Standard Bank's Khan: "Commitment to sustainable reporting key to Bangladesh banks' transparency and efficiency"

• Banks’ commitment to a healthy sustainable disclosure practice is good for everyone
• Bangladeshi banks are bound by policies to incorporate ‘green banking’ initiatives in their agenda
• Majority of banks do not practice sustainability reporting

A sustainable world economy is essential for society, and a bank, as responsible corporate citizen, needs to devise a long-term strategy towards sustainable financing activities through various effective initiatives. The question is, “How can it be started?”

Banks must be committed to sustainability reporting

Changes are required at the organisation level to transition into a sustainable economy. Goals need to be set and the way forward is for banks to drive the change. Sustainability reporting refers to the method that incorporates an organisation’s environmental and socio-economic performance and practice of disclosure, assessment, transparency, accountability to internal and external stakeholders and performance towards sustainable development goals (SDGs). Sustainability reporting presents an opportunity to improve  performance and commitment to sustainable development.

Making profit is the reason why banks offer services but this should not be fulfilled at the expense of the environment. Hence, consciousness about the environment is a must for the banking sector and it necessitates the preparation of sustainability reporting. With an intermediary role in the economy, banks have potentially extensive roles towards the attainment of sustainable development. Banks make the spatial transformation of money in terms of time, location, risk, and scale while impacting a nation’s economic development both quantitatively and qualitatively by influencing the direction and pace of a nation’s economic growth. However, responses from the banking sector to these new-found challenges of sustainability have come more slowly than those from other sectors.

‘Green banking’ initiatives are a must-have

Commercial banks in Bangladesh must prepare an annual sustainability report maintaining the principles in the global reporting initiative. Bangladesh Bank has already formed the Sustainable Finance Unit to monitor overall activities of all non-bank financial institutions (NBFIs) and banks.

Bangladesh Bank issued a circular on 11 January 2021 requiring banks and NBFIs to disburse at least 15% of their outstanding loans in the form of sustainable financing every year in order to promote environment-friendly businesses. The circular also stated that 2% financing must be in the form of green financing out of this 15%. Under sustainable financing, the banks/NBFIs will disburse loans to set up machinery that enable lower carbon emission in the project/industry.

Prime Bank channelled more than $18 million from green transformation fund to multiple export-oriented manufacturing industries. Dutch Bangla Bank formed a green banking team to implement and report initiatives of the bank. BRAC Bank invested in LED bulb manufacturing, plastic recycling, biogas, energy-efficient capital machinery, and fire door and fire-fighting system. Islami Bank Bangladesh supported recycling or processing of waste by-products, brick field (zig-zag), CNG re-fuelling projects, energy savings bulb projects, organic fertiliser, jute project instead of poly, and tree planting activities.

Besides publishing the name of the top performing banks and financial institutions on its official website, the central bank will consider other incentives for top performers by giving good rating in CAMELS (capital adequacy, assets, management capability, earnings, liquidity, and sensitivity.) Such recognition from the regulator will help banks to stay compliant and solidify their position as a model for others. Bangladesh Securities and Exchange Commission declared a special incentive for listed companies in terms of dividend and other activities including initial public offerings.

Majority of banks do not practice sustainability reporting

Stakeholders and top managements of commercial banks in Bangladesh need to be organised and have greater social accountability to ensure sustainable development. Globally, sustainability reporting practice has already become one of the mainstream activities among financial institutions and banks. However, majority of banks in Bangladesh have yet to adopt the reporting practice.

According to a recent study, only 12% of commercial banks published a sustainability report separately in their annual report following the GRI reporting guideline while 39% of banks have reported sustainability separately in their annual reports without adhering to the GRI guidelines. Around 49% of banks neither published nor disclosed any sustainability report in their annual reports. It indicates an increasing trend in all phases. Specific reasons include lack of focus on sustainability reporting, budget for preparing and disclosing report, and lack of trained manpower to oversee its preparation.

To align with the United Nation’s SDGs, banks need to determine the global agenda for activity on the prosperity and well-being of the country’s present and upcoming generations. There are 17 SDGs which have been set in motion to handle the most important challenges of the world within 2030. The actions to be taken by banks in their targeted areas must support the fulfilment of priority goals.

Involvementin environmental sustainability and inclusive growth

Concern for the environment has become the top issue with sustainability reporting to be a crucial part which banks need to consider since their activities impact a country’s economy and its local communities. The growth and development of the banking sector is closely tied with economic growth and sustainable development being existent in the sector is going to contribute to local community. The practice of sustainability reporting needs to be promoted by the state more through political will than profit orientation.

According to a recent study, more Bangladeshi banks should report on different economic indicators such as risks and financial implications of climate change, community investments, liabilities of the defined benefit plans, settlements of obligations regarding funds from the government and benefit plans in comparison to environmental indicators.

Banking institutions should be committed to engage stakeholders and publish their sustainability reports. Otherwise, implementation of the practice will not be possible at all. Being the key stakeholders, banks have to offer complete support to implement sustainability reporting practice which requires the attention of organisations’ top managements. In addition, an initiative is expected by the central bank to hold special programmes to gather top authorities or bodies. Awareness among customers and investors about sustainable disclosure on the SDGs can be the key element for the preparation of standard sustainable reporting.

Entities that receive bank facilities need to be made aware of the importance of sustainability reporting and encouraged to maintain relationship with those banks that undertake sustainable development activities. It is recommended that policy analysis be prepared to combine both sustainability reporting and green banking reporting together so that standard reporting procedures can be maintained without leaving any distinct factor between them. This is needed in order to achieve the ultimate development goal of a ‘sustainable future.’

Md. Touhidul Alam Khan is Chief Risk Officer and Chief AML Compliance Officer of Standard Bank Limited, Bangladesh.