How Bhutan built conservation finance into its DNA
Tiny Bhutan has a claim to fame as the first and only country that can claim to be not only carbon neutral but dramatically carbon negative. Conservation is wrapped in with the national ideal of ‘gross national happiness’, a pillar of the country’s constitution and fundamental to national planning.
Paro Taktsang in Bhutan
One day in February 2016, Tshering Tobgay took to the stage in Vancouver to deliver a TedTalk.
Articulate, charming and genuinely funny, the then-prime minister of Bhutan had the audience eating out of his hand within minutes. He started by lightly mocking the Bhutanese national dress he was wearing – “like our women, we men get to wear pretty bright colours, but unlike our women, we get to show off our legs” – and then set about telling a story about his tiny home country, a mountainous kingdom of just 700,000 people landlocked between China and India.
There was quite a story to tell: about ‘gross national happiness’, the idealistic development framework Bhutan’s fourth king coined in the 1970s, and which continues to shape policy today; the fact that 71% of the country’s land is under forest cover and that it is a cornerstone of the constitution that the figure many never fall below 60%; and, most of all, that Bhutan is not only carbon neutral but carbon negative, absorbing four times as much carbon dioxide in its forests as the nation generates, even before factoring in the offset effect of the renewable energy the country sells to India. It has even banned the sale of cigarettes.
Accompanied by increasing applause, Tobgay cheekily informed the crowd that he had had the temperature cranked up by two degrees before starting to save on the air conditioning. He then he left the stage.
Livelihood plays a very important role in managing resources: we really need to give the ownership to the communities to manage the natural resources sustainably and live in harmony with nature - Pema Wangda, Bhutan for Life Fund
Sitting in his living room in the hills above the capital of Thimphu in late September, Tobgay – who stepped down as prime minister last year but who retains a role as an environmentalist and advocate – shakes his head in disbelief when he recalls what followed. The talk has been viewed about three million times on various platforms – and that was just the start.
“I am actually overwhelmed by the response,” he says. “I have had literally thousands of people write in to say how can they help, what can they do in their own communities. There were people listening to the talk who otherwise didn’t know where Bhutan was at all.”
But, even if the crowd was surprised to learn of this mysterious green kingdom, Bhutan’s unique incorporation of environmental protection into its whole economic model was nothing new – it has been underway for more than 40 years.
Gross national happiness
In the early 1970s, the fourth king of Bhutan, Jigme Singye Wangchuck, who had found himself in charge of his country while still a teenager, made a remark that would come to define the nation. Gross national happiness, he said, was more important than gross domestic product.
“He was way ahead of his time,” Tobgay says. “Everyone was talking about GDP in the 1970s. He took a conscious decision to prioritize the happiness and wellbeing of his people over unregulated GDP growth.
“It was very difficult, I would imagine,” he adds. “He inherited a kingdom that was poor and emerging from centuries of self-imposed isolation, where only a handful of people had been to school and college to help him govern the country.
“He would have had access to huge amounts of natural resources. His advisers must have been telling him: ‘Your majesty, chop down the forests, mine the earth, you need the money.’
“But he announced that protecting them was part of a holistic form of development. It was an expensive decision. It wasn’t easy.”
To start with, the king enshrined environmental protection in law. The constitutional requirement to preserve more than 60% of the country as forest dates from law implemented in the 1970s. Today, gross national happiness, routinely abbreviated as GNH, is expressed through four pillars: good governance; sustainable socio-economic development; preservation of culture; and environmental conservation.
“Those pillars cut across all areas of the economy,” says Dechen Dorji, the WWF’s country representative for Bhutan. Dorji previously worked directly for the King in what is called His Majesty’s Secretariat Office, where he was a public policy researcher in social and welfare assistance for disadvantaged communities and students.
Before that, he worked in the country’s forestry department.
“The pillars get into good governance as well,” he says. “They mean that you can have a good healthy economy, citizens and leadership, with a sense of community and environment.”
