Strategic Insights for the Circular Economy in Bangladesh: Turning Waste into Wealth

Nasif Chowdhury,
Assistant Professor,
Anwer Khan Modern University, Uttara, Dhaka.
Email: [email protected]

Critical Steps towards a Circular Economy:
By reducing and reusing natural resources, the circular economy creates a sustainable system that separates economic growth from resource use, in contrast to the linear economy. More and more, people, organizations, and governments are seeing the circular economy as a crucial step in combating climate change. This has been proven by significant events in the last ten years, including the 2015 Paris Agreement, the yearly United Nations Climate Change Conferences, and the establishment of the Green Climate Fund. Critical steps towards a circular economy in the last 20 years, the RMG industry has been the main culprit responsible for the 8 percent yearly increase in local CO₂ emissions. Nearly 38% of the microplastics produced by the dyeing, pharmaceutical, and battery industries are dumped into water bodies, where they eventually end up in the food chain, exacerbating the problem. When it comes to waste management, design innovation, and sustainable manufacturing throughout the value chain, several Bangladeshi MNCs have already committed to the CE paradigm.

Nevertheless, implementing circular business models is the most all-encompassing approach. For some time now, circularity has been at the forefront of discussions regarding Bangladesh’s garment industry. A minimal amount of recycled fibers in garments is one component of the EU Strategy for Sustainable and Circular Textiles, which was introduced last year by the European Commission. A Digital Product Passport is also on the Commission’s agenda. Towards the advancement of renewable energy and the promotion of a circular garment industry, H&M Group and the Bangladesh Garment Manufacturers and Exporters Association inked a memorandum of understanding in 2023. Subsidies for Bangladesh’s power and energy industry are being progressively reduced. The cost of solar energy in Bangladesh has been dramatically increased due to the 1% customs fee on solar panels and, more concerningly, the 37% customs duty on solar inverters. Due to the high cost of solar solutions, not even the central bank’s requirement that banks set aside 5% of their total loans as “green loans” can entice most financial institutions to consider making such investments.

A Synopsis of the Current Policy Environment:
Circular Financing’s Part in Making the Change Possible Any investment vehicle whose sole purpose is to fund or refinance enterprises or projects that meet the criteria for circular finance would be considered circular finance. The public and commercial sectors must work together to combat the growing threat of climate change and keep the world’s average temperature increase below 1 degree Celsius as the climate crisis gains momentum. There is a lot of pressure on stakeholders throughout the world to do something about climate change right now. They need to fund initiatives that will help mitigate its effects, which include cutting emissions of greenhouse gases and increasing access to renewable energy sources. The goal is to transition to a low-carbon economy. Even though a number of the UN’s Sustainable Development objectives deal with environmental concerns, the organization projects that it will need $3–5 trillion each year in funding to make these objectives a reality. There has never been a more pressing need for circular finance than there is today, because a low-carbon transition is essential for reducing greenhouse gas emissions worldwide, adapting to climate change, and mitigating its impacts. Downcycling or exporting it to India for low-value uses accounts for the bulk of this pre-consumer trash. A tidal surge of new ideas is sweeping across Bangladesh’s textile industry right now. There is a $2 funding gap in the micro, small, and medium enterprise (MSME) sector, according to World Bank data. It is critical to increase MSMEs’ ability to deal with climate change, and one way to do this is to make climate financing more accessible. A Synopsis of the Current Policy Environment Most recently, the Bangladesh Bank released its foundational policy, the Sustainable Finance Policy, intending to support sustainable enterprises and projects. What constitutes sustainable financing in the eyes of the Bangladesh Bank is laid out in detail in this publication. The next step is to conduct a risk assessment using the Bangladesh Bank’s “Credit Risk Management Guidelines” and “Environmental and Social Due Diligence” as tools. Maintaining a 20% yearly portfolio through Sustainable Financing was advocated by the central bank in 2014. It is recommended that a bank’s loan portfolio include 5% Green Finance, which is a subset of Sustainable Finance.

