Rejaul Karim Byron

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Commercial banks will have to adopt a comprehensive green banking policy by December 2013 as part of the central bank's efforts to make banking practices more responsible to social and environmental causes.

Bangladesh Bank (BB) will give points to compliant banks on management component while deciding on its CAMELS (capital, asset, management, earning, liquidity and sensitivity) rating.

The central bank will name top ten banks for their overall performances in green banking, and will take into account green banking of a financial institution to give it permission to open new branches.

In its policy guideline for green banking published yesterday, the BB said eco-friendly business activities and energy efficient industries should get preference in financing by the banks.

The banks will have to inform the BB of their initiatives on a quarterly basis within 15 days after the end of a quarter. The first quarterly report has to be submitted by July 15.

Besides avoiding negative impacts on environment through banking activities, the banks are expected to introduce environment friendly green products to address the core environmental challenges of the country.

The central bank said the banks hold a unique position in an economic system that can affect production, business and other economic activities through their financing activities and thus may contribute to polluting environment.

In line with global development and response to the environmental degradation, the country's financial sector should play important roles as one of the key stakeholders, the central bank said, adding that the state of environment in Bangladesh is rapidly deteriorating.

It said the environmentally responsible banks do not only improve their own standards but also affect socially responsible behaviour of other businesses.

The commercial banks will now require taking measures to protect environmental pollution while financing a new project or providing working capital to the existing enterprises.

The guidelines advised the banks to facilitate their clients with utmost care in opening letter of credit for installation of effluent treatment plant (ETP) in the industrial units. They were also asked to finance in solar energy, biogas, ETP and Hybrid Hoffman Kiln (HHK) in brickfield under BB refinance scheme.

The policy is segregated into three phases.

In phase-I, the banks are to develop green banking policies and show general commitment on environment through in-house performances by December 31 this year.

A high-powered committee will be responsible for reviewing the banks' environmental policies, strategies and programmes.

The committee will be comprised of directors from the board in case of scheduled Bangladeshi banks and regional chief of global office and members from the top management including chief executive in case of foreign banks.

The banks will allocate a considerable fund in their annual budget for green banking, and set up a separate green banking unit. A senior executive should head the unit, which will report to the high-powered committee time to time.

They will have to comply with the instructions stipulated in the detailed guidelines on Environmental Risk Management. The banks will also incorporate environmental and climate change risks as part of the existing credit risk methodology prescribed to assess a prospective borrower.

The banks should take measures to save electricity, water and paper consumption, according to the BB guidelines. A 'Green Office Guide' or at least a set of general instructions should be circulated among the employees.

Instead of relying on printed documents, online communication should be extensively used (where possible) for office management.

Energy saving bulbs should replace the regular ones in branches/offices of the banks. They should make plans to use solar energy on their premises, and encourage employees to purchase energy efficient cars.

Under a climate risk fund, the banks should finance the economic activities of the flood, cyclone and drought prone areas at the regular interest rate without charging additional risk premium.

The banks will have to go for online banking by eliminating paper waste, saving gas and carbon emission, reducing printing costs and postage expenses.

In phase-II, which would not exceed December 31, 2012, the banks have to formulate specific policies for different environmentally sensitive sectors such as agriculture, agri-business, agro farming, leather (tannery), fisheries, textile, renewable energy, pulp and paper, sugar and distilleries, construction, engineering and basic metal, chemicals, rubber and plastics, hospitals, brick manufacturing, and ship-breaking.

During the same period, they will have to determine a set of achievable targets and strategies, and disclose these in their annual reports and websites. They will have to set up green branches.

The banks should increasingly rely on virtual meeting through video conferencing.

They should develop and follow environmental risk management manual in their assessment and monitoring of project and working capital loans. In addition to the compliance of national regulation, the banks may set internationally accepted environmental standards.

During the same period, the banks will start publishing independent green banking and sustainability reports.

A system of environmental management has to be in place in a bank before the initiation of the activities of Phase-III, which runs until December 31, 2013.

News: The Daily Star/ Bangladesh/ Feb-28-2011