Into the global financial arena, sustainable finance has gained much interest to the academics, scholars, policymakers, government representatives and other stakeholders. Responding to universal sustainability concerns, finance has been the engine of development for initiating projects in various sectors—energy, infrastructure, technology, chemical, fertilizer, power, textiles (Khairunnessa et al., 2021). The banking sector has been one of the important sources of financing for such projects. Thus, the sustainable finance ecosystem in banking industry can contribute to environmental security, economic growth and social development of a country.
The impact of sustainable finance may direct private and public capital towards more resilient investment and economic activities that have a positive environmental and social impact (Zairis et al., 2024). Though the output of the sustainable investment may bring benefits in the long term, but in short term business should trade off of social, environment and economic efficiency in selecting the business projects. In this regards, banking rules and regulations should be assessed the environmental aspect of bank riskiness without interfering with the functioning of the banking system as a whole to grow bank’s portfolio (Esposito et al., 2021). Some studies have examined that the determinants of increase in deposit is the banks’ pricing policy which may be affected by the negative relationship between customers’ deposits and banks’ environmental performances (Zairis et at., 2024). Moreover, it is evident that central banks, particularly those in the Asia-Pacific area, have the potential to enhance sustainable finance by means of regulatory framework enhancements, the integration of climate change objectives into their broader policies and the expansion of green finance (Durrani, Rosmin, and Volz., 2020). Adopting those policies, many countries, particularly emerging ones can make their economic growth more sustainable.
Achieving sustainable development goals, a significant stride in adopting sustainable financing practice is inevitable. Since independence, the economy of Bangladesh continues to showcase higher than expected growth, remarkable resilience, navigating through a challenging landscape of geopolitical conflicts, supply-side disruptions, global economic slowdown, and the turbulence in the financial sector (Akter and Siddik, 2016). Notably, the economy achieved a moderately high real GDP growth rate of 6.03 percent for FY23 which reflects the inherent strength and resilience of Bangladesh’s economy. For achieving sustain economic growth and making the financial sector more tolerant, the banking industry has been playing a significant role.
Recently, the proactive role of Bangladesh Bank in setting policies and promoting sustainability across the financial sectors has been instrumental in Bangladesh’s landscape. Thus, Bangladesh’s focus shifted towards sustainable financing since 2009, when a refinancing scheme for “Renewable Energy and Environment Friendly Financeable Sectors” was introduced. This focus was further crystallized and formalized by framing of the Policy Guidelines on Green Banking in 2011 (BB). After that inception, inclusiveness for a larger segment of people in financial system and the issue of environmental sustainability have been the pre-requisite for economic development of a country like Bangladesh which can be accomplished by sustainable finance practice. While practicing the sustainability issues in banking industry, there could arises some challenges—environmental issues, banks’ capabilities, risk and return level of sustainable finance, underdeveloped equity and bond markets, however opportunities are also vivid.
Bangladesh, a country that frequently bears the brunt of those challenges specifically climate change, is enjoying a surprising surge in sustainable finance. While rising sea levels and extreme weather events threaten its future, Bangladesh's banking sector has seen a heave in green and sustainable investments, increasing from 8.04% of total loan disbursement in 2021 to a remarkable 31.85% in the first quarter of 2024 (BB, SFD, 2024). Besides this progress, a scale-up of funding is needed for investment that provides economic and environmental advantages through new financial tools. For example, green finance, green bonds, fintech and energy market tools, help to achieve optimal outcomes by integrating financial decisions (Wang and Zhi, 2016). Moreover, sustainable finance instrument is important for attaining long-term economic growth, protecting the environment, and advancing social well-being. However, there are global challenges regarding the implementation of sustainable and green finance. The challenges are particularly in in developing nations, where economic growth is dependent on natural resources (Fedorova, 2020). Along with the challenges, there are several opportunities of green finance particularly in the biomass production sector addressed by Falcone where he acknowledges institutional and financial functionalities, impede financing options, and other stakeholders’ initiatives that contribute more for attaining sustainable finance of country (Falcone, 2019). However, green and sustainable fiscal initiatives can foster the sustainable development and financing as a whole.
Drawing upon the above, this study raises the question of what is the present state of sustainable finance in Bangladesh’s banking and financial institutions and what drives Bangladesh’s shift towards sustainable financing. Is it a true dedication to environmental stewardship, or are there other considerations at play? Understanding the factors behind this trend is critical to ensuring the long-term viability of these practices. As such, this study focuses on to investigate the sustainable finance trends, identify challenges, and predict the future prospects of sustainable finance in banks and financial institutions in Bangladesh.
Frequently Asked Questions and Answers:
What is sustainable finance in banking?
Sustainable finance define is the process of financial services and products, such as environmental, social, and governance (ESG) factors.
What is the role of sustainability in banking?
This approach is promoting sustainable development by considering the long term impact of banking activities on the environment. The role of sustainability in banking encompasses various aspects such as responsible lending, ethical investments, climate risk management, and promoting financial inclusion.
Which is the most stable bank in Bangladesh?
Here The Top Stable Banks in Bangladesh:
- Dhaka Bank Ltd. Dhaka Bank Ltd. was founded in 1995 and is headquartered in Dhaka.
- Sonali Bank.
- Bank Asia Ltd.
- Agrani Bank.
- Dutch Bangla Bank Ltd.
- Islami Bank Bangladesh Limited (IBBL)
- United Commercial Bank Ltd.
- Standard Chartered.