Corporate Sustainability and Financial

Performance of Bangladeshi Banks

by

Rezaul Karim Chowdhury

A thesis
presented to the University of Waterloo
in fulfillment of the
thesis requirement for the degree of
Master of Environment Studies
in
Sustainability Management

Waterloo, Ontario, Canada, 2018

© Rezaul Karim Chowdhury 2018

i
Declaration
I hereby declare that I am the sole author of this thesis. This is a true copy of the thesis,
including any required final revisions, as accepted by my examiners.
I understand that my thesis may be made electronically available to the public.

ii
Abstract
Purpose- This study analyzes the connection between the sustainability performance and
financial performance of Bangladeshi banks to ascertain whether the implementation of
sustainability regulations has an impact on financial performance. Furthermore, if an impact is
found, whether it increases or decreases the financial performance of these banks.
Design/Methodology/Approach- This study evaluates financial and sustainability related
performance indicators taken from published Central Bank reports as well as from respective
banks’ published annual reports and websites. The indicators have been analyzed using several
statistical methods, such as Linear Regression, Panel Regression, and Granger causality tests.
Practical Implications- Porter and Linde (1995) claimed that improving a firm’s
environmental performance can lead to better financial performance, without an increase to
cost. By following this approach, Bangladeshi banks can make more profit on the one hand and
save the environment on the other by investing more in green products and projects.
Social Implications- Bangladeshi banks will be able to influence and motivate businesses to
become greener, which will reflect on society and on the total economy. As a result, the country
will be able to lower the pollution rate and better handle other natural calamities that hinder the
everyday life of the people and of society overall.
Research Limitations- Since this is a new concept for Bangladesh, with regulations having
been introduced only six years ago, the field is currently going through the early development
phase. Hence, very little research has been done on this topic. Moreover, the data related to
green performance indicators are not consistent throughout the years of implementation due to
limited reporting, which limits the set of available data on hand. More data is needed to analyze
the long-term effects of the regulations.
Originality/Value– To the best of the author’s knowledge, this is the first study that explores
the sustainability performance of Bangladeshi banks, including their product and services.
Furthermore, the study adds to the knowledge regarding the impact of financial sector
regulations and policies on the environmental and financial performance of banks.
Keywords: Banks; Bangladesh; credit risk; green banking; Environmental & Social Risk
Management (ESRM); corporate sustainability; guidelines.
Paper Type– Research paper

iii
Acknowledgement
At first, I thank God Almighty for the successful completion of this thesis. It would not have
been possible without His grace, love, mercy and support.
I would like to express my special gratitude to my supervisor - Professor Olaf Weber, who
provided immeasurable support for the last 16 months, both academically and mentally. It
would not be possible to complete this without his invaluable guidance and support. I am
forever grateful to him for being the pilot of this scholarly journey.
Gratitude towards Professor Michael Wood and Jason Thistlethwaite, for agreeing to be the
committee member and for taking the time to evaluate my thesis. Thanks to Professor Laszlo
Sarkany for educating me through the whole process of thesis development. I got to learn a
great deal from him regarding how to write a proper and well-formatted thesis.
Special appreciation goes to Professor Simron Singh, who have been a moral support in the
early days of my journey when I was new to the country and needed much support. He inspired
me to keep looking when I did not know which path to follow. Also, my gratitude also goes to
all faculty members of SEED and Graduate Program Administrator Dragana Kostic, for helping
me on the administrative aspects leading up to this. Undeniably, the University of Waterloo
can’t be left out for supporting me through several bursaries and awards and the opportunity to
serve as a teaching assistant. I will forever cherish these memories.
Finally, I would like to thank my parents and loved ones, who have supported me throughout
entire process, both by keeping me harmonious and helping me putting pieces together.
Without their relentless love and support, I would not have reached to my goal today. I am
forever grateful for your love.

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Dedication
This study is wholeheartedly dedicated to my beloved parents, who have been my source of
inspiration and gave me strength when I thought of giving up, who continually provided their
moral, spiritual, emotional, and financial support.
To the love of my life who has been there since before it all begun and has continuously
motivated me to gather the courage to finish this paper with dedication.
To my mentor, friends, and classmates who shared their words of advice and encouragement
to finish this study.
And lastly, I dedicated this study to the Almighty God. Thank you for the guidance, strength,
power of mind, protection and skills while keeping me healthy. All of these, I offer to you.

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Table of Contents
Title Number Title Topic Page
Number
Declaration ii
Abstract iii
Acknowledgement iv
Dedication v
Table of Contents vi
List of Tables vii
1 Chapter One 1
1.1 Introduction 2
2 Chapter Two 4
2.1 Literature Review 5
2.2 Connection between CSR and Financial 8
Performance
2.3 Sustainability in the Banking Sector 8
2.4 Corporate Sustainability and Social 10
Responsibility in Bangladesh
2.5 Sustainability in Bangladeshi Banking 10
2.6 Theoretical Background 12
2.7 Research Objective 13
2.8 The Research Questions and Hypotheses 13
3 Chapter Three 14
3.1 Material and Methods 15
3.2 Sample 20
4 Chapter Four 22
4.1 Results 23
4.2 Descriptive analyses 23
4.3 Regression analysis for sustainability and 23
financial indicators
4.4 Panel regression analysis for sustainability 25
and financial indicators
4.5 One-year lagged panel regression analysis 26
for sustainability and financial indicators
5 Chapter Five 28
5.1 Discussion 29
6 Chapter Six 32
6.1 Conclusions 33
References 35

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List of Tables
Table Number Table Number Page Number
Table I Categories used 16
Table II Population of Banks 21
Table III Descriptive statistics for the financial indicators 23
Table IV Results of the regression analysis with the social, 24
environment, and green score as dependent variables
and the financial indicators as independent variables.
Table V Results of the regression analysis with financial 24
indicators as dependent variables and social,
environment, green score as independent variables.
Table VI Results of the panel regression analysis with social, 25
environment, and green score as dependent variables
and financial indicators as independent variables.
Table VII Results of the panel regression analysis with financial 25
indicators as dependent variables and social,
environment and green scores as independent
variables.
Table VIII Results of the one-year lag panel regression analysis 26
with sustainability performance (lagged) as
dependent variable and financial indicators as
independent variables.
Table IX Results of the one-year lag panel regression analysis 26
with financial indicators (lagged) as dependent
variables and sustainability performance as
independent variable.

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Chapter One

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1.1 Introduction
The economy of Bangladesh has been experiencing higher than expected growth in recent years
(Basu, 2018). Despite inflation, the deficit in the current account, the wider trade deficit, lower
remittance (Hossain, 1995), and the recent flooding in 2017 (Asian Development Bank, 2017),
exports and imports have increased significantly due to free trade (Manni & Afzal, 2012).
Bangladesh’s banking industry is actively playing a pivotal role in developing the economy
(Sufian & Habibullah, 2009); however, the climate situation in Bangladesh is not good
(Brouwer, Akter, Brander, & Haque, 2007). The country falls under the category of one of the
world’s most vulnerable climate change affected regions (Ahiduzzaman & Islam, 2011).
According to (United States Agency for International Development (USAID), 2016),
Bangladesh emitted 190 million metric tons of greenhouse gases in 2012, contributing 0.40%
of the total world’s emissions. Bangladesh's emissions increased 59 percent from 1990 to 2012,
with an annual average rate of change of 2% (Cait, 2016).
In identifying the magnitude of the environmental issues (i.e., land degradation, water pollution
and scarcity, air pollution, biodiversity losses, impacts from natural disasters, rapid population
growth, improper use of land, poor resource management, and uncontrolled discharge of
pollutants) (Gain, Moral, Raj, & Sircar, 2002; Hassan, 1991) as major causes, Bangladesh Bank
(Central Bank of Bangladesh) realized the significance of these issues (Rahman, 2013).
Recognizing the need to protect the banks and financial institutions financing from the risks
arising out of the deteriorating environmental scenario and the impacts of climate change, the
Environment Risk Management Guidelines (ERM) and Green Banking Guidelines in 2011
(Bangladesh Bank, 2011) were introduced. Since then, the policies have been upgraded over
time to attain the 2030 United Nations Sustainable Development Goals (SDGs) (Banking on
2030, 2017) by integrating environment and social risk into the Credit Risk Management
(CRM) guidelines (Weber, Hoque, & Islam, 2015). Furthermore, Bangladesh Bank introduced
full-fledged Environmental and Social Risk Management (ESRM) guidelines for the banks and
financial institutions operating in Bangladesh. An Excel-based Risk Rating Model was also
introduced along with those guidelines (Guidelines on Environmental & Social Risk
Management, 2017).
The goal of these policies (Sharif, Nasir, Khanum, & Moniruzzaman, 2016) is to reduce the
environmental impact caused by poor industrial waste management practices. These
misconducts are causing damage to the local biodiversity and increasing vulnerable labor
practices, resulting in unsafe working conditions (Bangladesh Bank, 2017). Moreover, these
policies will minimize other common concerns related to social issues such as child labor,
discrimination, harassment in the workplace and minimum wage (Masukujjaman & Aktar,
2014). Just like other neighboring countries, such as India (Sharma, 2013), Pakistan (Aazim,
2017) and Sri Lanka (Sri Lanka Central Bank to promote ‘Green Financing’, 2017),
Bangladesh is also endeavoring to implement effective environmental and green banking
guidelines under the leadership of the Central Bank, with an objective towards achieving
sustainable development (Alliance for Financial Inclusion, 2017).
The year 2017 was treated as a ‘phase-in’ period for the implementation of ‘Guidelines on
ESRM’ (Islam, 2017). Since January 01, 2018, the ‘Guidelines on ESRM’ has been enforceable
under Bank Company Act, 1991 and Financial Institutions Act, 1993 (SFD Circular No.02,
2017. pp.2), replacing all the old guidelines and measurement mechanisms. But since these
regulations have been in practice in one form or another among the banks since 2012
(Bangladesh Bank, 2017), the question which prevails is whether the introduction of corporate
sustainability has had positive or negative impacts on the financial performance of Bangladeshi
banks or whether financial performance of these banks poses an impact on their corporate

