Sustainable Finance of Sonali Bank PLC

Introduction to Sustainable finance

Sustainable finance, also known as responsible finance or green finance, refers to financial activities and investments that integrate environmental, social, and governance (ESG) criteria into decision-making processes. The primary goal of sustainable finance is to promote economic growth and development while simultaneously addressing environmental and social challenges and ensuring long-term financial stability.

Key elements of sustainable finance

Environmental Considerations: Sustainable finance takes into account environmental factors, such as climate change, natural resource conservation, pollution control, and biodiversity protection. It seeks to support projects and initiatives that have a positive impact on the environment and reduce the carbon footprint.

Social Considerations: Social aspects of sustainable finance focus on issues related to human rights, labor practices, community development, and social inclusivity. Investments aim to improve the well-being of communities and society at large.

Governance Considerations: Governance refers to the structure and management of organizations. Sustainable finance assesses the transparency, accountability, and ethical behavior of institutions, including how they manage risks and ensure responsible business practices.

Integration of ESG Criteria: Sustainable finance incorporates ESG criteria into investment decisions. This means evaluating investments not only based on their financial returns but also on their impact on the environment, society, and governance practices.

Risk Management: Sustainable finance recognizes that ESG risks, such as climate-related risks or ethical issues, can have financial implications. It seeks to manage these risks effectively to protect investments and financial stability.

.

Green Bonds: Green bonds are a specific financial instrument that raises capital for environmentally beneficial projects, such as renewable energy infrastructure, clean transportation, or sustainable agriculture.

Sustainable Banking: Sustainable finance extends to banking sectors, where institutions incorporate ESG criteria into lending, underwriting, and risk assessment practices.

Regulation and Reporting: Many governments and financial regulators are implementing rules and standards that promote sustainable finance. Additionally, companies and financial institutions are increasingly required to disclose their ESG performance through sustainability reporting.

Sustainable finance aligns with broader sustainability goals, such as the United Nations Sustainable Development Goals (SDGs) and the Paris Agreement’s climate goals. It recognizes that financial markets have a crucial role to play in addressing global challenges and promoting a more sustainable and equitable future.

Ultimately, sustainable finance aims to redirect capital flows toward investments that benefit society and the planet while ensuring the long-term resilience and stability of the global financial system. It represents a fundamental shift in the financial industry, where profit and purpose can coexist to address pressing environmental and social issues.

Sustainable Finance in Sonali Bank PLC

According to Bangladesh Bank, Sustainable Finance Department, circular no. 5, dated: 30th December, 2020 sustainable finance has been divided into two parts.

  1. Sustainable Linked Finance
  2. Green Products/Projects/Initiatives applicable for Term Finance.

                                                                                                          Sustainable Agriculture

   Identification of Sustainable linked finance                              Sustainable MSME

                                                                                                          Socially Responsible Finance

 

 

 

Sustainable Agriculture

 

Finance to Sustainable Agriculture is linked to Sustainable Finance. Sustainable Finance aims at promoting Sustainable Agriculture through climate change adaptation measures. Agriculture productivity needs to be enhanced especially in rain-fed areas focusing on integrated farming, soil health management, and synergizing resource conservation. Conservation agriculture by promoting location specific integrated/composite farming systems; soil and moisture conservation measures; comprehensive soil health management and rain-fed technologies can make agriculture sector more productive, sustainable, remunerative, and climate resilient. All these components of conservation agriculture have significant role in achieving SDGs.

 

Sustainable Agriculture Sectors\Areas

  1. Crops
  2. Pisciculture

iii. Crop Storage

  1. Livestock
  2. Poverty Alleviation
  3. Irrigation Tools

vii. Agricultural Tools

viii. Others (time-to-time as recognized by BB)

 

Along with the aforementioned products, financing for Integrated Farming System (IFS) in the specific sectors like horticulture, livestock, fishery, agro-forestry, apiculture etc. to enable farmers not only in maximizing farm returns for sustaining livelihood, but also to mitigate the impacts of drought, flood or other extreme weather events with the income opportunity from allied activities during crop damage.

