Green finance means financial investments in sustainable development projects and initiatives supporting the transition to a low-carbon, climate-resilient economy.
If we scrutinise, Bangladesh’s green finance landscape is at a nascent stage.
Economical-wise Bangladesh is in its early stages but has shown remarkable growth compared to other Asian countries. The country is also known for its climate vulnerability and transition risk, as well as various environmental challenges such as pollution, depletion of natural resources, and biodiversity loss.
Under the Paris Agreement, Bangladesh has set ambitious climate targets for mobilising a sustainable economy, and green finance is crucial. But in the current scenario, green investment flows are inadequate.
As per the Bangladesh Bank’s Sustainable Finance Policy, in December 2021, the total outstanding loans in the banking sector were $7.11 billion, representing only 3.58% of total loans and advances. The central bank also reported that only 22% of the sustainable refinance funds it created have been used to indicate tepid credit demand.
This indicates the situation of the country in the nascent stage of green finance.
The reasons identified for constraining green finance are:
- Lack of common sustainable finance definitions and principles
- Lack of quality data and disclosures in climate risk assessment
- Limited green financial products.
- Underdeveloped green bond market.
- Mandatory climate risk reporting and taxonomies are missing as banks and financial institutions evaluate such risks.
Various refinancing schemes, policy guidelines, and reporting formats were launched to boost green finance, but the actual fund disbursement has been slow as banks struggle for bankable green projects.
The private sector also lacked the technical capacity for climate finance.
It can very well be said that the green bond market is at an early stage of development.
If we dive into the future outlook,
Bangladesh is aiming to meet up to 40% of its NDC financing needs from external sources by 2030. To achieve the target, a coordinated push is needed from policymakers, regulators, bankers, and the private sector.
The main aim of the government is to plan framework legislation on climate change to create a supportive policy and regulatory environment to spur the needed systematic changes.
Well, mandatory climate risk guidelines for financial institutions and defining the green asset classification and reporting taxonomy can be issued by the Bangladesh Bank.
As per the expert’s view, green financial instruments such as sustainability-linked loans, green mortgages, climate bonds, and insurance solutions can be some of the most interesting ways to solve the issues.
Strong green bond policy measures, credit enhancement tools, and investor awareness campaigns can also support the growth of the green bond market.
Also, partnerships between banks, industries, technical experts, and multilateral agencies are important for building and getting interesting bankable green projects.
Green finance has immense potential for development in Bangladesh, but it needs innovative ways to unlock its potential.
The significant importance of green finance for Bangladesh on a global platform is:
- Bangladesh can tap into global climate funds by scaling up green finance, such as the Green Climate Fund, and leveraging international investments.
- Commitment and achievement in green financing will boost Bangladesh’s appeal as a sustainable sourcing and investment destination in global markets.
- Partnerships with multilateral in green finance will unlock technology transfer and capacity-building opportunities.
- It will improve Bangladesh’s brand image and reputation globally as a sustainable brand.
- Green investments will also enhance Bangladesh’s resilience to climate shocks.
- Green finance also strengthens Bangladesh’s geopolitical influence as a regional leader in the South Asian forum.
- Greater FDI will be facilitated by a stronger green finance ecosystem for boosting low-carbon infrastructure and sectors.
- As per global best practices, evaluation and disclosure of climate-related financial risks will bolster Bangladesh’s position.