Private sector solutions are critical for Bangladesh’s Climate Action
We know today that the recent turbulence in energy markets, global inflation, supply chain disruptions and rising food insecurity are adding to the challenges of reaching a net-zero economy. Now, we need to redouble efforts to accelerate the transition
It was 13 years ago when Bangladesh became the first country in the world to create a national plan to determine how it would adapt to a changing climate.
It was a move that won many plaudits, with former UN Secretary-General Ban Ki-moon, a decade later, describing the country's achievements in adaptation as "nothing short of miraculous." Bangladesh has demonstrated a number of global best practices, particularly in cyclone preparedness.
Now fast forward to today and consider Bangladesh's position as the seventh most climate-vulnerable country in the world.
The challenges are evident in the numbers. Average annual losses from tropical cyclones are estimated at about $1 billion. Sea level rise will nearly double asset risk, currently about $300 million annually. One-third of agricultural GDP may be lost due to climate variability and extreme events and the country's cropland may shrink by 6.5% by 2040.
Within South Asia, Bangladesh stands as the most vulnerable to climate migration. It's estimated that about 2.5% of the population (4.1 million people) was displaced due to climate disasters in 2019. A growing urban population is generating more than 38,000 metric tons of waste each day, expected to reach 47,000 tons per day by 2025.
By 2050, over 13 million internal climate migrants and around 27% of all South Asian climate migrants are projected to be from Bangladesh – that's due to climate-induced impacts on agricultural production, water scarcity and rising sea levels, with higher impacts on women.
The challenges are starkly laid bare in the new Bangladesh Country Climate and Development Report (CCDR) produced by the World Bank Group, which focuses on the policy actions and financing needed for a green, inclusive and resilient future.
The CCDR makes it clear that Bangladesh's plans and commitments to address climate risks, including the Bangladesh Delta Plan 2100, Mujib Climate Prosperity Plan, as well as the country's climate action plan, the Nationally Determined Contributions, will require massive capital.
At a time when governments all over the world are facing fiscal constraints, in the wake of multiple crises, government resources alone won't be enough to meet the required amount—about $32 billion for the 'unconditional' mitigation objectives, and almost $144 billion more for the 'conditional' objectives through 2030, according to Bangladesh's 2021 Nationally Determined Contribution (NDC) Update.
Mobilising private capital will be crucial. It's evident again in the numbers - the Bangladesh Delta Plan 2100 and Mujib Climate Prosperity Plan expect 20-47% of the total financing—$38 billion and $89.7 billion by 2030, respectively—to come from the private sector. That's many times more than current levels of private sector investment.
It's worth noting that in the financial sector, green finance products only accounted for 1.6% of annual loans disbursed in FY 20 – compared to an average of 7% in emerging markets.
And as the CCDR makes clear, increased private sector investment in climate-smart agriculture, renewable energy and energy transmission, housing and transport are both necessary and possible.
Consider housing for instance. For the private sector, there's a significant investment opportunity in providing high-density, green and climate-proof buildings. We estimate its value at $120 billion by 2030, with the residential sector accounting for $100 billion.
There's added value as well: an upfront investment of 2% in green building design can result in a lifecycle saving of 20% of total construction costs. Subsidies and regulations also can be designed to shift new housing supply away from high-carbon energy sources toward rooftop solar.
More private sector participation can help deal with the considerable need for resilient, affordable housing to meet current shortages, as well as to house an influx of climate migrants.
On the demand side, the top priorities should be to develop mortgage and housing finance markets for low- and middle-income families, such as IFC's investment in Bangladesh's first housing bond.
There's also considerable room for the private sector to lead on greening the ready-made garment industry, which is already underway, as well as the cement, steel and fertilizer sectors which are lagging compared to international benchmarks in terms of competitiveness and environmental issues.
The CCDR points out that reaching Bangladesh's ambitious climate targets is challenging, and substantial reforms will be required to overcome longstanding domestic and foreign investment constraints. Broader and more competitive private participation, including public-private partnerships, foreign direct investment, and concessionary financing, can play a vital part in meeting the challenges and offering significant solutions.
It's not just money, it's also the innovation of the private sector which can help Bangladesh. For example, agricultural innovation systems and collaboration between producer groups and the private sector would accelerate research, development, and dissemination of climate-smart agriculture, and could be supported with an investment potential of $117 million, helping 60 million people.
In a country where power outages are currently leading to economic losses, tackling key constraints such as access to land can help spur the large-scale development of renewable energy. Decarbonising power by scaling up solar development, reforming energy pricing for greater efficiency, facilitating cross-border energy trade in renewables, improving energy efficiency for industry; and introducing private sector opportunities with transport policies to develop greener modes, such as railways and waterways can all lead to improved efficiency and decreased emissions.
We know today that the recent turbulence in energy markets, global inflation, supply chain disruptions and rising food insecurity are adding to the challenges of reaching a net-zero economy. We need to redouble efforts to accelerate the transition. The world needs to cut emissions at least in half by 2030 and reach net zero by 2050 to prevent the worst effects of climate change. We can't do it without the innovation, financial firepower and skills brought by the private sector.
And it won't be achieved without the support of people from all walks of life – whether in government or non-government organisations. Years ago in Bangladesh, it was people supported by the great work of NGOs and different levels of government, who helped the country win accolades for bringing a national adaptation plan to life.
We need that same kind of support and action now from all people, along with shared recognition that private financing and expertise will be vital to achieving both the climate and development goals of Bangladesh.
Hector Gomez Ang is the Regional Director for South Asia and Martin Holtmann is the Country Manager for Bangladesh, Bhutan and Nepal at International Finance Corporation.
International Finance Corporation is a member of the World Bank Group, and the largest global development institution focused on the private sector in emerging markets.