 

Sustainable MSME

 

Finance to Sustainable MSME (micro, small & medium as defined by SMESPD, BB) is linked to Sustainable Finance. Inclusive Sustainable Finance in MSME aims to advance financial inclusion among the most vulnerable by building resilience and enabling mitigation to climate change. This is especially the case for the transition to a low-carbon, circular and sustainable economy. Banks and FIs should have targeted initiatives to scale up finance for MSMEs, with a focus on specific sustainable/inclusive sectors. Sustainable linked MSME financing decisions upon environmental, social and governance (ESG) considerations will address issues of inequality, inclusiveness, investment in human capital and communities with respect to preservation of biodiversity, pollution prevention and circular economy. Sonali Bank PLC should set priority areas financing to Sustainable MSME concentrating on Women entrepreneur based project financing, Rural Based business enterprises project financing, New entrepreneur project financing, Cluster Based project financing, Agricultural product processing industry, Helpless/ distressed/underprivileged/Marginal group/area-based project financing, Project Financing for the sustainability of Third gender, Physically/Mentally challenged person, Tribal people etc.

 

  1. Sustainable MSME industries/projects

 

 Low Risk Rated (as per ESDD) Micro, Small and Medium enterprises financing with special focus to:

 

(i) Herbal cosmetic manufacturing industries

(ii) 100% local ingredients-based milk processing industry

(iii) Handicrafts, Handloom and alike

(iv) Agro feed manufacturing industry

(v) Jute made products manufacturing industry

(vi) Unani/Ayurvedic/Homeopathic manufacturing industries

(vii) Rice processing industry

(viii) Agro equipment manufacturing industry

(ix) Production of bio pesticide, production of organic fertilizer

(x) Bran wood projects

(xi) Horticulture processing industry

 

Socially Responsible Financing

 

Finance to Socially Responsible Products/Projects/Initiatives/Sectors is linked to Sustainable Finance. Socially Responsible Finance (SRF) is financing that supports actions mitigating or addressing a specific social issue and/or seeking to achieve positive social outcomes especially but not exclusively for a target population(s). SRF project categories include but are not limited to, providing and/or promoting affordable basic infrastructure, access to essential services (such as health and healthcare), affordable housing, employment generation through the potential effect of SME financing and microfinance, food security, and socioeconomic advancement and empowerment.

 

Socially Responsible activities/projects linked to Sustainable Finance

 

  1. Financing/Investment through MFI (MRA Regulated)/NGO (Govt. Approved) Linkage Mode for capacity building, Education, employment generation including self employment
  2. Financing in trading of green and agro products using ICT/online/e-business platform (as recognized by BB)

iii. Financing in Orphanage/Child Rehabilitation Center/Old Age Home

 

Sustainable Linked Finance of Sonali Bank PLC.

 

(Amount in Million BDT)

Sustainable Linked Finance Sectors Amount of Disbursement 2021 Amount of Disbursement 2022 Amount of Disbursement 2023 Outstanding as on December 2023
Agriculture 7278.81 10028.66 13680.26 80814.42
CMSME 210.6 609.15 338.3 5808.16
Socially Responsible Financing (SRF)

(Financing in MFI/NGO Linkage Mode for capacity building, Employment generation & self employment

 379.87 5731.06 1659.32 3834.62
Working Capital & Demand loan of Green Products 34.78 0 0 0
Priority Green Products for Trading Sector 0.32 0 0 0
Grand Total 7904.38

 

 16368.87

 

 15677.88 90457.2

 

Prospects in Green Products/Projects/Initiatives applicable for Term Finance: There are total of 94 green products indentified by experts which are mentioned in sustainable finance policy of Bangladesh Bank. These are products are sub categorized into 11 divisions.

