In the context of the global financial landscape, sustainable finance has attracted considerable attention from academics, scholars, policymakers, government officials, and various stakeholders. In response to global sustainability challenges, the financial sector has served as a pivotal driver of development, facilitating the initiation of projects across multiple sectors, including energy, infrastructure, technology, chemicals, fertilizer, power generation, and textiles (Khairunnessa et al., 2021). The banking sector has emerged as a significant source of funding for these initiatives. Consequently, the sustainable finance ecosystem within the banking industry has the potential to enhance environmental sustainability, foster economic growth, and promote social advancement within a nation.
In the context of sustainable development trajectories, sustainable finance has emerged as a significant and increasingly pressing issue in numerous developing nations. This concept pertains to the integration of environmental considerations—such as climate change mitigation and adaptation, biodiversity conservation, pollution prevention, and the promotion of a circular economy—as well as social dimensions—encompassing inequality, inclusiveness, labor relations, and the rights and protections afforded to workers—and governance factors—comprising management frameworks, employee relations, and executive compensation—when making investment decisions within the financial sector. This approach consequently fosters an inclination towards long-term investments in sustainable economic initiatives and projects (European Commission, 2021). Within the finance and banking sectors, sustainability is understood as the methodology for designing, constructing, and executing banking operations over an extended time horizon, while adopting a comprehensive perspective on resource utilization (Zimmermann, 2019). Nevertheless, the concept of sustainability transcends mere energy efficiency, green investment, and the reduction of carbon dioxide emissions. Therefore, the practice of sustainable finance not only alleviates environmental pressures but also contributes to fostering long-term economic growth.
The ramifications of sustainable finance may steer both private and public capital towards more resilient investment endeavors and economic activities that yield positive environmental and social outcomes (Zairis et al., 2024). Although the results of sustainable investments may render advantages over the long term, in the short term, businesses must navigate trade-offs among social, environmental, and economic efficiencies when selecting their projects. In this context, it is imperative that banking regulations and policies evaluate the environmental dimensions of banking risk without compromising the overall functionality of the banking system, thereby facilitating the growth of banks' portfolios (Esposito et al., 2021). Empirical studies have indicated that the factors contributing to an increase in deposits are influenced by the banks’ pricing strategies, which may be adversely affected by the inverse relationship between customer deposits and the environmental performance of banks (Zairis et al., 2024). Furthermore, it is increasingly apparent that central banks, especially those located in the Asia-Pacific region, possess the capability to advance sustainable finance through enhancements of regulatory frameworks, the incorporation of climate change objectives into their overarching policies, and the expansion of green finance initiatives (Durrani, Rosmin, and Volz, 2020). By implementing such policies, numerous countries, particularly those in emerging markets, can render their economic growth trajectories more sustainable.
In pursuit of achieving sustainable development goals, a crucial advancement in the adoption of sustainable financing practices is indispensable. Since attaining independence, the economy of Bangladesh has consistently demonstrated growth that exceeds expectations, exhibiting remarkable resilience while navigating a complex landscape characterized by geopolitical conflicts, supply-side disruptions, global economic slowdowns, and volatility within the financial sector (Akter and Siddik, 2016). Notably, the economy achieved a moderately elevated real GDP growth rate of 6.03 percent for fiscal year 2023, reflecting the intrinsic strength and resilience of Bangladesh's economic framework. In order to sustain economic growth and enhance the resilience of the financial sector, the banking industry has assumed a pivotal role.
Recently, the proactive engagement of Bangladesh Bank in the formulation of policies and the promotion of sustainability within the financial sectors has been pivotal in shaping the economic landscape of Bangladesh. Consequently, the emphasis on sustainable financing in Bangladesh has been progressively cultivated since 2009, marked by the introduction of a refinancing initiative for “Renewable Energy and Environment Friendly Financeable Sectors.” This emphasis was further solidified through the establishment of the Policy Guidelines on Green Banking in 2011 (BB). Following this initial development, the inclusion of a broader demographic within the financial system and the imperative of environmental sustainability have emerged as prerequisites for the economic advancement of a nation such as Bangladesh, achievable through the practice of sustainable finance. Notably, the pursuit of sustainability within the banking sector may encounter various challenges, including environmental concerns, the capabilities of banks, the risk-return dynamics of sustainable finance, and the underdeveloped equity and bond markets; nevertheless, the potential opportunities are also pronounced.
Bangladesh, a nation that frequently endures the impacts of challenges, particularly those associated with climate change, is experiencing an unexpected escalation in sustainable finance. Despite the threats posed by rising sea levels and extreme weather phenomena to its future, the banking sector in Bangladesh has witnessed a significant increase in green and sustainable investments, which rose from 8.04% of total loan disbursement in 2021 to an impressive 31.85% in the first quarter of 2024 (BB, SFD, 2024). In addition to this advancement, a substantial increase in funding is requisite for investments that yield both economic and environmental benefits through innovative financial instruments. For instance, green finance, green bonds, fintech solutions, and energy market instruments facilitate the achievement of optimal outcomes by integrating financial decision-making processes (Wang and Zhi, 2016). Furthermore, sustainable finance instruments are essential for securing long-term economic growth, safeguarding the environment, and promoting social welfare. Nonetheless, there are overarching global challenges regarding the execution of sustainable and green finance, particularly pronounced in developing nations where economic advancement is heavily reliant on natural resources (Fedorova, 2020). In conjunction with these challenges, several opportunities exist within the realm of green finance, particularly in the biomass production sector, as articulated by Falcone, who recognizes the institutional and financial functionalities that hinder financing options and the initiatives of other stakeholders that significantly contribute to the attainment of sustainable finance within the country (Falcone, 2019). However, green and sustainable fiscal initiatives possess the potential to enhance sustainable development and financing on a broader scale.
In light of the aforementioned discussion, the study of sustainable finance in Bangladesh is required for investigating the current status and driving forces of sustainable finance within Bangladesh's banking and financial institutions. Is this a genuine commitment to environmental stewardship, or are there additional factors influencing this trend? Gaining insight into the motivations underlying the shift is crucial for ensuring the enduring viability of these practices.
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.