Increasingly integrate: Environmental, social, and governance criteria

The Daily Star (TDS): Your bank is committed to sustainable finance. What are the most innovative and impactful sustainable financing products and strategies you are currently implementing?

Emranul Huq (EH): Our bank has a longstanding commitment to sustainable finance. Currently, we are focusing on increasing financing in the following areas:

a. Broadband Networks and IT Solutions

b. Health and Healthcare Services

c. Net Metering Rooftop Solar Systems

d. Energy Efficiency

We are in the digital era, and Information Technology is the most powerful tool of digitisation. By financing Broadband Networks and IT Solutions, we can contribute to the process of digitalization.

Fuel costs have been on the rise for the past few years, significantly contributing to increased electricity bills. Rooftop solar panels with net metering offer a cost-effective solution for reducing electricity expenses in large and medium-sized factories. Dhaka Bank supports financing such projects, helping manufacturers lower their production costs. This initiative is also environmentally friendly.

We also have some exposure to Health and Healthcare Services, as well as Energy Efficient Bulbs and Machinery, and we are working to enhance financing in these areas.

TDS: What future plans does Dhaka Bank have to further enhance sustainability within the financial sector?

EH: Advancing sustainability within the financial sector involves addressing unique local challenges and leveraging opportunities to drive meaningful environmental and social impact.

1. Integration of ESG Criteria in Lending and Investment

Banks and financial institutions in Bangladesh could increasingly integrate Environmental, Social, and Governance (ESG) criteria into their lending and investment processes. This involves assessing the ESG performance of borrowers and investees, and offering favorable terms to those with strong sustainability practices.

2. Promotion of Green and Sustainable Microfinance

Given Bangladesh's extensive microfinance sector, there is significant potential to promote green and sustainable microfinance products. Financial institutions could develop microloans that support environmentally friendly practices, such as renewable energy adoption in rural areas or sustainable agricultural methods.

3. Support for Sustainable Agriculture

Given agriculture's pivotal role in Bangladesh, banks could develop financing products that support sustainable agricultural practices. This could include loans or grants for adopting climate-smart agriculture, improving water management, and investing in sustainable farming technologies.

4. Expansion of Renewable Energy Financing

To support Bangladesh's renewable energy goals, banks could increase financing for solar, wind, and other renewable energy projects. This might involve creating specialised loan products or investment funds for renewable energy infrastructure, as well as offering incentives or guarantees to reduce investment risks.

5. Enhancement of Climate Risk Management

Financial institutions could implement more sophisticated climate risk management practices to understand and mitigate the impacts of climate change on their portfolios. This could involve developing climate risk stress tests and scenario analyses to better prepare for potential climate-related disruptions and integrating climate risk into financial decision-making.

6. Capacity Building and Training

Investing in capacity building and training programs for financial professionals on sustainable finance and ESG issues can enhance the sector's ability to integrate sustainability into its operations.

7. Promotion of Financial Inclusion and Gender Equality

Financial institutions could focus on promoting financial inclusion and gender equality through their sustainability efforts.

8. Development of Sustainable Infrastructure Projects

Investing in sustainable infrastructure projects, such as green buildings, energy-efficient public transportation, and waste management systems, can contribute to the country's sustainable development goals.

TDS: What forms of government support would be most effective in advancing the efforts in sustainable finance?

EH: Government support is crucial for advancing sustainable finance in Bangladesh. Here are several forms of government support that could effectively promote and grow sustainable finance in Bangladesh:

1. Financial Incentives and Support

Tax Incentives: Providing tax breaks or credits for investments in renewable energy, energy efficiency projects, and other sustainable initiatives can encourage both institutional and individual investors to support green projects.

Subsidies and Grants: Offering subsidies or grants for green projects, such as solar installations or sustainable agriculture, can lower the financial barriers for businesses and individuals to invest in sustainability.

Risk Mitigation Instruments: Implementing risk mitigation tools, such as credit guarantees provided by Bangladesh Bank for sustainable finance, can reduce perceived risks for financiers and attract more private investment into sustainable projects.

2. Regulatory Frameworks and Standards

Establishing ESG Reporting Requirements: Implementing mandatory ESG (Environmental, Social, and Governance) reporting for publicly listed companies and financial institutions can enhance transparency and encourage sustainable practices.

Green Bond Standards: Developing national standards for green and social bonds, in line with international frameworks like the Green Bond Principles, can create a robust market for these instruments and ensure that funds are used effectively for sustainable projects.