International Research Journal of Finance and Economics

ISSN 1450-2887 Issue 120 March, 2014

http://www.internationalresearchjournaloffinanceandeconomics.com

Incorporating ESG Risk in Bank-Lending in Bangladesh

Sarwar Uddin Ahmed

School of Business, Independent University Bangladesh, Dhaka, Bangladesh
E-mail: suahmed1971@gmail.com
Tel: +880-2-8401645; Fax: +880-2-8401991

Matiur Rahman
College of Business, McNeese State University, LA, USA
E-mail: mrahman@mcneese.edu
Tel: +1-337- 4755577; Fax: +1-337- 4755986

Abstract

Incorporation of environmental, social and governance (ESG) risk in bank lending

process has been greatly emphasized for ensuring sustainability of banks. The central bank
of Bangladesh has also voiced concerns by formulating two policy guidelines
simultaneously. However, it failed to suggest ways to consider ESG risk quantitatively in
lending decisions. The objective of this study is to close in this gap and suggest ways to
incorporate ESG risk in bank lending process. A revised credit risk grading model has been
suggested by adding environmental, social and governance risk factors. Policy
recommendations have also been suggested for ensuring effective incorporation of ESG
factors in lending decisions by private commercial banks in Bangladesh.

Keywords: ESG risk, credit risk management, private commercial banks, sustainability

1. Introduction
Banks are now rapidly shifting focus towards sustainability by promoting efficient uses of resources
without harming the society and the environment. For a wealth maximizing entity, this shift is not
entirely voluntary. The tie between banking and sustainability has stemmed from the combined effect
of growing burden of liability resulting from potential borrower default due to non-compliance of
environmental, social, and governance (ESG) standards and opportunities for new businesses (IISD,
2011). It has become challenging for banks to find ways to tackle current and future environmental
problems, such as, climate change, deforestation, air pollution and biodiversity loss. At the same time,
it is imperative for them to identify and secure new business opportunities that benefit them and the
customers (UNEP-NATF, 2007). Banks’ new pursuit for sustainable development offers both threats
and opportunities.
In the global financial sector, a number of ESG risk incorporation norms and guidelines, such
as UNEP-FI, UPI-FINANCE 2000, Equator Principles, which are voluntary in nature have emerged
during the last two decades. “A Statement by banks on the Environment and Sustainable
Development” signed by 30 banks under the auspices of the United Nations Environment Program
(UNEP) in Rio Earth Summit 1992, provides the basic guidelines to incorporate environmental issues
in lending decisions.Currently, a total of 200 financial institutions, out of which 138 banks in 47
countries are signatories of UNEP- FI (UNEP-FI, 2011). Among the existing guidelines, the Equator
Principles launched in 2003 received wide acceptance in recent years which is based on the
International Research Journal of Finance and Economics - Issue 120 (2014) 24

environmental and social policies, and guidelines of the International Finance Corporation (IFC) (EP,
2012). At present,73 financial institutions operating in more than one hundred countries are committed to
using the EPs to manage environmental and social risk in their project finance businesses (EP, 2012).
In contrast, the status of environmental risks management by banks is not satisfactory in least
developed countries like Bangladesh, largely due to inadequacy and poor enforcement of existing laws
and also inadequate pressure from civil society and interest groups. In June 1997, Bangladesh Bank
(BB), the Central Bank of the country, asked all commercial banks (BRPD-No-12 dated 8.10.1997) to
undertake necessary steps for implementing the provisions of Environment Conservation Act 1995
(ECA). Commercial banks are asked to ensure that steps have been undertaken to control
environmental pollution before financing a new project or providing working capital financing to the
existing enterprises. Later on, a Guideline on Corporate Social Responsibility (CSR) was circulated by
Bangladesh Bank in 2008 in order to encourage the practice of social responsibility among banks and
financial institutions. As a continuation in April 2010, BB published annual review of CSR practices
by the scheduled banks operating in Bangladesh and emphasized socially and environmentally
responsible banking practices (Bangladesh Bank, 2010).
In the follow-up pursuit to encourage green banking and incorporation of ESG risk in the
banking process, Bangladesh Bank (BB) almost simultaneously published and circulated “Policy
Guidelines for Green Banking” and “Environmental Risk Management Guidelines” in 2011. By
publishing these guidelines, Bangladesh Bank has claimed to be the only central bank which has issued
an indicative guideline for green banking (Rahman, 2011). These have greatly emphasized the
adaptation of a comprehensive green banking policy by commercial banks within December 2013
(TDS, 2011). Some incentives were declared for banks promoting green banking such as higher points
in CAMELS rating, priority in opening new branches, separate treatment in capital adequacy
calculation, and positive publicity by inclusion in the list of top ten green banks, etc. Table 1
summarizes below the regulations affecting ESG risk management practices of banks in Bangladesh.