2
sustainability performance. With that in mind, this proposed study aims to ascertain the effects
of these policies on the financial performance and environmental performance of the 56
commercial banks that are currently operating in Bangladesh (Banks & FIs, n.d.).
The banking sector of Bangladesh is considered one of the major sources for financing large
industrial projects such as steel, paper, cement, chemicals, fertilizers, power and textiles
(Adeleke & Naim, 2017). These industries have contributed to generations of highly polluted
wastewater (Sharmin, 2016). Factors such as lack of proper metering; non-reuse and recycling
of water; sulphur-dioxide emissions from burning low grade coal in outdated brick kilns;
contamination of terrestrial and marine environments due to the leaching of toxic chemicals
from scrapped ships and the lack of fitting waste management practices by ship breaking units;
contaminated effluents and harmful fumes emitting from the steel re-rolling units, are all
causing harsh environmental degradation (Faisal, Shammin, & Junaid, 1991; Islam, 2010;
Mahfuz et al., 2004). The banking sector can play an intermediary role between economic
development and environmental protection while promoting environmentally sustainable and
socially responsible investment (Khan & Hasan, 2011).
Weber, Fenchel and Scholz (2008) suggested that if banks possess the required resources and
capabilities to appraise environmental and social risks as well as opportunities, only then will
they be able to positively impact sustainable development while reducing financial risks by
developing innovative sustainable financial products (Chang & Sam, 2015). Therefore, this
study proposes to analyze whether the sustainability performance and financial performance of
Bangladeshi banks correlate positively or negatively.

3
Chapter Two

4
2.1 Literature Review
The proposed research is the first of its kind and attempts to evaluate the correlation between
corporate sustainability and financial performance, evaluating the products and services offered
by Bangladeshi banks. Few similar studies have been found on other countries’ banking sectors
(Weber, 2017; Soana, 2011; Maqbool & Zameer, 2018; Simpson & Kohers, 2002; Ofori, S-
Darko, & Nyuur, 2014; Gbadamosi, 2016; Oni, 2016). In the context of the Bangladeshi
banking sector, only two studies have been found that touch on the corporate sustainability
effect on financial performance (Weber, Hoque, & Islam, 2015) (Mohammad, Abedin, &
Rahman, 2017). Since the environmental regulations were introduced just six years ago, most
of the existing literature revolves around the newly formed regulations and their importance,
how they are being implemented and practiced, and how a “green economy” can be achieved
by using these regulations.
While explaining the essentiality of sustainable financing, Weber and Feltmate (2016) argued
that to fight against climate change, hunger, unemployment, droughts, lower living standards,
and little to non-existing healthcare, sustainable finance can play a decisive role. And in this
role, banks and other financial institutions are the key players who can promote sustainable
financing and meet societal needs by offering innovative financial products and services
(Yadav & Pathak, 2014). In a 2015 impact report, Boston Common Asset Management
characterized banks as an ‘indirect but impactful’ player. The report describes that even though
banks might not directly be contributing to climate change through massive industrial pollution
and high rate of carbon emissions, they are backing up the industries that do cause this damage
by financing their projects. As banks are tied to every market sector through their lending
practices (Liu & Ryan, 1995), climate events, ranging from drought to increased weather
variability to a warmer climate, will all adversely impact banks’ business models (Weber &
Kholodova, 2017; Flood, 2017; French Treasury,” n.d.).This has the potential to harm the
future share value of major banks (Clark, 2017).
A Centre for International Governance Innovation (CIGI) paper published by Weber and Oni
(2015) investigated the impact of sustainability regulations on three distinct countries’ (i.e.,
China, Nigeria, Bangladesh) financial sector. The paper concluded that mandatory guidelines
do pose an impact on the sustainability performance of banks, as evidence was found that in
all the cases examined, the sustainability performance increased after implementing the
regulations. It was also reported that the chances of success for the sustainability regulations
increased as the banking sector was included into the development process of the regulations.
But the most crucial finding of this report was the result which exhibited that these
sustainability regulations do have a positive impact on a bank’s financial performance as well
as on its sustainability performance. A closer look at the Chinese banks in a similar context
have been discussed by Weber (2017) where it was found that the Green Credit Guidelines for
Chinese banks are having a positive impact on their financial performance. This study discusses
the bi-directional causality; corporate sustainability having an impact on the financial
performance as well as good financial performance leading up to better corporate sustainability
practices. It also explores the relation to this causality with institutional theory.
When it comes to integrating corporate sustainability into banking operations, one question
does stand out: Will this incorporation indeed benefit the lenders and minimize the risk factors?
While seeking out the answer to this question, Weber, Hoque, and Islam (2015) found that

5
some analyses have reported that a correlation does exist between commercial borrower’s
sustainability performance and credit risks. The results concluded that demonstrating
sustainability influences the firm’s creditworthiness as part of its financial performance.
Therefore, implementing sustainability regulations into banking operation(s) and following
them while providing innovative green products and services to the clients bears a win-win
situation for everyone.
In the case of Bangladesh, forming sustainable regulations for the banking sector was a new
challenge for the policy makers, and one which they successfully overcame with time. A study
done by Rahman and Kamruzzaman (2014) revealed that the policy makers and strategic
thinkers acknowledged the importance of these regulations and had already started to make big
changes. Their study revealed that those responsible for strategic thinking had already
acknowledged the importance of the issue and had already started making changes in their
strategies, modifying their long-term outlooks, organizational structures and business practices
to adopt the concept of corporate sustainability.
But there are more challenges that need to be addressed to make this endeavor a success.
According to Rahman and Kamruzzaman (2014), Bangladeshi banks are not disclosing their
data on the many sustainability projects that they are leading, and as a result renders the banks
less transparent and open to criticism by stakeholders. This opaque practice prevents more in-
depth socio-environmental performance assessment whereas a higher level of transparency in
public documents demonstrates a bank’s true commitment towards sustainability and
encourages society and industry to follow in its footsteps in promoting a sustainable economy
for the country.
Additionally, challenges like the incorporation of environmental parameters, effective policy
formulation, and the creation of homogeneous environments need to be addressed, as reported
by Islam, Yousuf, Hossain, and Islam (2014). It was reported that with the combination of both
imposed regulation and voluntary initiatives, promotion green banking was moving towards
success in its early stage. With initiatives like change of existing policies in relation to changes
in the environment and economic incentives for financial institutions, there is a good chance in
making green banking mainstream. More actions were suggested by the study, such as
improvement of online banking, a separate green banking unit, incorporation of environmental
risks with core risks, which were later implemented by the policy makers over the course of
several years.
Since the outset of the Environment Risk Management (ERM) guidelines, many initiatives to
promote sustainability have been undertaken by Bangladesh’s banking sector. Lalon (2015)
identified such initiatives as policy formulation and governance, incorporation of
environmental risk in credit risk management, initiation of in-house environment management,
introduction of green finance and green marketing, creation of a climate risk fund, , online
banking, supporting employee training, consumer awareness and green event, and the proper
disclosure and reporting of green banking activities as key to making big changes in the
banking industry. The study stressed the requirement of banks being ethical and environment
friendly to promote sustainability in society.
Islam, Hossain, Siddiqui and Yousuf (2014) indicated that for the most part these meticulous
activities consist of programs launched by Bangladesh Bank range from refinancing in effluent
treatment plants, biogas, solar home systems, solar powered irrigation pumps, and

6
environment-friendly brick-making projects. Islam (2015), in his paper, also mentioned in-
house initiatives like the introduction of online banking, use of paperless statements, automated
clearing house, online credit information bureau, e-Banking, e-Commerce, mobile banking,
agent banking, e-Tendering, and e-recruitment as other key steps toward creating more
environment-friendly banking activities.
Hossain and Kalince (2014), using the ‘Granger Causality Test’ between six financial
variables, demonstrated that pursuing green banking makes for more profit for the banks. They
suggested that turning green banking practice into mainstream will be more profitable and will
in-turn lead to sustainable growth in the long run. And if all the banks were to start promoting
green banking, the country’s economy would soon see a rise in sustainable economic growth.
However, it is not enough just to promote sustainable banking. For this to work, big budgets
are required, a point stressed by Chowdhury and Dey (2016), noting the central bank’s budget
allocation to commercial banks with respect to green initiatives. However, they also mentioned
that the utilization of such budgets by the banks for diverse projects is growing at a slow rate.
They recommended that special financial packages for green projects could accelerate current
initiatives.
Masukujjaman and Aktar (2014) have pointed out that in the global context of green banking,
Bangladeshi banks are still far behind their counterparts from developed countries. They found
that banks in Bangladesh have only just started to recognize the usefulness of green banking
and opting it into their mainstream operations. However, no bank in Bangladesh has been found
in the United Nations Environment Programs’ (UNEP) signatories of the Equator Principles. It
is concerning because this is regarded as one of the most crucial standards for responsible
financing.
When it comes to participation, Ullah (2013) found that Private Commercial Banks (PCB) and
Foreign Commercial Banks (FCB) have been adopting the green banking guidelines well and
practicing them by offering some sort of green banking products and services. Although on the
other hand, State-owned Commercial Banks (SCB) and State-owned Specialized Development
Banks (SDB) initiatives are not notable. Which means government owned banks are lagging
in promoting green banking. This is concerning when the government and the central bank are
pushing sustainable banking strategies to achieve the targets for a greener economy. According
to this study, this will create an uneven playing field between the PCBs and SCBs, rendering
the transition harder to accomplish. Faruque, Biplob, Al-Amin and Patwary (2016) have
emphasized the same issue, stating that the situation is ‘terrible’. The people of Bangladesh
have very little awareness about climate change issues, and due to this lack of educated
knowledge, they do not understand the severe consequences that climate change and
environmental degradation can bring in the coming decades.
Another aspect that comes up during the literature review is the ‘non-existing’ reporting culture
and the too few disclosures from Bangladeshi banks on their sustainable projects and activities.
Sustainability reporting is an important tool to help the organization to set goals, measure
progress, and manage sustainability within the organization (Khan, 2015). It is seen that
reporting on the organization's sustainability performance provides stakeholders with a clear
idea of what is happening inside the organization and their actions towards saving the
environment (Burritt & Schaltegger, 2010).

