Green growth requires green minds
I am always at ease with the youths. I feel inspired whenever I get a chance to interact with them, be it in my class or in any programme. Here I would like to share my thoughts on green growth which was one of the themes of the third CSD conference on sustainable development organised by University of Liberal Arts, Dhaka and Adam Smith International during October 20-21 this year.
I was indeed moved by the aura of their confidence and brilliance in projecting not only their innovative green ideas but also tomorrow's Bangladesh which is destined to become a role model for green growth in the years to come.
It was informed in the event that the organic mangoes of Bangladesh if produced using an environment-friendly farming technology have the potential to earn the brand name of the best value-added variety and hit the best retail chains of the west.
It is needless to say that the development thinking has gone through a paradigm shift over the last two or three decades.
The exclusive focus on 'only growth' has been replaced by the efforts to channel the benefits of growth to the 'bottom of the pyramid' while the short-term business cycle management concerns are being replaced by long-term sustainability aspirations.
The 'Green economy' now occupies a significant portion (if not all) of the development discourse. The aim now is to reduce environmental risks and ecological scarcities to promote green energy, green building and green industry.
Greening of industry includes policy making, improved industrial production process and resource-efficient productivity along with maintaining desired social and labour standards.
Finance has, no doubt, an important role (if not the most important role) in this process of greening. And the financial service providers and regulators are already responding to this demand. They are:
- combining pure business concerns with the sustainability agenda.
- ingraining socially and environmentally responsible financial ethos reflecting local context and global challenges.
- enabling the bottom of the pyramid through financing sustainable entrepreneurial innovations and corporate social responsibility support.
The Perspective Plan of Bangladesh 2010-2021 has acknowledged the importance of effective handling of environmental issues to develop the country's development strategy. In a resource constrained developing country like Bangladesh, finance is a powerful intervention that can contribute in the process.
The Seventh Five Year Plan (2015-2020) and Bangladesh Delta Plan 2100 (BDP 2100) include major policies, investment programmes and institutional reforms that if adopted and implemented properly will address the sources of long-term climate change vulnerability.
Already Bangladesh has been identified as a role model in climate change adaptation by Global Commission on Adaptation (GCA) and if we remain focused it will also be a success story on greening of the growth process.
Bangladesh has taken a host of fiscal policies and targets to promote sustainable energy such as the plan to generate 5 percent and 10 percent of total power production by 2015 and 2020 respectively.
Tax benefits and VAT waivers have also been offered to the renewable energy equipment. However, the target remains much lower than its neighbours and actual implementation performance is even worse.
The Bangladesh Bank's green banking policy to promote green finance with a view to mitigate the risks of climate change has been remarkably successful.
A total of Tk 380 crore ($44 million) has been disbursed so far from the Tk 200 crore ($23 million) refinance scheme up to June 2018. Another Tk 400 crore ($46 million) fund has been opened with support from ADB to finance environment-friendly brick kilns.
Appropriate environment and social risk management guidelines have been issued to the banks to refrain from investing in polluting industries and simultaneously encouraging green investments.
They have also been encouraged to go green by faster digitisation of their business processes using less and less papers. And here, the gains have been pretty impressive. They are also required to monitor and report carbon footprints of their own operations to the relevant department of the central bank.
Here, of course, the motivational ethos transmitted by the central bank to the commercial banks and through them to the entrepreneurs to go green has been crucial.
There is no doubt about the importance of green growth and it is now being acclaimed globally by all stakeholders. The green transformation of the economies has its challenges as well as new institutional arrangements are needed to guide the greening of industries.
People are still not adequately aware of the potential benefits of green transformation (stakeholders often fail to grasp the long-term return). Consumers too need to be made aware of the benefits of green products so that their demand curve shifts to the right direction.
Shortage of financial resources stays at the heart of the weak performance of environmental protection.
In many developing countries, such as Bangladesh, economic growth often occurs at the expense of environmental assets and flows, particularly during its ignition stage. Appropriate revenue tools must be created to discourage this trend and put green transformation in the long-term real economic context.
Let me now make some strategic recommendations:
a. The target of direct green finance disbursement should be set as a percentage of total term loan disbursed, not total loan disbursed if we want to capture its long-term implications. Banks and NBFls can also be allowed to reach the green finance market in the rural regions through agent banking and mobile banking.
b. The insurance sector can be integrated to support promotion of green finance through risk minimisation of green projects.
c. Bangladesh Bank may consider establishing a permanent Green Technology Financing Fund (GTFF) at a relatively low cost.
d. It has been estimated by Adam Smith Institute that the amount of carbon tax receipts for Bangladesh will increase to Tk 15,283 crore by 2031 and Tk 24,424 crore by 2041 which could reduce 67.92 million tonnes of carbon dioxide emission. The revenue from the carbon tax can be used for investment in clean fuel, clean technology and infrastructure projects.
e. There should be enough fiscal incentives to initiate green bonds to support long-term investment in green projects. The local governments particularly the city corporations may be encouraged to come forward with well-done projects on green urban infrastructure which could be supported by the proposed green bonds. The initiation of a well-integrated underground rail system in Dhaka could not only reduce the cost of congestion due to heavy fossil-fuel run transports over ground (through reduction of carbon-emission) but also increase over all GDP growth of the country. There can be dedicated green bond to support this infrastructure which can be easily sold to millions of non-resident Bangladeshis working abroad who want to participate in the development of the country.
The writer is a former governor of Bangladesh Bank.