Table 1: Regulations Affecting ESG Risk Management Practice of Banks in Bangladesh

Year Events Purpose/ Effect Impact on Banks

First regulatory move to introduce best
Lending Risk Analysis (LRA) by Did not include environmental
1993 practice in bank lending.Compulsory for
FSRP and social risks
granting loans above BDT 10 million.
Environment Conservation Act by
Provisions regarding environmental The first regulation related to
1995 Department of Environment
conservation environment in Bangladesh
(DOE)
Environment Conservation Rules, Based on this rule, Bangladesh
Made Environmental Clearance
1997 1997 by Department of Bank initiated environmental
Certificate mandatory
Environment good practices
Directive by the central bank (Bangladesh
Circular on Environmental The first circular directing
Bank) to adhere to Environment
1997 Compliance by Bangladesh Bank banks to be environmentally
Conservation Rules 1997 and control
(BRPD Circular No. 12, 1997) responsible
environmental pollution in financing
Detailed risk management guidelines
Credit Risk Grading Manual Did not consider
2005 replacing LRA and made applicable to all
(CRGM) by Bangladesh Bank environmental and social risks
loans
Guideline on Corporate Social Directives to include environmental and Stressed on socially and
2008 Responsibility by Bangladesh socially responsible practices in banking environmentally responsible
Bank (DOS Circular No. 1, 2008) and borrower screening processes banking practices
Review of CSR Initiatives in A pressure on the banking
Reported CSR compliance status of the
2010 Banks (2008 & 2009) by sector to be environmentally
banks
Bangladesh Bank and socially responsible
25 International Research Journal of Finance and Economics - Issue 120 (2014)
Table 1: Regulations Affecting ESG Risk Management Practice of Banks in Bangladesh - continued

The policy was divided into three phases

and set three-phased time lines to
promote green banking.BB recommended
to prioritizes eco-friendly business project No directions were provided
Policy Guidelines for Green
2011 financing Compliant banks will get points to quantify environmental
Banking by Bangladesh Bank
under management component of risk in CRM
CAMELS rating BB will announce top
ten banks in green banking and allow to
open branches on a priority basis
The first qualitative guideline
Environmental Risk Management Guidelines to incorporate environmental
2011 to rank environmental risk of
Guidelines by Bangladesh Bank risk into credit risk management structure
lending
Sources: Compiled and rearranged from (Ahmed and Uchida, 2012)

In Bangladesh, implementations of these guidelines by banks are largely voluntary in nature.

Given the nature of bank management practices in Bangladesh, these will get less priority as these are
not mandatory. Also, the credit assessment and management framework prescribed by Bangladesh
Bank are currently followed by all scheduled commercial banks. Credit Risk Management (CRM) does
not include any risk criteria for considering environmental, social and governance aspects of a
particular loan project. Banks are asked to launch their own environmental risks assessment framework
and no clear direction is provided regarding quantification and inclusion of environmental risk in
CRM. However, Bangladesh Bank could not provide a clear quantitative guideline for incorporating
social and environmental aspects into the lending decision making process (Habib, 2010).
In this background, the objective of this study is to fill in this gap and suggest ways to
incorporate environmental, social and governance (ESG) criteria in Credit Risk Management (CRM)
on a compulsory basis and to offer a common platform for all banks for managing these risks in a
holistic manner. The remainder of the paper is structured as follows. Section II briefly discusses credit
risk management practice in Bangladesh. Section III outlines the methodology. Section IV is on
incorporation of ESG risk. Section V proposes credit risk grading system. Section VI offers
conclusions and remarks. Section VII advances policy recommendations.

