The article originally published in Director Today on November 2021 issue. This was a special issue on ‘Climate Change’.
Authors: Dr. Fahmida Khatun, Prof. Dr. Saleemul Huq, Prof. Mizan R. Khan
Following the publication of the Sixth Assessment Report (6AR) of the Intergovernmental Panel on Climate Change (IPCC) in August 2021 the severity and scale of the impact of climate change is clear. The scientific report revealed how grave the impact of climate change would be if the world does not act upon it right now. Indeed, climate change has been considered as the greatest environmental, social and economic threat that the planet faces at the moment. Though the impact of climate change will be felt differently by different countries, developing and poor countries will face the greatest hit. This will have short, medium- and long-term impacts on the lives and livelihoods in these countries. Within countries, the poor will bear the brunt of it more than any other sections of population since they have limited or no capacity to adapt to the situation.
In order address the climate related challenges, there is a need for large investment, particularly on environment friendly technologies so that economies can adopt a green growth strategy and also adapt to the impact of the climate change. Such investments will have to be made by some key sector such as industry, energy, transportation, construction and agriculture sector since all economic activities performed by these sectors pollute the environment by emitting greenhouse gas (GHG). However, the required finance for greening the economy is enormous and not a single source will be adequate to meet this financial demand. Given the massive requirements, various sources will have to be explored. Funds can be mobilized through two sources – government and market mechanism. However, government funds cannot fill up the need for resources since governments have competing priorities to invest in social sectors including healthcare, education and social security. Therefore, we have to rely on the market mechanism though it is not so popular in the less developed countries. Under the market mechanism, various economic instruments will have to be applied to attract private capital which can finance the green economic transition through investment in green technological innovations as well as their applications. Worldwide, companies have come forward to mobilise funds for greening their respective sectors and businesses. They have focused on the environmental, social and governance (ESG) related initiatives in their companies to be compliant and responsible. As a result, we see several private companies, financial institutions and businesses have announced their targets for carbon mission reductions and put in place the guidelines for environmental sustainability. However, this is mostly confined amongst the bigger firms in advanced countries while thousands of other companies are yet to make any commitments and take actions.
One of the reasons for reluctance in following green growth path is the worry about the return on the investment by the companies. Business is after all for making profit in addition to creating employment and contributing to higher national gross domestic production (GDP). If the operating costs of businesses are too high and there is no premium price for the products and services provided by compliant businesses, they are not going to spend extra money on greening their companies. Therefore, it is important firstly to increase awareness among the private sector that for environmental sustainability there is no other way but to cut down their emissions by reducing wastes and lowering energy consumption. Secondly, there should also be a mechanism for them to be economically sustainable. Technological adoption will reduce carbon emission. It will also increase productivity. Of course, the risk of displacement of employees is high since many jobs will be done by smart technologies. But there will also be opportunities for new types of jobs with new technologies. This will require up-skilling and reskilling of the labour force so that they can adopt to the new situation. Such skill development is also required for those who will be displaced due technological adoption so that they can find jobs in other sectors or become small entrepreneurs themselves.
So, the issue of greening our economies is multi-dimensional and it has to be dealt in a holistic manner rather than in a silo. For the small and medium enterprises (SMEs) who find it difficult to be environmentally sustainable through making additional investment on green technology, access to flexible finance is crucial. Environmentally sustainable projects include the production of energy from renewable sources like solar, wind, biogas, etc.; clean transportation that lowers GHG emission; energy efficient green building; waste management through recycling, efficient disposal and energy conservation, etc. Sustainable projects also include climate change adaptation, sustainable waste and water managements, and sustainable land use including sustainable forestry and agriculture, and biodiversity conservation. All these are costly. And not many enterprises have the capacity to go for such expensive measures.
Thus, the enterprises in low income countries like Bangladesh are at double jeopardy. On the one hand, their businesses will have to be economically viable and earn enough return. On the other hand, they have to be environmentally and socially sustainable by being green and by adhering to labour standards. Ironically, there is not much choice for the businesses. International norms and requirements are changing fast. As Bangladesh economy is globally integrated through trade, remittances, foreign direct investment and foreign aid, the country has to follow international rules. A few examples may be mentioned here how Bangladesh has become a part of the global system in certain areas and thus has to be compliant.
