Bangladesh is one of the countries most affected by climate change even though it contributes very little to global carbon emissions; it is thus imperative that we discuss how climate justice and sustainable finance interact -- a conversation that is not only academic but also about survival and equity.
The challenges in Bangladesh's quest of green and sustainable financing impede the achievement of our climate goals. One major obstacle is recovery after financing in green projects. The inherent risks and possibility of delayed profits make financial institutions reluctant to engage in new products and enterprises. One relevant example is the financially-unviable solar irrigation pump project at Infrastructure Development Company Limited (IDCOL). This absence of a good track record discourages financial institutions from investing in comparable green initiatives.
Additionally, the special requirements of Islamic financing are also insufficiently met by the regulatory framework. The sustainable finance department at Bangladesh Bank does not have a separate master circular for Islamic refinancing after the conventional banking circular dated as on August 30, 2023. Because most people in Bangladesh are Muslims, this disparity is noteworthy. Without clear rules, Islamic-minded business owners are hesitant to look to traditional banks for green financing and refinancing, which hinders the development of sustainable finance within the Islamic banking industry.
Moreover, NGOs -- who usually run on fixed interest rates -- provide a significant amount of sustainable financing in Bangladesh. Religious restrictions prevent Islamic banking from offering fixed interest rates, so it is not allowed to take part in these financing activities. Due to this regulatory gap, NGOs cannot avail finance from Islamic banking for environmental initiatives, which reduces the total amount of money available for sustainable projects.
There is also the banks' unwillingness to fund environmentally-friendly startups. The branch level banking authorities are often not informed sufficiently about what green and sustainable financing actually is. Sometimes this ignorance creates the idea that green funding ends with tree planting. Further aggravating this problem is the lack of specialized green banking officers at the branch level; general banking personnel are already overworked with their main responsibilities, which lessens the impact of green financing initiatives.
Complicating these problems is the fact that most banks lack specialized help desks for sustainable and green financing. Though the Sustainable and Renewable Energy Development Authority (SREDA) has designed 94 green products for green finance and refinance, only 70 of these qualify for Bangladesh Bank refinancing. Further limiting the possibilities of sustainable finance are branch officials, who are often uncomfortable with new banking paradigms and would rather adhere to traditional banking procedures.
For example, in Bangladesh, the huge area required for commercial solar projects tempers excitement among financial institutions. Furthermore, the continuous weakening of the Taka makes it difficult to acquire the required equipment, thereby underutilizing Bangladesh Bank's Technology Development Fund, which is meant to promote energy-efficient machinery. A dearth of qualified workers is also present to install and oversee solar panels on a commercial basis.
While established in Bangladesh, “Green Sukuk” and “Green Bonds” have not yet become widely popular. Partly because Bangladesh has a tiny and developing bond market, the EU-led global green bond market has not been widely embraced in the nation.
Bangladesh produces little carbon; however it is disproportionately impacted by climate change
The impact on climate justice
In Bangladesh, the problems with sustainable financing have an immediate impact on climate justice. Bangladesh produces little carbon; however it is disproportionately impacted by climate change, with regular cyclones, floods, and increasing sea levels. These occurrences worsen poverty -- mostly impacting the most defenseless groups who have made the least amount of contributions to the issue.
Bangladesh's coastal areas routinely flood and have saltwater intrusion, which destroys agricultural land and uproots thousands of people. These populations continue to suffer disproportionately because programs that could restore these lands or create drought-resistant agriculture systems cannot find sustainable financing.
Recommendations for overcoming challenges
- Educational integration: Climate justice and sustainability courses ought to be offered by every university department. This would guarantee the preparedness of upcoming leaders and experts to promote sustainable practices in all industries.
- RMG focus: The RMG industry needs to be the focus of green and sustainable financing initiatives as it is a significant economic sector. Encouragement of environmentally-friendly activities in this industry can have a big influence on general sustainability objectives.
- Green finance incentives: Financial institutions can be encouraged to step up their green financing initiatives by including sustainable and green finance into the CAMELS (capital adequacy, asset quality, management, earnings, liquidity, and sensitivity) rating system for banks. Financial incentives for banks and non banking financial institutions that fund green initiatives should also be considered.
- Public-private partnership: For sustainable projects, resources and experience can be tapped via fortifying partnership between public and private organizations. Working together, green projects can have greater effect and scalability.
- Industry-academia collaboration: Innovation and workable answers to sustainable finance issues can be sparked by closer links between industry and academia. Universities can match research and development with corporate need to tackle particular environmental problems.
- Community-based solar projects: By putting into place community-based solar projects at schools, madrasas, colleges, and universities, one may encourage the use of renewable energy and show the advantages of sustainable practices at the local level.
- Regulatory reforms: The regulatory loopholes can be filled, and more people can participate in sustainable financing by creating a separate master circular for Islamic refinancing and particular instructions for NGOs in the context of green finance.
- Capacity building: Creating specialist green banking roles at the branch level and funding banking officials' training can help to enhance knowledge of and execution of sustainable financing projects.
Bangladesh can improve its climate justice, strengthen resilience against the negative impacts of climate change, and improve its green and sustainable finance environment by tackling these issues and putting specific recommendations into practice. Let us pledge to a sustainable and just future for all.
Nikhil Chandra Nath is a Recovery Specialist at NCC Bank Limited.
