We believe the central bank will come up with pragmatic targets for banks and financial institutions for reducing carbon emission to attain sustainability in line with the global banking sector

Ascension of greenhouse gas (GHG) emission, air and water pollution, the eruption of the ozone layer and such devastating environmental events have drastically affected the climate, eco-system and livelihood.

The crisis started in the 18th century on the verge of the industrial revolution from Europe and the US when the people aspired heavily in consumption beyond their basic needs. With time, unprecedented events like the massive use of energy and environmental deterioration have resulted in global warming, drought, the rise of sea level, loss of biodiversity, extreme heatwaves, catastrophic changes in climate and depletion of resources.

The impact of these events is quite evident and has become a global concern. If this continues, we are headed towards a mass extinction and every country, whether developed or developing, will be a victim of this drastic event.

Organisations like the United Nations, the United Nations Framework Convention on Climate Change, the United Nation Global Compact, the United Nation Environment Programme Finance Initiative (UNEP FI) are taking as many initiatives as possible to onboard stakeholders and entities to address the climate change and mitigate the ongoing catastrophe.

The Paris Agreement is an international legally binding treaty adopted by 196 Parties on the COP 21 in Paris where countries acknowledged the climate change and signed the treaty with an ambition of limiting global warming to well below two degrees Celsius, preferably below 1.5 degrees Celsius compared to pre-industrial level through reducing the GHG.

Under the agreement, countries are required to strive towards a social and economic transformation and were asked to submit their intended nationally determined contributions (NDCs) by 2020. The Sustainable Development Goals (SDGs) of the UN, introduced in 2015, are also directed towards ensuring the long-term sustainability of society and the economy.

All these initiatives and evidence of radical climate change have made it obvious that each group and entity must participate in reducing GHG emission, conserving the limited resources and protecting biodiversity.

Banks and financial institutions (FIs) are not redeemed from this. FIs are the intermediary between households and businesses. These entities decide who should receive the savings of the individuals and where these would be invested for future growth and development of the economy. Thus, their responsibilities become enormous and vital when it comes to addressing climate change and reducing GHG emission. 

The UNEP FI has been very steadfast in guiding the banks and FIs to acknowledge climate change and the impact of GHG emissions on the environment. It has initiated different programmes like the Collective Commitment to Climate Action (CCCA) and the Net Zero Banking Alliance (NZBA) to unite the banking sector to reduce GHG emission through setting intermediary SMART targets and thus reaching the net zero emission or carbon neutral by 2050.

In Bangladesh, IDLC Finance Ltd is the only financial institution that has been a signatory member of the UNEP FI since 2010 and signed the CCCA and NZBA agreements in 2019 and 2021, respectively, to reach the net-zero emission by 2050 through its internal operation and loan portfolio.

It is high time that other banks and FIs came forward to combat climate change and address GHG emission through their operation and loan portfolio. By setting SMART targets and developing a sustainable portfolio, banks and FIs can achieve net zero emission, which would ultimately help in decreasing the global temperature and increasing environmental, economic and social sustainability.

Bangladesh, as a member of the UN and a signatory of the Paris Agreement, has a responsibility of integrating imminent constructive strategies to mitigate carbon emission and thus alleviate the drastic climate change.

Banks and FIs are responsible for infusing development in the economy and thus can play an active role in mitigating climate change. In this regard, being the regulatory body, the Bangladesh Bank has been playing a vigorous role in guiding the banks and FIs to decrease the global temperature and GHG emission.

Introducing the Sustainable Finance Policy in 2020, compelling banks and FIs to set annual targets in green and sustainable finance, rolling out various refinancing/pre-financing schemes for green and sustainable finance, and increasing awareness among the stakeholders are some commendable measures undertaken by the BB.

We believe the central bank will also come up with pragmatic targets for the banks and FIs for reducing carbon emission to attain sustainability in line with the global banking sector.

If we do not take imminent actions, we will fail to conserve nature and this will drastically hit us where our own existence would become questionable. So, along with various other sectors, banks and FIs must also contribute to this effect vigilantly.

The author is head of corporate at IDLC Finance Ltd. He can be reached at [email protected].