First, Bangladesh is a signatory to the Paris Climate Agreement and has made voluntary commitments to reduce carbon emission and announced its Nationally Determined Commitments (NDCs). In 2015, Bangladesh committed to reduce GHG emissions by five percent by 2030 in three sectors – power, transport and industry. With external support, Bangladesh committed to reduce GHG emissions by 15 percent. In August 2021, Bangladesh has increased its ambition level and submitted its revised NDCs where it has committed to reduce GHG emissions by 6.73 percent by 2030 in five sectors such as power, transport, industry, waste and land use. If the country is able to receive external finance and technology, it will reduce GHG emission by 15.12 percent. Though Bangladesh’s GHG emission is only 0.45 percent of total global emission in 2018 according to the World Resource Institute, the targets of NDCs reflects the responsibility of the nation.
Bangladesh’s commitment to low-carbon growth reflects its determination to pursue low-carbon intensity growth. Indeed, the Prime Minister of Bangladesh Sheikh Hasina, as the President of the Climate Vulnerable Forum (CVF) has been playing a pivotal role in urging the global community to work together in reducing emissions and support the vulnerable countries to overcome the climate change related challenges they face. Clearly, the fulfillment of Bangladesh’s national commitments for GHG reduction will require technological and financial support from the advanced countries only, but also from the private sector and enterprises of the country in terms of their actions towards lowering GHG emission.
Second, Bangladesh has achieved a number of milestones during the last few years. In 2015, the country has become a lower middle-income country from a low-income country according to World Bank’s classification of countries. In February 2021, Bangladesh has fulfilled all three criteria for LDC graduation and is set to graduate in 2026. The government of Bangladesh has aimed to become an upper middle-income country by 2031 and a developed country by 2041. Besides, the country is also committed to implement the Sustainable Development Goals (SDGs). These successes and commitments have implications for Bangladesh economy in many ways. For example, once Bangladesh graduates from the LDC category, the country will lose the duty-free quota free market access (DFQF) in many developed and developing countries which the country enjoys as an LDC currently. Bangladeshi products including the readymade garments (RMG) will have to enter the global market by paying the existing tariffs which will increase the costs of the exporters significantly resulting in losing their competitiveness. The RMG which comprise about 80 percent of the country’s total export volumes enjoys DFQF market access under the Everything But Arms (EBA) initiative in the European Union (EU) markets. The EU is the largest export destination for Bangladesh’s RMG. The Generalised System of Preferences (GSP) scheme of the EU has created opportunities for Bangladesh to enjoy preferential market access.
After LDC graduation Bangladesh can avail the GSP+ (GSP plus) facilities to export to the EU market. The EU’s new GSP + scheme will be in place for ten years from 2024-2034. However, in order to qualify for GSP + Bangladesh will have to ratify 32 international conventions and agreements and take concrete actions towards compliances. Along with ensuring labour rights, child rights, and other human rights, and improving economic governance, actions towards environmentally sustainable green growth will have to be ensured since the new GSP+ aims to be a green GSP.
Therefore, work has to start from today so that Bangladesh can retain its place in the global market including the EU. And the work has to be a concerted one. While the government and entrepreneurs themselves have to be proactive and convert the industry an environmentally compliant sector, the responsibility of the global brands and buyers cannot be avoided. Bangladesh already has 150 green factories certified by the US Green Building Council and nine out of ten green RMG factories are located in Bangladesh.
Unfortunately, the entrepreneurs regret their green investments as they do not get increased price for their apparels from green and socially complaint factories. On the other hand, the western consumers pay a higher price for green and organic products. But Bangladeshi exporters’ do not have additional share in that value chain. This is discouraging for the other factories which are waiting to be green. Though the large factories manage to survive despite making large investment for greening their factories, the smaller and medium sized ones may not sustain their business by doing so. And if they are not compliant, they risk losing their global markets. This could lead to the closure of many small factories which will result in job losses and lower national income.
Therefore, the fight for reducing the impact of climate change is not only the responsibility of the government alone; it must be a collaborative effort among the government, the private sector, the buyers, the workers and the citizens. The government will formulate fiscal and regulatory policies and ensure good governance for implementation of policies. But the other stakeholders will also need to play their part. The journey towards greening the economy not only needs technology and finance, it also needs more awareness among all stakeholders and engagement of all citizens in overseeing the implementation of the pledges of all actors.
*Dr. Fahmida Khatun is the Executive Director of the Centre for Policy Dialogue (CPD). A leading institution for in-depth research and dialogue to promote inclusive policymaking in Bangladesh.
Prof. Dr. Saleemul Huq is Director of the International Centre for Climate Change and Development (ICCCAD), and
Prof. Mizan R. Khan is its Deputy Director. ICCCAD is one of the leading research and capacity building organisations working on climate change and development in Bangladesh.