Lenders\\\' passionate view

Sustainability and going green have become interlinked and different international and local agencies are contemplating adopting green methods in mainstream businesses in the globalised environment where cross-border, intra-country transactions have shored up significantly.
To make business greener and cost-effective it is of imperative need to adopt clean, environment-friendly technologies by leveraging myriad of opportunities available around us. But without green lens it is not possible to track down the opportunities and cash in on to our advantage.
It is a hard fact that extreme weather conditions and other environmental disruptions not only affect people, animals, plants and infrastructure but also cast pervasive adverse effects on business and economy.
Bangladesh happens to be the lowest CO2 emitter-amounting to around 0.30 ton/person/year--while the average emission by other developing countries stands at around 1.60 tons a year. Reports have it that the developed countries emit 15 to 20 tons of carbon each year. Unfortunately, our country continues to pay heavy price in terms of life and property for the fault of others -- developed nations. As for an instance, the 1998 floods inundated over two-thirds of Bangladesh and caused losses of 4%-8% of the GDP (US$2.00 billion) while cyclone Sidr in 2007 resulted in damage and losses of 2.60% of the total GDP (US$ 1.70 billion), as evident from different reports.
Climate change is affecting different parts of the globe in different ways on different scales of the continuum -- from rise in temperature to the melting of glaciers, rise of water level. The most damaging impact on Bangladesh is from rising sea level. The offshore islands of Bangladesh often exist in the peripheral area of the rest of the country. Bhola, Sandwip, Hatiya etc. make national news only when periodic   natural disasters like cyclone, tidal bore visit the areas . We get panicked when warnings of   impending disasters are broadcast   by the weather service and people wait anxiously until the disasters either descend on the shores or simply change the course.  
The issue of social compliance is gaining importance over the years and the factories, buyers and associations have worked successfully to ensure greater adherence to the basic standards over the last decade. But Buriganga, Shitallakkhya, Turag and Bongshai are now affected by old and new textile industries due to disposal of highly toxic and hazardous effluents.
Some textile industries drain their waste water onto the open ground or farm land, which leads to the reduction of soil fertility in the long run. Apart from that, the chemicals and other pollutants negatively affect the people living in the surrounding areas.
In our country, so far as the garment sector is concerned, the pool of foreign buyers acts as a catalyst for change as they are espousing the cause of environmentally compliant sourcing. This is a critical time for the industry as tripartite pressures emerge from buyers, Govt. and the media. So many entrepreneurs are starting to realize the importance of being environmentally compliant.
From a business perspective it is easy to undermine environmental compliance as a sunk cost or one which will provide no returns on investment. As entrepreneurs see no monetary gains from it, they skip the matter of compliance. But, fortunately, there has been a paradigm shift in the preconceived notion that the cost that requires to be incurred for restraining the pollution is a sunk cost rather it will generate positive result to ensure sustainability of their business. At the same time, it will create opportunity for the entrepreneurs to meet their obligation to society at large.
Cleaner production is a holistic approach. It focuses on making the most efficient use of inputs such as energy, water, gas and other raw materials, thus minimizing waste and pollution at source. So, cleaner production leads to cost savings which not only help recoup cost of compliance but also create a congenial working environment and contributes significantly towards augmentation of profitability.
From the lender's prospective, environmental risk is a facilitating element of credit risk arising from environmental issues. These can largely be due to environmental impacts caused by and / or due to the prevailing environmental conditions. The risk factors burgeon the element of uncertainty or possibility of loss in the context of a financing transaction.
The sources of risk, direct or indirect by nature, are identified as:
Land location
Geophysical location of a project where the investors intend to set up or operate enterprises is important. If it, is exposed to environmental hazard it will have adverse impact on the business. As for an example, if the land is located in the forest area being an eco-sensitive zone, it creates the cause of concern. Activities on land in the flood-prone areas along the coastal belt are more vulnerable.
Regulatory non-compliance
Entrepreneurs may plan and/or operate without adopting appropriate technologies like effluent-treatment plant and water-treatment plant as required to neutralize the effect of pollutants generated in the production process.
In such a situation, the investors are vulnerable to closure of the operations by the Department of Environment (DOE) for non-compliance with environmental rules.
Labour/ Social Risk
The owner has to provide a safe and healthy working environment for workers. If not, then there is a potential for accidents, injury and death and also exposure to occupational health hazards. Apart from occupational health and safety, there are other labour and social issues that tend to get combined to create unstable state of conditions. These issues include child labour, forced labour, discrimination, unusual working hours and wage compensation.
All of these matters may cause the collapse of the business and, as a consequential effect, the client will suffer financial setback with adverse effect on their ability to make debt servicing with the banks and financial institutions. As a corollary effect, the borrowed money may turn up into non-performing loan.
Community /public opposition
Borrowers may have inadequate environmental management practices in their operations. This can lead to excessive water extraction, effluent releases, emissions and improper waste management that affect community living in the vicinity of the business premises. Community protests and public opposition also pose the risk.
Business Risk
Changing environmental conditions and/or requirements may impact on the borrower's capacity to meet the obligation to repay. This is an indirect risk.
Management Risk
Poor management may result in closures and community protests that can adversely affect the business and the borrower's capacity to repay. This is also an indirect risk.
Security / collateral risk
Risk that the bank/FI might be exposed to due to poor quality of the security/collateral is contaminated land or disposal of hazardous chemicals, in case of a default. This is a direct risk.
Legal Risk
This risk can take a number of different forms. Most obviously, banks are at risk if they do not comply with relevant environmental legislation. More specifically, they are at risk of lender liability for cleanup costs or claims for damages if they take possession of property that contaminates or pollutes, as a result of realizing security.
Concluding Remarks
Banks and NBFIs as financial intermediary(ies) mobilize funds for investment in the real sectors of the economy to finance the setting up of new industrial projects or expansion of existing ones to upgrade their production capacity in the process of lending operation. So credit facility acts as a facilitating element of environmental risk management and becomes integrated more closely to cope with the growing awareness to protect our surroundings from the onslaught of environmental hazards. If environmental risk issues are not addressed in due diligence in that case lenders become liable for their negligence in preventing pollution.
Environmental risk management is basically a compliance issue at the borrowers' end, entailing the cost element. Banks and financial institutions now in addition to financial risk analysis through risk rating also resort to environmental risk rating within the purview of parameters prescribed by Bangladesh Bank in its Environmental Risk Management Policy Guidelines.
It is not the motto of the lending institutions to create unease or hassle for the borrowers/counter parties by pressuring them rather to convince regarding the urgency of compliance with benchmark standards for becoming eco-friendly in their business operations and production process.
We should keep it in mind that environmental risk management is not meant for policing the borrower but we shall have to work in a collaborative manner with the borrowers/ counter parties for achieving sustainable growth from a long-term perspective. We shall not be averse to the environmental risk factors rather to be focused on managing risks through prescribing remedial measures within the credit-facility arrangement to ensure that the bank's finances are not exposed to environmental risk rather act as a contributing factor to infuse the environment-friendly greener practices and values as a transformative solution for building up sustainable, eco-friendly business environment at large.
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