7
According to new research published by the European Commission, the GRI Guidelines have
been ranked among the most widely recognized instrument in terms of sustainability reporting
standards (“GRI among the most popular CSR instruments”, 2013). Several studies conducted
by Khan, Kayeser, and Ahmed (2011) and Mahmud, Biswas, and Islam (2017) revealed that
during the year 2011 to 2015, only eight banks disclosed sustainability information in their
annual report, but that even then, most of the reported information did not meet with GRI
guideline standards.
This shows how poor the reporting and disclosure culture is in the Bangladeshi banking sector.
Sobhani, Amran, and Zainuddin (2012) also confirmed that, adding that neither the reported
information in the annual report nor the banks’ corporate websites disclosed product
responsibility data; the only data found and it is proving insufficient, were their Corporate
Social Responsibility (CSR) practices. Another interesting aspect reported in the study is the
newer banks outperforming the older banks in terms of their sustainability disclosure.
While there have been studies on how the approach towards sustainable banking should be
taken, and how extensively it has been adopted so far, almost none of the research talks or
shows the impact of green banking products and services of Bangladeshi banks on their
financial performance. This is an academic gap where more studies should be undertaken so
that whenever the question of feasibility and profitability arises, the studies can be used to
demonstrate that ‘going green’ makes a bank’s performance more strong, economical and
sustainable. This is the conceptual framework of this proposed research, which none of the
studies have touched yet, even though to move further forward, the industry needs more
research on this very issue.
2.2 Connection between CSR and Financial Performance
There is an existing relationship between corporate sustainability and financial indicators
which has been discussed by McGuire, Sundgren, and Schneeweis (1988), Pava and Krausz
(1996), Simpson and Kohers (2002), Friede, Busch, and Bassen (2015), Griffin and Mahon
(1997), Horváthová (2010), Margolis and Walsh (2001), and Orlitzky, Schmidt, and Rynes
(2003). Most of the aforementioned studies suggest that there is a positive causality between
sustainability performance and financial performance, although there are studies which have
also found a negative (Aupperle, Carroll, & Hatfield, 1985; Griffin & Mahon, 1997) as well as
a neutral relationship (McWilliams & Siegel, 2000; Galant & Cadez, 2017) between these two
factors. Waddock and Graves (1997) found that Corporate Social Performance (CSP) is
positively associated with an organization’s both present and future financial performance,
supporting the theory of good management. Hence, it can be said that management who leads
in corporate sustainability performance tends to practice good management theory, which in
turn leads them to financial success over their competitors (Lin, Chang, & Dang, 2015; Sharma
& Vredenburg, 1998).
2.3 Sustainability in the Banking Sector
Tim Jackson (2009), a top sustainability adviser to the UK government, made a compelling
case for how people must be aware of the limitations of what they can get from the planet. In
his book, he argues that humankind’s ever-increasing consumption habits will impede on
existing economies, unless the environmental impact of economic activities can be drastically
dropped. This issue concerns not only what people can consume now, but also on their
consumption rate in the next 50, 100 years, and so on, provided that the planet and its resources
will still be in balance and will be able to regenerate properly. This connects back to the very

8
popular definition of sustainability (Brundtland et al., 1987, p. 11) where it is defined as “the
ability to meet the present needs without compromising the ability to meet needs for the future
generations”. On the subject of meeting the needs of future generations, current world needs
are not even being met adequately (Barnett & Morse, 2013). There is an ever-widening gap of
wealth inequality between people, races, and nations as well (Kochhar & Fry, 2014). Looking
from a social perspective (Salwasser, 1990), it is evident that the planet has a handful of wealthy
people in some of its parts and many impoverished people in other parts, which inadvertently
creates imbalances and tension among these two groups. Being an intermediary, sustainable
banking can bridge this gap by transforming money in terms of space, term, scale, and risk.
This affects the development and direction of the economy and ensures a better distribution of
resources (Jeucken, 2010). As Derissen, Quaas, and Baumgärtner (2011) stated, sustainable
banking focuses on servicing the real economy with the wide perspective of being sustainable;
meaning it focuses on a long-term “resilience ecological-economic system” which can be
supported by the planet.
As a core functionality, banks typically invest depositors’ money on behalf of them (the
depositors) on several projects and businesses (Werner, 2014), and by so doing, the depositors
become co-responsible of what is happening to the economy with their money. Sustainable
banking is a correspond of action between the depositor and the bank (De Clerck, 2009) where
the bank communicates what is going to happen with the money that was entrusted with them.
It is also a correspondence between the entrepreneur and the bank where the entrepreneur
assures the bank that the money is going to be utilized in a sustainable manner. Transparency
becomes the key (Cornée, Kalmi, & Szafarz, 2016) here, and acts as a starting point to
sustainable banking. However, sustainable banking is not only about communication and
transparency, it also concerns what is done with the actual money and how it is done (De
Clerck, 2009).
The next significant phase in sustainable banking is to find out ways to add value to the
correspondence between the stakeholders, in addition to making profits (Stankeviciene &
Nikonorova, 2014) with the objective of forming new relations between the relevant
stakeholders. Hence, sustainable banking starts with transparency and correspondence and
leads up to value-based business ethics, answering questions like: What sort of projects and
business do depositors want to support (Jagannathan, Ravikumar, & Sammon, 2017), and what
sort of future does the entrepreneur envision for the business (Holliday, Schmidheiny, & Watts,
2002)?
In a study by Goddard, Molyneux, and Wilson (2001), the authors stated that the economy is
growing but not necessarily creating any value. On the other hand, there is a lot of value
creating activity going on which is not being expressed as growth. They see economic growth
as a constant driver to increasing productivity. This requires manufacturers to steadily reduce
input costs, eventually boiling down more jobs being cut. Also, due to the free market economic
model, wealth gained from growth is taken from the poor and given to the rich (Maxton, 2015).
Besides, factors like growth in living standards or quality of environment are not being
measured as “actual growth” because they do not represent any fiscal value. However, a
sustainable banking approach adds value by concerning itself with actions that lead to the
betterment of the people and the planet. Actions like the “triple bottom line” (Slaper & Hall,
2011), “shared value creation” (Porter & Kramer, 2011), “resilient banking system” (Malaysia,
2004), and “the business case for sustainability” (Schaltegger & Wagner, 2017) place banks in
a better position to create value while contributing to economic growth.
Banks that adopt a sustainable model usually go through three steps (Dragan, 2012). The very
first step involves utilizing all available resources to their fullest capacity while minimizing