Difficulties in Advancement of the Circular Economy:
Current practices in the Distribution of Sustainable Funds Green and sustainable financing are becoming increasingly larger shares of banks’ loan portfolios across the country, a sign that the order is having the desired effect. But maybe it would be intriguing to look at the distribution of funding across different sectors or activities as well. When we look at the top three sectors in terms of the percentage of green loans disbursed in 2023, we can see that much of the demand for financing is coming from factories that want to invest in energy or resource-efficient technologies, or new factories that are being built with green standards in mind. Financial backing for projects with circular economy components is currently modest. Difficulties in Advancement of the Circular Economy Foreign investors have poured around $30 billion into Bangladesh’s energy sector in the past 13 years. Unfortunately, most of these investments have gone toward fossil fuels. The financial benefits of producing energy from fossil fuels have taken precedence, which is why this preference exists. Among seventy types of green initiatives, the Bangladesh Bank’s reasonably priced refinancing program, valued at BDT 4 Bn, stands out. The extended maturity periods and hefty transaction costs make this scheme less attractive than others. Furthermore, green project technology is still in its infancy in Bangladesh, which frequently results in ineffective management due to a lack of a robust supply chain. Last but not least, sustainable finance departments must be adequately funded for training and capacity development. It is difficult for MSMEs to issue green bonds because of their size and lack of lending capacity. A vital part of the production ecology, these businesses frequently operate as reversal links in the supply chains of bigger manufacturing organizations. It is necessary to improve the financial sector’s capacities and close the knowledge gap among firms to achieve widespread adoption of sustainable finance, even if some banks have set up help desks to educate clients.

Develop Industry-Related Policies and Procedures:
For governments in Build and Grow nations, tackling the climate catastrophe is frequently a governance conundrum. According to the Circularity Gap Report, nations like Bangladesh are forced to choose between providing development-critical services and lowering their carbon footprint due to limited public funding. By seeing the climate catastrophe and supporting growth as interdependent problems, circular economy techniques help alleviate the false choice between the two. To make the changeover go off without a hitch, we need a regulatory framework that is strategic, strong, and synergistic. “The state must endeavor to protect and improve the environment and to preserve and safeguard the natural resources, biodiversity, wetlands, forests, and wildlife for the present and future citizens.” This is stated in Article 18A of Bangladesh’s 2011 Constitution, which acknowledges environmental protection as a fundamental right. Wetland management, biodiversity conservation, noise, air, and water pollution, as well as forest management, are all addressed in the legislation. The level of justice in enforcement is not entirely apparent, but the policies that are in place are thorough and include the right combination of measures. Develop Industry-Related Policies and Procedures A report by Deloitte reveals a more all-encompassing method to accomplish significant progress towards a circular economy, even if Bangladesh did take a step in that direction in 2010 with the National 3R Strategy. To begin, it is essential to analyze resource use across various industries. To continue, we must first determine which industries may most profit from embracing circular business models by doing a prioritization exercise. It is worth noting that the clothing business in Bangladesh produces an astounding zero dollars. Bangladesh has the potential to reduce waste and protect the environment by recycling these remnants into new yarns and using them in garment remanufacturing. This might open a $6 Bn business opportunity for the country. India prioritized four sectors for the circular economy during its recent G-20 Summit: The steel industry’s Prolonged Obligation of the Manufacturer Resource efficiency driven by industry and the circular economy. Rather than pursuing circularity as a blanket approach for the entire economy, it is more effective to focus on specific sectors where it might complement current policy goals.

