Abstract

The banking industry in Bangladesh has progressed by incorporating internal credit and environmental risk assessments in borrower selection. However, integrating sustainability risk assessments is crucial to enhance risk management practices further. This research examines the suitability of the Global Reporting Initiative (GRI) framework for sustainability risk assessment in the banking sector of Bangladesh. A mixed-methods approach, combining quantitative and qualitative methods, is employed. A comprehensive literature review and consultations with banking experts and stakeholders assess the GRI framework's suitability for integrated credit and sustainability risk assessment. Quantitative data is collected through a survey of 30 banks, while qualitative data is gathered through in-depth interviews with senior executives. ANOVA (Analysis of Variance) is used to analyse the collected data. Currently, banks in Bangladesh use diverse tools and models for credit risk evaluation, while sustainability risks are assessed qualitatively without a standard model. This inconsistency leads to imprecise risk ratings. To address this, the Integrated Credit & Sustainability Risk Rating Model (ICSRRM) is developed under the GRI framework, tailored to the Bangladesh context. ICSRRM combines Internal Credit Risk Rating (ICRR) and Environmental and Social Risk Management (ESRM) approaches, allowing banks to concurrently evaluate credit, environmental, social, and economic risks. ICSRRM is a universal model that all commercial banks in Bangladesh can adopt to promote sustainable banking practices. The study's findings will guide the banking industry in designing a methodology for assessing both credit and sustainability risks when selecting borrowers or evaluating projects. This will ensure high-quality financing, reduce default loans, and foster sustainable growth in the banking sector.

Keywords: Global Reporting Initiative (GRI), Internal Credit Risk Rating (ICRR), Environmental and Social Risk Management (ESRM), Integrated Credit & Sustainability Risk Rating Model (ICSRRM).