Bangladesh Bank yesterday released the updated version of its Environmental and Social Risk Management (ESRM) guideline for banks and financial institutions to help the country achieve development goals and tackle the agenda sustainability in the financial sector.
The central bank issued the ESRM directive in 2017.
“Following the experience of implementing the guidelines, the BB is now issuing its updated version to establish industry best practices,” central bank governor Fazle Kabir said in a message in the guideline.
The ESRM directive puts more emphasis on social and climate risks, which become relevant and crucial for Bangladesh.
It has been expanded with a provision for environmental and social due diligence for the financing of infrastructure projects.
According to the directive, a third-party environmental and social impact assessment (ESIA) will have to be carried out for the financing of all infrastructure projects.
The ESIA will generally be arranged by the client at their own expense and submitted with the loan application.
The guideline includes an Excel-based Environmental and Social Due Diligence (ESDD) checklist to facilitate the due diligence process. A sector guidance note for 10 vulnerable sectors has been incorporated.
Sectors are Textile and Apparel, Cement, Leather Tanning and Finishing, Ceramic Tiles and Sanitary Ware, Pharmaceuticals, Energy, Fertilizers, Pulp and Paper, Iron Re-Lamination steel and shipbreaking.
The categories of loans to which the guideline applies are financing for agriculture, crafts, micro, small and medium-sized enterprises (MSMEs), retail and trade enterprises, consumers, large manufacturing and service companies and infrastructure segments.
Proposed loan or investment amounting to more than Tk 25 lakh in the agricultural sector must comply with the HESD checklist, according to the guideline.
For financing in artisanal, micro, commercial and commercial enterprises, only the exclusion list must be respected.
Loan proposals for environmental and socially sensitive retail and trade businesses of any amount, including those for chemical or chemical ingredients, highly fire-absorbing products, electronics, fuel oil, paper and dry materials and plastic items, must follow the HESD Checklist.
For financing in small businesses above Tk 30 lakh, the proposal should comply with the HESD checklist. It is Tk 50 lakh for medium sized businesses.
In addition, financing in large manufacturing and service companies must comply with the HESD checklist and exclusion list compliance.
Loan applications for infrastructure projects must be compliant with the third-party ESIA in addition to HESD checklist and exclusion list compliance.