3.3.3.1 List of Green Products/Projects/Initiatives applicable for Term Finance

 

  1. Renewable Energy

 

  1. Net Metering Rooftop Solar System
  2. Solar Grid
  3. Solar Park
  4. Solar Irrigation Pumping System
  5. Solar Photovoltaic (PV) Assembly/Manufacturing Plant
  6. Solar Water Heater Assembling/Manufacturing Plant
  7. Solar Home System
  8. Solar Pump for Drinking Water
  9. Solar Cooker Assembly/Manufacturing Plant
  10. Solar Air Heater & Cooling System Assembly/Manufacturing Plant
  11. Solar Powered Cold Storage
  12. Biogas Plants7
  13. Integrated Cow Rearing and Setting up of Bio-gas Plant
  14. Wind Power Plant
  15. Hydro Power Plant
  16. Portable Solar Charging Station

 

  1. Energy & Resource Efficiency

 

  1. Installation of Energy Auditor Certified machineries including boiler in industries for following purposes:

 

  1. Energy Efficiency
  2. Resource Efficiency

iii. Heat and temperature management

  1. Air ventilation and circulation efficiency
  2. Business process automation
  3. Operations management

vii. Waste management

viii. Water use management

  1. Human resources development and management
  2. Accounting, inventory management, marketing, sales and security management automation
  3. Auto Sensor Power Switch Assembly Plant
  4. Energy Efficient Cook Stove Assembly Plant
  5. LED Bulb/Tube Manufacturing/Assembly Plant
  6. Energy Efficient Lime Kiln
  7. Improved Rice Parboiling System

 

  1. Alternative Energy

 

  1. Pyrolysis Processed Oil/Bio-crude Oil/Bio Fuel Manufacturing Plant
  2. Lithium Battery Manufacturing Plant

 

  1. Liquid Waste Management

 

  1. Biological ETP
  2. Combination of Biological and Chemical ETP
  3. Conversion of Chemical ETP into Combination of Biological and Chemical ETP
  4. Central ETP
  5. Waste Water Treatment Plant
  6. Sewage Water Treatment Plant

 

  1. Solid Waste Management

 

  1. Methane Recovery and Power Production from City/Municipal Waste Plant
  2. Compost Production from City/Municipal Waste Plant
  3. Hazardous Waste Management Unit/Plant
  4. Medical Waste Management Unit/Plant
  5. E-Waste Management Unit/Plant
  6. Sludge Management Unit/Plant

 

  1. Circular Economy & Eco-Projects Financing

 

  1. PET Bottle Recycling Plant
  2. Plastic Waste (PVC, PP, LDPE, HDPE, PS) Recycling Plant
  3. Paper Recycling Plant
  4. Recyclable Bag Manufacturing Plant
  5. Recyclable Poly Propylene Thread and Bag Manufacturing Plant
  6. Battery (Solar/Led Acid/Lithium Ion) Recycling Plant
  7. Recycling & Recyclable Goods Manufacturing Plant
  8. Biodegradable/ Reusable/ Compostable Items Manufacturing Plant
  9. Solar powered/used Items Manufacturing Plant
  10. Eco-industrial parks
  11. Jute Products Manufacturing Plant
  12. Environment Friendly Brick Production
  13. Compressed Block-Brick
  14. Foam Concrete Brick
  15. Environment Friendly/Brick Kiln Efficiency Improvement Project (Tunnel Kiln, HHK and other eco-friendly bricks)

 

  • Green/Environment Friendly Establishments
  • Establishment of Green Industry certified by appropriate authority (In Bangladesh – SREDA, Internationally – USGBC-LEED, BREEAM, CASBEE, EDGE, GRIHA)
  • Establishment of Green Building certified by appropriate authority (In Bangladesh – SREDA, Internationally – USGBC-LEED, BREEAM, CASBEE, EDGE, GRIHA)
  • Establishment Green Featured Buildings
  • Concerning Factory working environment and safety (Fire defense system, disaster defense and prevention system, workers’ health safety system)
  • Affordable Green Housing
  • Green Agriculture

 