9
emissions rate and conserving more energy (Bartlett, 2011). The second step is to convert or
integrate existing banking products (Bouma, Jeucken, & Klinkers, 2017) like lending, mutual
funds, bonds, asset management, and project management into green products (Caldecott &
McDaniels, 2014). Then as a final step, sustainable banks start to develop “eco-friendly”
policies and cultures that create a surge of awareness among the industry as well as among its
stakeholders (Singh & Singh, 2012).
2.4 Corporate Sustainability and Social Responsibility in Bangladesh
In recent years, there has been much discussion among academics and business communities
regarding “corporate sustainability” (Salzmann, Ionescu-Somers, & Steger, 2005). According
to Wilson (2003), corporate sustainability is a new and evolving corporate “management
paradigm”, which is viewed as an alternative to the traditional “growth and profit-
maximization” model. Corporate sustainability is reflected more as an integration between the
social and environmental aspects of the business strategy process, business operation
management, and stakeholder interactions (Kamruzzaman, 2012), though this is what is in
practice in the real world.
Corporate social responsibility (CSR) in the banking sector has been a long practice in
Bangladesh and is considered an integral part of business (Ullah, 2013). Banks have been using
CSR as a tool to elevate their value in the eyes of their customers and society as a whole (Khan,
Halabi, & Samy, 2009). Although, according to one study (Roy, Sarker, & Chowdhury, 2017),
the state-owned commercial banks in Bangladesh are significantly behind on CSR activities
compared to the privately-owned ones. However, this does not automatically mean that
privately-owned banks are doing a better job in CSR. In fact, Saha, Dey, and Khan (2013)
argued that the amount of contribution by commercial banks to CSR activities is very
insignificant in proportion to their profit margin. They suggested that the government should
introduce proper guidelines regarding CSR contribution and to mandate CSR disclosures in
annual reports. Interesting findings were reported by Ndiweni, Haque, and Hassan (2018)
which explain banks’ engagement in CSR activities in light of their religious and cultural
values that are embedded in the social fabric of Bangladesh and not due to the Global Reporting
Initiative (GRI). Supporting this study, Sobhani, Zainuddin, and Amran (2011) also agree that
these values have been the main driver for CSR in Bangladeshi banks and continue to be so.
Thus, the concept of corporate sustainability was limited to only CSR activities before
Bangladesh Bank’s guidelines launch in 2011 (Millat, Chowdhury, & Singha, 2013). With the
introduction of Environmental Risk Management (ERM) and subsequent guidelines, the
banking sector entered a new era. Other imperative aspects, such as economic and social issues,
labor practices, human rights, economic performance, community, society, corruption,
corporate governance, and responsibility of product and services, became more relevant as well
(Sharma, 2002).
2.5 Sustainability in Bangladeshi Banking
According to Weber and Feltmate (2016), with a few exceptions, most of the banks and
financial institutions generally do not invest in sustainable development. In fact, they stated
that most financial institutions go ahead and deny any responsibility for the indirect impact on
the environment and society that may have been caused by their clients’ activities.
Bangladesh is one of the world’s emerging economies (Khan, Muttakin, & Siddiqui, 2013) and
has witnessed rapid industrial growth over the last two decades (Hosen et al., 2016). This has
contributed significantly to the rise in the country’s Gross Domestic Product (GDP)
(Mehmood, 2012). At the same time, Bangladesh is vulnerable to risks related to environmental
pollution and climate change impacts (Poncelet, Gemenne, Martiniello, & Bousetta, 2010)
10
which are intensified by man-made activities. All these issues have significant adverse impacts
on the overall environment of the country and pose significant threat to the continuity of
business activities (Duru, 2014), which in turn will adversely impact the loan portfolio of the
banks (Coulson & Monks, 1999).
With the inception of the Environmental Risk Management (ERM) Guidelines (Bangladesh
Bank) in 2011, the banking sector of Bangladesh entered a new era of corporate sustainability.
Before this initiative, corporate sustainability was limited to “corporate social responsibility”
(Holme & Watts, 1999) which involved helping the people in need in a limited capacity, such
as contributing to society by donating to schools and hospitals and disaster relief management
(Khan, Halabi, & Samy, 2009). Banks have evolved a lot since then. Nowadays, sustainability
is rooted in banks’ day-to-day operations and value system. Along with the introduction of
“Green Banking Policy Guidelines” (Bangladesh Bank Green Banking Unit, 2013) and the
latest “Environmental and Social Risk Management (ESRM) & Excel-based Risk Rating
Model” (Bangladesh Bank Sustainable Finance Department) in 2017, the Central Bank has
taken the initiative of strongly addressing environmental risk in the process of credit
management in banks and financial institutions. These guidelines have broadened the scope of
sustainable banking by incorporating the social risks while expanding the risk rating system
and introducing requirements for environmental and social management systems.
To comply with the growing demand of responsible, ethical, and sustainable banking, banks in
Bangladesh have started to build separate “Sustainable Finance Units” and “Sustainable
Finance Committees” as per the guidelines of Bangladesh Bank (“BB directs banks to form
sustainable finance units,” 2016). Banks have been taking a new strategic approach which
incorporates going green in the future of banking (Rahman & Perves, 2016) and promoting
financial inclusion (Akter, 2016) while giving back to the community (Saha, Dey, & Khan,
2013).
To promote sustainable banking, Bangladesh Bank has introduced 50 green products to date
(Nabi, Khan, Islam, & Uddin, 2016) for financing under the refinancing scheme. These green
products consist of renewable energy, energy efficiency, solid waste management, liquid waste
management, alternative energy, fire burnt brick, non-fire block brick, recycling and recyclable
products, green industry, ensuring safety in the work environment of factories, etc. (Nabi,
Khan, Islam, & Uddin, 2016). Banks and other financial institutions in Bangladesh have started
to utilize this wide array of products to promote green banking in the country. Alongside that,
banks are implementing other integrational strategies such as initiating in-house environmental
management, introducing online banking through internet and cell-phones, minimizing paper
and ink usage by digitalizing banking operation software, connecting to the automated clearing
system, putting more focus on energy savings, reducing carbon footprint by introducing on-
line communication systems, etc. (Islam, Hossain, Siddiqui, & Yousuf, 2014; Islam & Das,
2013; Lalon, 2015).
A baseline study conducted by Bangladesh Bank (2011), regarding the exposure to
environmental risks in lending, revealed that 98% of the Bank’s top management believed that
environmental risks are being considered but that consideration was not being reflected in their
credit scoring practice. This indicated a wide gap between perception and practice among the
banks (Islam, Yousuf, Hossain, & Islam, 2014). Even six years after implementation, there is
a lack of interest on the disclosure of sustainable banking information (Khan, Azizul Islam,
Kayeser, Fatima, & Ahmed, 2011), despite the study’s suggestion that disclosing literature
helps banks to construct their “reputational capital” and “gain community trust” (Achua, 2008)
(Stefan & Firescu, 2008). Very few banks are generating stand-alone sustainability reports
(Sonia, 2018) following GRI Guidelines, including GRI Content Index and page reference

11
(Willis, 2003). Most of the banks integrate their sustainability activity into their annual report
but does not meet the GRI standards (Mahmud, Biswas, & Islam, 2017). There is good news,
though. Bangladeshi banks are starting to recognize the benefits of incorporating sustainability
for financial success (Adams & Frost, 2008). But there is still a long way to go as most of the
banks still see sustainability and profitability as trade-offs (Deutsche Bank Research, 2014)
when they should be considering them as a win-win situation (Weber, 2017). Therefore, this
study addresses the following research question: Is there a connection between the
sustainability performance and the financial performance of Bangladeshi banks?
2.6 Theoretical Background
There is evidence for a relationship that exists between corporate sustainability practice and
corporate financial performance (Ameer & Othman, 2012). Earlier in the literature review, this
study mentioned that these results are mostly positive, with a mix of some negative as well as
neutral results. But what previous studies do not explain is the direction of causality that takes
place between sustainability and financial performance. Hence, this study is going to use the
theories of Waddock and Graves (1997) to explain the direction of causality between
sustainability versus financial performance.
On the one hand, good management theorists argue that since the focus is more on building
and maintaining relationships with key stakeholders, this results in a better overall performance
(Hackman, 1980). Hence, this theory correlates sustainability performance with corporate
sustainability. Good management theory claims that corporate sustainability may have an
impact on financial performance (Weber, 2017) since it helps the firm to reduce its costs while
increasing its reputation (Deephouse, Newburry, & Soleimani, 2016). Which is why the leaders
of corporate sustainability tend to practice good management in their firms. This strategy also
allows them to attain a competitive advantage over their competitors (Sharma & Vredenburg,
1998; Lin, Chang, & Dang, 2015).
On the other hand, slack resources theory’s representatives argue that better financial
performance by a firm automatically leads to an availability of financial and other type of slack
resources which provide the opportunity to invest more in corporate sustainability (Waddock
& Graves, 1997). The argument articulates that a good financial performance might lead to
improved corporate sustainability due to its additional financial resources (Weber, 2017; Melo,
2012). As McGuire, Sundgren, and Schneeweis (1988) described, corporate sustainability is
firm specific. Which means firms with higher resources can take part in many more
sustainability activities than those who have fewer resources (Seifert, Morris, & Bartkus,
2004). Waddock and Graves (1997) called this a bi-directional causality or “virtuous circle”;
namely, that investment in slack resources lead to improved corporate sustainability, which in
turn leads to positive financial and reputational performance.
There is another factor that affects both corporate sustainability and financial performance
(Ameer & Othman, 2012). As stated above, and in-line with institutional theory (Campbell,
2007), environmental guidelines exercised in the Bangladeshi banking sector may influence
both corporate sustainability performance and financial performance by exposing them to
coercive and normative pressures (Ameer & Othman, 2012). Thus, on the one hand, banks treat
the Bangladeshi Environmental and Social Risk Management guidelines as a sort of formal
pressure effected by the Central Bank (Global Climate Partnership Fund, 2018). On the other
hand, due to societal pressure which propels them to be more sustainable and to invest more in

12
the green economy (Ahmed, Alam, & Rahman, 1999), these banks feel an obligational pressure
to react to those expectations. Hence, the above discussed studies support the hypothesis that
having a good sustainability performance indeed has a positive effect on the financial
performance of these banks.
2.7 Research Objective
The aim of this study is to determine how Bangladeshi banks are performing in terms of
sustainability and green banking, now that six years have passed since the inception of the
Environment Risk Management and Green Banking Guidelines. These six years were divided
into phases by Bangladesh Bank (2011). During phase one (June 30, 2014) banks were to
develop green banking policies and show general commitment to the environment through in-
house performance. In phase two (December 30, 2014), they were instructed to set detailed
sector-specific environmental guidelines, bank-specific environmental risk management plans,
along with initiating green branches across the country. By the end of phase three (June 30,
2015), all banks were expected to address the eco-system through environment-friendly
initiatives and introduce innovative products. Standard environmental reporting with external
verification was also a part of this last phase. Therefore, this study was curious to see what the
end results, in terms of adaptation, integration and implementation, were; and how these
corporate sustainability practices were affecting the environmental as well as the financial
results. Therefore, the specific objectives for this study are as follows:
A) To identify the current activity regarding sustainability among the banks in Bangladesh.
B) To determine how the sustainability performance is affecting the financial performance
of these banks.
C) To analyze whether the financial performance is having an impact on the sustainability
performance.
D) To establish the motivating factor behind the corporate sustainability activity of these
banks.
2.8 The Research Questions and Hypotheses
In an endeavor to find the correlation mentioned earlier, this study examines whether there is
a connection between the sustainability performance and the financial performance of
Bangladeshi banks. Therefore, the research question of this study is as follows:
RQ: Whether sustainability performance and financial performance of Bangladeshi banks
correlate.
Furthermore, this study is aiming to find whether better sustainability performance influences
financial performance of banks; to determine the cause and effect. If the answer is positive,
then which direction this connection may take. Following the research question, the study
proposes this hypothesis:
HT: The sustainability performance of Bangladeshi banks has a positive effect on their
financial performance.

