Green Climate Fund Board approves USD 256.5 million climate finance for large scale adoption of energy saving technologies and equipment for RMG sectors of Bangladesh

Water pollution in textile wet processing industry to soar as Bangladesh garment sector grows.

The Green Climate Fund (GCF) Board has given a major boost to climate finance for Promoting private sector investment through large scale adoption of energy saving technologies and equipment for Textile and Readymade Garment (RMG) sectors of Bangladesh with the GCF Accredited Entity Infrastructure Development Company Limited (IDCOL).

Bangladesh has experienced an average of 8% annual growth in CO2 emissions over the past two decades. The readymade garment (RMG) sector is the largest industrial contributor in CO2 emissions at 15.4%, followed by the textile sector at 12.4%. These sectors are not operating efficiently because of continuous usage of old and badly maintained machines coupled with poor energy management.

If the current industrial energy intensity persists along with the economic growth outlook in the medium to long term, Bangladesh will face severe difficulties in managing rising energy demands and achieving its GHG emission reduction targets under the Paris Agreement. However, textile and ready-made garments (RMG) manufacturers face several barriers to investing in energy efficiency including inadequate financial incentives, lack of technical expertise and the lack of an enabling environment. The sectors must overcome these barriers so that Bangladesh can meet its nationally determined contributions (NDC) target of 15% GHG emission reduction compared to a business-as-usual scenario by 2030.

The Programme provides an integrated package of concessional financing for textile and RMG manufacturers, and technical assistance to create an enabling environment and ultimately to reduce 14.5 million tonnes of carbon dioxide equivalent (MtCO₂eq) in emissions. This is facilitated through capacity building, awareness raising, policy development and support in loan disbursal, monitoring and evaluation of the programme parameters.

IDCOL Press Release:

IDCOL gets USD 256.5m Green Climate Fund

IDCOL, as the Direct Access Entity (DAE) of Green Climate Fund (GCF), received approval of its first funding proposal for the programme titled “Promoting private sector investment through large scale adoption of energy saving technologies and equipment for Textile and Readymade Garment (RMG) sectors of Bangladesh”. The programme was approved in GCF Board Meeting-B.27 held on 10th November, 2020. This is the first concessional GCF credit line for Bangladesh, as well as the first private sector financing of GCF in the country. So far, it is also the largest approved funding proposal for any Direct Access Entity (DAE) of GCF, accredited globally.

Congratulating IDCOL personnel on its success, Chairman of the IDCOL Board of Directors and the National Designated Authority (NDA) of Bangladesh in GCF Ms. Fatima Yasmin, Secretary, Economic Relations Division of the Ministry of Finance expected IDCOL to be a national role model for developing climate change responsive commercial projects in the country. She urged DAEs, Multilateral Implementing Entities (MIEs), and concerned Ministries and Divisions to explore the opportunities offered by GCF.

Presently, the industrial sector in Bangladesh accounts for 47.8%of the commercial energy consumption. Among this textile and RMG accounts for approximately 38% of the total energy consumption in the industrial sector (source- Energy Efficiency and Conservation Master Plan up to 2030 by SREDA, Power Division).

The Energy Efficiency and Conservation Master Plan 2015 states that manufacturing industries in Bangladesh are not efficient in energy use because of continuous usage of old/mal-maintained machines and poor energy management. Major challenges in adoption of energy efficient technology are inadequate financial incentives and lack of technical expertise.

The objective of the approved programme is to provide concessional loans from GCF to finance energy saving technology and equipment for the textile & RMG sectors of Bangladesh in order to make it more affordable and accessible. Under the programme, IDCOL will receive from GCF USD 250 million concessional loan for a tenor of 20 years with a grace period of 5 years for financing energy efficient equipment. In addition to this, IDCOL will also receive USD 6.50 million as Technical Assistance (Grant) to develop enabling environment by covering areas such as capacity building, awareness, support in loan disbursal and monitoring and evaluation of the programme parameters.

Sustainable & Renewable Energy Development Authority (SREDA) is also implementing a component of the programme to strengthen regulatory & institutional framework at the national level to overcome the operational constraints related to implementing EE&C in the country.

Out of USD 250 million loan, USD 100 million will be utilized by IDCOL to finance textile sector energy efficiency projects, while USD 150 million loan will be channeled to four local financial institutions for financing energy efficiency projects in the RMG sector. The total programme size will be USD 423.50 million including co-financing from IDCOL, local financiers and the project sponsors.

This programme is a remarkable success for IDCOL in terms of accessing climate change fund to pave the path for our country to achieve its Sustainable Development Goals (SDGs) especially SDG 7- affordable, reliable, sustainable and modern energy for all; SDG 9- sustainable industrialization and SDG 13- combatting climate change. It will also support Government, in achieving the NDC conditional target to reduce GHG emissions by 15% below BAU levels by 2030 and also to achieve the target of 20% reduction of primary energy consumption per GDP by 2030 as per the Energy Efficiency and Conservation Master Plan 2015.

Dr. Rubana Huq, President BGMEA, congratulated IDCOL for getting approval of the funding. She hoped that with access to such concessional financing, the adoption of energy efficient equipment will be much affordable for the garments owners and will further strengthen the competitive advantage of Bangladesh RMG sector.

Mr. Abdullah Al Mamun, Vice President, BTMA, stated that approval of this fund will accelerate industrial growth to a sustainable direction, and will also allow a substantial number of industries to get the essence of global standard finance as an available option.

Mr. Mahmood Malik, Executive Director and CEO, IDCOL mentioned that this is just the beginning of a long journey and since IDCOL knows which direction to go, the bests are yet to come.

About IDCOL

Infrastructure Development Company Limited (IDCOL) was established on 14 May 1997 by the Government of Bangladesh. The Company was licensed by the Bangladesh Bank as a non-bank financial institution (NBFI) on 5 January 1998. Since its inception, IDCOL is playing a major role in bridging the financing gap for developing medium to large-scale infrastructure and renewable energy projects in Bangladesh. The company now stands as the market leader in private sector energy and infrastructure financing in Bangladesh.

IDCOL is managed by an eight-member independent Board of Directors comprising four senior government officials, three representatives from the private sector and a full time Executive Director and Chief Executive Officer. It has a small and multi-skilled work force comprising financial and market analysts, engineers, lawyers, IT experts, accountants and environmental and social safeguard specialists. IDCOL’s stakeholders include the government, private sector, NGOs, multilateral and bilateral institutions, academics and the people of Bangladesh at large.