The Bhutanese Leading the way.
A recent World Bank report underscores the urgent need for Bhutan to strengthen its climate resilience and financial strategies to combat the growing risks of climate change.
Bhutan faces significant threats from natural hazards, such as flash floods, landslides, and forest fires, which not only jeopardize its environment but also its economic stability, according to the report.
The report highlights that Bhutan is highly vulnerable to both physical and financial risks due to climate events.
Physical risks include damage to infrastructure and natural resources, while financial risks involve economic losses and increased costs from climate-related disruptions. Despite the efforts to pursue a low-emission development path, more comprehensive action is needed to enhance resilience and secure a sustainable future.
To address these challenges, the World Bank emphasizes on the importance of substantial investment in climate resilience. Bhutan must expand its funding beyond public sources to close the financing gap. The financial sector is seen as a crucial player in this effort, particularly through the development of green finance markets, and better management of climate-related financial risks.
The report points out that Bhutan’s Green Finance Roadmap lacks specific details and calls for a more coordinated approach. Establishing a National Sustainable Finance Committee, which includes key financial and government bodies, is a positive step. The committee will focus on creating a detailed work plan and engaging with international partners to support green finance initiatives.
Further, the report states that developing a national climate finance strategy is crucial. It will provide clarity on investment objectives and help attract long-term investments. Bhutan needs to enhance its institutional capacity to support innovative approaches for financing adaptation and resilience projects.
Awareness and understanding of climate risks are essential for implementing the Green Finance Roadmap. The World Bank suggests creating a detailed training plan for authorities and the financial sector. Partnering with organizations, like the Central Banks and Supervisors Network for Greening the Financial System (NGFS) could provide valuable expertise and best practices.
The report recommends conducting climate-related risk assessments to guide the Royal Monetary Authority (RMA) in integrating these risks into supervisory practices. This includes providing guidance on corporate governance, risk management, and disclosure related to climate and environmental risks.
Transparency is vital for effective climate financing. RMA, Ministry of Finance, and other stakeholders are working on reporting standards and frameworks to align with international best practices. Developing a green taxonomy and green bond guidelines will help in mobilizing capital for climate-related investments.
The report advocates for new financial instruments, such as blended finance, to leverage public and private capital for green projects. Green bonds, which can mobilize long-term investments, should be developed with international standards to ensure comparability and attract investors.