2. Credit Risk Management Practice

2.1. Historical Development
Credit Risk Management System development in Bangladesh has a long history. In order to reduce
loan losses, Bangladesh took a regulatory step in 1993 to introduce the first quantitative approach to
analyze lending risk. Upon recommendation from the World Bank sponsored Financial Sector Reform
Project (FSRP), the Lending Risk Analysis (LRA) manual was introduced in 1993. Use of this manual
was made compulsory for the banks and other financial institutions for loan size of BDT 10 million
and above (BB, 2005).
However, the LRA manual has various shortcomings, such as, high subjectivity, inability to
provide post-sanction follow-up and grading for monitoring purposes, considered only financial and
security risk (Kabir et al, 2010). Accordingly, in order to overcome the limitations of LRA, Bangladesh
Bank developed guidelines for credit risk management by banks recommending the introduction of
Risk Grade Score Card (RGSC) for risk assessment of credit proposals (BB, 2005). But this created
confusions among the financial institutions with two sets of lending risk standards.

2.2. Current Credit Risk Grading System

In order to resolve the perplexities developed due to two contrasting sets of standards (LRA and
RGSC), Bangladesh Bank took the initiative to integrate the lending analysis standards into one Credit
International Research Journal of Finance and Economics - Issue 120 (2014) 26

Risk Grading Model. Accordingly, Credit Risk Grading Manual (CRGM) was developed for
implementation in 2005 by banks and financial institutions in processing credit decisions and
evaluating the magnitude of risk involved. It has been made compulsory for all banks for all exposures
and all volumes except those covered under Consumer and Small Enterprises Financing Prudential
Guidelines and also under The Short-Term Agricultural and Micro-Credit. In this manual, lending
projects were graded in eight categories as follows:

Table 2: Credit Risk Grading Scales

Grading Abbreviation Review Frequency

Superior SUP Annually
Good GD Annually
Acceptable ACCPT Annually
Marginal/Watchlist MG/WL Semiannually
Special Mention SM Quarterly
Sub standard SS Quarterly
Doubtful DF Quarterly
Bad & Loss BL Quarterly
Source: Credit Risk Grading Manual (BB, 2005)

3. Methodology
The research methodology involves analyses of both primary and secondary data. As a first step,
secondary data are gathered from multiple sources to have an idea about the current practice of ESG
risk management. The sources include various publications of Bangladesh Bank (BB), Bangladesh
Securities and Exchange Commission (BSEC), Dhaka Stock Exchange (DSE) and UNEP Finance
Initiatives.

3.1. Survey Instrument

A primary survey has been conducted with a structured questionnaire to learn about the current status
and to seek suggestions for ESG factors incorporation in lending decisions. The questionnaire was
developed, based on the guidelines provided in EP(2009), BB (2011a and 2011b), UNEP-FI-ATF
(2007), Cowton and Thompson (2000) and Ahmed et al (2014). The questionnaire contains questions
ranging from general status to specific ones on ESG risk incorporation of each bank.

3.2. Sample
There are 47 scheduled banks operating in Bangladesh, regulated by Bangladesh Bank under the
Bangladesh Bank Order, 1972 and the Bank Company Act, 1991. Among them, there are 30 private
commercial banks (PCBs). This study covers all the PCBs. The questionnaires are filled out by the four
key officials working in the credit department at the head office of the respective bank during
September through December, 2012. The responses are cross-matched with available public
information on each bank, e.g., annual reports, websites, regulatory notifications and newspaper
articles. Also, the data have been complemented and validated with the Bangladesh Bank official
responsible for auditing and inspecting the PCBs. Finally, the screened data of each bank are used in
this study for analyses.

3.3. Credit Risk Grading

Based on the opinions found in this survey and credit risk grading mechanism suggested in various
literatures a revised credit risk grading process has been suggested. Fig. 1 elaborates on it as follows:
27 International Research Journal of Finance and Economics - Issue 120 (2014)
Figure 1: Risk factors to be included in Credit Risk Grading

4. Incorporation of ESG Risk

4.1. Importance of Incorporating ESG Risk
With regard to the importance of incorporating ESG risk in credit assessment, 100% of the respondents
commented that it is important and should be integrated. This certainly expresses the positive attitude
of the banks and acknowledgement of its importance by the banks. Responses in this regard are shown
in Fig. 2 as follows:

Figure 2: Importance of incorporating ESG risk

Source: Survey Results

4.2. Current Measurement of ESG Risk

About the question regarding the current ways the banks are measuring ESG risk, 90% of the banks
reported that they are doing it qualitatively. Whereas, only 10% stated that they are quantifying it, but
the method of quantification is not clear. Hence, there is a problem with regard to the quantification of
ESG risk as reported by the banks. Fig. 3 shows the responses as follows:
International Research Journal of Finance and Economics - Issue 120 (2014) 28
Figure 3: Current measurement of ESG risk

5. Proposed Credit Risk Grading System

5.1. Proposed Credit Risk Grading System
Based on the findings of the survey, guidelines provided by Bangladesh Bank, practice suggested by
EP, UNEP-FI-ATF, UNEP-FI, a revised framework is proposed in this study for incorporating ESG
risk components in lending decisions ((EP, 2009; BB, 2011a and 2011b; Ahmed et al, 2014).