13
Chapter Three

14
3.1 Material and Methods
To investigate the hypothesis in the Bangladeshi context, 56 commercial banks were selected,
including state-owned, specialized, private and foreign commercial banks. All these banks
report their financial and non-financial data to Bangladesh Bank-Central Bank of Bangladesh
(www.bb.org.bd). The data collection focus was on environmental, social and economic
sustainability performance. The strategy was to analyze data from annual financial and non-
financial reports, and from websites of the respective banks. The study selected Bangladeshi
banks because the country initiated sustainable and green baking policy just six years ago
(2012) and have been updating their policy in respect to the changing global environment and
economy while trying to catch up to the rest of the world on sustainable and greener banking
ground. Also, the policies are becoming more rigorous and vigilant every year as Bangladesh
Bank is getting stricter on practicing the policies, particularly in credit risk management. These
regulations are putting pressure on the banks to conduct their business in a sustainable and
ethical manner. Further reasons for the focus on Bangladesh are the fast-growing economy,
rapid development in manufacturing and service industries, and significant improvement on
corporate social responsibility – a market which has been under-researched compared to
Western industrialized countries.
In the form of integrated reporting inside the annual report, 22 out of the 56 commercial banks
in Bangladesh have published information related to environmental, social and sustainability
aspects outside the financial data. Noticeably, many state-owned as well as foreign commercial
banks have not published their sustainability performance data even though the policies have
been in effect since 2012. Regarding the financial data, analysis has been done on the banks’
total assets (TA), net profit after tax (NPAT), return on assets (ROA), return on equity (ROE),
and non-performing loan ratio (NPL) as key financial accounting indicators. Total Asset shows
the sum of all current and non-current assets that a company owns. Net Profit After Tax shows
what the company earned after all its expenses, charge-offs, depreciation, and taxes have been
subtracted. Return on Asset reveals how much profit a company earns for every dollar of its
assets and return on equity. Return on Equity shows whether management is growing the
company's value at an acceptable rate. Lastly, in banking, loans are considered nonperforming
if the debtor has made zero payments, interest, or principal within 90 (business) or 180
(consumer) days. These financial indicators help to draw a clear picture of the financial
performance of a company, hence this study uses them for calculation purposes. All these data
were gathered from the banks’ published annual reports. The data were taken for the years
2012-2016 to assess and conduct a five-year analysis.
The principal strategy for analyzing the sustainability performance was to examine and explore
whether and how the banks are handling sustainability issues through their channels such as
financial products and services externally, as well as internally through their policies,
management, and processes. The categories presented in Table I have been used to assess these
products, services, policies, and processes.

15
 Indicator Examples 2012 2013 2014 2015 2016 Total

Social Policies addressing societal issues, employees, and social finance 46 46 53 53 53 251
Social Policy products and services

Social Management Balanced scorecard, six sigma, triple bottom line 22 23 26 28 28 127
System

Internal Social Compliance management, social procurement, employees, management 47 51 56 56 56 266

Management of benefits and incentives, career management

Social Credit Integration of social indicators into credit risk assessment 35 40 47 49 49 220
Risk Assessment

Social Loans SME loans, student loans, rural & agro loans-villages, 31 33 42 44 44 194

Table I: Categories Used (continued)

agriculture, farming- SME group lending, sanitary loans,
reconstruction loans

16
Social Mortgages Reconstruction mortgages, social housing 0 0 0 0 0 0

Social Funds Funds for developing countries, rural areas, cultural sector, domestic 4 6 10 13 13 46
development funds

Social Asset Socially responsible investment, impact investing 3 5 7 11 11 37

Management
Services

Social Bonds Bonds for social projects 0 0 0 0 0 0

Social Microfinance Start-up microfinance; microfinance for laid-off workers, farmers, and 24 25 30 32 32 143
rural women

Social Project Assessment of social project risk, application of Equator Principles, 0 1 1 4 4 10

Finance Assessment project finance for municipal facilities

Social Savings 0 0 0 0 0 0
Products Savings products that are invested in social loans

Social Financial Promoting financial inclusion through agent banking, mobile banking 29 31 37 38 38 173
(Continued)
Inclusion
 Indicator Examples 2012 2013 2014 2015 2016 Total

Stakeholder Stakeholder inclusion and collaboration 43 44 52 52 52 243

Engagement

Social Community Promoting social development through schools, scholarships, charity 37 29 43 45 45 199
Building

Social Investment Industrial zone development project 4 5 6 9 9 33

Banking

Other Social Other products and services addressing social issues 1 1 2 6 6 16

Products and
Services

Environment Policies addressing environmental issues, such as green products and 35 38 48 49 49 219

Table I: Categories Used (continued)

Environmental services, supporting the development of environment protection
Policy

Environmental ISO 140001 0 0 0 0 0 0

17
Management
System
Internal Green office and green building management, green procurement, green 38 42 50 51 51 232
Environmental operations, waste management, paperless banking
Management
Environmental Integration of environmental credit risk indicators into credit risk 37 42 49 50 50 228
Credit Risk assessment
Assessment

Green Green industry loans 10 11 17 19 19 76

Green Loans

Green Mortgages Green housing mortgages 0 0 0 0 0 0

Green Funds Green industry investment funds 2 3 6 8 9 28

Green Indices Indices using environmental criteria 0 0 0 0 0 0

Green Asset Green mutual funds, environmental asset management products and 0 0 0 0 0 0
(Continued)
Management services
Services
 Indicator Examples 2012 2013 2014 2015 2016 Total

Green Bonds Green bonds issued 0 0 0 0 0 0

Green Microfinance Microfinance for environmentally-friendly businesses 2 2 6 9 10 29

Green Project Environmental risk assessment, financing of green projects-energy, 24 26 39 39 39 167

Finance Assessment water, infrastructure, waste management, restoration

Green Savings Savings products that are invested in green loans 0 0 0 0 0 0

Table I: Categories Used

Products

Green Investment Emissions trading, investment in clean development mechanism 0 1 6 8 9 24

Banking projects

Green Banking Integrated annual sustainability report, separate reporting 10 12 19 21 21 83

Reporting

Green Branch Setup/Progress of green branches 9 9 11 13 13 55

18
Initiative

Green Banking Setup of green banking division 34 36 46 47 47 210

Division

Green Office Introduction of green office guidelines 35 38 47 48 48 216

Guidelines

Green Products by Promoting green products introduced by the sustainable finance 29 30 39 41 0 139
Bangladesh Bank department, Bangladesh Bank

Other Green Management of low-carbon fund 0 0 1 3 3 7

Products and
Services
To avoid the risk of greenwashing (Laufer, 2003) (Ramus & Montiel, 2005), common general
green policies and norms have been avoided while keeping the focus more in line with various
corporate sustainability reporting and rating systems such as the Global Reporting Initiative
(Global Reporting Initiative, 2013) and Thomson Reuters’ ESG Rating Asset4 (Teofilovski,
2018). As a result, the criteria(s) are more focused on specific policies, strategies and
management issues evaluating the present conditions of Bangladeshi banks in this regard. The
method also considers the “green section” of the banks’ portfolios, which signifies a
considerable portion of activities performed by the Bangladeshi banks, compared to other
sections. There have been other studies which have taken a similar approach to analyzing the
effect of corporate sustainability performance on financial performance (Weber, 2017;
Waddock & Graves; 1997; Scholtens, 2009; Weber & Acheta, 2014). Indicators, such as social
and environmental policies, social and environmental management systems, and internal
environmental and social management processes, have been used to run assessment on various
focus points. Banking products and services that can be commonly found, such as various
loans, mortgages, funds, asset management, bonds, microfinance, project finance, savings and
investment banking, were analyzed. Table I presents examples for products and services as
well as for policies and management systems. One key aspect of the analysis was where the
assessment was done to determine whether these policies, processes, products, and services
essentially addressed the environmental, social, or economic component of the triple-bottom
line approach of sustainability (Elkington, 1998), using two categories (yes; no). Even though,
in respect to the availability of many green products and services, Bangladesh is still in the
early launching phase or these products and services have just been launched (Kidney, 2016).
A value of “1” was assigned if the banks had implemented the respective environmental, social,
or green product, service, policy, or management system. If the banks did not implement/use
any criteria, they were given a value of “0”. For instance, banks got a score of “1” if they
reported on their green banking performance or if their environmental policy included issues
like development of environment protection (see Table I). After assigning all the values
collected from their annual reports, the sum of environmental, social and green indicators was
calculated. For the next step, the banks’ results have been divided by the maximum achievable
points for the social and the environmental indicators to standardize the values for the banks’
environmental, social, and green performance. Lastly, total sustainability score was calculated
using the average of the environmental, social, and green scores. As a result, the resulted
sustainability score is an equally weighted combination of the environmental, social, and green
scores.
The reason behind applying the binary (0 and 1) scoring method was to take advantage of the
independency from subjective performance scaling, assigning a numeric value to each
criterion, thus increasing the reliability of the assessment. The study tried to minimize the risk
factor by combining 37 indicators and calculating the total sustainability score. This binary
method has been also used by popular Thomson Reuters Asset4 ESG – Rating and ESG rating
systems, such as MSCI-KLD Score, which have been used by numerous academic studies in
the past (Weber, 2017; Weber, Koellner, Habegger, Steffensen, & Ohnemus, 2008; Scholtens,
2008; Kempf & Osthoff, 2007; Griffin & Mahon, 1997; Whittaker, 2012).
After assigning the values to all 37 indicators, the next logical step was to calculate the average
of social, environmental, and green criteria(s) for each year for each of the 56 selected banks.
The data were used to calculate linear regression analysis (Seber & Lee, 2012) to predict the

