Why future lies in sustainable finance

The country's banking sector has undergone a significant transformation in lending activities over the past four years, as sustainable finance has become a central consideration for both banks and non-bank financial institutions under the guidance of Bangladesh Bank.

Sustainable finance refers to the practice of conducting business in areas, and in ways, that help reduce external carbon emissions as well as the internal carbon footprint of institutions.

According to Bangladesh Bank data, the share of sustainable finance in total loan disbursement surged to nearly 40% by the end of 2024, up from just 8% in 2021. Over the same period, the contribution of green finance increased from 3% to 13.29%.

In the most recent development, the combined green finance contribution of banks and financial companies reached Tk8,763 crore during the January–March quarter of 2025. This marked an increase of Tk117 crore compared to the October–December quarter of 2024. Meanwhile, sustainable finance stood at Tk1,49,819 crore in January–March 2025, reflecting a rise of Tk1,703 crore from the previous quarter.

Looking ahead, Bangladesh Bank has doubled the 2025 green finance target for banks and financial institutions to Tk67,820 crore, compared to Tk30,653 crore achieved in 2024. Similarly, the sustainable finance target for 2025 has been set at Tk5,42,563 crore, 18% higher than the Tk4,59,483 crore achieved last year. 

These targets are calculated based on net loans and advances outstanding as of 31 December 2024. From 2025 onwards, banks and financial companies are required to allocate at least 5% of their net loans and advances to green finance and 40 % to sustainable finance, as per the central bank's instructions.

Ali Reza Iftekhar, managing director of Eastern Bank, described the outlook as highly encouraging, "The future of sustainable financing in Bangladesh is very promising. With climate change already leaving a significant impact on our economy and society, the banking sector must play a pivotal role in channelling capital towards green, low-carbon, and climate-resilient activities. We see a clear shift in mindset—sustainability is no longer a 'good-to-have'; it has become a business imperative."

He added, "At Eastern Bank PLC (EBL), sustainability is at the heart of our growth strategy. In 2024, green lending accounted for 35% of our total term loan portfolio—nearly double the previous year's 18% while almost 90% of our overall portfolio falls under sustainable finance. To date, we have financed more than 200 energy and resource efficiency projects and supported 23 LEED-certified factories and buildings, enabling businesses to adopt cleaner, smarter operations. On the renewable energy front, we financed a landmark 20 MW solar project in Muktagacha, which will contribute significantly to powering Bangladesh's green transition."

EBL is also extending support to sustainable agriculture, partnering with MFIs and NGOs to reach grassroots farmers with climate-resilient solutions. According to Iftekhar, this ensures financing benefits not only large-scale projects but also rural livelihoods.

"Our performance in sustainability also reflects our internal practices," he explained. "EBL's Head Office is a green building equipped with solar glass panels, rainwater harvesting, and wastewater treatment facilities. Across the bank, we have embraced paperless banking, digital transformation, and plastic-free premises—significantly reducing resource use and our own carbon footprint. These steps demonstrate that we are committed to living the sustainability we finance."

Mutual Trust Bank's Managing Director, Syed Mahbubur Rahman, echoed this sentiment, stressing that sustainable finance is a critical driver of inclusive and resilient growth, "Globally, sustainable finance has become central to financial decision-making, integrating environmental, social, and governance (ESG) criteria into investments and lending. In practice, this means channeling capital into projects that not only generate profit but also deliver positive social and environmental outcomes."

He noted that demand for ESG-linked and green finance products is steadily rising in Bangladesh. Ready-made garments, renewable energy, and sustainable agriculture are among the leading sectors, driven by both regulatory incentives and corporate commitments to sustainability. 

Government initiatives, such as the Environment-Friendly Refinance Scheme and the Green Technology Development Fund, have also made sustainable financing more accessible. However, Rahman observed that while larger corporations are rapidly adopting ESG-compliant finance, many SMEs and retail clients still lack awareness and access.

Top-rated banks and NBFIs in sustainable banking

Ten private commercial banks and two non-banking financial institutions (NBFIs) were recognised in Bangladesh Bank's Sustainability Finance Report 2024 as the leading performers in sustainable banking.

The top-rated banks include BRAC Bank, City Bank, Dutch-Bangla Bank, Eastern Bank, Jamuna Bank, Mutual Trust Bank, NCC Bank, Prime Bank, Pubali Bank, and Shahjalal Islami Bank. Among them, BRAC Bank, City Bank, Eastern Bank, Jamuna Bank, Mutual Trust Bank, and Prime Bank were also featured in the central bank's 2023 rankings.

In the non-banking sector, IDLC Finance and IPDC Finance retained their positions in the sustainability ranking for the second consecutive year.

The central bank evaluates institutions on five key indicators: Sustainable Finance Index, Corporate Social Responsibility (CSR) activities, financing of green projects, Core Banking Sustainability Index, and Banking Services Coverage. Of these, the Core Banking Sustainability and Banking Services Coverage indicators together account for 60% of the total score.

Banks with strong risk management, adequate capital, and low non-performing loan (NPL) ratios tend to perform better. Key metrics include the net NPL ratio, Tier-1 capital to risk-weighted assets, provision maintenance, the share of CMSME loans, and exposure in large loan portfolios.

The Banking Services Coverage component, which carries a 10% weight, assesses branch distribution, the number of active deposit and loan accounts, and the scale of agent banking networks. Bangladesh Bank introduced the sustainability rating system in 2020 to encourage financial institutions to embed ESG practices into their operations.

Why sustainability has become a key priority

In its Quarterly Review Report on Sustainable Finance, Bangladesh Bank highlighted that sustainability has become a key priority for the financial sector, especially given Bangladesh's acute vulnerability to climate change. The banking sector, the report notes, plays a vital role in financing industrial projects—such as steel, cement, paper, chemicals, fertilisers, power, and textiles—that are significant contributors to carbon emissions. As such, banks act as intermediaries between economic and social development on one hand, and environmental protection on the other, by promoting investment that is both environmentally sustainable and socially responsible.

All scheduled banks and financial institutions have now established their own Sustainable Finance Units. The central bank first introduced its Sustainable Finance Policy in December 2020. This policy was updated in 2023 to align with Bangladesh's broader commitments, including the Intended Nationally Determined Contributions (INDCs), the Bangladesh Delta Plan 2100, and the National Adaptation Plan.

As part of this policy, all banks and financial institutions are required to prepare their own Sustainable Finance Policy. The framework encourages them to contribute to inclusive, sustainable, and green growth. This covers areas such as green finance, sustainable agriculture, CMSME financing, socially responsible investments, and other activities linked to long-term sustainability.

Jebun Nesa Alo. Illustration: TBS