Put an End to Producers’ Extended Liability:
The shift to a fully circular economy can’t happen until micro, small, and medium-sized enterprises (MSMEs) adopt circular practices. The entire supply chain will be more resilient and efficient thanks to this change, and sustainability will also benefit. However, the financial limitations experienced by these lesser groups are even more severe than those experienced by bigger corporations. They can’t always afford to invest in circularity-supporting technology and processes. To overcome these obstacles, targeted policies should be put in place to encourage investment in micro, small, and medium-sized enterprises (MSMEs). Among these measures can be the facilitation of green financing choices, the provision of technical help, and the development of financial instruments specifically for smaller businesses. Put an End to Producers’ Extended Liability One of the most important goals of Vision 2041 is to establish a system for sustainable waste management. A major roadblock to development, however, is the lack of Extended Producer Responsibility legislation. The Law on Environmental Protection mandates that producers return and appropriately handle their products once they reach the end of their useful life in Vietnam, thus promoting a circular economy. In addition, it encourages people to take part in garbage sorting and collection programs and buy environmentally friendly products, which closes the loop. An industry-specific strategy is necessary to address manufacturers’ environmental responsibilities due to the diversity of these businesses. But the following should be part of the EPR policy regardless of the industry: Defining which types of products are subject to EPR Setting targets and benchmarks for trash reduction and recycling Putting sanctions in place for actions done in violation.

A Thorough Set of Regulations Regarding Trash Disposal:
A thorough set of regulations regarding trash disposal Environmental protection officials issued a notice in 2020 requesting that businesses using polyethylene and other multi-layered plastics transition to more sustainable packaging. Accordingly, the nation has to make its waste management goals very apparent, highlight the importance of informal garbage workers, and set quantifiable goals for recycling and trash reduction. Working together with Monetary Development Banks Bangladesh can evaluate the cyclical potential and come up with plans, but they will need help from outside sources to put them into action. It is critical for the government to indicate areas that require assistance and to seek targeted support for their objectives; MDBs are becoming experts in implementing circular economy solutions for sustainable development. With the help of the World Bank, the Chinese government has launched successful industrial symbiosis programs to facilitate cross-industry cooperation, rethink material flows, and build waste-to-resource pipelines.

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Engaging with the Community and Raising Public Awareness:
One method the government can utilize its resources to assist the development of circularity within the economy is by making strategic alterations, such as making public procurement policies more circular and enterprise-friendly. This might be done in addition to providing direct incentives and financial support. A framework for identifying and certifying circular products and services, as well as for reducing or eliminating value-added tax on these products, should be considered by the government. Engaging with the Community and Raising Public Awareness Discouragement of throwaway culture, increased consumer knowledge of the problems associated with waste generation, and reduction of environmental footprints are all outcomes of the Indian prime minister’s appeal to Mission LIFE Lifestyle for Environment, which encourages people to be conscientious of their purchasing habits. Given Bangladesh’s susceptibility to climate change and the critical importance of conforming to worldwide sustainability pledges, shifting to a circular economy is, in short, not just a potential strategic move, but an absolute must. One industry that is leading the charge to embrace circular processes and renewable energy sources is the garment business, which is a major economic driver.

References:

1. ADB, 2023
2. Green Climate Fund
3. Bangladesh Country Environmental Analysis 2023
4. Occurrence and characteristics of microplastic in different types of industrial wastewater and sludge
5. Standard Chartered Press Release (2021)
6. Ellen MacArthur Foundation
7. EU Strategy for Sustainable & Circular Textiles
8. Tax on solar panels and inverters: How it hinders Bangladesh’s path to a sustainable future
9. Global Impact Investing Network (GIIN)
10. The EU strategy for sustainable and circular textiles (The Business Standard, 2023)
11. Bangladesh Bank, Sustainable Finance Policy (2023)
12. Circle Economy Foundation, 2024
13. Deloitte report
14. The World Bank, 2020
15. Ministry of Finance, 2023

Founder & Editor of Textile Learner. He is a Textile Consultant, Blogger & Entrepreneur. He is working as a textile consultant in several local and international companies. He is also a contributor of Wikipedia.

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