Decarbonisation is prerequisite for foreign funding

There is growing concern about the likely scarcity of foreign funding for non-green development projects in the immediate future. Reports from various sources, including leading multinational financiers, confirm a marked shift in the global project funding landscape, prompted by international treaties aimed at mitigating the impacts of climate change. Foreign funding -- a crucial driver of development in countries like Bangladesh -- is now aligning more closely with climate commitments under agreements such as the Paris Accord.

Key institutions such as the Asian Development Bank (ADB), the World Bank Group (WBG), and the European Investment Bank (EIB) have already pledged to follow the 'Direct Investment Lending Operation' (DILO) framework consistent with the Paris Agreement. This commitment signals a definitive preference for investments that are environmentally sustainable, pushing countries to restructure their development strategies around green objectives.

Infrastructure specialists warn that financing for coal, oil, and other fossil-fuel-based projects may soon disappear altogether. Although Bangladesh is not a significant emitter of greenhouse gases (GHGs), it nonetheless faces pressure to decarbonise its economy. This entails adopting expensive technologies like carbon capture and storage -- an investment challenge for a developing country. Multilateral lenders are reportedly maintaining updated lists of activities they consider compatible or incompatible with a low-carbon trajectory. As a result, any project that does not prioritise emissions reduction or energy efficiency will likely find it difficult to secure international financing.

This raises an urgent question: what does this new financing climate mean for Bangladesh's development ambitions? Fully grasping the implications of the Paris Agreement's guidelines on foreign investment will take time. Bangladesh, despite contributing minimally to global emissions, is among the most vulnerable countries to climate change. Recognising this, the government has already laid out emission reduction targets across multiple sectors, signalling a proactive stance towards transitioning to a low-carbon economy.

According to Bangladesh's revised Nationally Determined Contributions (NDCs), submitted in August 2021, the country intends to cut GHG emissions by 27.56 million tonnes of carbon dioxide by 2030 through unconditional measures, with an additional 61.9 million tonnes to be reduced conditionally -- subject to foreign support. Realising these ambitious targets requires an estimated $175 billion in investment. More broadly, Bangladesh needs roughly $10 billion annually to finance development initiatives in energy, transport, urban infrastructure and more.

Local experts stress that decarbonisation and emission reduction must now be embedded in the core of all development planning. For instance, projects in the energy and manufacturing sectors should now aim for greater reliance on renewable energy, efficient hydropower systems, and modern heating and cooling technologies that minimise GHG emissions.

The DILO framework under the Paris Agreement outlines a list of eligible activities aligned with climate mitigation goals. These include water supply and sanitation, sustainable construction, information technology and environmental research. Conversely, funding is now explicitly restricted to projects involving thermal coal mining and coal-based power generation. The Paris Agreement, adopted in 2016, set a global goal of limiting average temperature rise to well below 2°c -- and ideally to 1.5°c -- above pre-industrial levels.

Bangladesh's Planning Commission and other government bodies reportedly view this shift in funding priorities positively. They believe it will drive better alignment between development projects and sustainable environmental goals. Future project design and approval will likely incorporate more rigorous environmental screening and compliance requirements. However, while the intentions behind these changes are positive, their implementation poses practical challenges. Multilateral financiers have expressed willingness to continue supporting Bangladesh, but their decisions will increasingly depend on whether proposed projects demonstrate measurable contributions to climate goals. This means that future proposals must be underpinned by robust environmental assessments, carbon impact studies, and clear mitigation strategies.

Ensuring access to foreign funding under these stricter guidelines calls for meticulous planning. Incorporating energy transition measures -- such as replacing fossil fuels with renewable energy -- in development projects will not only make them more fundable but also help address the long-term challenge of climate change.

Admittedly, the shift towards green development may slow or complicate certain traditional growth strategies. Yet, it also presents an opportunity, a chance for Bangladesh to build its development trajectory on sustainable, environmentally responsible foundations. But to do this effectively, the country will require significant capacity building in institutions, workforce skills, and technical knowledge.

Transitioning to green energy and low-carbon infrastructure demands extensive investment in research and innovation. Bangladesh must also upgrade its technical training and education systems to equip the workforce for new jobs in the renewable energy and clean technology sectors.

The shift will have socio-economic ramifications. Industries heavily dependent on fossil fuels may face disruption, potentially causing job losses or economic dislocation. Policymakers must, therefore, design inclusive transition strategies to cushion vulnerable communities and sectors. Social protection, retraining programmes and job creation in green sectors will be crucial components of a just transition.

At the same time, investing in green infrastructure can bring multiple benefits. Reduced reliance on imported fossil fuels will enhance energy security and insulate the economy from global price shocks. Cleaner air, lower pollution levels, and improved public health outcomes are additional dividends of a green transition. This makes the environmental imperative a public health and economic priority as well.

Moreover, the emphasis on sustainable projects can spur innovation and entrepreneurship. Sectors such as renewable energy, sustainable agriculture, and eco-tourism could experience rapid growth. Bangladesh's natural resources, biodiversity and geographical location have considerable potential for green economic initiatives -- provided they are well managed and supported.

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