Bangladesh has potential for green bond market: IFC

The International Finance Corporation (IFC) considers Bangladesh to be a potential green bond market, from where the government and private companies could raise long-term funds to invest in environment-friendly projects.

IFC, a part of the World Bank Group, published the findings in a study titled "Green Bonds Development in Bangladesh - A Market Landscape," released recently. IFC prepared the report in partnership with the Bangladesh Bank.

The study shows that Bangladesh requires an additional $233 billion in infrastructure investment between 2016 and 2040 to meet the targets of the sustainable development goals. So, these funds can be raised through developing green bonds.

According to IFC, large corporates, banks and non-bank financial institutions in the country can be potential investors in green projects through these bonds.

Some large corporates that have a healthy asset size can invest in green bonds. They are: Akij Group, AK Khan Group, Grameen Telecom Trust, Square Pharmaceuticals, Metlife, Green Delta Insurance Company, LR Global AMC, VIPB AMC, LankaBangla Finance, The City Bank and BRAC Bank.

It also said the local banks and financial institutions have high potential to invest in green bonds.

Officials of the Bangladesh Bank have stressed on developing green bonds in the country because they are becoming popular with environmentally-aware investors.

The green bond market has grown significantly since the first climate awareness bond was issued in 2007 by the European Investment Bank, and the first explicitly labelled green bond was issued in 2008 by the World Bank.

In 2014, green bonds accounted for $37 billion globally. In just 4 years, this has grown to $168 billion.

$123 billion worth of green bonds were already issued globally by the beginning of July 2019, in line with the Climate Bonds Initiative annual issuance target of $250 billion.

But the bond market has been untapped in Bangladesh for years. Investors, mainly institutions, put their money in treasury bonds and bills. They have also put their money in a few private bonds like subordinated bonds and commercial papers. In 2018, 17 local banks issued Tk9,600 crore worth of subordinated bonds privately, to meet their capital needs. But the green bond has not been introduced in this country yet.

Khondkar Morshed Millat, general manager of the Sustainable Finance Department of Bangladesh Bank told The Business Standard that first it is necessary to make concerned regulatory agencies aware of the benefits of green bonds.

He said initially public-private partnership projects can raise funds through green bonds.

The World Bank is a major issuer of green bonds. While it finances projects around the world, the institution has been very active in the United States, where it issued $5.3 million worth of green bonds between FY 2014 and FY 2018, and in India where it has issued over 2.7 billion Rupees worth of green bonds.

In India, one of the bank's oldest ventures is the Rampur Hydropower Project, which aims to provide low-carbon hydroelectric power to northern India's electricity grid. It will be able to produce 1,957,000 megawatts annually, saving 1,407,700 tons of carbon dioxide emissions a year.

Green bonds offer investors and issuers a product dedicated to raising finance for sustainable projects. The term 'green bonds' refers to bonds that exclusively finance low carbon and climate-resilient projects.

But there are some potential barriers towards the development of a bond market. These are: High transaction cost, poor access to investors, unclear project pipeline and huge tax and regulatory barriers.

Also, local investors face competition with other fixed income products, competition with non-green projects, poor credit rating and management capacity and regulatory restrictions. Foreign investors also cite the barriers caused by excessive currency and country risk, unclear green impact and little verification.