The constitution, specifically Article 9, requires that: “The state shall strive to promote those conditions that will enable the pursuit of Gross National Happiness.”
The government – Bhutan has been a democracy since 2008 – is required to consider this stipulation in all policy decisions. There is now a refined index methodology to evaluate gross national happiness and the GNH Commission is a powerful institution at the heart of all national planning.
“Any policy that is being formulated, the GNH Commission must run it through their own machinery to check if it is consistent with gross national happiness,” Tobgay says. “This is how GNH gets into policy, into national plans and development.”
Asked if GNH has worked, Tobgay, who had to govern under the policy, reaches for hard data rather than lofty ideals.
“People think of Bhutan as the happiest people; we may be, we may not be. You can’t measure happiness. That’s not what you’re talking about. You’re talking about wellbeing.”
I take a great deal of satisfaction in coining the term ‘carbon negative’. People talk of carbon neutral, and I wanted to drive home the point: we were in such huge deficit that it didn’t make sense to call it neutral - Tshering Tobgay
He searches his phone browser while Euromoney looks at a bookshelf containing biographies of Hillary Clinton, Narendra Modi, Steve Jobs and Elon Musk.
Finding the required metrics, he lists them: life expectancy has risen from 45 to 70 over the last 30 years as infant mortality rates have plummeted; literacy rates have gone from 50% to 72% in the same period, with youth literacy at 93%.
Under international definitions of poverty, in the last 15 years Bhutan has fallen from 31% to 8% of the country afflicted. And, he reminds us again, it is the world’s only net carbon negative country (although he celebrates Suriname’s recent confirmation as carbon neutral).
“I take a great deal of satisfaction in coining the term ‘carbon negative’,” he says. “People talk of carbon neutral, and I wanted to drive home the point: we were in such huge deficit that it didn’t make sense to call it neutral.”
But how does it work as a basis for an economy? GDP might be secondary in Bhutan, but it still matters.
It is a relatively small economy – worth $2.5 billion in 2017, according to the World Bank – but a sense of prosperity comes from the fact that Bhutan will exit developing nation status and become, officially, a middle-income country in 2023.
Apparently, happiness hasn’t come at the cost of per capita wealth, and giving conservation a seat at the table hasn’t impeded economic performance. Nevertheless, Bhutanese people aspire to advancement, and the country therefore faces challenges.
It’s admirable that 52% of the nation is made up of national parks and other protected areas, such as biological corridors that allow animals to move freely between those parks, but it is also expensive and, in Bhutan’s case, complicated by the fact that many people live there.
“The importance of the environment is almost in the DNA in Bhutan,” says Dorji, whose WWF Thimphu premises are adorned with appeals for the protection of snow leopards. “But having these things in mindset and policy is one thing. Sustainable finance is still a huge challenge.
“The reality is, since we have been a democracy we have observed elected leaders in government who are elected based on promises to the people on development, jobs, the economy. Although the government has a good policy on conservation, there are not enough resources to go round.”
Bhutan for Life
This was the reason for the formation of Bhutan for Life, which used the Project Finance for Permanence model to raise $43.5 million from a mix of public and private donors to safeguard the sustainability of the country’s national parks and biological corridors, making payments over 14 years until the government is able to meet the burden itself.
What is striking here is how convincing Bhutan’s track record and mindset was in convincing donors to take part, from the Green Climate Fund to private donors and even $5 million from a single Thai family.
“The government had to convince the donors that they were committed” to the 14-year time frame of funding themselves on conservation, says Michael Philipp, a former chairman of Credit Suisse for Europe, Middle East and Africa, and former chief executive of Deutsche Asset Management, who first developed an interest in Bhutanese textiles in the early 1990s.
After numerous visits in recent years on behalf of the WWF, to which he is a big long-term donor, he is now co-chairman of the Bhutan Foundation, which has a mandate ranging from environmental concerns to cultural preservation.
