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Green Banking
Green Banking is an environment friendly solution to save energy, to reducecarbon emission, to transform waste and other natural resources into energyand save environment from pollution.
Green Banking means promoting environment friendly practices andreducing your carbon footprint from your banking activities. (Bahl 2012a : 27)
Green Banking‘ refers to the banking business conducted in such areas and insuch a manner that helps the overall reduction of external carbon emission andinternal carbon footprint. (Meena 2013: 1182)
Green Banking is the term used by banks to make them much moreresponsible to the environment. The term green banking means developinginclusive banking strategies which will ensure sustainable economicdevelopment. (Ahmed, Zayed and Harun 2013 : 241)
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Evolution of Green BankingThe concept of green banking was developed in the western countries. Green
Banking formally started in 2003 with a view to shielding the environment.
Then the Equator Principles (EPs) were launched and were initially approvedby some leading global banks, such as Citigroup Inc, The Royal Bank ofScotland, Westpac Banking Corporation.
In March 2009, Congressman Chris Van Hollen of USA introduced a GreenBank Act with the aim of forming a green bank under the ownership of the USgovernment.
'First Green bank' is the first bank of its kind to promote positive environmentaland social responsibility with its base in Eustis and Clermont Florida USA.
After introducing the concept of Green Banking, the initial decision was tominimize the use of paper in banking works in order to reduce the need to cuttrees for availing raw materials for paper production thus minimizingdeforestation.
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Evolution of Green Banking There are two ways of green banking practices : -
1) The first of which is in-house green banking;
Creating clean and hygienic banking environment, green building, reforestation, onlinebanking, waste management, installation of solar panel on the rooftop of the bank areinvolved in the in house Green Banking.
2) And the other is the form that is practiced by the bankers in their business area;
Financing the green projects like Biogas Plant, Solar/Renewable Energy Plant, Bio-fertilizer, Plant, Effluent Treatment Plant (ETP) and voluntary activities of banks aremajor practices by the bankers in their business areas.
Bangladesh Bank has taken initiatives for practicing green banking here, sinceBangladesh is vulnerable to risks of submerging its lower parts as well as southern partsnear to sea beach in case of climate change,
Bangladesh Bank issued a circular in February 27, 2011 on Policy Guidelines for GreenBanking. However, the green banking policy has been implementing since 2012 only.
Since then the significance of green banking has been on the rise in the financialsector, particularly in the banking sector.
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Evolution of Green Banking…………..(Con…d)
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Transformation from Conventional Banking to Sustainable Banking
Conventional Banking Green Banking
Only Profit People, Planet & Profit
Economic Benefit Social Benefit
Operational Efficiency Allocation Efficiency
Institutional Profit Community Profit
Organizational Commitment Ethical, Human and Social Commitment
Financial Stability Financial and Social Stability
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Background of The Study
For the purpose of this presentation, we have tried to investigate the green
banking practices of the listed commercial banks (including Islamic and
conventional).
In theory banks are not identified as environment polluting institutions
however, they finance other polluting industries like textile, tannery, food etc.
Bangladesh Bank as the governing body has imposed stringent green banking
regulations in order to ensure a sustainable future for the economy resulting in
banks being identified as highly regulated institutions.
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Motivation of the Study
To investigate the extent of green banking practices in the listed banks.
To show the determinants of green banking disclosures.
To show the trend of green banking adaptation in Bangladesh.
To find out the gap between the imposed rules (by Bangladesh Bank) and
green banking practices.
To present a probable accounting treatment of green banking practices.
To find the long-term effect of green banking practices.
February 4, 2016 Past, Present & Future of Green Banking9
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Prior Research
Very few studies have been conducted on the issues of green banking in
Bangladesh. Of late, there are growing numbers of studies based on green
banking (see for example, Biswas, 2011; Bahl, 2012; Rahman et. al, 2013;
Ahmad et.al, 2013; Islam et. al, 2014; Haque et.al, 2015). It indicates that the
issues of green banking are drawing attention of the researchers. In the context
of Bangladesh, green banking bears significant importance, since Bangladesh is
a highly vulnerable country to the environment and climate change.
