate to offer financial services, CSR activities for financial inclusion increase the ability to understand and compare financial products and markets.
v) SCHOOL BANKING: In November 2010, Bangladesh Bank instructed all commercial banks to open school banking branches. The primary aim of school banking programme is to inspire and encourage the habit of saving among school-going students. Till December 2017, the number of school banking accounts in Bangladesh has increased to 1.46 million with a deposit amount of BDT 13.629 billion (USD 164.81 million).
vi) OCCUPATIONAL HEALTH: This area involves steps taken by an organisation to protect its employees from the occupational health hazards and also take care of the health and safety of its stakeholders through identification of risk factors, ensuring protective measures, capacity building in health safety and also financial cooperation in case of accidents.
vii) GREEN SUPPLY CHAIN MANAGEMENT: Considering social and environmental risks while entering into agreements with suppliers is a part of Green Supply Chain Management.
viii) NETWORKING & RELATIONSHIP: Under this, organisations tend to work with others to share knowledge and enhance awareness of sustainable development issues while also playing a significant role in the public discourse on similar issues.
ix) FREQUENT REPORTING: Presently, it is not mandatory to report CSR activities. Still different organisations are producing these reports in a bid to prove their commitment tos environment and society.
x) EMPOWERMENT AND EFFICIENCY: It is required to enhance the efficiency and empowerment of individuals along with institutions and sectors by analysing SWOT (strength, weakness, opportunity and threat) in connection with profit generation activities.
xi) ENCOURAGING PHILANTHROPY: If employees and workers of an organisation are aware of their civil responsibilities, they can effectively contribute to the development of the community. Organisations can encourage and inspire employees to share their extra time, additional resources, special skills and efforts to different social service activities for the underprivileged, especially those initiated and patronised by the organisation.
If businesses and all other organisations regularly update stakeholders about their sustainability performances, the vital information needed by executives to manage risk and identify sustainable opportunities will be abundant. Government should adopt a uniform reporting practice to prepare sustainability reporting by all organisations so that a level-playing field can be ensured. Also, this will ensure transparency, innovation, flexibility, better regulation and progress towards sustainability.
Awareness building initiatives need to be undertaken for various stakeholder communities, both at the firm and sector levels. Industry needs to demonstrate a long-term commitment to sustainable business practices, both at a strategic and operational level. The academic institutions can customise their programmes to include sustainability as a discipline and Bangladesh can focus on industry-university linkages to develop an institutionalised knowledge base. As such, synchronisation in Bangladesh's context, based on GRI framework, globally acceptable framework, in all sectors including small & medium enterprises, is necessary.
The competitiveness of a company and the well-being of communities around it are inseparable. A successful community can create demand for products and can also provide a supportive environment to business.
It has been observed that while all the SDGs can be inspirational for organisations, focusing on those that align best with the business strategy and existing corporate social responsibility is likely to create more impact on the banking industry.
Md Touhidul Alam Khan is Deputy Managing Director & Chief Business Officer of Prime Bank Limited.