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Green finance in Bangladesh

May 27, 2022

Evolution of Green Finance framework in Bangladesh

Bangladesh’s focus shifted towards sustainable financing in 2009, when a refinancing scheme for “Renewable Energy and Environment Friendly Financeable Sectors” was introduced.[1] This focus was further crystallized and formalized by framing of the Policy Guidelines on Green Banking in 2011.

The priority given to this area was further confirmed by setting up in 2015 of a separate department of Bangladesh Bank, the country’s central bank, called the Sustainable Finance Department.

Further, Bangladesh Bank (“BB”) issued a circular dated 31 December, 2020 based on which, Bangladesh ranked its banks and non-banking financial institutions on the basis of their contribution towards sustainable financing.[2]

According to SDF (Sustainable Finance Department), BB Circular No-01 dated 11 January 2021, all scheduled banks of Bangladesh are required to allocate a minimum of 2% of their financing towards green finance and 15% towards sustainable finance (including green finance).[3] In addition, all scheduled banks and financial institutions are required to set-up dedicated Sustainable Finance Help Desks in their branches.

Climate Change Trust Act & Bangladesh Climate Change Trust Fund

The Climate Change Trust Act, 2010[4] was enacted on 11 October 2010. The core objective of this Act was to address the challenges created by climate change by working on institutional and social capacity building of citizens. It also aims to create public awareness on possible environmental disasters arising out of climate change as well as carry out emergency rescue operations due to a natural disaster arising out of climate change.

One of the important features of this Act was also the setting up of the Climate Change Trust Fund (“CCTF”) with provisions to properly utilize the funds allocated thereunder and including regulation of the CCTF’s bank account and other auditing and accounting activities.

The Bangladesh Climate Change Trust[5] is a statutory body under the Ministry of Environment, Forest and Climate Change established in 2009 under section 3 of the Climate Change Trust Act, 2010, which is in charge of maintaining the CCTF. The main aims of the CCTF are to take initiatives to mitigate problems caused by climate change, to work on capacity building of citizens to combat the adverse effect of climate change and to work on climate tolerant technological innovation.[6]

Bangladesh Climate Change Resilience Fund

The Bangladesh Climate Change Resilience Fund (“BCCRF”) [7] aims to collect and disburse climate adaptation funding for Bangladesh. BCCRF, being a multi-donor trust fund, was established in May 2010 with the signing of a Memorandum of Understanding (MOU) between the Government of Bangladesh, development partners and the World Bank. This innovative mechanism is enabling the Government to channel grant funds to millions of Bangladeshis in order to build their resilience to the effects of climate change.

Refinancing scheme for “Renewable Energy and Environment Friendly Financeable Sectors”

Bangladesh Bank formulated a Refinancing Scheme for Renewable Energy and Green Financing in 2009[8], whereby is offers a revolving refinancing facility for over 50 green product lines. The aim of the scheme is to promote renewable energy and environmentally friendly financial activity for products such as biogas, effluent treatment plants and brick kiln technology in 11 categories: renewable energy, energy efficiency, solid waste management, liquid waste management, alternative energy, fire burnt brick, non-fire block brick, recycling and recyclable product, green industry, ensuring safety and work environment of factories, and miscellaneous.

Under this scheme, the Participating Financial Institution (“PFI”) submits an application to Bangladesh Bank within 90 days of completion of a project, upon which the parties may enter into an agreement (“Participation Agreement”) [9] PFI may get up-to 100% refinance facility against the disbursed loan amount in terms of participation agreement.[10] The budget allocated under the scheme has been increased from 2 billion BDT in 2009 to 4 billion in 2020 and, as of 2019, nearly 3 billion BDT has been disbursed under the scheme.

Bangladesh Bank devised green banking guidelines for banks and financial institutions: reporting; credit quota, etc.

Bangladesh Bank launched an initiative to support and promote environmentally responsible financing by introducing Policy Guidelines on Green Banking in 2011.[11]

In order to develop the practice of green banking, an indicative three-phase Green Banking Policy and Strategy Framework was prepared under the Policy Guidelines.

In Phase I, Banks were required to adopt green banking policies to show general commitment towards the environment through internal performance. Phase II addressed Sector Specific Environmental Policies, Green Strategic Planning, setting up Green Branches and Improved In-house Environment Management. Development by banks of a system of Environmental Management was a precondition to Phase III, whereby banks were instructed to adopt the whole eco-system by environment friendly measures and introducing innovative products. Standard environmental reporting system was part of this phase with external verification.