19
behavior of financial data over sustainability data. The goal was to examine if the sustainability
(social, environmental, and green) variables do a better job in predicting an outcome of
financial (TA, NPAT, ROA, ROE and NPL) variables, and if so, which variables in particular
are significant. Also, in what way do they – indicated by the magnitude and sign of the beta
estimates – impact the outcome of those financial variables. The result showed the degree to
which social, environmental, and green criteria affected each of the financial indicators. The
probability and R-Square values that were used signified the impact level on each of the
financial category. After that, another set of regressions was conducted using the panel data for
all the financial and sustainability indicators. The aim of conducting the regression analysis
was to explain the relationship between the financial and sustainability indicators.
The study then used another form of regression analysis with panel data (Baltagi, 1995). Panel
data, also known as longitudinal data or cross-sectional time series data in some special cases,
are data that are derived from several observations over time on a number of cross-sectional
units (Moffatt, 2018). The reason for choosing panel data with random effects in this study was
to observe two things: 1) the variance between the banks; and 2) the variance within the banks
over a certain period (Kahane, 2007). This study assessed the financial data and sustainability
performance data for the period between 2012 and 2016. Moreover, this gives the study many
unique data points, which increase its degree of freedom to explore the variables and their in-
between relationships.
In addition to analyzing the regression between financial data and sustainability performance
in the same year, this study used a one-year time lag between financial variables and the banks’
sustainability performance for a period of five years to analyze Granger causality (Granger,
1969). The impact of the independent variables on the dependent variables was calculated by
using data in year x for the independent variable, whereas the data for the dependent variable
was taken from year x+1, with x being the period between 2012 and 2013, and so on. This
method was used because the expectation was that the effect of the independent variable would
appear with a certain delay. After that, the coefficients of determination (r2) for the regressions
with sustainability performance as dependent variable versus those with financial indicators as
dependent variables was tested. In the result, a uni-directional causality (Wright, 2008) was
found which appears if only one of the two regressions are significant. In this case, it was found
that financial indicators as dependent variables were significantly affected by the sustainability
indicators as independent variables, whereas the opposite showed no significance in the case
of Bangladeshi Banks.
3.2 Sample
The population used in this research consist of 56 scheduled commercial banks that are
currently operating in Bangladesh under the guidelines and listed by the Central Bank of
Bangladesh. Data for the population size have been collected from all the publicly available
reports, such as annual reports, sustainability and CSR reports, disclosed sustainability and
financial information on the respective websites, and data published from the Central Bank.
Even though banks in the capital city (Dhaka) and the port city (Chittagong) are the most
industrialized regions and have major impacts on the economy (Ullah, 2014; Monir, 2017), this
research collected data from the collective annual reports of all branches for each bank as it
represents the entire country’s economic and financial situation. This data population includes
four (04) types of scheduled banks: State-Owned Commercial Banks (SOCBs), Specialized

20
Development Banks (SDBs), Private Commercial Banks (PCBs), and Foreign Commercial
Banks (FCBs) (Financial System, 2017). Table II represents the financial institutions and their
types that were included in the data population.
Name Type
AB Bank Limited Private Commercial Banks (PCB)
Agrani Bank Limited State-Owned Commercial Banks (SOCB)
Al-Arafah Islami Bank Limited Private Commercial Banks (PCB)
Bangladesh Commerce Bank Limited Private Commercial Banks (PCB)
Bangladesh Development Bank Limited Specialized Development Banks (SDB)
Bangladesh Krishi Bank Specialized Development Banks (SDB)
Bank Al-Falah Limited Private Commercial Banks (PCB)
Bank Asia Limited Private Commercial Banks (PCB)
BASIC Bank Limited Specialized Development Banks (SDB)
BRAC Bank Limited Private Commercial Banks (PCB)
Citibank N.A Foreign Commercial Banks (FCB)
Commercial Bank of Ceylon Limited Foreign Commercial Banks (FCB)
Dhaka Bank Limited Private Commercial Banks (PCB)
Dutch-Bangla Bank Limited Private Commercial Banks (PCB)
Eastern Bank Limited Private Commercial Banks (PCB)
EXIM Bank Limited Private Commercial Banks (PCB)
First Security Islami Bank Limited Private Commercial Banks (PCB)
Habib Bank Ltd. Foreign Commercial Banks (FCB)
ICB Islamic Bank Ltd. Private Commercial Banks (PCB)
IFIC Bank Limited Private Commercial Banks (PCB)
Islami Bank Bangladesh Ltd Private Commercial Banks (PCB)
Jamuna Bank Ltd Private Commercial Banks (PCB)
Janata Bank Limited State-Owned Commercial Banks (SOCB)
Meghna Bank Limited Private Commercial Banks (PCB)
Mercantile Bank Limited Private Commercial Banks (PCB)
Midland Bank Limited Private Commercial Banks (PCB)
Modhumoti Bank Ltd. Private Commercial Banks (PCB)
Mutual Trust Bank Limited Private Commercial Banks (PCB)
National Bank Limited Private Commercial Banks (PCB)
National Bank of Pakistan Foreign Commercial Banks (FCB)
National Credit & Commerce Bank Ltd Private Commercial Banks (PCB)
NRB Bank Limited Private Commercial Banks (PCB)
NRB Commercial Bank Limited Private Commercial Banks (PCB)
NRB Global Bank Limited Private Commercial Banks (PCB)
One Bank Limited Private Commercial Banks (PCB)
Premier Bank Limited Private Commercial Banks (PCB)
Prime Bank Ltd Private Commercial Banks (PCB)
Pubali Bank Limited State-Owned Commercial Banks (SOCB)
Rajshahi Krishi Unnayan Bank Specialized Development Banks (SDB)
Rupali Bank Limited State-Owned Commercial Banks (SOCB)
Shahjalal Islami Bank Limited Private Commercial Banks (PCB)
Social Islami Bank Ltd. Private Commercial Banks (PCB)
Sonali Bank Limited State-Owned Commercial Banks (SOCB)
South Bangla Agriculture & Commerce Bank Limited Private Commercial Banks (PCB)
Southeast Bank Limited Private Commercial Banks (PCB)
Standard Bank Limited Private Commercial Banks (PCB)
Standard Chartered Bank Foreign Commercial Banks (FCB)
State Bank of India Foreign Commercial Banks (FCB)
The City Bank Ltd. Private Commercial Banks (PCB)
The Farmers Bank Ltd Private Commercial Banks (PCB)
The Hong Kong and Shanghai Banking Corporation. Ltd. Foreign Commercial Banks (FCB)
Trust Bank Limited Private Commercial Banks (PCB)
Union Bank Limited Private Commercial Banks (PCB)
United Commercial Bank Limited Private Commercial Banks (PCB)
Uttara Bank Limited Private Commercial Banks (PCB)
Woori Bank Foreign Commercial Banks (FCB)
Table II: Population of Banks

21
Chapter Four

22
4.1 Results
As the first step, this study presents the results of the descriptive statistics for the population.
Second, this study presents the results of the regression analyses with both sustainability and
financial indicators as dependent variables. Third, the study presents the results of a panel
regression analysis. Finally, the study presents the results of panel regression with a one-year
time lag.
4.2 Descriptive analyses
This study analyzed four types of banks according to the categories of the Central Bank of
Bangladesh. In total, a population size consisting of 56 banks (see Table II) was selected that
disclosed any financial and sustainability information, even though all these banks are directly
regulated under Bangladesh Bank (Central Bank of Bangladesh). Data were collected for the
years 2012-2016. Five are state-owned commercial banks, four are specialized development
banks, eight are foreign commercial banks, and 39 are private commercial banks.
Table III presents the descriptive statistics for the financial indicators in total and split by the
type of bank. At the time of the study, the dollar value of 1 BDT was $0.12.
Type of Bank Total Assets in Net Profit in ROA ROE Non-Performing
BDT Million BDT Million Loan Ratio
State-Owned
Commercial Banks
Mean 160986 651 0.55% 5.81% 9.86%
SD 195434 3831 3.50% 20.37% 13.87%
Specialized
Development Banks
Mean 148444 704 0.56% 7.11% 9.17%
SD 158902 3327 3.77% 8.79% 14.54%
Foreign Commercial
Banks
Mean 160149 1368 0.90% 8.48% 7.51%
SD 188353 3114 3.24% 8.25% 16.00%
Private Commercial
Banks
Mean 154136 1026 0.77% 6.93% 9.30%
SD 178197 3674 3.16% 18.46% 16.30%
Table III: Descriptive statistics for the financial indicators

4.3 Regression analysis for sustainability and financial indicators

Table IV presents the regression analysis with social, environmental, and green indicators as
the dependent variables, and financial indicators as the independent variables. The goal here is
to see how each of the social, environmental, and green variables is affected by the financial
indicators. As seen in Table IV, except for total assets, none of the other financial variables
have a significant impact on any of the sustainability variables. The regression functions,
however, are significant for all three sustainability indicators.

