In recent years, the concepts of sustainable finance and green finance have moved from being niche ideas to becoming central pillars of the banking sector in Bangladesh.
With the country on the frontline of climate change, and at the same time striving for rapid economic growth, balancing development with environmental and social responsibility has become essential. This is where financial institutions, especially banks play a pivotal role.
What is sustainable finance?
Sustainable finance refers to the process of making financial decisions that incorporate environmental, social, and governance (ESG) considerations alongside traditional financial metrics. It is broader than just funding renewable energy or eco-friendly projects; it also involves ensuring financial inclusion, supporting social equity, and promoting good governance practices within the banking system.
Globally, sustainable finance has become a way for financial institutions to align their business models with the United Nations’ Sustainable Development Goals (SDGs) and climate targets such as the Paris Agreement.
In Bangladesh, the concept has been adapted to match the country’s unique needs: addressing climate vulnerability, ensuring inclusive growth, and balancing profitability with responsibility.
What is green finance?
Green finance is a subset of sustainable finance, focused specifically on environmental outcomes. It involves financing projects and initiatives that directly contribute to environmental protection, resource efficiency, and the reduction of carbon emissions.
Examples include renewable energy projects, green buildings, sustainable agriculture, waste management, and pollution control.
In the Bangladeshi banking sector, green finance usually refers to loans, investments, or refinancing schemes that support activities with positive environmental impacts. While sustainable finance casts a wider net, green finance zeroes in on the urgent need for ecological preservation and climate resilience.
Why do these concepts matter for Bangladesh?
Bangladesh is one of the most climate-vulnerable countries in the world. Rising sea levels, frequent cyclones, and flooding directly threaten millions of livelihoods and the overall economy. At the same time, the nation is experiencing rapid urbanisation, industrialisation, and energy demand growth. Without sustainable and green financing, development could exacerbate environmental degradation and worsen inequality.
For banks, aligning with sustainability is not just about social responsibility, it is also about risk management. Climate-related disasters can increase credit risks, reduce asset values, and destabilise financial systems. Integrating ESG principles into finance ensures resilience, long-term profitability, and international credibility.
Bangladesh Bank’s role
Bangladesh Bank has been at the forefront of driving sustainable and green finance in the country. Starting with the introduction of Green Banking Guidelines in 2011, the central bank has gradually expanded its regulatory framework to push commercial banks and non-bank financial institutions (NBFIs) toward sustainability.
Key regulatory milestones
- 2011: Green banking policy – Required banks to adopt green office practices, environmental risk management, and financing for eco-friendly initiatives.
- 2013: Environmental risk management (ERM) guidelines – Introduced mandatory assessment of environmental risks in lending decisions.
- 2015: Green transformation fund (GTF) – Provided concessional financing for importing energy-efficient machinery in export-oriented industries such as textiles and garments.
- 2020: Sustainable finance policy – A comprehensive policy mandating banks and NBFIs to allocate a certain portion of their portfolios to sustainable finance, covering both green and socially inclusive projects.
- Taxonomies for green and sustainable finance – Bangladesh Bank developed detailed lists of eligible green and sustainable finance activities, providing clarity and consistency across institutions.
Through these steps, the central bank has created one of the most structured sustainable finance frameworks in the developing world.
How banks are responding
Commercial banks have been gradually embedding sustainability into their operations, though progress varies. Some banks are pioneers, investing heavily in green projects and building internal sustainability units, while others are still catching up.
Key trends
- Dedicated sustainable finance units
Most banks now have dedicated units or officers responsible for sustainable and green financing, in compliance with Bangladesh Bank’s policy requirements.
- Green product portfolios
Banks such as IDLC Finance, DBBL, EBL, and BRAC Bank have developed specific green loan products targeting renewable energy, energy efficiency, waste management, and eco-friendly housing.
- Renewable energy financing
Solar home systems, rooftop solar projects, and bio-gas plants are being financed as part of green lending portfolios.
- Sustainable agriculture
Given the importance of agriculture to Bangladesh’s economy, many banks are financing climate-resilient crops, irrigation systems, and eco-friendly farming practices.
- Green building finance
Loans for environmentally friendly construction, especially LEED-certified factories in the ready-made garment (RMG) sector, are becoming increasingly popular.
- CSR to sustainability transition
While banks have traditionally invested in Corporate Social Responsibility (CSR) activities such as education and health, there is now a shift toward integrating social impact into mainstream financing, rather than treating it as an add-on.
Green and sustainable finance in numbers
Bangladesh Bank’s latest data shows encouraging progress. As of 2023, over 10% of total bank lending portfolios were classified under sustainable finance. This is a remarkable step forward, considering that sustainability was barely on the agenda of most financial institutions just a decade ago.