“That’s why issues such as gross national happiness, commitments to conservation and the constitution’s preservation of forestry were so important,” says Philipp. “It all speaks to good governance. It means you can have a high degree of confidence that when Bhutan says it is going to follow through on its commitments, that’s what you’re going to see.”
Bhutan for Life is also a useful illustration of how closely involved the GNH Commission is in everyday policy and finance. The annual plans and budgets for the national parks, having worked their way through the ministry of agriculture and forests, must be submitted to the GNH Commission, which will study them and make sure they align with national planning before submitting those plans to the secretariat for fund release.
And it speaks to the trap that countries can find themselves in as their progress takes them into an economic bracket where donors and grants no longer come their way.
Pema Wangda, executive director of the Bhutan for Life Fund secretariat
“When everything is withdrawn, we need support to make sure that conservation is still sustainable for the future,” says Pema Wangda, executive director of the Bhutan for Life Fund secretariat.
Wangda is very much of the view that conservation cannot be thought of in isolation, particularly in a place where communities live inside the national parks, but that it must be viewed in tandem with individual well-being – a very Bhutanese perspective.
“I am definitely of the view that this [Bhutan for Life] will be very helpful in conservation, as well as the livelihood aspects of the people,” says Wangda. “In the end, livelihood plays a very important role in managing resources: we really need to give the ownership to the communities to manage the natural resources sustainably and live in harmony with nature.”
Tobgay takes the view that Bhutan’s approach to the environment needs to be noticed and followed elsewhere, because climate change affects the world indiscriminately.
“A local problem with international implications must have a solution that includes all stakeholders and is truly international,” he says.
“The returns are phenomenal,” he says. “And you cannot calculate them. How do you put a price on a tiger population that is growing? Or the protection of butterflies that are endemic to Bhutan? Or forests that have within them secrets that could be the key to future medicine?
“That is the return. And it is not just a return for Bhutan but for the world.”
It is perhaps fair to ask, however, how applicable any lesson gleaned from Bhutan can be for the rest of the world, because there just isn’t any other country like it. Nobody else took what first appeared to be a slogan about wellbeing and happiness and enshrined it in the constitution and national policy with conservation at the forefront.
Everything from Bhutan’s Buddhist faith to its modest population and its mountainous terrain has led it to the leadership position on carbon it holds today.
But there’s no harm in leading.
“ For a country of our size and population, we have a real opportunity and a chance to develop an economy built around sustainability and climate resilience,” says Dorji. “It is very doable here. We have the right leadership, the right policy commitment, the right support from the people. It can be a showcase to the world.”
And it has to be, he says.
“We are the first to suffer if the glaciers start melting fast.”
Hazelnuts help development
In 2008, Teresa Law and Daniel Spitzer founded Mountain Hazelnuts in Bhutan, working with mountain communities with limited income generating opportunities. It is now the biggest private-sector employer in the country.
It has been a good match for Bhutan, which is committed to economic development in line with its social and environmental aspirations.
Both Law and Spitzer have finance backgrounds. Their plan was to build a for-profit business that served the people of Bhutan and its natural beauty, where profits would be shared between shareholders and the smallholder farmers.
Law and Spitzer are the majority owners of the company. Institutional investors include the IFC and Asian Development Bank, as well as social impact funds and family offices.
So far, six million hazelnut trees have been planted in 11,000 orchards on degraded, fallow land – typically on slopes that have been subject to erosion. Their cultivation stabilizes the soil, improves river water quality and sequesters carbon.
The orchards are run by smallholders, cooperatives, nunneries and monasteries alongside their farms, “so as not to displace existing food production,” points out Spitzer. Nuts are sold to international buyers, who appreciate the traceability.
Mountain Hazelnuts has raised equity through its shareholders and is working with the UN Land Degradation Neutrality Fund on a landmark financing that would enable it to complete the plan of planting 10 million trees.
The UN LDN fund is run by Mirova and was set up in 2018 to leverage public money to raise capital for restorative land projects.
By Helen Avery