Green Banking

Dr. Shah Md. Ahsan Habib

Professor and
Director (Training), BIBM
 What is Green Banking?

Environmental Concern
is at the center
 Environmental Issues
• Climate Change
• Air Pollution
• Water Pollution
• Land Contamination
• Bio-diversity Loss
• Sound Pollution
Environmental Issues in the Constitution

Protection & Improvement of Environment and

Biodiversity; in the Constitution of the People’s
Republic of Bangladesh in Article 18 A states :
“The state shall endeavor to protect and
improve the environment and to preserve
and safe- guard the natural resources,
biodiversity, wetlands, forest and wildlife
for the present and future citizens”.
Environmental Issues in the Constitution

Articles 31 and 32 of our constitution

protect right to life as a fundamental
right. It encompasses within its ambit, the
protection and preservation of
environment, ecological balance free from
pollution of air and water, sanitation
without which life can hardly be
enjoyed………………
 Why Green Banking?

•Improve own and Clients’ standards

•Banks cannot avoid responsibility
 Origin of ER Banking

•US Banks are the early starters

•European Banks started late & voluntarily
 Economic Theory

Green Banking is associated

with the concepts of Market
Failure:
Externalities and Public Goods
 Bank and Environmental Degradation
Bank as a Bank as a Producer Bank
Direct
Consumer

Indirect
Consumer Producer Financing

Consumption Production

Carbon Emission, Air Pollution, Water Pollution Negative

Externality
Land Contamination, Ozone Layer depletion etc. Society as a whole
are affected by GPBs
Output and Negative
Externalities

Global Warming, Polluted Air, Polluted Water, Global

Contaminated Land, Disruption of Eco-system etc Public
Bads
 Green Banking and Sustainable Environment
Bank as a Green Bank as a Green
Consumer Producer Green Bank
Direct

Indirect
Green Consumer Green Producer Green Financing

Green Consumption Green Production

Positive
Environmentally Responsible
Consumption, Production and Externality Society as a whole
Financing by Business Entities, are benefitted by
Consumers and Banks Green Initiatives
Global Public
Goods
 A Big Challenge

•Pricing a green product is difficult

•If cost is added to the price of a loan,
borrowers may turn to other banks
 Challenges

•Positive externalities are often

associated with ‘Free Riding Problem’
•The problem of Pareto Inefficiency is
apparent in Banking market
• Adam Smith’s ‘invisible hand’ will not
ensure sustainable environment and
Efficiency
 Policy Options to Handle
Environmental Difficulties

•As a policy option, Pigovian tax

system has not been preferred by
economists
•Market for Emission Trading has
been set up to bring better
efficiency
 Five Pillars in Green Activities
NOT TO RESTRICT SAVING SUPPORTING MAINTAINING
HARM ONGOING SCARCE OTHER TRANS-
ENVIRON- ENVIRON- ECONOMIC STAKE- PARENCY IN
MENT MENTAL HARM RESOURCES HOLDERS GREEN ACT

PILLAR-1 PILLAR-2 PILLAR-3 PILLAR-4 PILLAR-5

GREEN OPERATION OPERATION SUPPORTING REPORTING

VISION & FINANCE & FINANCE
 A Green Bank Should Engage in-
Policy and Strategy Formulation
Environmental Risk Management in Financing
Creation of Green and Risk Fund
Saving Energy and Natural Resources
Green Marketing and Awareness Development
Supporting and Sponsoring Green Initiatives and Events
Designing and Offering Innovative Green Products
Green Marketing, Awareness and Promotional Activities
Monitoring of Green Financing
Waste Management
Offering Incentives for Green Activities

A Green Bank Should Not Engage in-

Financing Technology/Activities without handling Environmental Risk
Supporting/ Financing Energy/Resource Inefficient Activities
Disclosing Misleading and Untrue Information
 Green Banking is a Multi-
stakeholders Endeavour and
must be supported by other
Stakeholders
 Development of Green Activities by
Banks in Bangladesh

•Expenditure Increased
•Policy Formulated and Cell Set up
•Limited In-house Green Management
•Urban Centric Awareness & Marketing
• Improving Disclosure and Reporting
• Limited Support from other Stakeholders
Online Banking and
Green Banking
 Environmental Risk
Management in Financing
Climate Risk Fund and
Supporting Finance
Energy Sustainability
and Green Banking
Waste Management and
Green Banking
 Assessing Green
Initiatives: Netting is
Crucial
Assessing Green Initiatives:
Market or Regulatory
Incentive is Needed
Thank You