— Fair Observer
SUSTAINABLE finance has three dimensions: environmental, social and governance. The environmental dimension includes climate change mitigation and adaptation, for instance, the preservation of biodiversity and pollution prevention. The social dimension refers to the issues of inequality, inclusiveness, labour relations, investment in human capital and communities, as well as human rights. The governance of public and private institutions includes transparency and accountability in management structures, employee relations and executive remuneration, etc. Sustainable finance has a key role to play in delivering the commitments of the Bangladesh government on climate and sustainability objectives addressed in the UN 20230 agenda, sustainable development goals and the Paris climate agreement.
The Sustainable Development Report 2022 indicates that Bangladesh is 104th among 163 countries and the score is 64.2. Bangladesh surpasses her nearest neighbour towards achieving SDGs by 17 steps, as the ranking of India is 121, with a score of 60.3. In December 2020, Bangladesh Bank issued the Sustainable Finance Policy for Banks, including an excel reporting template, a comprehensive sustainable finance taxonomy, a green taxonomy, and a sustainability rating system.
According to the SDGs financing strategy of the Planning Commission (June 2017), an additional amount over the current provision of cost related to SDGs by the public sector, private sectors (household and private businesses), and external sources (foreign direct investment and foreign aid) of $928.48 billion will be required for SDGs in the period 2017–2030. The annual average cost of SDGs will be $66.32 billion for this period and the public sector will contribute 33.5 per cent, private sector 42.09 per cent and from external sources 14.89 per cent will be met. The estimates show that Bangladesh is heavily dependent on the investment of the private sector.
Bangladesh Bank, in its quarterly review report for July–September 2021, suggests that financial institutions can implement a ‘go-green’ policy for themselves and encourage client firms to adopt clean technology. In Bangladesh, the Quarterly Review Report on Sustainable Finance was introduced for the first time in 2021, not only to cover the green banking activities but also to cover all the components of sustainable finance under the sustainable finance taxonomy. Remarkably, in 2021, the central bank selected 10 banks and five non-banking financial institutions that showed the best performance to disburse green loans, which will encourage others to accelerate investment in this sector. Besides, the central bank established a revolving refinance scheme amounting to TK 200 crore from its own fund for solar energy, biogas and ETP projects in 2009. The size of the fund was later increased to TK 400 crore to meet the growing demand from borrowers. The fund’s interest rate hovers between 6 and 7 per cent.
Globally practised sustainable finance policies include green financing, sustainable agriculture, sustainable cottage, macro, small and medium enterprise sector, and corporate social responsibility activities, which include socially responsible finance activities. Major areas of possible sustainable finance in Bangladesh are solar home systems, biogas and wind power, effluent treatment plants, bottle recycling plants, compressed block-brick and organic farming. The government needs to think beyond the already identified schemes and needs to promote extensive research to explore possible sectors and implementation mechanisms from current practices and international policies and best practices to achieve SDGs.
In order to expedite sustainable financing for the fulfilment of the commitments of the government regarding SDGs by 2030, the following suggestions can be considered:
— Formation of technical expert group on sustainable finance that could assist the ministry of finance, the Planning Commission and other ministries by developing a unified classification system for sustainable economic activities as well as providing regular guidance in this regard.
— A harmonious financial reporting system is required for monitoring the progress of sustainable financing. Presently, different institutions submit financial reports to different agencies such as public organisations send report to AG whereas NGOs submit to NGO affairs bureau as well as banks report to the Banking and Financial Institution Division of ministry of finance which creates a problem of overall sustainable finance monitoring.
— Bangladesh is heavily dependent on the investment of private sector. So, the mechanism needs to ensure more active participation from the private sector representatives towards sustainable financing.
— A committee with the representation of Planning Commission, ministry of environment, forest and climate change, ERD, FBCCI etc can be formed to create the pathway for policy formation for sustainable financing.
— A comprehensive strategy and policy framework on sustainable finance with a national sustainable finance roadmap should be developed.
— The government needs to develop a mechanism to manage the social and environmental impacts, risks and opportunities that accompany private sector development.
— Integration of existing data systems in government and private sector (aid, debt, budget, accounting, etc) should be ensured.
— Cooperation network among South Asian countries should be ensured which can provide the building blocks for a more integrated financing strategy.
— Introduction of integrated sustainable finance progress report in public and private sector should be ensured with progress monitoring mechanism.
— Strengthen disclosure mechanism for all stakeholders of sustainable finance.
— Continued expansion of sustainable finance through negotiation with international donors, business, private sector etc. should be ensured.
Dr Md Abdul Karim is a former principal secretary. Md Mahmud Hassan Talukdar is an urban planner, policy researcher and development professional.
