FEATURE: Learning to access climate finance – Insights for Bangladeshi businesses
Jennifer Steeves and Virginie Fayolle of Acclimatise explore how Bangladeshi businesses are moving forward on climate finance opportunities.
Private sector engagement in climate initiatives has been a conversation that has largely taken place among the public sector and climate and development practitioners (see this previous CDKN blog). Last month in Dhaka, however, the conversation showed signs of beginning to shift in Bangladesh. Thirty-seven (37) participants came together on Wednesday 8th June 2016 to learn and exchange knowledge about the opportunities of investing in climate change and accessing climate finance for Bangladeshi businesses.
Out of the 37 participants, 25 were from the private sector. This was an inception workshop for the CDKN funded project Building Readiness of the Private Sector for Green Climate Fund Accreditation, implemented by Acclimatise, the International Institute for Environment and Development (IIED) and the International Centre for Climate Change and Development (ICCCAD). The workshop aimed to present the business case for the private sector to engage in climate related activities, introduce the opportunities for the private sector in Bangladesh to access the Green Climate Fund (GCF), whilst exploring the key requirements and potential challenges faced in accessing the GCF.
From the workshop’s proceedings emerged three main messages: 1) in Bangladesh there is already a high level of awareness among ‘early mover’ businesses on the opportunities for investing in climate change 2) businesses now want to know how they can access the GCF and other sources of finance, in practical terms, and 3) establishing a platform for the private sector to share and receive information, as well as promote public-private dialogue on these issues is paramount to strengthening the readiness of Bangladesh’s private sector in accessing these emerging sources of finance.
The business case for climate action is already clear
That there is a case for Bangladeshi businesses to invest in climate change was immediately evident by the number of private sector participants in the room. Out of 25 participants from the private sector, twelve businesses and four private sector associations were present. They represented various sectors including energy, insurance, banking and agribusiness, as well as brick making and garment industries. Mr Matlub Ahmad, the president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), the apex industry chamber body in Bangladesh, opened the workshop and spoke about the economic importance of the private sector; 70% of the electricity sector is in private hands, and 75-80% of banks are privately owned.
When asked to identify how climate change had impacted their business recently, participants noted a variety of tangible impacts on key business indicators including:
- Decreased demand for products due to loss of customer income following climate-related disasters, specifically cyclones;
- Decreased collections, which become impossible in rural areas during extreme weather events, such as during Cyclone Roanu in southern Bangladesh;
- Disruption in supply chain and logistics due to extreme weather events; and,
- Interruption of production and operational activities due to changes in climatic variables such as increased temperatures or changes in rainfall patterns
Beyond these risks, many businesses view climate change as an opportunity. A panel discussion heard from four different companies on the actions they have taken to harness opportunities and the results achieved. For example, in the agribusiness sector, Lal Teer and Advanced Chemical Industries (ACI) Agribusiness & ACI Agrolink are actively investing in research and development (R&D) to develop and market climate resilient varieties of seeds in response to changing climate patterns such as longer periods of drought and increased salinity. For ACI, the result has been the development of 20 different crops and the motivation of farmers to use these crops along with advanced cropping practices; above all, a new demand for climate resilient seeds was created. These crops provide new sources of income for farmers and in later phases of the initiative, ACI retailers increased sales between 10-100%.
Businesses want to know how to access the Green Climate Fund (GCF)
The second half of the workshop focused on the GCF and ways of accessing its funds, through a short video clip on the GCF and a virtual and interactive presentation from Dr Binu Parthan, GCF Technical Asia Adviser, on the opportunities of the GCF for the private sector. The two main modes to access the GCF, as National Implementing Entities (NIEs) and as Executing Entities (EEs), were presented. With the business case already clear to many participants, they expressed interest in identifying immediate next steps that will allow them to access finance to kick-start or scale up the implementation of climate-related activities.
One major challenge that emerged is that of timing; participants expressed the desire to access the Fund in the short term. There are two main challenges in this context: first, the process of becoming an NIE has, to date, been long and complex, which discourages private entities in seeking accreditation, and second, The Private Sector Facility, the primary way in which the GCF is meant to increase private sector engagement, is not yet operational and it is not clear how it will operate in the future. However, there are other, more immediate opportunities for the private sector to engage with the GCF, as outlined in Dr Parthan’s presentation. This includes accessing funds through existing Multilateral Implementing Entities (MIEs), of which there are a number operating in Bangladesh, including the International Finance Corporation (IFC), United Nations Development Program (UNDP) and private bank HSBC.
Feedback received after the workshop showed that most private sector entities are interested in becoming EEs, rather than NIEs (eight private sector entities indicated that they would choose EE while five chose NIE – of these, two chose both). Implementing projects shows the greatest promise of offering immediate returns to the private sector, and during the workshop, the Economic Relation Division (ERD) under the Ministry of Finance, Bangladesh’s National Designated Authority (NDA) for the GCF, invited private sector entities present at the workshop to submit short project concepts to ERD for consideration for funding by the GCF.
Given this interest, an important immediate need for capacity building of the private sector is enhancing their skills and expertise in developing fundable climate-related projects. Private sector participants expressed particular interest in receiving training and support to be able to develop project concepts. It was noted by Dr Parthan and ERD that in developing concepts, it is important to engage with ERD at an early stage with a view to designing projects that are in line with country priorities.
The workshop provided a platform for better communication between the private and public sectors about their respective interests and needs. It was noted in Mr Ahmad’s opening address that “the government has moved out of business”, referring to the privatisation of most economic activities in Bangladesh and the key role of business in accelerating economic development. Several participants referred to the government’s role as that of facilitator of an investment-friendly environment.
From the public sector perspective, Mr Iftekhar Hossain, Deputy Secretary of ERD, gave a short presentation about the Government of Bangladesh’s priority investment areas for the private sector, highlighting that within existing policy frameworks on climate change, there are many opportunities for businesses to become involved. While he emphasised the challenges and long term commitment required to access climate finance, and the challenges associated with becoming an NIE, he highlighted the immediate opportunity for the private sector to develop bankable project ideas and submit them to ERD in the form of concept notes.
In response to this, it was noted by a private sector participant that developing concepts requires resources, which cannot be justified without an adequate guarantee of return; he requested that ERD provide several demonstration projects to provide this assurance. Another participant expressed his discouragement at the challenges in applying for NIE accreditation and ERD’s suggestion that the private sector stop focusing on NIE accreditation. This opened up an opportunity for discussion on ERD’s view that while NIE accreditation is still a long-term goal for the private sector, more immediate opportunities lie in the development of concepts to be submitted to the GCF through ERD, without the need for an accredited entity.
Three areas for action emerged from the workshop discussions:
1. Create a platform for dialogue among those private sector entities present at the workshop that already understand the business case for climate investment, so-called first movers. The purpose of this platform would be to encourage exchange of information on the business opportunities of climate change, as well as ways to access climate finance.
2. Focus on immediate opportunities to access GCF funds; this means approaching existing Multinational Implementing Entities (MIEs – as mentioned above) operating in Bangladesh. Funds are already available to be disbursed from the GCF such as through MIEs or by submitting concept notes to the GCF through ERD.
3. Build the skills and capacities of ‘first movers’ from the private sector in Bangladesh in developing fundable projects (e.g. concept notes) to attract climate finance from the GCF and other sources.
Jennifer Steeves is a Climate Risk Analyst based in New Delhi, coordinating Acclimatise’s activities in South and Southeast Asia. Virginie Fayolle is a Senior Economist who leads climate finance activities at Acclimatise.