23
 Dependent Variables Independent Variables Coefficient p>t R2 Significance
Social Indicators 0.1612 <0.00001
Total Asset 4.18e-07 0.000
Net Profit 4.47e-06 0.170
ROA .0097246 0.979
ROE -.0012488 0.984
NPL -.0042557 0.950
Environmental Indicators 0.0759 0.0006
Total Asset 3.32e-07 0.000
Net Profit 5.99e-06 0.203
ROA .4898368 0.360
ROE .042242 0.642
NPL -.067833 0.491
Green Indicators 0.1035 <0.00001
Total Asset 2.81e-07 0.000
Net Profit 2.60e-06 0.389
ROA .0899185 0.794
ROE .0676799 0.248
NPL -.0177999 0.779
Table IV: Results of the regression analysis with the social, environment, and green score
as dependent variables and the financial indicators as independent variables.
The following analysis (Table V) explores whether the sustainability performance has an
impact on the financial indicators, such as total assets, net profit, ROA, ROE, and non-
performing loan ratio. Table V presents the regression with the financial indicators as
dependent variables and the sustainability indicators as independent variables. The results show
that all regression functions are significant. Furthermore, social indicators have a significant
positive effect on total assets, and a significant negative effect on ROE. Finally, green
indicators have a significant positive effect on ROE.
Dependent Variables Independent Variables Coefficient p>t R2 Significance
Total Asset 0.1628 <0.00001
Social Indicators 538443.1 0.000
Environmental Indicators -47388.02 0.348
Green Indicators -171937.1 0.131
Net Profit 0.0217 0.1089
Social Indicators 120.4836 0.963
Environmental Indicators 1524.925 0.175
Green Indicators 977.7881 0.699
ROA 0.0180 0.1692
Social Indicators -.0334208 0.134
Environmental Indicators .0188939 0.043
Green Indicators .0263156 0.228
ROE 0.0317 0.0307
Social Indicators -.2608478 0.044
Environmental Indicators .0863301 0.125
Green Indicators .3117771 0.014
NPL Ratio 0.0109 0.3859
Social Indicators .1165153 0.312
Environmental Indicators -.0698888 0.164
Green Indicators -.1079341 0.339
Table V: Results of the regression analysis with financial indicators as dependent
variables and social, environment, green score as independent variables.
The regression analysis suggests a connection between the banks’ financial indicators and their
corporate sustainability performance. The results demonstrate that the sustainability

24
performance is higher for bigger banks (total assets), and for those with high ROA and ROE.
Therefore, sustainability performance has an impact on some financial indicators.
4.4 Panel regression analysis for sustainability and financial indicators
The following analysis (Table VI) investigates the cross-sectional time series data derived from
the years 2012 to 2016. The goal of this panel data analysis is to find the connection between
the sustainability and financial indicators over the five-year period. The results in table VI show
that the total asset affects all three sustainability categories and no other significant relationship
between the other independent variables.
Dependent Variables Independent Variables Coefficient p>z R2 Significance
Social Indicators 0.1496 <0.00001
Total Asset 5.22e-07 0.000
Net Profit -1.91e-06 0.380
ROA .1704388 0.424
ROE .0471453 0.228
NPL .0229466 0.691
Environmental Indicators 0.063 0.0223
Total Asset 4.48e-07 0.001
Net Profit -7.27e-07 0.854
ROA .4148883 0.294
ROE .0629475 0.382
NPL .0052115 0.959
Green Indicators 0.0917 <0.00001
Total Asset 4.64e-07 0.000
Net Profit -3.26e-06 0.097
ROA .100814 0.599
ROE .0995337 0.005
NPL .014346 0.784
Table VI: Results of the panel regression analysis with social, environment, and green
score as dependent variables and financial indicators as independent variables.
In a similar manner, Table VII presents how the sustainability indicators affect the financial
indicators over the five-year timeframe. The outcome shows similar results for the linear
regressions. Again, this demonstrates that the sustainability performance is higher for larger
banks, and for those with a higher ROA and ROE.
Dependent Variables Independent Variables Coefficient p>z R2 Significance
Total Asset 0.1136 <0.00001
Social Indicators 54067.89 0.037
Environmental Indicators -13306.72 0.567
Green Indicators 118625.8 0.029
Net Profit 0.0187 0.5514
Social Indicators 1601.73 0.609
Environmental Indicators 744.55 0.564
Green Indicators -814.85 0.786
ROA 0.0180 0.1666
Social Indicators -0.03342 0.013
Environmental Indicators 0.0188 0.041
Green Indicators 0.0263 0.227
ROE 0.0309 0.0257
Social Indicators -0.2911 0.049
Environmental Indicators 0.0718 0.254
Green Indicators 0.3825 0.008
NPL 0.0028 0.9800
Social Indicators 0.0570 0.671
Environmental Indicators -0.0100 0.850
Green Indicators -0.0457 0.714
Table VII: Results of the panel regression analysis with financial indicators as dependent
variables and social, environment and green scores as independent variables.
25
4.5 One-year lagged panel regression analysis for sustainability and financial
indicators
Finally, to test cause and effect, this study used the sustainability performance and financial
performance as both dependent and independent variables in the lagged panel regression
analysis. The goal was to find out whether the sustainability performance of the final year
(2016) had an impact on the financial performance of the next year and vice-versa. This study
used Granger causation (Granger, 1969) to take cause and effect into account, considering a
one-year lag for the years 2012 to 2016.
For the calculation, panel regression functions with sustainability indicators have been selected
as dependent variables in year x and financial indicators in year x+1 and vice-versa,
respectively. After having calculated the regressions, the study compared r2 as well as the
significance level of the regressions with the sustainability performance as dependent variable
versus those with the financial indicators as dependent variables. As a result, if the independent
variable was able to predict the time-lagged dependent variable, the study assumed a cause-
effect relation (Granger, 1969). Table VIII and Table IX present the results of the time-lagged
panel regression analysis.
Dependent Variables Independent Variables Coefficient p>z R2 Significance
Sustainability Score (Lagged) 0.0089 0.6666
Total Asset -.0008397 0.667
Sustainability Score (Lagged) 0.0006 0.9854
Net Profit .0006518 .035627
Sustainability Score (Lagged) 0.0002 0.3632
ROA 5890.637 0.363
Sustainability Score (Lagged) 0.0001 0.7396
ROE 211.4935 0.740
Sustainability Score (Lagged) 0.0060 0.7148
NPL Ratio -821.9815 0.715
Table VIII: Results of the one-year lag panel regression analysis with sustainability
performance (lagged) as dependent variable and financial indicators as independent
variables.

Dependent Variables Independent Variables Coefficient p>z R2 Significance

Total Asset (Lagged) 0.1197 0.0001
Sustainability Score 86233.05 0.000
Net Profit (Lagged) 0.0693 0.2390
Sustainability Score 2555.203 0.521
ROA (Lagged) 0.0074 0.1973
Sustainability Score .0151708 0.019
ROE (Lagged) 0.1132 0.0001
Sustainability Score .103731 0.000
NPL Ratio (Lagged) 0.0066 0.9582
Sustainability Score -.0032699 0.958
Table IX: Results of the one-year lag panel regression analysis with financial indicators
(lagged) as dependent variables and sustainability performance as independent variable.
Table IX shows that sustainability performance has a significant impact on the financial
indicators (Total Asset, ROA and ROE), with a similar score in r2, which means that a high
sustainability score has a positive impact on assets and on return of equity on the next year.

26
The results for Net Profit and NPL are different. The explained variance (r2) for these
regressions is much lower than for total assets, net profit and ROE. The results of the regression
analysis for total asset, ROA and ROE, suggest a positive impact of the sustainability
performance on the selected financial figures.
Furthermore, a comparison between Table VIII and Table IX suggest that sustainability score
has a significant impact on Total Asset (Table IX) while the results for Table VIII show a non-
significant impact. The regression functions are also showing significance for Total Asset,
ROA and ROE (Table IX) while indicating negative significance for all the financial indicators
(Table VIII).
Overall, the results of the regression analysis with time lags indicate uni-directional causation
between the sustainability score on the one hand, and Total Assets as well as ROA and ROE
on the other hand. The correlation between the sustainability score and non-performing loans,
however, was rather weak. Finally, the results suggest a uni-directional causation between
corporate sustainability performance and financial performance of the banks in the population.

27
Chapter Five

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5.1 Discussion
A study by Sneirson (2008) hypothesizes that the sustainability performance of Bangladeshi
banks has a positive effect on their financial performance. Therefore, this study incorporates
both financial and sustainability data over the period of five years to determine whether the
results support the claim or the hypothesis. And the results indicate that the environmental,
social, and green performance (together called sustainability performance) saw an incremental
increase from the years 2012 to 2016. Year 2011 was the inception year for all the policies and
guidelines, which were modified and updated over the years; and with that update, the
sustainability performance of the banks began to rise (Weber & Oni, 2015), especially from
2014, the trend has been upward. This upward trend was expected as the new policies guided
the banks to become more active and provided more input to build a better sustainable economy
for the country. This is also supported by other studies in that strategies such as incorporating
environmental criteria into credit risk management (Weber, Hoque, & Islam, 2015) and
increasing green product lines (Economic Dialogue on Green Growth, 2017) has put notable
impact on the overall sustainability performance of the banks. Furthermore, the increase may
have been prompted by Bangladesh Bank’s refinancing programs in diverse green
products/sectors (Nabi, Khan, Islam, & Uddin, 2016) which have categorically advanced the
performance of sustainability over the years. This initiated a paradigm shift inside the
Bangladeshi banks, steering them towards a more sustainable direction (Khan, Mohobbot, &
Fatima, 2014).
This study illustrates that the integration of sustainability into the banking sector has a notable
impact on total assets, ROA, and ROE, which expounds that being sustainable, banks are not
only increasing in size, but also generating sound returns from their shareholders’ investments.
This has also been supported in other studies (Deloitte 2017; Boitan, 2015) where it has been
demonstrated that sustainability focused banking brings more profit and a positive impact on
the industry. The results suggest that institutional pressure from Bangladesh Bank in the form
of various policy guidelines and a uniform reporting format may have acted as a catalyst in the
increase of return on asset and equity as banks are making more profit then before (New Age
Business (2018). The results also support the good management theory (Waddock & Graves,
1997) which claims that a firm’s financial performance is influenced in a positive manner by
its corporate social performance (Friede et al., 2015). The study found a positive correlation
between the sustainability performance and financial indicators for total assets, ROA, and ROE
assessed at the same year as well as for one-year time lags. Weber (2017) and Weber (2014)
found a correlation among the size of financial institutions, which was evaluated on two
standards: the size of total assets and the quality of sustainability reporting.
The foundation behind the validation of the hypothesis is quite evident. One study (Ahmed,
Zayed, & Harun, 2013) suggests that a combination factors, such as economy, policy
guidelines, loan demand, stakeholder pressure, environmental interest, and legal factors, create
a variance of 65.25% of the decision regarding the adoption of green banking. A major key
player in this was institutional pressure, whereby banks were being required to adopt and
assimilate various sustainability approaches into their day-to-day banking as well as long-term
strategy planning (Nabi et al.2015). During the initiation phases of these guidelines, banks were
given several timelines (Chowdhury & Dey, 2016) to adopt and integrate these strategies into
their operation, which most of the banks followed within the stipulated timeframe (Ahsan &
Uddin, 2015). Economic incentives were also introduced to motivate banks to more swiftly