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Prior Research………………….(Cont….d)
Recognizing Banking sectors accountability, it has been argued that
environmental impact of bank’s external activity is huge though difficult to
estimate. Thus, encouraging environmentally responsible investments and
careful lending should be one of the responsibilities of the banking sector
(Sahoo and Nayak 2008). The bank should go green and play a pro-active role
to take environmental and ecological aspects as part of their lending
principle, which would force industries to go for mandated investment for
environmental management, use of appropriate technologies and management
systems (Hayder 2012).
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Prior Research………………….(Cont….d)Steiner (2015) noticed a sequential economic growth in the Asia Pacific
region which has social and environmental costs. Different countries’ green
approaches contribute to the sustainable development in this region. In 2014
the clean energy investment stood in 36 percent in the developing countries.
But, public finance is not adequate for the green transition alone; the
financial markets can work as a keystone for the development of green economy.
On a comparative study Ullah (2013) argued that financial sector of
Bangladesh is playing a key role as one of the important stake-holder of the
economy enforcing the businessmen/ industrialists of the country to design
their various strategy/action plans keeping the crucial environmental issues.
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Prior Research………………….(Cont….d)
Paul and Russel (2015) suggested that as a low lying
country, Bangladesh is the worst sufferer among the lands of South Asia.
Financial sector is the only driving force to recovering from loss
occurred day by day in various industries from the perspective of
economic and environmental controversy. This sector finances a lot to
industrial development. The root of all is nothing but banking. So, it is
time to go green for which it is exigent to figure out and innovate the
models, based on which the financial sector runs.
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Prior Research………………….(Cont….d)
Ahmed et. al, (2013) found that six factors namely economic
factor, policy guideline, loan demand, stakeholder
pressure, environmental interest, and legal factor are the major
influencers of green banking practices in Bangladesh. From a factor
analysis, it has been revealed that these six factors have combined
variance of 65.25% of the decision regarding the adoption of green
banking by the commercial banks to ensure sustainable economic
development.
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Prior Research………………….(Cont….d)In a recent study, Hossain et.al (2016) through content analysis of the annual reports of ten
sample banks, they found that Bangladeshi banks are reporting on green banking
issues, since Bangladesh Bank (the central bank of Bangladesh) have introduced green
banking program in 2011. They claimed that the level of disclosure has increased over the
years up to 2013 and the banks mostly provided ‘good news’ in their annual reports.
Bangladesh Bank Governor argued that all need to change mindset about
environmental issues for making a better future through greening financial
transactions (Daily Star, 2010). To save our planet it is the time to take initiative for
green banking. The banks should give priorities in providing loan to the sectors that
encourage environmental practices (Rashid 2010).
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Prior Research………………….(Cont….d)From the above analysis, it is now clear that there are several studies concentrating on
the green banking practices of Bangladeshi Banks. It is noteworthy to say, Bangladesh
Bank has issued a policy guidelines for commercial banks to introduce green banking in
2011. As per this guideline, banks need to fulfill it under three phases where the
deadline for the final phase was up to December 31, 2013. To the best of our
knowledge, there is no study that examined the extent of disclosures on green banking
issues after the culmination of Bangladesh Bank’s guideline. Thus, this study is an effort
to fulfill the existing gap in the literature by investigating the extent of green banking
compliance of listed banks after the termination of compliance deadlines.
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Phases of Green Banking Policy:
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December 31, 2011
December 31, 2012
December 31, 2013
Phase I
Phase II
Phase III
Green Banking Rules
(BRPD Circular 02)
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Phases of Green Banking Policy:
February 4, 2016 Past, Present & Future of Green Banking18
Initiating In-house Environment Management
Introducing Green Marketing
Disclosure & Reporting
Incorporation of Environmental
Risk in CRM
Creation of Climate Risk
Fund
Creating Social Awareness
Policy formulation and governance
Introducing Green Finance
Online Banking
Phase I
1 32
4 5 6
7 8 9
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Phases of Green Banking Policy…....(Con..d)
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Disclosure and Reporting
Green Strategic Planning
Setting Up Green Branches
Improved In-house Environment Management
Bank Specific ERM Guideline
Rigorous Programs to Educate Clients
Sector Specific Policies
Phase II
1
3
2
45
7
6
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Phases of Green Banking Policy…....(Con..d)
February 4, 2016 Footer text here20
Reporting in Standard Format with External Verification
Designing and Introducing Innovative Products
Phase III
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MethodologySample selection:
Sample consists of 30 listed banks with Dhaka Stock Exchange (DSE) in each year.