  1. Earthworm compost manure production
  2. Palm oil production
  3. Organic manure production from slurry
  4. Forestation (Social/integrated/Agro)
  5. Organic Farming
  6. Rooftop Agriculture/Vertical Farming or Gardening
  7. Fish cultivation in cage
  8. Bio-flock fish cultivation
  9. Integrated Recycling System (IRS) fish cultivation/Bottom clean fish cultivation
  10. Financing in coastal aquaculture
  11. Floating system cultivation, Hydroponic cultivation/farming

 

  1. Green CMSME

 

  1. Financing in Cottage Industry

 

  1. Green SRF

 

  1. Community Investment for addressing Climate Resilience and Disaster Management in a concessional rate (finance to clean air, clean water, minimizing industrial and municipal waste, recovery and protection of water bodies, marshy lands, expansion of green coastal belt, water purification, sustainable sanitation, water blockage mitigation, soil and water salinity mitigation, river erosion prevention)
  2. Financing in Green/Clean transportation projects (cycles, hybrid car, green vehicles those run on wind, solar energy, electricity, hydrogen, bio-fuels etc.)
  3. Financing in Sand-witch Panel (Floating or Movable Houses in coastal areas or climate vulnerable zone)
  4. Financing in Govt. approved Eco-tourism project
  5. Health and Healthcare Services
  6. Digital Loan/credit using MFS or other digital medium
  7. Financing in educational institutions, scholarship programs, or edtech startups that aim to improve access to quality education and workforce development.
  8. Financing projects and businesses that promote gender equality, such as those supporting women entrepreneurs, addressing gender-based violence, and promoting women’s rights.
  9. Financing projects that promote cultural preservation, arts, and heritage conservation.
  10. Natural ecosystem protection and restoration.

 

  1. Blue Economy Financing

 

  1. Marine sustainable Fisheries
  2. Mariculture
  3. Coastal Ecotourism
  4. Marine Plastic Pollution
  5. Coastal Renewable Energy
  6. Maritime Transport
  7. Green Shipyard (Ship building and ship breaking) certified by appropriate authority (compliant with the International Maritime Organization (IMO) Guidelines for Safe and Environmentally Sound Ship Recycling under the Hong Kong Convention)
  8. Eco Port
  9. Marine protection

 

  1. Information and Communication Technology

 

  1. Hi-Tech Park
  2. Broadband Networks and IT solutions
  3. Internet of Things (IOT)
  4. Artificial Intelligence
  5. Robotics

 

  1. Miscellaneous

 

  1. Research and development for Sustainable Activities
  2. Sustainable Supply Chain management
  3. Manufacture and assembly of green building products

 

Refinance Schemes: There are 94 products for refinance scheme mentioned in Bangladesh Bank Sustainable Finance Department circular no.04, dated: 24th July, 2022. The products name is mentioned above in the Green Product list. Other than these products Bangladesh Bank provide some other refinance facility depending on any economic crisis or any other necessary circumstances. Such as Green Transformation Fund (GTF) for export and production oriented industry, fund for the technological development of export oriented industry, pre shipment credit facility for corona virus crisis.

 

Green Finance of Sonali Bank PLC

 

(Amount in Million BDT)

Green Finance Sectors Amount of Disbursement 2021 Amount of Disbursement 2022 Amount of Disbursement 2023 Outstanding as on December 2023
Renewable Energy 11.20 1.89 4.77 71.76
Energy & Resource Efficiency 0.1 0 0 0.08
Liquid Waste Management 0 0.13 0 7298.24
Solid Waste Management 0 1 0 1.07
Environment Friendly Brick Production 37.74 0 0 1058.61
Recycling and Manufacturing of Recyclable Goods 1.36 0 0 22.4
Green/Environment Friendly Establishments 0.13 0.13 0 0.29
Green Agriculture 5.62 3.32 0.20 4.36
Green CMSME 5.67 1.66 0 3.02
Grand Total 161.82 8.13 4.97 8459.83