An Assignment on Green Banking

Submitted to Md. Alamgir Hossen Course Instructor Bank Management

Submitted by A.R.M.Mozaffar Hossain (823) Foysal Ahammad (824) 20th Batch, BBA Program

Date of Submission 6th March, 2012

Institute of Business Administration Jahangirnagar University Savar, Dhaka-1342

What is Green Banking? Green Banking is an initiative of global stakeholders to save the Earth from adverse impact of environmental hazards. Kiyoto Protocol of 2003 led different financial institutions of the word to stress utmost importance to these environmental causes. Global warming, climate change, greenhouse effect, air pollution, water pollution, waste disposal, adverse weather pattern - all these contribute to environmental hazards. Green banking ensures contribution to the transition to resource efficient and low carbon industries; green industry. Defining green banking is relatively easy. It means promoting environmental-friendly practices and reducing your carbon footprint from your banking activities. This comes in many forms. Using online banking instead of branch banking. Paying bills online instead of mailing them. Opening up CDs and money market accounts at online banks, instead of large multi-branch banks. Or finding the local bank in your area that is taking the biggest steps to support local green initiatives. Any combination of the above personal banking practices can help the environment. So this leads to the question, which banks are green. In general, online banks and smaller community banks have better track record than larger banks. For instance, take a look at the banks that British Petroleum has been reported to seek lines of credit from this past summer after the oil spill.

Green Banking Policy Green Banking policy enables an environmentally responsible bank to contribute in the economic system consisting of production, distribution business by conscious environmentally responsive finance, process, capacity building to promote pollution free environment and living standards. National Bank Limited recognizes the importance and launching different initiatives in this direction through strategic planning, operations and risk management. This Green Banking Policy lays down the fundamental components of its roll-over. Green Banking requires a paradigmatic change in thinking about economics, business and finance. Its success would be greater if the world governors started to revise their economic paradigms from being monetary economics to Ecological economics and begin to transform

their accounting principles from purely being financial into ecological / operational energy accounting patterns. Future green banking may transform in this direction.

Necessity to launch Green Banking Due to development of civilization and natural causes, the Earths environment is being polluted in different forms which caused harms to the Earth, resulting rapid change of the Earths climate. As a result, living beings of this planet are facing acute threat for their existence. Use of natural resources in planned or unplanned way, at the higher rate than nature's capacity to restore itself results in pollution of the environment, i. e., air, water, and land. Scientific inventions have been making our lives easier, faster and more comfortable as these inventions provides us more connectivity, different tools & techniques to make our daily works easier. All these activities, at the same time are also polluting the environment of our planet. Green banking is very important in mitigating the following risk involving the banking sector: 3.1 Credit Risk: Due to climate change and global warming, there have been direct as well as indirect costs to banks. It has been observed that due to global warming, there have been extreme weather conditions which affect the economic assets financed by the banks, thus leading to high incidence of credit default. Credit risk can also arise indirectly when banks lead to companies whose business is adversely affected due to changes in environmental regulation. 3.2 Legal Risk: Banks, like other business entities, face legal risk if they do not comply with relevant environmental regulation. They may also face risk of direct lender liability for cleanup costs or claims for damages in case they actually take possession of polluted causing assets. 3.3 Reputation Risk: Reputation and image are very important for the bank. It is important to demonstrate that the bank acts responsibly at all the times and this is particularly important when providing finance for major business activities. Not considering environmental impacts arising from a borrowers

operations can result in negative publicity for both the borrower and the Bank. Reputation risk is present in financing transactions particularly where the bank considering a large exposure. The banks reputation can be damaged if there is a failure of the business due to environmental reasons. 3.4 Security Risk: Bank might be exposed due to poor quality of the security / collateral e.g. contaminated land or disposal of hazardous chemicals, in case of default. This is a direct risk.

Green Banking Concept in Bangladesh Bangladesh is one of the populated countries of the world and also one of the most victimized country of environment pollution. Due to the pollutants and Green House effects created by the developed countries across the globe, Bangladesh is facing severe environmental threat. On the other hand, environment pollution is taking place in the country for the following reasons: Rapid urbanization Less technological support in the industries Industrial wastages Unskilled labor Public / private transport Unconscious consumer behavior Unplanned development works etc

Objectives of the policy The main objective of the policy will be to contribute to the national/global interest through establishing an environment friendly banking business system which may be achieved through proper utilization of human & physical resources and encouraging channeling of fund to projects/businesses those expose no or very little risk to the environment/climate. The objectives of the policy will be: To promote sustainable environment friendly initiatives undertaking through adoption of a set of principles and strict adherence to those principles.

