Sustainabi-lity in the Bangladesh ready-made garment (RMG) industry is a subject that is never far from people's minds and occupies conversations with customers and industry partners. It is an area that requires significant investment, but also one that can generate a significant return for those investors who think innovatively.
Put simply, innovation-based financing rewards companies that achieve predetermined sustainability targets, particularly with regard to environmental issues. Favourable interest rates or repayment mechanisms are designed to encourage companies to adopt sustainable practices that often require them to “think out of the box” when seeking finance for such sustainable initiatives.
Newly emerging companies, such as the Sustainable Finance Lab, based in Utrecht, the Netherlands, aim to establish a “stable and robust financial sector that contributes to an economy that serves humanity without depleting the environment.” This network questions traditional financing methods, encourages more radical thinking to enable discussion and investigation to achieve a more sustainable future, and is playing a critical role in bringing together convergent viewpoints.
This way of thinking is something that we should seriously consider embracing for the future development of the RMG sector in Bangladesh. As was reported in April 2018 by the United Nations Environment Programme: “Sustainable finance is now recognised as one of the megatrends shaping the future of global capital markets.” The report specifically focussed on limiting the amount of carbon emissions that escape into the earth's atmosphere, which reached an all-time high in 2018, and the fact that limiting these emissions is crucial to keeping climate change within acceptable boundaries and mitigating the risks to countries like Bangladesh.
The subject of carbon emissions is worth exploring as it serves as a good example of how innovative finance for the RMG industry can work in practice. There are plenty of problems with carbon pricing—the Organisation for Economic Co-operation and Development (OECD) states that there is a 76.5 percent gap between actual current carbon prices and 30 euros a tonne, which the organisation calculates as the minimum required to reflect the damage imposed on the environment. At the current pace of decline, carbon prices will only meet real costs in 2095. Much faster action is needed to incentivise companies to innovate and compete to bring about a low-carbon economy and to stimulate households to adopt low-carbon lifestyles.
Feike Sijbesma, who chairs the World Bank and IMF's Carbon Pricing Leadership Coalition, says that “by putting a price on carbon, you put a real economic incentive for companies to develop new low-carbon technologies, reduce their own emissions, and develop new technologies.”
It is this type of thinking that the Bangladesh RMG industry needs to embrace. The global garment industry is the second largest contributor to damage to the environment after the oil industry. Sadly, the damage to our environment is already done, but we cannot throw up our hands and keep doing business in the same way. What is needed now is a completely different approach to ensure that we collectively minimise the environmental impact that our industry causes in the future.
Establishing clear social impact and sustainability-based investment metrics is key to realising this goal. As an industry we need to look at every possible avenue in minimising our carbon footprint, combined with other initiatives that bring environmental and social benefits.
We need to be in discussion with all financial institutions, whether they be government- or NGO-related entities. It is not unrealistic for the RMG industry to secure favourable loan rates, subject to achieving predetermined sustainability targets. But these targets need to be ambitious. We need to aim high!
A good example of where innovative finance can encourage, not only RMG companies, but government agencies as well, to adopt carbon neutral strategies, can be found in a recent World Economic Forum report regarding Costa Rica. This small, Central American country aims to become the world's first carbon neutral society by banning fossil fuels for electricity, heating, and transportation. It already generates 99 percent of its energy from renewable sources and, by 2021, will ban single-use plastics.
This approach has, admittedly, incurred substantial costs, as the adoption of solar, wind and hydro power, together with the conversion of transport to electric or hydrogen fuel cells, comes at a price. However, companies and government agencies in the country were encouraged to adopt a carbon-neutral approach through the availability of innovative financial partners, whereby favourable interest and repayment rates were set based on pre-determined carbon emissions targets.
I have already mentioned carbon emissions above, but how can innovative finance help to utilise the technology available to reduce these as well as our use of water, our reliance on low-cost labour and the improvement of overall efficiencies within the industry?
If we consider the three core pillars for achieving sustainability—economic, social and environmental—we have to consider what areas of the industry we need to improve and how innovative finance can help us in achieving our goals.
I would argue that each and every investment we consider should be evaluated by financial metrics, of course, but also by its ability to increase sustainability.
Economically, we, as a nation, need to prove to our direct customers and the world at large that we operate an unrivalled apparel industry. Aside from manufacturing world-class quality products, we need to show the world that we work to improve the environmental impact of all aspects of the production supply chain, from fibre through to finished product, and that Bangladeshi businesses consistently challenge conventional thinking and invest in technology that allows for a sustainable future. Can the fibres we use be recycled? Can we manufacture, package, and transport our goods in more sustainable ways? All of these and others are areas we can investigate and improve.
Socially, we have to prove that, apart from providing the best working conditions and fair terms for our employees, we are building an industry that is sustainable for the future. Investment in technologies that reduce the reliance upon labour and at the same time improve efficiencies and working conditions will benefit our industry and, in the long run, our society as a whole.
Environmentally, there is a great deal that we, as an industry, can investigate and seek finance for. We are heavily reliant on the supply of gas and electricity from fossil fuels—resources that will, one day, run out. We should be actively looking at alternative power sources.
Bangladesh is blessed with inordinate amounts of sunshine, so solar power is a realistic resource for the industry to exploit, but one that is not readily adopted at present. Innovative financing could secure the technology required for us to expand our harvesting of solar energy, allowing the industry to shift its dependency on gas and regular electricity, and even offer new assembly, maintenance, and installation jobs to our people.
Similarly, we have access to a coastline and natural rainfall. It should be feasible that we could explore the possibilities of establishing off-shore wind farms or hydro-powered stations. Again, this approach requires upfront investment but if emissions targets can be agreed with financial third parties, we could secure the necessary finance at favourable rates.
Rainwater harvesting is another area that we should be investigating. Efficient collection and distribution of water would benefit the whole garment industry from fabric mills through to garment manufacturers. Innovative finance could be secured based on a targeted reduction in water consumption by the industry.
Socially and environmentally impactful finance with innovate partners is a relatively new concept but one that has been proven to work in practice.
Just as we are a nation with plentiful sunshine, coastlines, and rainfall, we are also blessed with plentiful innovators. We should put that valuable resource to the task of ensuring that we build a flourishing, sustainable RMG industry for the years to come.
Mostafiz Uddin is the Managing Director of Denim Expert Limited. He is also the Founder and CEO of Bangladesh Denim Expo and Bangladesh Apparel Exchange (BAE). He can be reached at email@example.com.