Within this portfolio, green finance accounted for around 3–4%, while the rest went into socially responsible projects such as SME loans for women entrepreneurs or financial inclusion schemes targeting underserved communities. The textile, garments, and renewable energy sectors remain the largest beneficiaries of green financing, reflecting both Bangladesh’s industrial priorities and its vulnerability to climate change.
Although these numbers reflect growth, they also highlight the distance yet to be covered. For sustainability to become truly mainstream in the banking sector, green finance must move beyond niche projects and find a permanent place in the core lending practices of financial institutions.
Opportunities for Bangladesh
Sustainable and green finance offer a wide range of opportunities for Bangladesh’s banking sector. By aligning with international standards, local banks can gain access to global climate funds, such as the Green Climate Fund (GCF), and attract concessional financing that would otherwise remain out of reach.
This not only diversifies funding sources but also strengthens resilience in the face of climate shocks.
Green financing can also play a pivotal role in strengthening export competitiveness. Global buyers, particularly in the garments sector, are increasingly demanding environmentally responsible practices from suppliers. Financing greener, more efficient factories allows Bangladeshi exporters to stay competitive in this evolving market.
At the same time, sustainable finance has the potential to expand financial inclusion. By targeting underserved groups such as rural entrepreneurs, women, and SMEs, it ensures that growth is not only environmentally sound but also socially equitable. Beyond inclusion, there is also the critical issue of risk management. Factoring in environmental and social risks helps banks reduce their exposure to loan defaults and build more stable long-term portfolios.
Finally, banks that establish themselves as leaders in sustainable finance stand to gain a significant reputational edge. Such institutions are more likely to attract foreign investors, build public trust, and strengthen their market position in a competitive sector.
Challenges and limitations
Despite the progress, several challenges continue to hinder the mainstreaming of sustainable finance in Bangladesh. One of the most pressing issues is the capacity gap. Many banks still lack the technical expertise to evaluate complex green projects or to properly assess ESG risks. This often slows down decision-making and limits the appetite for innovation.
There is also the issue of limited awareness among clients. Borrowers, especially SMEs, often lack the knowledge or incentives to adopt environmentally sustainable practices. For them, sustainability is sometimes seen as a burden rather than an opportunity, unless banks actively guide and support them.
Short-term profitability concerns also weigh heavily on decision-makers. Green projects usually involve higher upfront costs and longer payback periods. For banks under pressure to deliver quick returns, this makes conventional lending more attractive.
Regulatory compliance is another double-edged sword. While Bangladesh Bank’s guidelines have forced banks to take sustainability seriously, many institutions are content with doing the bare minimum to meet requirements rather than pushing beyond them with innovative products or services.
Finally, data and reporting remain persistent hurdles. Measuring the environmental and social impact of projects requires robust systems of data collection and verification, something most banks are still struggling to implement consistently.
The trajectory of sustainable and green finance in Bangladesh is promising, but achieving scale will require coordinated effort across multiple fronts. Capacity building is critical, not only for bank staff but also for borrowers and regulators, so that everyone involved in the process understands ESG integration and its long-term benefits.
Policy refinement will also play a role. Bangladesh Bank must continue updating its taxonomies and guidelines, ensuring they are aligned with global best practices while remaining sensitive to local realities. At the same time, digital technologies can be harnessed to expand access to sustainable finance products, especially in rural and marginalised communities.
Collaboration with development partners is another pathway forward. By working with international agencies, banks can gain access to concessional funding and technical expertise that they would otherwise lack.
Alongside this, the private sector must step up with innovation. Going beyond compliance, banks and NBFIs can explore tools like sustainability-linked loans, green bonds, and ESG investment funds—products that are already reshaping financial markets globally.
Sustainable finance and green finance are no longer optional for Bangladesh—they are imperative. For a country acutely vulnerable to climate change yet determined to reach middle-income status, the banking sector’s role in financing a just, inclusive, and environmentally sound transition cannot be overstated.
The progress made so far, driven by Bangladesh Bank’s proactive policies and the growing responsiveness of commercial banks, is commendable. Yet to unlock the full potential of sustainable finance, greater innovation, stronger partnerships, and deeper integration into core banking strategies will be necessary.
Ultimately, the journey of sustainable and green finance in Bangladesh is about resilience. It is about ensuring that banks, businesses, and communities alike can withstand the pressures of climate change while pursuing growth. Most importantly, it is about guaranteeing that the development we achieve today does not come at the expense of tomorrow.
Tanveer Mohiuddin. Sketch: TBS
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Tanveer Mohiuddin. Sketch: TBS
