Private sector engagement for unlocking climate finance

Climate change is a reality and it is mainly caused by humans. Despite contributing less than 0.47 per cent to global greenhouse gas emissions, Bangladesh is one of the most climate-vulnerable countries with millions of people and livelihoods at risk.

Bangladesh has developed Bangladesh Climate Change Strategy and Action Plan 2009, comprising 44 programmes under six thematic areas to deal with adverse impacts of climate change and support low carbon economic growth. The government has demonstrated its commitment to undertake both adaptation and mitigation efforts by allocating funds from its annual budgets.

Bangladesh created "The Bangladesh Climate Change Trust Fund" in 2009 for adaptation, mitigation and research. Up to 2020-21, the government allocated Tk 3,900 crore to this fund from its own resources.

According to the Climate Budget Report of 2021-2022, Bangladesh's climate-related budget involving 25 ministries and divisions is $2.96 billion, which is 0.73 per cent of the country's GDP.

Between 2015-16 and 2021−2022, Bangladesh doubled its climate budget. Still, the public sector financing through budgetary provisions seems grossly inadequate given the large investment needed for climate change adaptation and resilience building.

The World Bank estimates that the country would need $5.7 billion per year as adaptation finance by 2050. This amount is more than five times higher than the current expenditure for climate change adaptation.

In order to help climate victims and support their livelihood (livelihood is at stake due to increased sea level and salinity, flood, drought, storms etc.) and shelters, adaptation projects are essential. As Bangladesh is the least responsible for carbon emissions, adaptation is Bangladesh's priority to combat the impacts of climate change.

The draft National Adaptation Plan (NAP) has identified 15 priority climate programmes (activities, deliverables programmes and interventions identified), for which an approximate Tk 7,30,600 crore will be required. Despite commitments from developed country parties, multilateral development banks (MDBs), and other development partners to ramp up investments in adaptation, funding from the private sector would be essential as public spending alone can't meet the demand for investment for climate change.

It is notable that Bangladesh is raising climate finance from the United Nations Framework Convention on Climate Change (UNFCCC)-related financial institutions such as the Green Climate Fund (GCF), the Adaptation Fund, and the LDC Fund to meet its mitigation and adaptation commitments, including the formulation of the NAP, under the Paris Agreement.

With the funding support of the GCF, Bangladesh is implementing an adaptation project of $33 million to strengthen the adaptive capacity of coastal communities, especially for women to cope with the impacts of climate-induced salinity on their livelihoods and water security.

Developed country parties channel climate finance through bilateral, regional and multilateral channels. Non-UNFCCC-related funds such as those established by multilateral development banks or UN programmes, bilateral donor governments, and other grant providers also provide climate funds to contribute to mitigation and adaptation. However, accessing these funds often takes two to three years and involves complex application and approval procedures.

In 2009, developed countries committed (as part of the Copenhagen Accord) to jointly mobilise $100 billion per year by 2020 from a wide variety of sources:  public and private, bilateral and multilateral, and alternative to address the needs of developing countries.

According to the Climate Policy Initiative, the private sector engagement in adaptation and climate resilience is still not adequate presently. Their engagements are mostly in mitigation measures. Some notable success stories are discernible in the area of mitigation, especially the large-scale roll-out of solar systems in rural Bangladesh.

As Bangladesh is adversely affected by climate change, it is increasingly being felt that the private sector needs to be more engaged in adaptation activities. But as adaptation projects are often not profitable, attracting private sector funding for adaptation projects is a challenge. A lack of country-level climate risk and vulnerability data needed for investment decision-making also holds the private sector back from investment in climate change.

Now the question that may be posed is: how can the private sector be encouraged to finance adaptation projects? A number of policy options may be considered to address the issue. The policy-makers can deploy a range of public policy and public finance mechanisms to motivate private sector investments in adaptation.

The public sector and NGOs may take up programmes to aware the private sector that they are not immune from the adverse effects of climate change. Climatic events (flood, super cyclone, drought and storm surge) adversely affect infrastructure, production and the supply chain of the private sector, and this, in turn, affects their investments and economic returns.

The public sector can take action to increase the demand for adaptation products and services. Necessary rules and regulations related to evaluating, disclosing and managing climate risk may be framed.

Market studies outlining climate risks specific to local areas to help the private sector better understand the risks affecting different enterprises may be funded or undertaken. Viable business models may also be exhibited for the private sector.

Potential private sector-led adaptation options may include input supply for climate-resilient agriculture, cold storage in high temperatures for potatoes and tomatoes, development of irrigation equipment, and mechanisation of agriculture.

In addition, the private sector may be given research and development support and concessionary finance to procure capital assets such as to make weather-resilient fibre-glass boats (instead of boats made from wood). From a climate change adaptation perspective, fibre-glass fishing boats are much more stable in turbulent weather and more resilient in flood conditions.

Concessionary loans or finance may also encourage private sector engagement. Exemption of customs duty, VAT and other border charges on the import of equipment to address climate change such as early warning equipment, rainwater harvesting equipment and desalinisation plant may also spur private investment. Tax holidays for the operation of cold storages may also act as a fiscal incentive for the private sector.

The policy-makers may also unlock and scale up private sector investments in adaptation activities by de-risking their investments through the use of policies. De-risking involves activities such as directly investing in adaptation initiatives, supplying early-stage funding for emerging adaptation technologies to help bring them to the market and provisioning of soft loans.

Last but not the least, private sector financing has to be emphasised and motivated through different policy support to generate adequate funds for the climate cause. Increased awareness of the private sector about the significance of investment in climate change for continuing their business operations is of paramount importance.

The author is a climate change analyst and an adjunct lecturer at the Faculty of Business Studies at the University of Dhaka. He can be reached at ma_yusuf@hotmail.com