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Asian Development Bank calls for green financing mechanisms

Updated August 30, 2017

ISLAMABAD: The Asian Development Bank (ADB) has proposed the creation of national green financing vehicles to catalyse environmentally and financially sustainable infrastructure investments in Asia and the Pacific.

In a report released on Tuesday, the ADB highlighted the constraints for developing a large pipeline of bankable green infrastructure projects and called for an integrated approach to transforming country financial systems.

The report, titled ‘Catalysing Green Finance: A Concept for Leveraging Blended Finance for Green Deve­lopment’ outlined the concept of a Green Finance Catalysing Facility (GFCF), having a life of twenty years, which would serve as a model for countries to create their own financing vehicles and implementing mechanisms.

This would leverage public funds and policies to catalyse a blend of financing from private sources for increasing green infrastructure investments. Mobilising additional funds from the capital markets is a major objective of these vehicles. Public funds would be used as risk mitigators to create bankable projects and crowd in private funds, technology, and efficiency improvements.

Extreme weather-induced disasters in the Asia and Pacific region resulted in about $750 billion of losses from 2003 to 2013; an estimated 4.5 million to 5.3m deaths every year projected for 2010–2030 attributed to carbon intensive energy practices and corresponding health impacts; an additional annual expected 400,000–700,000 deaths from climate change; these are some of the very visible results of unsustainable development and growth patterns over decades, which have eroded the planet’s natural capital - air, land, and water - resources to a tipping point of scarcity, pollution, and increased inaccessibility.

Lives and livelihoods in the Asia and Pacific region are particularly vulnerable with rapid economic growth, changing consumption impacts, massive population growth, and rapid urbanisation trends; climate change impacts here are estimated to have a higher cost than global averages, with already visible shortages of water resources and air pollution, and 10 of the world’s 18 most severely polluted megacities can be found in this region.

GFCF’s nature as a facility, rather than a fund, would enable a holistic approach to green finance, through raising private funds not just for projects but also at the portfolio level, providing project development and structuring support, and establishing a financing mechanism, which links financial incentives with green targets, leveraging, credit ratings, and capital markets access.

“A paradigm shift in infrastructure planning and design is an imperative for dynamically changing Asia. The choice that Asia makes in bridging infrastructure gaps will have profound implications for its people and the planet,” said Bambang Susantono, ADB Vice-President for Knowledge Management and Sustainable Development.

The report responds directly to ADB member countries’ need to address the persisting shortfalls in infrastructure investments, estimated at over $1.7 trillion annually until 2030, taking into account climate change mitigation and adaptation costs. The proposed national green financing vehicles would help meet these needs while ensuring the best use and conservation of scarce natural resources.

Greening all investments, especially the most crucial infrastructure investments, is a particularly challenging issue given the estimated $26.2trn infrastructure financing needs in developing Asia from 2016 to 2030, including climate mitigation and adaptation costs.

On the other hand, the global de­­mand for implementing the Sustainable Development Goals is already at a high $5trn to $7trn per annum with a $2.5trn annual financing gap in developing countries for key infrastructure sectors and related areas, which means that there will be competing demand for global finance flows.

Green finance covers a much bigger scope than climate finance and includes all financing instruments and investment decisions that are geared towards low-carbon, sustainable, and inclusive development.

The private sector, regarded as a critical contributor to meeting the region’s development financing needs, would have to contribute over fifty per cent of required green investments in many countries. The report is targeted at government and private sector professionals and informs country-specific structures that can assist in stren­g­­thening green growth initiati­ves, while allowing countries to re­­­­duce their national-level fiscal burden.

Published in Dawn, August 30th, 2017