Bangladesh Can Achieve 50% Emission Reduction by 2030, But financing Gap of $4.8 billion Remains

Can Bangladesh’s apparel and textiles industry lead global decarbonisation efforts? Affirmative, says a report by Apparel Impact Institute (AII) as it charts out a clear roadmap to cut industry GHG emissions in half by 2030, supporting national and global climate targets and delivering long-term value to manufacturers and brands. 

• The report–Landscape and Opportunities to Finance the Decarbonization of Bangladesh's Apparel Manufacturing Sector— brought out with the Development Finance International (DFI), highlights opportunities that can be unlocked through policy, financial, and technical solutions to accelerate economic and environmental impact.
• Achieving a 50% reduction in GHG emissions by 2030 will require systemic efforts across the value chain, supported by an investment of US$6.6 billion, as estimated by DFI’s preliminary analysis. While progress has been made with close to US$1.6 billion in funding confirmed and an additional US$175 million expected from international financing institutions (IFIs) and local banks, there remains a financing gap of US$4.8 billion.
• Recent research from Apparel Impact Institute (AII) and Cascale suggests that, as of 2023, Bangladesh is among the top five countries with the biggest potential for greenhouse gas (GHG) emissions reductions in the industry. The decarbonisation of its textiles and apparel sector is critical, and with its strong track record in apparel exports and an expanding market for renewable energy (RE) and energy efficiency (EE), the country is well positioned to accelerate sustainable manufacturing and trade.
• Shifting landscape: While this report focuses on decarbonisation and environmental challenges, it is important to acknowledge the significant social and political changes in Bangladesh since the initial data collection period.
• These include worker protests in November 2023 and the government transition in August 2024, which reflect broader shifts in the country’s socio-economic landscape.

KEY FINDINGS: The apparel and textile industry contributes over 80% of Bangladesh’s foreign export revenue. Given the industry’s scale and continued reliance on fossil fuels, the sector has significant potential to contribute to the goal of a 50% reduction in GHG emissions by 2030.

• There is growing pressure for the industry to adopt cleaner and sustainable practices, driven by brand demands and emerging international and local regulations. This includes sustainability finance disclosure requirements from the Bangladesh central bank and several government policies that encourage sustainability and climate action.
• Manufacturers face challenges in transitioning to sustainability: financial constraints, limited technical expertise, insufficient energy policies, and inadequate infrastructure.
• An estimated US6.6 billion in financing is required to reduce Bangladesh’s textiles and apparel emissions by 50% by 2030 through renewable energy (RE) and energy efficiency (EE) measures.
• As of September 2024, 12 credit lines and revolving fund schemes have been identified, with close to US$1.6 billion in available funding and US$175 million in upcoming funding from IFIs and the national government. This leaves a financing gap of US$4.8 billion.
• IFIs are also partnering with the government and private sector to improve energy policies, build local technical capabilities, and support decarbonization initiatives, creating activation opportunities for AII and its partners.
• A lack of technical experts (e.g. energy auditors) in Bangladesh drives up costs and prolongs inspection processes, with energy audits averaging US$10,000 - approximately double the cost in neighbouring India. Building local expertise can reduce costs and generate quality local jobs.
• The renewable energy market is still in its early stages, with limited renewable energy service companies (RESCO) activity and no energy service companies (ESCO) operations in Bangladesh. Growth capital is needed to scale RE and EE solutions.

Recommendations and Calls to Action:

1. Connect Manufacturers, Brands, IFIs, Funders, and other Stakeholders: Connect manufacturers with financial and technical resources that build awareness, knowledge, and demand for decarbonisation financing and technologies.

• Initiatives like AII’s engagements with the Bangladesh Apparel Exchange and the Future Supplier Initiative (FSI) — a collaboration with The Fashion Pact, Guidehouse, and DBS Bank focused on Bangladesh — provide models for fostering cross-industry collaboration.

2. Brand Support and Active Involvement of Manufacturers: Address barriers like high debt levels and perceived risks by encouraging brands to offer stronger incentives and support through various financing and de-risking instruments.

• AII’s Brand Playbook for Financing Decarbonization provides guidance for brands to drive these efforts.
• Smaller manufacturers with limited access to brands and capital can begin their transition through decarbonisation programmes with low-cost, short-payback solutions, such as AII’s Clean by Design programme.

3. Shift Risk Perceptions on Green Investments: Educate financial institutions on the returns of green projects through successful case studies and promote the harmonisation of “green investment” definitions and standardised certifications to reduce financing barriers and encourage larger-scale investments.

• Explore creating a platform that can centralise data, facilitate discussions on alternative due diligence, and connect manufacturers with financing.

4. Scale-up Decarbonisation Financing: IFIs and local financial institutions can increase climate and sustainability funding through concessional financing, blended financing, and risk-sharing solutions to improve accessibility for smaller manufacturers.

• IFIs and local FIs should collaborate with brands and industry leaders to develop tailored solutions that address the financing gap.

5. Maximise and Enhance Financing and Technical Assistance Opportunities: Utilise existing funding and technical support to build momentum for green investments and create successful case studies that attract further capital.

• Brands and IFIs can explore third-party guarantees and transaction advisory services to help manufacturers meet requirements and navigate financing processes. They can also support financial institutions in evaluating green finance applications from manufacturers and certifying successful project completion.
• For IFIs, streamlining application and due diligence procedures can further ease access to funds.

6. Advocate for More Inclusive and Progressive Policies: Strengthen policies and infrastructure to accelerate decarbonisation by advocating for reforms to revise net metering rules, lower import duties on green technologies, and introduce new frameworks for power purchase agreements.

• Brands, IFIs, local experts, energy developers, and manufacturers must urge the expansion and enhancement of grid and transmission networks to scale renewable energy integration and ensure stable electricity supplies.

7. Enhance Technical Capacity in the Value Chain: Strengthen workforce capabilities by expanding partnerships with universities and technical institutes to train energy auditors and engineers in renewable energy and energy efficiency solutions.

• Address the shortage of skilled professionals needed to meet the demand for decarbonisation projects and support the development of ESCOs and RESCOs.

THE PLAYERS: Over 40 stakeholders were engaged throughout this process, including government officials, industry leaders, representatives from IFIs, and local financial institutions. This approach ensured the findings and recommendations were grounded in diverse perspectives and could support decarbonization efforts across the apparel value chain.

• The report was supported by a philanthropic grant from HSBC.
• Apparel Impact Institute (AII) is a global nonprofit dedicated to identifying, funding, scaling, and measuring the apparel and footwear industry’s proven environmental impact solutions. Working with over 50 brands and retailers who are leading the sector’s global decarbonisation efforts, it has called for a US$250M Fashion Climate Fund to leverage a first-of-its kind collaborative funding model between philanthropy and corporate entities to catalyse climate action by funding and scaling solutions for decarbonisation, and marked to unlock a total of US$2B in blended capital, to meet the industry’s goal to halve carbon emissions by 2030.
• The Development Finance International Inc. (DFI) is an international business development advisory firm with over 30 years of experience in accelerating business and sustainability in emerging markets globally. It specialises in facilitating partnerships between the private sector and international financial institutions (IFIs), such as the World Bank Group, Asian Development Bank, and others to deliver on clients’ objectives.