5.2. Risk Component Weights

Under the proposed risk grading system environmental, social and governance risk factors are included
with Financial Risk, Business/Industry Risk, Management Risk, Security Risk, and Relationship Risk.
This incorporation changes the risk component weights. A total of 20% risk weights were reduced
from the existing five categories of risk on a proportionate basis. In assigning the credit risk weights,
guidelines provided by the Bangladesh Bank are followed.
Accordingly, the risk weights are 40% in financial risk, 14% in business/industry risk, 10% in
management risk, 8% in security risk, 8% in relationship risk, 10% in environmental risk, 6% in social
risk and 4% in governance risk. They are shown in Table 3 as follows:

Table 3: Risk Components and Weights

Risk Components Existing Weight Revised Weight

Financial Risk 50% 40%
Business/Industry Risk 18% 14%
Management Risk 12% 10%
Security Risk 10% 8%
Relationship Risk 10% 8%
Environmental Risk 10%
Social Risk 6%
Governance Risk 4%
Total 100% 100%

5.3. Revised Credit Risk Grading Score Sheet

A revised credit risk grading score sheet has been suggested by incorporating ESG risk components.
However, all of these might not be applicable to all categories of risk. In that case, the risk factor
should be left blank and the total denominator be reduced by 0.5 points for each such case. Tables 4-11
below show how various types of risks are to be calculated.
29 International Research Journal of Finance and Economics - Issue 120 (2014)
Table 4: Calculation of Financial Risk

Criteria Weight
Score
A. Financial Risk 40%
1. Leverage: 12
2. Liquidity: 12
3. Profitability: 12
4. Coverage: 4
Total Score–Financial Risk 40

Table 5: Calculation of Business Risk

Criteria Weight
Score
B. Business/Industry Risk 14%
1. Size of Business 3
2. Age of Business 3
3. Business Outlook 2
4. Industry Growth 2
5. Market Competition 2
6. Entry/Exit Barriers 2
Total Score-Business/Industry Risk 14

Table 6: Calculation of Management Risk

Criteria Weight
Score
C. Management Risk 10%
1. Experience 4
2. Second Line/ Succession 3
3. Team Work 3
Total Score-Management Risk 10

Table 7: Calculation of Security Risk

Criteria Weight
Score
D. Security Risk 8%
1. Security Coverage (Primary) 4
2. Collateral Coverage 2
3. Support (Guarantee) 2
Total Score- Security Risk 8

Table 8: Calculation of Relationship Risk

Criteria Weight
Score
E. Relationship Risk 8%
1. Account Conduct 3
2. Utilization of Limit 2
3. Compliance of Covenants / Conditions 2
4. Personal Deposits 1
Total Score-Relationship Risk 8

Table 9: Calculation of Environmental Risk

Criteria Weight
Parameter Score
F. Environmental Risk 10%
• Fully complies 0.50
Compliance with environmental laws • Partially complies 0.25
• Does not comply 0
International Research Journal of Finance and Economics - Issue 120 (2014) 30
Table 9: Calculation of Environmental Risk - continued

