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NEWS: What does green growth mean to a banker?

Other countries could learn a lot from Bangladesh’s approach to green banking, suggests CDKN’s Mairi Dupar, from Doha

Everyone knows the private sector will have a fundamental role to play in climate compatible development, but where do bankers come in? And what, too, is the role of central bankers, those all-powerful agents who set monetary and fiscal policy and whom many regard as more powerful in their economies than legislators and ministers? They are public servants but they play a pivotal role in steering and regulating trillions of dollars of private investment funds.

In a widely-lauded presentation on Sunday in Doha, Atiur Rahman, the Governor of the Bangladesh Bank, demonstrated how central banker governors can use their power to promote green growth and more socially just and equitable development. Speaking at Development and Climate Days 2012, the Mr Rahman described the mixture of ‘carrots’ and ‘sticks’ that he deploys for social and environmental ends.

He outlined how the Bangladesh Bank is:

  • Reducing material use wherever possible. The central bank reduces the use of paper and other materials by automating as many processes as possible and maximising use of Information Communication Technologies
  • Integrating environmental risk criteria in overall risk management guidance. For example, he said: “We would not permit loans to a company whose activities would destroy a lake,” however financially profitable it appeared.
  • Reporting on environmental performance. The country’s banks are required to report their carbon footprint to the central bank every quarter.
  • Placing minimum requirements on the proportion of loans offered to households and smallholders. The Bangladesh Bank requires at least one third of loans by public and commercial banks to go to the disadvantaged, defined loosely as smallholding farmers and other small and medium enterprises, women etc. (A detailed explanation of the financial inclusion campaign and its criteria is online here) “I have made it compulsory for even foreign banks to reach out to rural areas,” Mr Rahman said. “They are forced to develop partnerships with microfinance organisations, as they don’t have the networks in rural areas themselves.”
  • Showcasing renewable energy and promoting its uptake. Loans for renewable energy installation are encouraged from the central bank’s green fund; its own offices are solar-powered and even cash machines are required to be run on solar photovoltaic systems.

Commercial versus public banks

Sam Bickersteth, CDKN’s Chief Executive, queried the degree to which public policy-makers were pushing private, commercial banks to support climate-resilient, low carbon growth. The answer, in Bangladesh’s case, may come as a surprise. “The private banks are coming forward better than the public ones,” explained Mr Rahman. “Most of the Climate Fund has been taken off by the private banks; the public ones are a bit behind. For example, HSBC has recently provided a Corporate Social Responsibility (CSR) fund to a Bangladeshi think-tank to roll out energy efficient cooking stoves in the Sundarban  Islands.

A standard for others

Discussions about the broader ‘drought’ in international climate finance formed the backdrop for Mr Rahman’s presentation. As the UNFCCC Conference of the Parties enters its second week, the period of providing Fast Start Finance to developing countries for climate adaptation and mitigation actions is drawing to a close, and new pledges of public and private sector finance look lamentably small. Farrukh Khan, chief climate negotiator for Pakistan and former Chair of the Adaptation Fund Board, has referred to this crisis as “a fiscal cliff”.

A vital ingredient to get North-South climate finance flowing, said Timmons Roberts of Brown University, will be establishing much-needed trust among Northern aid donors: trust that will be built when Southern financial regulators demonstrate the highest levels of scrutiny over climate finances. Creating these assurances will make it easier for developed country governments to pledge taxpayer funds.

From a Bangladesh perspective, taxpayer accountability is also at stake. “Bangladesh is morally on the higher ground…because being victims of climate change, we have opted for investing US$300 million in our climate trust fund,” Mr Rahman said.

In concluding remarks, Cristina Rumbaitis del Rio, Associate Director at Climate Resilience, Rockefeller Foundation, made one of the day’s most popular suggestions: “I would like to suggest that the American Central Bank Governor should make an exchange visit to Bangladesh,” she said. “He would really learn something.”

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