FEATURE: Making the business case for private sector investment in climate compatible development
Private sector engagement in Climate Compatible Development (CCD) in Bangladesh
“Private sector engagement” has become a buzzword in development and climate practitioners’ and policymakers’ vocabulary. For public decision makers facing constrained public budgets and rising costs of managing climate change, engaging the private sector – its ingenuity, skill and financial resources – is an important strategy. But what’s in it for the private sector? Climate change poses both risks and opportunities: business assets, operations and supply chains are at risk from climate change, threatening revenue and cost streams. It also presents opportunities, to develop and market new goods and services, increase efficiencies, protect supply chains and gain reputational benefits.
Recognising the yet untapped potential for the private sector to engage in climate compatible development in Bangladesh, Climate Development and Knowledge Network (CDKN), Acclimatise, the International Institute of Environment and Development (IIED) and the International Centre for Climate Change and Development (ICCCAD) are implementing a project called “Building Readiness of the Private Sector in Bangladesh for Green Climate Fund (GCF) Accreditation”. The first phase of the project involves developing a business case for the private sector to engage and invest in climate related activities, and providing recommendations to policymakers to create an enabling environment.
Building the business case involved a combination of desktop research, literature and policy review, and 16 in-depth stakeholder interviews with both private and public stakeholders in country. Key findings from the study are illustrated in Figure 1. The process of developing the business case brought to light three areas that provide insight into how the private sector might be more effectively engaged in CCD: 1) defining who is the private sector, 2) speaking the right language and 3) involving the private sector in the development and implementation of climate policies and plans.
Who is the private sector?
In order to engage “the private sector”, it is important think about who exactly we mean by this broad term, which encompasses a range of actors from private households, smallholding farmers, SMEs, corporate conglomerates and global multinational companies. Each has different objectives, capacities, risk perceptions and incentives, resulting in a different case for action.
In developing the business case in Bangladesh, a targeted, sectoral approach was adopted to narrow the focus and produce a relevant and motivating case for action. Our study focussed on four sectors: agriculture, energy, insurance and financial services. Within each of these sectors it was clear that there were first-movers already undertaking climate-related initiatives, which meant information and examples of best practice were more readily available. This provided critical evidence for the business case – it showed that some Bangladeshi businesses are already harnessing the opportunities presented by climate change.
Among the 16 stakeholders interviewed, 10 were from the private sector, four were from the public sector, one was a business association and one a special purpose agency (Infrastructure Development Company Limited or IDCOL). Private sector stakeholders, included conglomerates (4), commercial banks (4), insurance companies (1) and social enterprise (1). Recognising that small and medium enterprises (SMEs) are a very important component of the Bangladeshi economy, the SME Foundation (SMEF) was interviewed to represent this perspective.
Whose language are we speaking?
There is a growing body of literature about private sector engagement in climate compatible development, both in terms of grey literature and academic study. But very little has been written for or from the perspective of the private sector, particularly when it comes to adaptation. Most information is framed as why and how the public sector can engage the private sector (Agrawala et al. 2011). The public rationale for private sector engagement is indeed important. However, the overwhelming public sector orientation of the literature provides a clue as to why the private sector has so far not been significantly engaged in climate related activities – there is nothing speaking directly to them. And the rationale for the private sector to engage is different from that of the public sector. Whilst environmental and social responsibility has moved from the margins to the mainstream within many companies, the private sector remains driven purely by its interest in the bottom line. Therefore climate related activities will only be attractive if they contribute to the bottom line.
Making the case for action to businesses requires speaking their language; in terms of profit and loss, revenue and market share, risk and opportunity. Words like “adaptation”, “mitigation” and “private sector engagement”, which have originated from a very public sector background within the United Nations Framework Convention on Climate Change (UNFCCC), do not mean a great deal to businesses. Businesses engaging in climate related activities usually do not label them as such. In fact, interviews in Bangladesh validated the idea that climate is just one driver among many for engaging in “climate compatible” activities. Interviews highlighted that climate change presents a window of opportunity to take action on issues and areas that are already important to a business, such as improving delivery time in the face of extreme weather or reducing costs through resource efficiency. For example, the main driver behind the renewables business in Bangladesh was to enhance energy access at a time when more than 40% of the population was living in off-grid areas (Grameen Shakti interview, 2016).
What exactly is the private sector’s role?
The private sector is a key driver of economic growth. The International Monetary Fund (IMF) calculates that the private sector accounts for over 60% of GDP in most countries (IMF 2013) and in many countries the figure is nearer 85%. In Bangladesh it is no different: in 2010, the private sector accounted for 93% of GDP, 81% of total investment, 94% of consumption expenditure, and 80% of domestic credit (Asian Development Bank 2010). The Government of Bangladesh has prioritised both private sector involvement in development (Ministry of Finance 2014) as well as tackling the impacts of climate change (Vision 2021, Bangladesh Climate Change Strategy and Action Plan). However, a review of national policy documents shows that the importance assigned to the role of the private sector is not well articulated in climate policy frameworks, if mentioned at all.
This mirrors the international situation; an informal analysis by Acclimatise of national adaptation planning documents in 13 countries across the world reveals limited recognition of the context in which adaptation must be undertaken, with the private sector receiving little or no mention in these documents. This is risky oversight: by looking at climate change management, particularly adaptation, through a public-sector lens, we fail to see the national context for decision-making, implementation, investment and delivery.
Seizing the opportunity
Leaving out the role of the private sector in climate change management is a missed opportunity that can inhibit transformational change. As Bangladesh makes the transition toward a middle-income economy, it can build on its reputation as a global leader and innovator on climate change issues and deepen its engagement with businesses, using the right language, sending clear policy signals that the private sector is a critical partner in achieving climate compatible development.
About the authors
The blog is written by Jennifer Steeves, a Climate Risk Analyst based in New Delhi, coordinating Acclimatise’s activities in South and Southeast Asia and Virginie Fayolle, a Senior Economist who leads climate finance activities at Acclimatise.
Private sector infographic references
1 – “US$ 13 Trillion – Estimated size in 2030 of the global market in clean energy based on national climate plans made in 2015”
The We Mean Business Coalition (2015) The Paris Agreement: What it means for business, http://www.wemeanbusinesscoalition.org/sites/default/files/The-Paris-Agreement_Z-Card_0.pdf
2 – “2% – Percentage of Bangladesh’s GDP lost by 2050 due to climate change impacts.”
Asian Development Bank (2014) Assessing the Costs of Climate Change and Adaptation in South Asia.
3 – $3 Million per day – The cost to the garment industry after flooding in 2004 led to a disease outbreak preventing employees from working.
PWC (2013) Stimulating private sector engagement and investment in building disaster resilience and climate change adaptation: Recommendations for public finance support. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/305412/stimulating-private-sector-engagement-climate-disaster-resilience.pdf
4 – 9.9 billion – The amount of finance available to fund climate projects through the GCF.
The Green Climate Fund (2016) The Green Climate Fund Contribution Pledge Tracker http://www.greenclimate.fund/contributions/pledge-tracker