Role of the financial sector in combating climate change

World Earth Day is celebrated every April 22. It was first celebrated in 1970, following a proposal by US Senator Gaylord Nelson to increase environmental awareness. On this day, about 20 million people in the United States came out and protested vehemently against environmental pollution. Such a social resistance program of the people took its place in the history.

Later, Earth Day began to be celebrated internationally since 1990, where about 200 million people from 141 countries participated. Currently, Earth Day is celebrated in about 193 countries around the world.

It is not just a day, but day by day, it has become a unique symbol of preventing climate change, protecting nature and the environment, and creating a green world.  This year, World Earth Day is being celebrated with the theme "Our Power, Our Planet". Through which everyone around the world is being called upon to unite behind the production of renewable energy.

In addition, it is being invited to triple the global production of energy from this source by 2030. Given the growing problems, using this type of power will make it easier to ensure global energy security.

The current world is facing the serious impact of climate change, in addition to the catastrophe of humanity, unrestrained war, and sudden natural disasters. A major reason for this is the continuous increase in the density of carbon dioxide in the atmosphere.

Due to excessive carbon emissions, the density of carbon dioxide in the atmosphere has increased by 38.97 ppm in the past 15 years, which is affecting the climate change crisis daily.

The year 2024 has been marked as the warmest year on record due to abrupt climate change. This year, the temperature in the atmosphere was about 1.55 degrees Celsius higher than the pre-industrial revolution. This could increase to 2.00 degrees Celsius in 2050 and 4.00 degrees Celsius in 2100, scientists have no end to their worries about what will happen next.

According to a report published by the World Bank on October 31, 2024, about 1.2 billion people worldwide are at high risk of climate change. This large number of people, most of whom are exposed to at least one major climate change hazard, such as heat waves, floods, hurricanes, and droughts, puts their lives at risk.

The report found that economic growth and building resilience to climate change are supplementary. An estimated 10 per cent increase in per capita GDP would reduce the number of the most vulnerable by about 100 million. Therefore, increasing per capita income is crucial at this time. However, countries also need to formulate climate-related policies to build people's adaptive capacity.

About 129 countries, including Bangladesh, are prepared their own National Adaptation Plan (NAP) in 2022 for UNFCCC under the NAP Global Network to overcome the damage caused by climate change. It is worth noting that the NAP Global Network was established as part of the decision of the 20th United Nations Climate Change Conference held in Lima in 2014 to help developing countries.

NAP divided Bangladesh into 11 climate zones and identified 14 risks, including extreme heat, irregular rainfall, floods, river erosion, drought, cyclones and tidal waves, sea level rise, salinity, flash floods, landslides, severe cold, lightning, urban flooding, and ocean acidification.

To address these risks, NAP has proposed 110 actions to implement 6 main goals. A total of $230 billion in climate assistance is expected from 2023 to 2050.

However, according to a recent report by the World Climate Risk Index, Bangladesh is among the top ten countries in the world that are most at risk from climate change, which is again a cause for concern.

In this situation, World Earth Day stresses on making a new commitment: the Multilateral Green Climate Fund to mitigate climate risks and impacts, from which billions of dollars are being distributed in climate finance.

A special climate change fund was created in 2001 to help vulnerable countries cope with the negative effects of climate change. Subsequently, more effective action by all parties to comply with and implement the terms of the multilateral 'Kyoto Protocol' signed to reduce greenhouse gas emissions has become urgent.

The Kyoto Protocol committed industrialised countries to achieving specific targets for reducing greenhouse gas emissions. It first entered into force on February 16, 2005, with a promised period of full implementation from 2008 to 2012. Unfortunately, some developed countries have signed the Protocol but have not ratified it in their own countries.

Some developed countries have also withdrawn from the agreement after signing it to ignore the issue of paying huge amounts of compensation. As a result, the path to achieving the promised targets for reducing greenhouse gas emissions is repeatedly blocked. As a result, the least developed and affected countries have started struggling to compensate for the damage caused by climate change.

However, in this context, the support for implementing the collective commitment of developed countries called the 'Fast-Start Finance Module' to provide new and additional resources, including investments through forestry and international institutions, for the period 2010-2012 was about US $30 billion.

Developed countries presented information on the resources provided to achieve these commitments, including how developing country parties will access these resources. In line with this, in fiscal year 2024, the World Bank Group provided US $42.6 billion in climate finance, 44 per cent of its total financing.

Bangladesh has received $1.16 billion in financial assistance from the World Bank to promote healthcare, water and sanitation, and climate resilience. This includes a $500 million Green and Climate Resilient Development Loan, a $379 million Health, Nutrition, and Population Sector Development Program, and a $280 million Chittagong Water Supply Development Project.

In addition, other lenders are also allocating a significant portion of their funds to support Bangladesh's climate agenda. From there, banks can be more proactive in lending to renewable energy, environmentally friendly industries, green buildings, and agriculture-based sustainable projects, helping to reduce carbon emissions.

According to the Bangladesh Bank report, the combined contribution of the country's 61 banks and 34 NBFIs to sustainable finance in the second quarter of 2024 was Tk 1.16 trillion, which is Tk 281.03 billion more than in the first quarter. In the second quarter of 2024, banks invested Tk 1.13 trillion and NBFIs invested Tk 29.92 billion in sustainable finance.

In a directive issued by Bangladesh Bank in November last year, it was stated that from 2025, banks would invest 40 per cent of their total loans in the private sector in environmentally friendly and sustainable initiatives, of which 5 per cent must go to environmentally friendly initiatives.

In the meantime, several banks in Bangladesh have continued to try to pave the way for environmental conservation by increasing customer awareness, expanding paperless banking, and revolutionising digital transactions. However, it should be in every bank, every workplace that will reduce unnecessarily interference with our environment.

To build a liveable world for the future generations, global citizens must take effective steps now. Everyone needs to join the fight for survival and stand against the destruction of nature and the environment to combat the negative effects of climate change.

MM Mahbub Hasan is a banker and development researcher. mmmahbubhasan111@gmail.com