Sustainable and Renewable Energy Development Authority

The Sustainable and Renewable Energy Development Authority (“SREDA”) is an agency of the Government of Bangladesh under Power Division of the Ministry of Power, Energy and Mineral Resources. Its stated aim is to promote, facilitate and disseminate sustainable energy covering both the areas of renewable energy and energy efficiency to ensure the energy security of the country. It has been formed by S.R.O. No. 69 Law/2014 in exercise of the powers conferred by section 29 of the Sustainable and Renewable Energy Development Authority Act, 2012.[12]

The institution is an authoritative organization for the development of the renewable energy in the country, as a coordination body between different ministries and departments, including the Bangladesh Power Development Board (“BPDB”), the Rural Electrification Board (“REB”), the Local Government Engineering Department (“LGED”), autonomous bodies like the infrastructure Development Company Limited (“IDCOL”) and also the private sector.

In order to achieve the government’s sustainable environmental goals, SREDA introduced numerous legal frameworks including the Rrenewable Eenergy policy, Energy Efficiency and Conservation Masterplan up to 2030 in 2016, Country Action Plan for Clean Cookstoves, Net Metering Guidelines and others.

Green Transformation Fund

Bangladesh Bank introduced a Green Transformation Fund (“GTF”) in 2016 to provide finance for environment-friendly infrastructure in export-oriented industries, especially garments and leather. Machinery imported for export-oriented industries under GTF need to go through eligible certified energy and resource efficiency audits. The borrowers are benefiting from favorable rates of interest.

Infrastructure Development Company Limited

The Infrastructure Development Company Limited (“IDCOL”)[13] is a government owned non-banking financial institution which has successfully undertaken several initiatives to promote and implement green finance in Bangladesh. I

IDCOL’s Solar Home System (“SHS”) program was an example of a public–private partnership in green energy technologies. IDCOL involves mainly non-governmental organizations for marketing the SHSs in their respective operational areas, which are called partner organizations (“POs“).

POs receive several incentives, such as capital buy-down grants, institutional development grants, and refinancing facilities, from IDCOL for the credit given to households for selling the SHSs in installments. POs also make a contribution of their own by providing credit, while they receive an institutional development grant. Households make down payments as well as installments. POs receive the credit from IDCOL.

Sustainable Finance Policy 2020

Bangladesh Bank published Sustainable Finance Policy for Banks and Financial Institutions in 2020.[14] It incorporates a reporting template in order to streamline the reporting system and make it more efficient. It covers a comprehensive list of green products, projects and initiatives. The policy includes identical areas of sustainable linked finance and addresses the essential clarity and guidance to identify green and Sustainable Linked Finance (“SLF”). Sustainable Finance contains Green Finance, which is one of its components along with Agriculture, CMSME and Socially Responsible Finance linked to sustainability. [15]

[1] https://www.bb.org.bd/en/index.php/about/financial_inclusion

[2] https://www.bb.org.bd/fnansys/sustainability_rating_2020.pdf

[3] https://www.bb.org.bd/mediaroom/circulars/gbcrd/jan112021sfd01.pdf

[4] http://www.bcct.gov.bd/sites/default/files/files/bcct.portal.gov.bd/files/9f965916_24d8_4465_9fd2_b1e4bb7582f1/Climate%20Change%20Trust%20Act_2010%20Eanlish.pdf

[5] http://www.bcct.gov.bd

[6] http://www.bcct.gov.bd/site/page/e6fb75e8-f5e5-4bed-8adc-e6183e69353a/-

[7] https://www.worldbank.org/en/news/feature/2012/05/22/bangladesh-climate-change-resilience-fund-bccrf

[8] https://www.bb.org.bd/en/index.php/about/financial_inclusion

[9] https://www.bb.org.bd/aboutus/dept/gbcsrd/agreement_bb_fi2017.pdf

[10] https://www.bb.org.bd/mediaroom/circulars/gbcrd/apr302020sfd02.pdf

[11] https://www.bb.org.bd/mediaroom/circulars/brpd/feb272011brpd02e.pdf

[12] https://elibrary.sreda.gov.bd/book/list/books_20210428870840188.pdf