• Totally safe 0.50

Project location vulnerability from environmental perspectives • Potentially vulnerable 0.25
• Vulnerable 0
• Well protected 0.50
Protection against climate change impacts such as cyclones,
• Partially protected 0.25
storm, floods and droughts
• Vulnerable 0
• Well committed 0.50
Commitment of the client for environmental management • Partially committed 0.25
• Not committed 0
• Full provision 0.50
Provision for solid waste management • Partial provision 0.25
• No provision 0
• Full provision 0.50
Provision for wastewater management such as Effluent
• Partial provision 0.25
Treatment Plan (EFT): industries; Sewerage: Housing
• No provision 0
• Full provision 0.50
Provision for handling, storage and management of hazardous
• Partial provision 0.25
materials and chemicals
• No provision 0
• Full provision 0.50
Air emission prevention and control measures • Partial provision 0.25
• No provision for 0
• Full provision 0.50
Noise pollution control measures • Partial provision 0.25
• No provision 0
• Full provision 0.50
Fire or explosions prevention and control measures • Partial provision 0.25
• No provision 0
• Full provision 0.50
Provision for genetic resource management (for pharmaceutical
• Partial provision 0.25
industries)5
• No provision 0
• Full provision 0.50
Provision for bioethics management (for pharmaceutical
• Partial provision 0.25
industries)
• No provision 0
• Full provision 0.50
Appropriate measures to control dust pollution • Partial provision 0.25
• No provision 0
• Full provision 0.50
Provision for odour prevention and control • Partial provision 0.25
• No provision 0
• Fully complies 0.50
Environmental requirement of the buyer or importer • Partially complies 0.25
• Does not comply 0
• Full arrangement 0.50
Periodic environmental monitoring arrangements • Partial arrangement 0.25
• No arrangement 0
• Not detrimental 0.50
Environmental impact of energy and resource consumption • Partially detrimental 0.25
• Detrimental 0
• Fully considered 0.50
Environmental impacts associated with products and services • Partially considered 0.25
• Does not consider 0
31 International Research Journal of Finance and Economics - Issue 120 (2014)
Table 9: Calculation of Environmental Risk - continued

• Absolutely no such possibility 0.50

Potential for new regulations to have negative impact on
• Some possibility 0.25
product or service acceptability
• Not clear 0
• Good potential 0.50
Potential new markets for environmental services and
• Some potential 0.25
environmentally friendly products
• Not clear 0
Total Score- Environmental Risk 10

Table 10: Calculation of Social Risk

Criteria Weight
Parameter Score
G. Social Risk 6%
• Surpass the standards 0.50
1. Workplace health, safety
• Maintains minimum standard 0.25
and working conditions 0
• Does not maintain good working condition
• Implemented equal employment opportunity policy 0.50
2. Equal opportunity in
• Has a written equal employment opportunity policy 0.25
employment 0
• No equal employment opportunity policy
• Does not employ forced or child labor and discriminate
3. The use of forced or between workers 0.50
0.25
child labor • Does not employ forced or child labor 0
• Employs forced or child labor
4. Involvement of • Allow employee involvement and train them to do so 0.50
employees in • Allow employee involvement 0.25
management • Does not allow employee involvement 0
• Allow union activities and managers meet union leaders
5. Freedom of association 0.50
periodically
in union/ society 0.25
• Allow union activities 0
activities
• Does not encourage union activities
• Allow profit sharing and performance bonuses and stock option
6. Profit sharing, 0.50
• Allow profit sharing / performance bonuses / stock option 0.25
performance bonuses
and stock option • Does not allow profit sharing and performance bonuses and 0
stock option
7. Caring activities for the • Provide l child care leave and facilities 0.50
employee family and • Provide leave for child care 0.25
children • Does not provide leave for child care 0
8. Training and • Sponsor universal educational program and training 0.50
development of human • Sponsor training programs 0.25
resources • Does not sponsor training programs 0
• Avoid dismissal and in unavoidable circumstances offers
9. Handling of transfer and relocation support 0.50
0.25
dismissal • Avoid dismissal 0
• Dismisses employees without providing explanation
• Offer programs to prepare employees for retirement by
10. Preparation for social engagement 0.50
0.25
retirement of employees • Offer program to prepare employees for retirement. 0
• Does not care about the retirement of employees
• Maintain relation and take feedback from the community 0.50
11. Community relations • Maintain relation with the community 0.25
• Does not maintain relation with the community 0
• Fund independent charitable trust 0.50
12. Charitable donations • Make cash or kind charitable donations regularly 0.25
• Does not make charitable donations 0
Total Score- Social Risk 6
International Research Journal of Finance and Economics - Issue 120 (2014) 32
Table 11: Calculation of Governance Risk
Criteria Weight
H. Governance Risk 4% Parameter Score
• Fully complies with SEC CG Guideline 2006 1
1. Board size, structure and
• Meets minimum standard 0.50
composition 0
• Vague
• Held regularly and members actively participate 1
2. Frequency and quality of board
• Held regularly 0.50
meeting 0
• Not held regularly
• Meets regularly with all stakeholders 0.50
3. Meeting with stakeholders and
• Meets regularly with the stockholders 0.25
proper records of minutes 0
• Does not meet regularly with stakeholders
• Three yearly financial statements are published 0.50
4. Disclosure of performance through
• Financial statements are published 0.25
financial statements in annual reports 0
• Financial statements are not published regularly
• Both annual reports and website 0.50
5. Disclosure of Corporate Social
• Only in annual reports 0.25
Responsibility (CSR) activities 0
• Does not disclose
• Have audit committee with independent member 0.50
6. Audit committee structure and
• Have audit committee but no independent member 0.25
independence of auditors 0
• There is no separate audit committee
Total Score- Governance Risk 4
Grand Total- All Risk 100

