Green Banking Adoption: An Examination of State-Owned Banks of Bangladesh

Introduction

Recent studies by Choudhury et al. (2013), Nath et al. (2014), Hossain et al. (2015) and Masukujjaman et al. (2016) suggests that every bank should participate in the new green product development process with greater involvement from stakeholders and contribute to green banking practices in today’s extreme national and global banking competition. “Green” in green banking principally indicates banks’ environmental accountability and environmental performances in business operations (Rahaman et al., 2015). Therefore, the term “green banking” generally refers to banking practices that foster environmentally responsible financing practices and environmentally sustainable internal processes (Babiak and Trendafilova, 2011). A green bank is also called ethical bank, environmentally responsible bank, socially responsible bank or a sustainable bank and is expected to consider all the social and environmental issues in their banking processes (Rahman and Barua, 2016). Green banking avoids as much paperwork as possible and relies on online/electronic transactions for processing so that green technologies like green credit cards and green mortgages can be encouraged (Singh and Singh, 2012). The reduced use of paper can actually diminish the carbon footprint from banking practices and promote environmental-friendly practices in the global banking sector (Goyal and Joshi, 2011).

Today, many countries across the world are adopting environmental-friendly policies mainly through their financial sectors (Hussin and Kunjuraman, 2015). Financial institutions, particularly banks, are selected for this role as they are an eminent part of the economic system of a country and generally affect all types of business practices through their financing activities - which thereby accelerate globalization. In recent times, rapid globalization has led to unplanned urbanization and extensive industrialization in many countries which accelerates the most alarming issues like environmental degradation, global warming and climate change (Hossain et al., 2016). Global warming and climate change has a direct impact on biodiversity, agriculture, forestry, dry land, water resources and human health and as a result, the world encounters flood, drought, tornado, earthquake and tsunami at a faster rate these days (Rahman, 2012). Since banks are major economic agents, it can influence the overall industrial activity and economic growth of a country through environment-friendly banking strategies (Yadav and Pathak, 2013). Moreover, any environmental impact due to industrial activities can affect the quality of assets and even the rate of return of banks in the long-run (Khawaspatil and More, 2013). Banks should thus go green and play a pro-active role by taking environmental and ecological aspects into account. This is going to force other industries to go for mandated investment in environmental management, use of appropriate green technologies and management systems (Sahoo and Nayak, 2008).

Although addressing the issue of environmental sustainability is a global initiative, it is more important for low carbon emitting countries like Bangladesh, where environmental problems are increasing every day. Bangladesh, in fact, is highly vulnerable to climate changes and natural calamities, as a result of which, concern about environmental degradation is a common phenomenon here (Nisha, 2016). The entire country recognizes the fact that the role of the banking sector is very crucial in growth and development activities and therefore, banks must come forward to play a more effective role in mitigating any environmental degradation (Masukujjaman et al., 2016). As such, the central bank of the country, Bangladesh Bank, has opted towards congenial business operations that are sustainable towards the environment (Ahmad et al., 2013). It has taken the role of a leader in initiating green banking in Bangladesh and it is expected that green banking is going to be a major instrument through which banks can substantially contribute to serve the purpose.