Analyzed annual reports of these banks related to the years 2013 and 2014 respectively.
Content analysis framework:
Content analysis procedure been used track the extent of disclosure on green banking practices.
Content analysis is a research technique which has specialized proceedings. It is a scientific tool
that helps in making inferences from texts and gives practical knowledge and insights about the
context (Krippendroff, 1980). In other word, it deals with the codification of both qualitative and
quantitative information into pre-determined categories so as to types of the presentation and
reporting of information can be traced (Guthrie and Abeysekera, 2006:120).
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Methodology……………….(Con…..d)
Disclosure Index:
To track the green banking practice related disclosures, a disclosure
index has been formulated. The disclosure index is formulated primarily
from the Bangladesh Bank’s green banking policy guidelines issued in
2011. As per the circular of Bangladesh Bank, commercial banks are
required to implement green banking under three phases. Three phases
include total of 18 items. We have formulated a disclosure index
customizing these items into 13 items.
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Methodology……………….(Con…..d)
Researchers such as Prado-Lorenzo, 2009; Belal et.al. (2010), Hossain et.al, 2016 used
un-weighted disclosure. Another approach is weighting of the items, as performed in
some studies (Pirchegger and Wagenhofer, 1999). In our study, we have used weighted
index, even though there is some arbitrariness inherent to the use of any weighted index
(Giner, 1997). Moreover, studies that use both weighted and unweighted indices draw
similar conclusions from both type of indices (Choi, 1973; Chow and Wong-boren, 1987).
For data codification, we have used weighted disclosure index where
‘0’ is assigned for no disclosure,
1 is assigned for general disclosures and
2 is assigned for substantive disclosures.
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Methodology……………….(Con…..d)
(IFIC, 2014)……………….Content Disclosure of 2.
“More emphasis has been given on the bank’s operational policy, as reflected in the allocation of its budget for promoting green finance, environmental risk rating, and online banking, ATM, internet and Mobile/SMS banking "(ICB Islamic Bank Limited, 2013)…………….Content Disclosure of 1.
February 4, 2016 Past, Present & Future of Green Banking24
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Research Methodology……………….(Con…..d)
The rationale behind using weighted disclosure index is to penalize those
items which are not disclosed comprehensively. Since, the disclosure items are
derived from the Bangladesh Bank’s guidelines, it is expected that all the banks
comply with this guideline.
To properly portray the real implementation of this policy, we have awarded
those items which are disclosed comprehensively. Moreover, while coding the
data, we have adopted very careful measures to make sure the acceptability of
result. At first, we have analyzed 10 banks annual reports and then we have
analyzed the differences of our coding. Deviations were sorted out after discussing with
the authors.
