Green financing is rapidly gaining traction in the Bangladesh market thanks to the country’s specific focus on issuing green loans, according to an International Finance Corporation (IFC) report.
The report by IFC-facilitated Sustainable Banking Network (SBN) shows that Bangladesh, Mongolia, and Nepal have identified green financial services as a crucial aspect for ensuring sustainable development in financial sectors.
“At a time when low-income countries across Asia and the Pacific are being battered by the Covid-19 pandemic, its all the more vital for economies to embrace sustainable financial development in order to build resilience in the sector for future calamities,” said Nena Stoiljkovic, IFC vice president for Asia and the Pacific.
Poorer countries face immediate and significant impacts from climate change, pollution, loss of biodiversity and social inequality. Therefore, these issues require an urgent response when they arise.
“In the wake of recent challenges faced in Asia, promoting green finance such as green bonds and loans has been particularly focused upon in Bangladesh and Mongolia,” read the report styled, ‘Necessary Ambition: How Low-Income Countries Are Adopting Sustainable Finance to Address Poverty, Climate Change, and Other Urgent Challenges.
Other than these two countries, Nepal is also developing sustainable national finance roadmaps in an effort to reduce market risk and incentivize green finance flows, the IFC said in a statement citing the report.
Over the past few years, Bangladesh Bank has encouraged both banks and non-banking financial institutions (NBFI) to implement a ‘go-green’ policy while encouraging client firms to adopt clean technology that reduces costs and ensures overall sustainability.
Green financing in Bangladesh ballooned to about Tk 33,421 million by December 2019, up from Tk 21,090 million year-on-year.
The level of understanding banks and NBFIs have on sustainable financing increased recently, Khondkar Morshed Millat, general manager of the sustainable finance department of Bangladesh Bank, told The Daily Star yesterday.
“This is why their contributions towards products that support green financing has increased,” he said.
According to a central bank report published last December, 59 scheduled banks and 33 NBFIs are currently involved in green financing or investment activities.
An increasing number of banks and NBFIs are going green by providing innovative products and services that cover the finances required to support economic activities that are not hazardous to the environment but instead conserve it, the central bank report read.
The IFC report indicates that the aforementioned Asian nations are resolute in their commitment to promote sustainable finance and development planning for the future.
Established in 2012, the SBN is a voluntary community of financial sector regulatory agencies and banking associations from emerging markets that are committed to advancing sustainable finance.
SBN, the first global network of its kind, focusses on ensuring sustainable finance at the market level. The association represents 39 countries and $43 trillion, or 86 per cent, of the total banking assets in emerging markets.
Compared to five years ago, Bangladesh has undergone positive changes in the way banks manage environmental and social risks, said Naidalaa Badrakh, CEO and a board member of the Mongolian Sustainable Finance Bankers Association and co-chair of the SBN IDA Task Force.
Other than green finance, the report showed that Bangladesh, Mongolia and Nepal are exploring new ways to expand sustainable finance to other areas, such as financing for small and medium sized enterprises and agriculture.
In the context of a circular economy, efficient resource management is key.
“Therefore, sustainable finance plays a large part in poverty reduction,” said Asif Iqbal, joint director of the Sustainable Finance Department of Bangladesh Bank.
Dev Kumar Dhakal, executive director of the Nepal Rastra Bank, said the country should develop and implement sustainable finance related policies for a better and safer financial system.
“These policies should not be detrimental to development activities but should instead guide the initiatives taken,” added the executive director of Rastra Bank, Nepal’s central bank.
Last year, the IFC’s issuance of green bonds in Asia-Pacific crossed the $1 billion mark as the corporation helped address environmental and social challenges in some of the world’s most vulnerable and poorest countries.
Last month, Mongolia’s Financial Regulatory Commission and the IFC signed an MoU to further develop the green finance market in Mongolia.
According to an IFC estimate, Bangladesh’s climate-smart investment potential will be about $172 billion between 2018 and 2030, the World Bank Group member company said in a statement last October.
Investment under green financing will mainly be geared towards the construction of environmentally friendly housing and business infrastructure, transportation infrastructure, urban water management, agriculture, waste management and renewable energy to meet the nationally determined contribution (NDC) targets.
The IFC, in partnership with Bangladesh Bank, has outlined what steps need to be taken to promote the domestic green bond market as a way to mobilise funds for climate-related initiatives.
The central bank also increased the size of the refinancing scheme for environmentally friendly products, initiatives or projects from Tk 200 crore to Tk 400 crore, according to a circular from the central bank’s Sustainable Finance Department in April this year.