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With global markets steadily progressing toward carbon neutrality, carbon markets present Bangladesh with an opportunity to generate new revenue while supporting the transition to a low-carbon economy. Yet, despite issuing over 50 Mn carbon credits, fewer than 15% have been monetized, pointing to a persistent gap between potential and market readiness.
On the policy front, Bangladesh Bank has introduced several measures to embed environmental considerations within the financial sector. The Green Banking Policy, introduced in 2011, positioned Bangladesh among the early adopters of environmentally focused banking regulation.
This framework required banks to integrate environmental risk assessments into credit decisions, establish dedicated green units, and gradually implement eco-friendly operational practices across phases. Over the years, this foundation was deepened through the launch of refinance schemes, green transformation funds, and mandatory reporting guidelines.
Fast forward to 2020, Bangladesh Bank introduced the Sustainable Finance Policy for Banks and Financial Institutions. The policy identified over 60 categories under green and sustainable finance, covering areas such as renewable energy, waste management, and climate-resilient agriculture. It also established minimum lending targets, 5% of total portfolios for green finance and up to 40% for sustainable finance.
To further align with global best practices, the central bank adopted the IFRS S1 and S2 climate disclosure standards in 2023. This move made Bangladesh one of the first countries to require its entire banking system to disclose climate-related financial risks and financed emissions.
In parallel, Bangladesh Bank launched green bond guidelines and encouraged the use of climate-focused CSR funds by mandating that at least 10% of CSR allocations be used for climate or environmental projects.
Since 2011, Bangladesh has taken meaningful steps to integrate climate considerations into its financial system, with the central bank playing a key role in guiding policy development, setting lending targets, and promoting climate risk disclosures. Despite these supporting regulations, there remains a pressing need to translate policy ambition into operational readiness.
Bangladesh Bank has laid a strong regulatory foundation for climate-aligned finance. Yet, the path forward depends on transforming these mandates into tangible market outcomes. The next phase requires translating policy into practical instruments and institutional mechanisms that reduce risk and unlock capital at scale.
Operationalizing national carbon infrastructure, creating de-risking instruments for early-stage projects, refining sectoral taxonomies, and building institutional capacity will be central to realizing Bangladesh’s carbon finance ambitions.
To explore how stakeholders across the financial, private, and development sectors are thinking about these challenges and what solutions are emerging, download our full whitepaper below.
The article was authored by Ameera Fairooz, Senior Business Consultant at LightCastle Partners. For further clarifications, please contact here: [email protected]
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