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Research Methodology……………….(Con…..d)1. Establishment of Green Banking Unit
2. Establishment of Green Banking Policy
3. Climate Change Responsibility
4. Climate Change Fund
5. Green Finance
6. Energy Efficiency
7. Water Consumption
8. Online Banking
9. General Statement on Climate Change & Global Warming
10. Green Banking Products
11. Social Awareness Creation
12. Sector Specific Green Banking Policy
13. Incorporation of Environmental Risk in CRM
February 4, 2016 Footer text here26
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Disclosure Index Analysis (2013)
February 4, 2016 Past, Present & Future of Green Banking28
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Disclosure Index
Disclosure Index
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Disclosure Index Analysis (2014)
February 4, 2016 Past, Present & Future of Green Banking30
00.10.20.30.40.50.60.70.80.9
1
AB
BA
NK
CIT
YB
AN
K
IFIC
ISL
AM
IBA
NK
NB
L
PU
BA
LIB
AN
K
RU
PAL
IBA
NK
UC
BL
UT
TA
RA
BA
NK
ICIB
AN
K
EB
L
AL
-AR
AFA
BA
NK
PR
IME
BA
NK
SO
UT
HE
AS
TB
DH
AK
AB
AN
K
NC
CB
AN
K
SIB
L
DU
TC
HB
AN
GL
A
MT
BL
ST
AN
BA
NK
L
ON
EB
AN
KL
BA
NK
AS
IA
ME
RC
AN
BA
NK
EX
IMB
AN
K
JAM
UN
AB
AN
K
BR
AC
BA
NK
SH
AH
JAB
AN
K
PR
EM
IER
BA
NK
TR
US
TB
AN
K
FIR
ST
SB
AN
K
Disclosure Index
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Element Index (2013)
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0
10
20
30
40
50
60
Series1
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Element Index (2014)
February 4, 2016 Past, Present & Future of Green Banking32
0
10
20
30
40
50
60
Series1
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Implementation of Green Banking in Bangladesh
By Service Provided
By In-House Practices By Financing
Online Banking Using Solar Panel in Branches By Direct Financing
Internet Banking Using Solar Panel in ATM Booths By Indirect Financing
SMS & Mobile Banking Using Electronic System Instead of Papers
February 4, 2016 Footer text here33
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Online Banking in Bangladesh
February 4, 2016 Footer text here34
Bank type Year 2012 Year 2013 Year 2014
SCBs 177 839 1887
SDBs 77 113 81
PCBs 3116 3469 3655
FCBs 75 73 476
NSBs 0 63 173
Source: Bangladesh Bank
0
500
1000
1500
2000
2500
3000
3500
4000
SCB SDB PCB FCB NSB
Year 2012
Year 2013
Year 2014
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Internet Banking In Bangladesh
February 4, 2016 Footer text here35
Bank type Year 2012 Year 2013 Year 2014
SCBs 21 21 27
SDBs 0 0 0
PCBs 666916 932763 1296300
FCBs 149541 164974 188470
NSBs 0 0 1035
Source: Bangladesh Bank
0
200000
400000
600000
800000
1000000
1200000
1400000
SCB SDB PCB FCB NSB
Year 2012
Year 2013
Year 2014
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SMS/Mobile Banking In Bangladesh
February 4, 2016 Footer text here36
0
50
100
150
200
250
300
350
SCB SDB PCB FCB NSB
Year 2012
Year 2013
Year 2014
Bank type Year 2012 Year 2013 Year 2014
SCBs 1,353 3,270 3,231
SDBs 0 0 9,324
PCBs 1,971,106 4,441,270 9,242,790
FCBs 165,978 156,101 234,739
NSBs 0 4,348 46,586
Source: Bangladesh Bank
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Branches Powered By Solar Energy
February 4, 2016 Footer text here37
0
50
100
150
200
250
300
350
SCB SDB PCB FCB NSB
Year 2012
Year 2013
Year 2014
Bank type Year 2012 Year 2013 Year 2014
SCBs 21 16 38
SDBs 22 37 23
PCBs 169 255 323
FCBs 3 3 4
NSBs 0 1 25
Source: Bangladesh Bank
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Direct Green Financing of Banks
February 4, 2016 Footer text here38
Bank type Year 2012 Year 2013 Year 2014
SCBs 3,513 445 1,039
SDBs 1,803 13 47
PCBs 5,624 6,909 5,456
FCBs 881 32 1,217
NSBs 0 0 224.6
Source: Bangladesh Bank
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
SCBs SDBs PCBs FCBs NSBs
Year 2012
Year 2013
Year 2014
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Indirect Green Financing of Banks
February 4, 2016 Footer text here39
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
SCB SDB PCB FCB NSB
Year 2012
Year 2013
Year 2014
Bank type Year 2012 Year 2013 Year 2014
SCBs 2,994 806 630
SDBs 6,402 1,382 100
PCBs 173,187 79,062 91,150
FCBs 76,517 17,323 18,459
NSBs 0 0 20,689
Source: Bangladesh Bank
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Customized Elements Ranking1. Climate Change Responsibility
2. Climate Risk Fund
3. Incorporation of Environmental Risk in CRM
4. Energy Efficiency