29
adopt the guidelines (Riaz & Verma, 2017). This in turn created a positive financial impact on
the banks which started to show in their financial statements. The number of sanctioned loans
towards environmentally harmful projects began to diminish (Shakil, Azam, & Raju, 2014),;
integration of environment-friendly technologies escalated in practice (Islam, 2014); and a
reduction in the carbon footprint started to see an upsurge in all branches and head offices
(Islam & Das, 2013). This in turn prompted an upward trend in the banking sector, resulting in
a rise in sustainability performance (Nabi et al., 2015), and created brand image and awareness
in the environment amongst the stakeholders as well as initiating environment-friendly
business practices (Khan, Naim, Islam, & Begum, 2017). Hence, these activities accrued over
the years started to make a notable impact on the financial performance of the banks, while at
the same time, the financial sector were seemingly able to create higher financial returns and
increases in its assets, ROA, and ROE.
While exploring the correlation between sustainability performance and financial indicators
with time lags, this study found that the causality is unidirectional. In this case, sustainability
performance is having an impact on the financial performance of these banks, but having a
better financial performance is not necessarily leading towards a better sustainability
performance. The bi-directional causality contrasts with the study done by Weber (2017) on
Chinese banks which suggests having a bi-directional relationship whereby corporate financial
performance influences corporate sustainability performance and vice versa. This evaluation
parallels institutional theory of corporate social responsibility (Campbell, 2007) (Brammer,
Jackson, & Matten, 2012). It seems that institutional pressure to achieve higher sustainability
performance is positively affecting the financial performance of the Bangladeshi banks. In an
endeavor to find the link between corporate social performance and financial performance,
Waddock and Graves (1997) also supported this result, suggesting that sustainability
performance is positively associated with future financial performance. This is also found in
yet another similar study (Ameer & Othman, 2012); that companies which implement superior
sustainable practices have a established higher financial performance compared to those that
do not engage in such practices.
This study found that the results did not show a bi-directional relationship between
sustainability and financial performance; it did not find any positive change in sustainability
performance when financial performance was rising. This represents an interesting aspect of
the current baking sector in Bangladesh. Banks had been making profit (Dey, 2014)
(Chowdhury & Ahmed, 2009) long before the sustainability and green banking guidelines were
introduced. But initially after the introduction of the guidelines in 2011, many banks did not
show much improved performance regarding sustainability (Chowdhury & Dey, 2016) (Shah
& Habib, 2013). In fact, state-owned commercial banks and state-owned development banks
showed the weakest performance (Islam & Kamruzzaman, 2015). This illustrates the lack of
voluntary keenness to practice green banking which prevails in the industry to date.
Bangladeshi banks are not seen investing their slack resources (George, 2005) into
sustainability practices; a point which has been evidenced in similar studies from other
countries (Zyadat, 2016; Fijałkowska, Zyznarska-Dworczak, & Garsztka, 2018; Gbadamosi,
2016).
Finally, the explanation for the non-significant relationship between non-performing loans
(NPL) ratio and sustainability performance of Bangladeshi banks could be due to the lack of
proper provisioning and lack of stringent application of existing policies (Ahmed, 2006).

30
Consequently, having too many banks for an economy size of $150 billion causes an influx of
capital while political intervention hinders the effort to bring the existing big defaulters to the
negotiation table (Bangladesh’s bad loan ratio is higher than those of India and Nepal, 2018).

31
Chapter Six

32
6.1 Conclusions
Based on the results, this study concludes that the integration of sustainability into the financial
sector increases financial performance and does not harm the profitability of the banks.
Therefore, green banking policy such as Environmental and Social Risk Management may
yield two distinct effects: 1) It would raise the banks’ corporate sustainability performance; 2)
It would create a more stable and successful financial sector in the long run for the economy.
Hence, this study suggests that Bangladeshi banks should invest more in corporate
sustainability thereby increasing their financial success. And, by earning more profit, they
would be able to see the benefits of being sustainable and become more invested in
sustainability activities.
The unidirectional causation seen between corporate sustainability performance and financial
performance can be explained by institutional theory. What institutional theory does in this
regard is it influences factors that are generated outside of the organization. These may include,
but not limited to, public policies and regulations, social norms and views (Dees, 2007),
business culture and activities, pressure from different environmental groups (Dalton, 2005) as
well as international pressure such as Sustainable Development Goals (SDGs) by UNDP
(Khan, 2017). Therefore, it is not only market factors and competitors that determine how an
organization will behave, external factors are connected as well (Zakic, Jovanovic, &
Stamatovic, 2008).
As mentioned before, while the banks in Bangladesh have just begun to reap the benefits of
conducting their business in a sustainable way, they still lag far behind in investing their slack
resources to create more sustainable products and services, especially in the case of
government-owned banks compared to privately-owned ones (Mohammad, Abedin, &
Rahman, 2017; Hasan & Baten, 2005; Ahmed, Rahman, & Ahmed, 2006). Another issue, that
is proving to be a hurdle, is transparency (Khan, 2010). Banks are not being transparent in their
sustainability reporting (Hossain, Bir, Tarique, & Momen, 2016) even though there are specific
guidelines on how to report effectually both from Bangladesh Bank (Islam, 2015) and
renowned international organizations such as GRI (Khan, Islam, Kayese & Ahmed, 2011).
Currently, banks are reporting their sustainability activities in an integrative manner through
their annual reports, which is not as per any national or international standard (Bose, Khan,
Rashid, & Islam, 2018) and have many dissimilarities in the pattern and language of disclosure.
Due to this, the benefits are not as apparent as they should be. As a result, the industry is not
yet able to see the full benefit of sustainability (Mahmud, Biswas, & Islam, 2017).
As pointed out in the theoretical background (Masukujjaman & Aktar, 2014), Bangladesh still
needs a lot of catching up to do with their counterparts in developing countries when it comes
to implementing sustainability in the banking sector. It becomes more concerning when no
Bangladeshi banks were found in the UNEPs signatories of the Equator Principles as this is
regarded as one of the most crucial standards for responsible financing (Petsonk, 1989). Adding
to the fact that the people of Bangladesh have very little knowledge and awareness regarding
climate change issues (Faruque et al., 2016), the transition towards a sustainable economy will
be harder and longer. Given the fact that banks can play a pivotal role in educating their clients
(individual as well as business) and leading them towards a green economy, it is imperative

33
now more than ever to get the banking industry operating under sustainable guidelines (Biswas,
2011; Rahman, 2012).
It is not to say that sustainability activities are always free of costs. In fact, being sustainable
means investing significant resources and a well-planned business strategy (Curtis el al., 2010)
(Orlitzky et al. 2011). Bangladeshi banks also fall under this rule. To become sustainable, these
banks needs to undergo a rigorous strategy change and make notable investments in products
and services as well as infrastructure (Weber, 2017; UNEP, 2011), which is why they will only
perform sustainable activities if they see a financial benefit in the present or near future
(Confino, 2014).
As the study advocates a correlation between the size of banks measured by their asset size and
their sustainability performance, it can be inferred that the regulatory authorities need to
develop different policies under the same guidelines for banks of different sizes (Weber, 2017).
The reason behind this is, smaller banks usually have less resources to work with due to
financial constraints and they need more support to implement the strategies. The banks in
Bangladesh have undergone three distinctive phases in implementing the environment
guidelines introduced by Bangladesh Bank which have enabled them to carefully take each
step and the time to adopt these newly introduced policies. However, this does not take the
“availability of resource part” into consideration. Hence, in line with Weber (2017) and Zhang,
Yang, and Bi (2011), this study proposes that the Central Bank take such factors as different
business models of the banks, their assets and equity size, and availability of other resources
into account. This will ensure an effective and successful implementation of the sustainability
policy and guidelines and eliminate the disparity between banks in the long run.
Further research is required to examine the effects of environment and social risk management
policy on the banking sector of Bangladesh. Also, more research is needed to determine
whether sustainability performance is progressing steadily and, if so, whether banks are being
motivated to invest in more sustainable initiatives. Due to lack of ample public reporting of
Bangladeshi banks, this study relied on a relatively small sample size. Research conducted
using big data approaches (Etzion & Aragon-Correa, 2016) will help in connecting more dots,
using environmental, financial and economic factors. Based on the results of this study, another
future research direction might be to investigate the requirement for core green banking
products and services in the social and economic context of Bangladesh (Saha, 2013; Polonsky,
Rosenberger III, & Ottman, 1998), given that as of yet Bangladeshi banks do not offer any
direct green banking products and services (Islam, 2014).
Finally, once more data are available, future research should focus on analyzing how the
existing regulations are having an impact (positive/steady/negative) and at what level of
efficiency the banks are operating under the green guidelines. The scope of this research should
not only be limited to banks and financial institutions but should also determine how the
environment and sustainable development are being affected by the practice of the existing
green regulations. This will bring more focus on the state of the current economic situation and
will help to shed some light on the lack of awareness by bringing verified knowledge that would
help relevant stakeholders to act more responsibly and sustainably.

34
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