As the climate of the earth deteriorates at an alarming rate, now more than ever, actors of the international sphere are taking a serious look into sustainable and renewable practices. From businesses to states, the green revolution has swept across the domain.
Under such auspices, Bangladesh had made substantial progress in creating a favourable environment for green business in the last decade. With 173 green factories accredited by the US Green Building Council’s (USGBC) Leadership in Energy and Environmental Design (Leed), Bangladesh currently leads the globe in the RMG industry’s progress towards being green.
The government of Bangladesh has taken a myriad of policy guidelines: Climate Change Trust Act 2010, Bangladesh Delta Plan 2100 (BDP 2100), a ten-year Implementation Roadmap for the Nationally Determined Contribution (NDCs) for 2016-2025 -- prepared to manage growing emissions without compromising economic development -- Perspective Plan (2021-2041), and 8th Five-year Plan (2021-2025).
Policy measures
Bangladesh Bank intends to make it mandatory for banks and financial institutions to invest in green projects. Under these rules, they will be expected to give out 15% of their loans for sustainable financing including 2% for green financing. Furthermore, Bangladesh Bank set a minimum target of 5% green finance attainment for every bank and non-bank financial institution (NBFI) working in Bangladesh.
The government has been encouraging overseas impact investors by reducing stamp duties since the introduction of Alternative Investment Rules in 2015. Bangladesh Bank’s Green Transformation Fund (GTF) -- a $200 million refinancing scheme for environmentally-friendly initiatives launched in 2016 -- expanded its scope in June 2019 from just three sectors (textiles, leather, jute) to include all manufacturing and export-oriented entities, irrespective of sector.
The Nationally Determined Contributions (NDC) prepared ahead of COP26 in 2021 exemplified the implementation of the green industry in Bangladesh. The NDC outlined an unconditional 6.7% reduction in greenhouse gas (GHG) emissions. The government also plans to set up 100 green economic zones by 2030, 30 of which are currently under development.
Partnerships on green investments
Foreign development partners and multilateral financial institutions have been key to forging partnerships with regards to green investments in Bangladesh. France, having expertise and experience in tackling climate change issues, is keen on meeting Bangladesh’s financing needs by providing Agence Française de Dévelopment (AFD) concessional loans for green investments and through supporting the government in addressing climate related issues.
Recently, Bangladesh has bagged a $4.7 billion IMF loan and $1.3bn of this amount came from the Resilience and Sustainability Facility (RSF). Bangladesh is among the first Asian countries to receive this fund to meet the climate change challenges of the country.
Challenges faced so far
Despite the significant policy initiatives from the Sustainable Finance Department of Bangladesh Bank, green finance is still at a very early stage in Bangladesh. According to a recent report on finding the causes behind the sector not yet taking off as planned in Bangladesh, United News of Bangladesh (UNB) found disinterest among financial institutions to fund non-conventional energy projects are one of the reasons, along with the challenges of the non-availability of land, bureaucratic hurdles, and unfriendly regulatory environment.
In addition, financial actors other than the banking industry (banks and NBFIs) are not subject to regulations set by the Bangladesh Bank. Another barrier to growth of green projects is the additional cost due to extra requirements for monitoring, verification, and reporting on Environmental Social Governance (ESG) compliance compared to orthodox projects, which often discourages entrepreneurs.
Although the government is encouraging overseas impact investors by reducing stamp duties, the number of overseas impact investors operating in Bangladesh is still very low. Since the formulation of the Bangladesh Impact Investment Strategy Action Plan, no significant changes have yet been visible in the market of alternative investments. To scale up green finance and meet the financing gap for sustainable development, the alternative investment market needs to be vibrant alongside the green debt financing of the banking industry.
What lies ahead
Greening the economy is a prerequisite for attaining sustainable development goals (SDGs). Transitioning to a green economy requires large-scale investment, with a principal role for the government to build an enabling environment for private sector financial institutions to scale up green investments. Bangladesh is now the 35th largest economy in the world and experiencing higher GDP growth. To match the speed of the current economic growth, a considerable amount of green funds need to be mobilized.
Foreign development partners (DFIs) and multilateral development banks (MDBs) can play a catalyzing role in mobilizing green finance together with the Bangladesh Bank and other regulators. DFI can provide low-cost green funds to commercial banks directly in order to finance green projects. Tax subsidies, or any other monetary incentives along with other regulatory support will motivate entrepreneurs to move towards green projects.
SN Sharmily is a freelance contributor.