5. Green Finance
6. Social Awareness Creation
7. Sector Specific Green Banking Policy
8. Water Consumption
9. Green Banking Products
10. Online Banking
11. Establishment of Green Banking Policy
12. Establishment of Green Banking Unit
13. General Statement on Climate Change & Global Warming
February 4, 2016 Footer text here40
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Element Wise Result Analysis
Reason Behind implying Green Banking Rules:
Institutional Theory
Stakeholder Theory
Resource Dependency Theory
Strategic Response Theory
February 4, 2016 Footer text here41
0
20
40
60
0
20
40
60
2013
2014
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Element Wise Result Analysis………….(Con……d)
Reason Behind incomplete & improper practice of Green Banking:
Lack of Effective Monitoring of Bangladesh Bank
Top Management’s intention
Family Ownership
Political Influence
Long Temporal Spread
Absence of Proper Incentives System
Differences in Commitment
Less Qualified HR
February 4, 2016 Footer text here42
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Comparison Scenario
February 4, 2016 Past, Present & Future of Green Banking43
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
2013 2014 Column1
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Average Growth in Green Banking Disclosure
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0.49
0.495
0.5
0.505
0.51
0.515
0.52
0.525
0.53
2013 2014
Bank
Bank
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Probable Accounting Reporting of Green Banking
The Environmental Cost Categories by UN are :
Waste & Emission Treatment
Prevention & Environmental Management
Waste & Emission Control Cost
Prevention & other Environmental Management Cost
Research & Development Cost
Less Tangible Cost
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Probable Accounting Reporting of Green Banking
The four Probable allocation keys are: (Schaltegger and Muller 1998)
• volume of emissions or waste
• toxicity of emission and waste treated
• environmental impact added (volume x input per unit of volume) volume of the emissions treated and
• the relative costs of treating different kinds of emissions.
Additional:
Reduction of Fresh Water Consumption
Reduction of Paper Consumption
Huge amount of Green Marketing Cost
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Probable Accounting Reporting of Green Banking
February 4, 2016 Footer text here47
Example:
From Annual Report of Mutual Trust Bank, 2014
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Probable Accounting Reporting of Green Banking
February 4, 2016 Footer text here48
From Annual Report of Standard Bank, 2014
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Probable Accounting Reporting of Green Banking
In this Example of MTB & SBL, we found that MTB is disclosing more about
its green banking activities specifically water consumption which is subject to
some additional cost whereas SBL is giving a statement about this.
Proposed Incentive System:
Water Harvesting Cost of MTB is 6,00,000 taka. If the Regulators give an
opportunity to MTB to capitalize this amount and deferred the cost for the
following two years, MTB will be motivated to invest more in green banking
activities. Whereas SBL or other Banks (with least GB activities) will come
forward to invest more in environment friendly projects.
February 4, 2016 Footer text here49
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Recommendations
February 4, 2016 Footer text here50
Sustainable growth
Creating Awareness
Imparting Education
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Recommendations……………………………(Con…..d)
February 4, 2016 Footer text here51
Creating awareness
Internal Subsystem
Target groups
-Managers
-Personnel
Means of creating
awareness
-E-learning
-Banks news letter
External Subsystems
Target groups
-Clients
-General Public
Means of creating
awareness
-Road Shows
-Media
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Recommendations………………………….(Con…..d)
February 4, 2016 Footer text here52
Imparting Education
Internet E-learning programsParticipations conferences and
meetingsAnnual Environmental Report
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Future Guidelines for GB
• Meaningful Disclosure Approach
• Green Credit Policy as a floor, not ceiling
• International Guidelines for Green Banking
• Manufacturing Sectors can be included
• Mandatory Environmental Audit
February 4, 2016 Footer text here53