By Mahbub Hassan, Deputy Director of Sustainable Finance at Bangladesh Bank (BB)
Bangladesh, on the frontline of climate change, is transitioning to a greener and more inclusive financial system, with the country’s central Bangladesh Bank (BB) playing a leading role. Bangladeshi banks and financial institutions (FIs) are investing over USD 1.1 billion a year in green finance products, and a new climate resilience policy will help vulnerable communities build resilience and mitigate losses.
Low-lying and with an extensive coastline, Bangladesh is ranked the seventh country in the world most at risk of climate change according to the Global Climate Risk Index. Rising sea levels, flooding, and tropical cyclones have all had devastating impacts on livelihoods, agricultural output, and inland population density.
These environmental challenges drove the BB’s quest for solutions and helped it draw a direct link between financial inclusion and climate change. By making climate-friendly products more affordable and accessible through sustainable finance and other financial sector initiatives, we allow vulnerable populations to form part of the country’s green transition while helping them mitigate climate risks.
Bangladesh Bank has been working on its green finance policy since 2009 and soon after, in 2011, we introduced our first green banking guideline for banks and FIs. By 2014 BB had required all banks and FIs to direct at least 5 percent of their funded loans to green finance and by 2015, 10% of their Corporate Social Investment budgets had to be dedicated to climate risk. To avoid greenwashing, we issued a list in 2017 of products and initiatives considered eligible for green financing by banks and FIs alongside a methodology for assessing the financial profitability, and environmental and social feasibility of green finance products and initiatives.
Our 2020 Sustainable Finance Policy (including a green taxonomy) was updated in 2023 to make it more gender inclusive. A number of regional central banks, including China, Indonesia, and Thailand, have already used it as a model to build their own sustainable finance policies.
Today, we have 94 green products across 14 sectors. Central bank data shows that in 2022 alone Bangladeshi banks and financial institutions invested up to USD 12 billion in sustainable finance and over USD 1.1 billion in green finance. That’s a 58 percent and 69 percent increase respectively since 2021.
Looking ahead, BB hopes to develop a climate resilience policy that is based on solid research on how climate change affects communities on the ground.
At BB we are often asked why it’s so crucial that central bank mandates include inclusive green finance policymaking. The answer is simple: Banks and financial institutions are the veins through which a country’s heart – its central bank – needs to pump sustainable policies if it wants its economy and its people to survive climate change.