6. Conclusion and Remarks

While the importance of environmental, social and governance (ESG) factors in lending processes of
banks is widely discussed, there is no quantitative approach to do so. This study is a modest attempt to
fill in this gap by conducting an in-depth study in the context of Bangladesh. Accordingly, this study
has made a number of significant contributions in the domain of ESG risk management. There is a
dearth of literatures, both theoretical and empirical, discussing ESG risk management approaches of
developing countries. ESG risk management status, approach and recommendations outlined in this
study are expected to assist policy makers and regulators in developing countries to formulate ESG risk
management policies for banks. Finally, ESG risk management approach recommended in this study
will help practitioners incorporate ESG factors in quantitative credit risk grading.
Banks in Bangladesh are still in evolving stage with regard to the integration of ESG factors in
credit risk management. However, the bankers and the regulators (Bangladesh Bank and SEC) show
positive attitude towards such integration. Policy measures, such as, building awareness, developing
techniques to incorporate ESG factors, reporting and evaluating performance, and providing incentives
are needed to reap further benefits. ESG status reported, motivating factors revealed and risk grading
techniques recommended in this study might be used as a benchmark.
This study has some limitations. For example, the sample choice of the study is based only on
the scheduled private commercial banks (PCBs). State-owned banks or the specialized banks which
also make significant volumes of loans are not considered in this study. Thus, the findings of this study
cannot be generalized for all banks in Bangladesh. However, the ESG risk quantification methodology
as proposed in this study can also be applied by other categories of banks for the same nature of
operation. To close, further research is needed on this topic because of growing interests in it among
policymakers and academicians.

7. Policy and Recommendations

This research has a number of significant and practical implications for practitioners, policymakers and
scholars, particularly for those who are in the domain of dealing with ESG risk management.
33 International Research Journal of Finance and Economics - Issue 120 (2014)

Formulating a credit risk grading system is not adequate enough to warrant successful incorporation of
ESG factors in lending decisions, particularly in developing nations. The policymakers may be guided
by the following policy recommendations and summarized through Fig. 4, as shown below:

Figure 4: Policy Recommendations for ESG Risk Incorporation

A. Short-Term (One year to less than two years)

In the short-run, the policymakers may concentrate on building awareness and capacity of the relevant
stakeholders such as bank executives, credit risk analysts, borrowers, investors and also regulators.
This will prepare them in terms of policy and techniques to deal with ESG risk.

B. Medium-Term (Two years to three years)

Once the ESG risk factors incorporation policy and techniques have been developed, next the
policymakers should take initiatives to implement them. Bangladesh Bank as the central bank should
provide a new CRGM to the banks by incorporating ESG risk factors quantitatively.

C. Long-Term (Above three Years)

A standard uniform reporting and evaluation format should also be developed under the leadership of
the Bangladesh Bank to disclose and report ESG risk management practices and lending risk exposure
of individual banks. These reports should be disclosed to public through annual reports and web sites.
In the long run, the policymakers should try to achieve what can be termed as DEAR: Disclosure,
Evaluation, Advice, and Reward.
Finally, positive (negative) performance or initiatives must be rewarded (punished). Bangladesh
Bank in its Green Banking Policy Guideline (BB, 2011b) already declared rewards such as improved
CAMELS rating, preference in opening new branches, inclusion in the list of top 10 green banks, etc.
These are good initiatives, but a more distinct reward system, such as, some rating index like Dow
Jones Sustainability Group Indices (DJSGI) might be developed. This will motivate the banks to be
more conscious of ESG risk factors to benefit themselves.
 International Research Journal of Finance and Economics - Issue 120 (2014) 34

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