To contribute to the national/global interest through avoidance of financing in specific industry(ies)/project(s)/process(es)/business(es), being harmful or tend to be causing harm to the environment even if they are financially viable;

To create an atmosphere for the bank and/or its both existing and potential clients to work within an ideal business environment through innovative marketing of innovative banking products;

To encourage the employees, the existing and potential clients and other stakeholders to develop, practice & promote for developing & using Environment friendly /Green Technology/products/production process;

To develop the attitude among the employees to motivate, encourage the stakeholders through initialization of appropriate in-house environmental risk management system through introduction of appropriate technology;

To sponsor awareness programs for environment friendly products/technologythrough practice of Corporate Social Responsibilities (CSR);

Benefits of Green Banking Avoids paper works as much as possible by way of rely on electronic / on-line transaction in its Banking activities. Creates awareness to the business people about environmental and social responsibility enabling them to do a environment friendly business practice. Green Banking adopt and implement environmental standards for lending, which is really a proactive area that would enable eco-friendly business practices which would benefit our future generations. Interest rate against credit facilities under Green Banking products to be comparatively less than normal rate of interest as Green Banking gives more importance to environment friendly factors ecological gains. Natural resources conservation is also one of the underlying principles in a Green Bank while assessing capital / operating loans to extracting / industrial business sector. Bangladesh Bank will award points to the banks on Management component while computing CAMELS rating where there will ultimately be a positive impact on overall rating of a bank.

Bangladesh Bank will declare the names of the Top Ten Banks for their overall performance in green banking activities in the Bangladesh Bank websites. Bangladesh Bank will actively consider green banking activities / practices of a bank while according permission for opening new bank branch. As green banking morphs and starts to become a real movement, look for more countries to join the bandwagon. National Bank Limited, as one of the large scheduled commercial Bank of the country has the ability to really accelerate the green banking movement by innovating / changing its products, philosophy and drive to sustainability. Online banking, mobile banking, etc., can empower the consumers to make informed banking decisions. These will advance the banking services to its customers. Bank in due course will adopt mobile banking, integrated online banking and sustainability and the green bank will be the leader of future banks.

Green Bank as a concept is a proactive and smart way of thinking with a vision for future sustainability of our Earth and contribute to higher and safe standard of living.

Green Banking Strategies: Many Bank operating in Bangaldesh adopt the green banking business model for sustainable banking by launching the following strategies: a) Carbon Credit Business: Clean Development Mechanism (CDM) provides for cooperation between developed and developing countries. The operational mechanism of CDMs involves an investment by a legal entity from a developed country to developing country, which results in emission reduction. These emission reductions have to be certified by an appropriate authority and these Certified Emission Reductions (CERs) are commonly known as Carbon Credits. The banks can involve themselves in carbon credit business, wherein banks can provide all the services in the area of CDMs and carbon credits and the services of identification and funding of CDMs projects, advisory services for registration of CDM projects and commercialization of CERs under different structures to meet the requirements of its customers. b) Green Banking Financial Products: Bank will develop innovative green banking financial products which can directly or indirectly contribute to the reduction of carbon emissions. Bank will introduce Green Fund to provide finance to climate conscious customers as an option of

investing in environmental friendly projects. Besides introducing specific green banking products bank will incorporate an Environmental Impact Assessment (EIA) in the project appraisal while financing any project to measure the nature and magnitude of environmental risk mitigation measures. c) Green Mortgages: Bank will offer special discount to the borrower who will provide mortgage of land and buildings which are greener. This initiative will induce use of more energy-efficient materials and building plans. Bank will not allow the land as mortgage that is prone to environmental impacts by virtue of its geographical location and polluted by the operation business activities. As a mortgage preference will be given to the buildings those are designed and constructed with energy efficient items such as solar panels and improved insulation. d) Carbon Footprint Reduction: Carbon foot-print is a measure of the impact of our activities on the environment. It relates to the amount of GHG we are producing in day-today business while burning fossil fuels for electricity, heating, transportation etc bank will take the following measures to reduce the carbon footprint: 1) Paperless Banking: As the bank is computerized with all branches, there is ample scope for doing paperless or less-paper banking. Normally banks use huge quantity of papers for office correspondence, recording public transactions and reporting, etc banks will switch over to electronic correspondence and reporting more effectively and the customer would be encouraged and popularize e-statements. 2) Energy Consciousness: Developing energy consciousness, adopting effective office time management and automated solutions and using compact fluorescent lighting (CFL) can help banks save energy consumption considerably. Bank has also adopted the policy to use energy savings lights, to use gradually renewable energy such as solar panels in all their branches. 3) Using Mass Transportation System: Bank will take the policy for mass transportation for staffs working in one place. 4) Green Building: Banks gradually will build their office building as per the code of green building to reduce their carbon footprint as well as to save the cost.

e) Social Responsibility Services: As part of the green banking strategies, banks has initiated a number of social responsibility services like tree plantation campaign, park development, pollution checkup camps etc.

Green Banking Products Green Banking product coverage includes Green mortgages Green loans Green credit cards Green savings accounts Green checking accounts Green CDs Green money market accounts Mobile Banking Online banking Remote deposit (RDC) Conclusion: Green banks and environmentally responsible banks do not only improve their own standards but also affect socially responsible behavior of other business. Dhaka Bank will always take necessary initiative to be a green bank and will discharge its responsibility towards environment.