With the government earlier announcing that Green Bonds (GB) are under consideration to enable Bhutanese living abroad to invest in Bhutan, there are talks about its feasibility, success, and areas that would attract investors. Though the argument begins from the interest rate or coupon rate, with some expressing that interests for fixed deposits are much higher than what a GB would fetch, there is a need for relevant agencies to think outside the box and address areas that may not appear on their radar.
It begins with the simplest, yet the most important component – literacy. How many of our generation were (and still are) aware of the advantages of shares and bonds? Similarly, how many Bhutanese living outside, especially those in Australia would know the promises of GB and the difference between a financial bond and GB? It wouldn’t be wrong to say that 90% of Bhutanese outside will not know anything about GB.
Literature says that a financial bond is a fixed-income instrument that represents a loan made by an investor to a corporate or governmental borrower. The borrower will repay the loan on a fixed date as well as interest, which is known as a coupon. GBs are a specialized type of bond that can be used to fund climate and environment-related projects and are highly sought after due to the increased worldwide emphasis on conservation, corporate social responsibility (CSR, and sustainability. There is the risk of misinterpretation that GBs will not make profits and that it is for governments, agencies and individuals who are worried about conservation and sustainability. This fog should be cleared, and it should begin with financial literacy (GB literacy) in this case.
GB market is one of the fastest-growing and most dynamic segments in fixed income. There are challenges concerning regulations, structure, taxonomy, green-washing, and others. Bhutan’s image as an environmental champion would be very critical in attracting investors. These and other aspects should be communicated effectively and efficiently to prospective investors, including Bhutanese living abroad.
Regarding areas that would attract investors and benefit the country, the domains are large. From renewable energy to energy efficiency, sustainable water and wastewater management, pollution prevention and control, clean transportation to green buildings, Bhutan has a lot to offer. However, which would be areas that Bhutanese outside would find most attractive?
This may not be said only about Bhutanese. Humans generally like to invest in areas where there is tangible visibility. Under this come ventures like infrastructure, including green buildings. Green buildings have become an increasingly popular topic in recent years. More and more people are looking to build environmentally friendly homes, and businesses are starting to catch on to the sustainable trend. Bhutanese living abroad might invest in green buildings. A dream of every Bhutanese, especially those who have left for Australia is a house in Thimphu and what more than a green building.
Though affordability would be another issue, it is vital to study the dimensions and demography of our targeted investors, who are Bhutanese in this case. Who and how many have the potential and wish to invest? Many Bhutanese have reportedly invested in real estate in countries they live in. Will this group be attracted to Bhutan? How many have the potential to own a house in their country of residence but also want to have a roof over their heads back home, so that they can use it when traveling or visiting Bhutan? At the back of our minds, we should remember that just as the world, generations are changing. In a future we just can’t fathom accurately, movements will increase.
Bhutan definitely has strengths. The World Bank approved $52.5 million in financing in 2022 to help Bhutan strengthen fiscal and financial sector stability, green and private sector-led growth. The Green and Resilient Development Policy Credit (DPC) is the first of a series of two credits that will help the government focus on policies that build resilience as the economy recovers from the COVID-19 pandemic, and the Bank is supporting Bhutan in its efforts to achieve green, resilient, and inclusive development. These are areas that green investors are interested in. Moreover, what separates Green Bonds from others is commitment, and Bhutan is known for it.
Bhutan is gearing up for zero-emission mobility by 2050, with a goal of replacing 70% of vehicles with electric cars by 2035. This is an area that could be explored and looked into.
Many agree that renewable energy would be the most attractive sector for investors, and Bhutan has a wealth of green or renewable energy. A June 14 article by the Third Pole in 2022 quoted our Minister of Energy and Natural Resources, Lyonpo Loknath Sharma, saying that in the next two years, Bhutan plans to harness 300 megawatts of solar energy.
The minister also stated that the government has identified seven sites across the country to install solar farms, at a cost of around 21.6 billion Bhutanese ngultrum (about USD 300 million). This means that we have abundant green energy, which is a testament that Bhutan should bank on and make the best use of its potentials.
In 2021, the Third Pole had published another article where an officer from the Department of Renewable Energy (DRE) said that Bhutan has the potential to generate 12,000MW of solar energy, 761MW of wind energy, and 2,680MW of bio-energy. According to the same article, Bhutan generated 11,364 million kWh of power in 2020.
Additionally, Druk Holdings and Investments (DHI) could play a big role here, not just in attracting investors but also getting into the business. Druk Green Power Corporation (DGPC) is already constructing power projects on their own. So there should not be any issues.
In November 2022, there was a meeting called “Financing Bhutan’s Green Transition” in Thimphu, where the Economic Affairs Officer of the United Nations Economic and Social Commission for Asia and Pacific (ESCAP) said that the government issuance of Green Bonds should be aligned with government priorities while ensuring debt sustainability, and that it requires significant coordination among ministries. It was reported that ESCAP is supporting Bhutan to develop the sovereign green bond framework and green taxonomy, along with training support to relevant stakeholders on green bond issuance. The Finance Ministry’s Debt Management Division is leading Bhutan’s green financing efforts.
During the same meeting, an official from the Royal Monetary Authority had said that the Central Bank had completed the first version of the green taxonomy in November 2021 and that they are reviewing it again.
Green Bonds are not a new concept in Bhutan. Coordinated by the UN ESCAP, a team of four experts from the PolyU CESEF Center participated in a National workshop on Capital Market Development in Bhutan during December 18-19, 2019. As part of ESCAP’s technical assistance to Bhutan, this national workshop aimed to engage with the Ministry of Finance, various Government agencies, and key stakeholders to help facilitate the issuance of Bhutan’s first sovereign bonds.
Having said so, concerned agencies should also remember that “the rights over mineral resources, rivers, lakes and forests shall vest in the State and are the properties of the State, which shall be regulated by law.” How will the people of Bhutan be brought into the world of GBs over a period of time?
Ugyen Tenzin from Thimphu
