Year 2015 is a watershed year for the world’s future. Landmark events including the Sendai Framework for Disaster Risk Reduction in March, the 3rd International Conference Financing for Development in Addis Ababa in June, the UN Summit in September to finalize the post-2015 UN Sustainable Development Goals, and the Conference of the Parties (COP) gathering in Paris in December have given us an unprecedented opportunity to shape this century’s preeminent challenge – sustainable development.
A comprehensive climate deal in Paris is an ambitious undertaking that will hinge on a number of crucial factors, notably adequate financing for developing countries. Recognizing that Asia and the Pacific is the key battleground in the global fight against climate change, ADB (Asian Development Bank) last year provided US$3.2 billion in climate finance to the region. Of that, US$2.5 billion is tackling climate change mitigation and the remainder targeted at adaptation.
More climate finance
We are looking to provide even more climate finance in future.
ADB shareholders earlier this year approved the combination of ADB’s Asian Development Fund lending operations with our ordinary capital resources which will allow ADB to increase annual lending to US$15 billion-US$18 billion from US$13 billion now. Starting in 2017, this will significantly enhance ADB’s support for sustainability in its developing member countries. ADB targets half of its operations supporting environmental sustainability and 45 percent addressing climate change by 2016. We are now at 44 percent.
ADB’s recent accreditation as an implementing entity of the United Nations Framework Convention on Climate Change’s (UNFCCC) investment vehicle, the Green Climate Fund, a first for a multilateral development bank, will further boost our capacity to access climate finance on behalf of our developing member countries, which are among the most vulnerable countries globally.
Mobilizing private finance is key
Clearly, however, private sector investment in climate-related projects is crucial. In 2014, ADB invested US$ 766 million in private sector climate change mitigation projects but more important is spurring innovative ways of catalyzing such investment. This can include using concessional financing to leverage private finance and tapping non-traditional sources such as pension funds, sovereign wealth funds, and philanthropic funds.
In March, ADB raised US$500 million through the issue of its first ever green bond. Meanwhile, the newly established US$ 81.5 million Canadian Climate Fund for the Private Sector in Asia will blend concessional Banking on scaled up climate investment in Asia and the Pacific resources with ADB’s private sector operations for both mitigation and adaptation projects.
ADB also used US$ 2 million of temporary contingency financing to help leverage more than $200 million of private finance to build a 55-megawatt solar farm using new photovoltaic technology in Thailand. The farm means 50,000 tons of carbon dioxide emissions are being avoided every year.
Credit guarantees and mezzanine finance are other tools that can lower green investment risks and increase credit availability. For example, we recently helped develop a 300-megawatt solar and wind power project in India using $50 million of compulsory convertible debentures that allowed US$ 285 million in other resources to be leveraged.
Demonstrating results can also spur investment. Energy service companies in Southeast Asia and the People’s Republic of China are starting to offer risk-free solutions for corporate customers where payment is provided only if the suggested measures lead to reductions in energy spending. This is a win-win-win situation, with the service companies making profits, corporate clients enjoying savings, and carbon emissions falling.
Strengthening collaboration amongst climate financiers
Collaboration is also critical to ensure that we are financing the right kinds of actions and are not duplicating efforts. A positive move on this front is on the common reporting methodology that has been in place since the COP18 in Doha.
An annual joint multilateral development bank report on climate finance and common reporting methodology for private sector leverage provides transparent and comparable metrics that build a common language around climate-compatible investment and momentum for scaling up climate finance.
All this is important to support the goal of mobilizing an additional US$ 100 billion annually for climate action in developing countries from 2020. Last year, the world’s 6 large multilateral development banks together provided just over $28 billion – with $23 billion going to mitigation and $5 billion to adaptation. Work needs to continue in other areas though. While significant advances are being on mainstreaming climate issues on the strategic as well as project level, from design through to implementation and evaluation, there is vast scope for mutual learning as well as joint initiatives between multilateral development banks and the
International Development Finance Club, an association of leading bilateral and national development financial institutions. We should also ensure that any new financial institutions, such as the Asian Infrastructure Investment Bank and the New Development Bank, are part of this.
Linking with other centers of excellence is key too. An ADB partnership with the UK Met Office, for example, will provide developing countries with state-of-the-art climate projections and scenarios which will help ensure development plans and investments are not compromised by climate change.
Addressing vulnerability and responding to disasters
Beyond mitigation and adaptation, the region also needs to work to develop better disaster preparedness and response both for climate-related hazards but also for others such as earthquakes or tsunamis. Severe flooding in August in India, Pakistan, Bangladesh, and Myanmar after Typhoon Soudelor bringing death and destruction of at least US$ 1 billion is a reminder of that. Nowhere is immune.
Among other countries, Vanuatu also experienced major losses equivalent to around 50 percent of GDP in March this year as consequence of Cyclone Pam and parts of the Philippines are still recovering from Typhoon Yolanda that struck in late 2013.
In the 10 years from 2005 through 2014, Asia and the Pacific saw nearly 425,000 lives lost, 1.4 billion people affected and direct physical losses of US$722 billion, some 48 percent of global losses in that period. For ADB’s part, we are increasingly working with countries to strengthen integrated disaster risk management, including integration of climate change adaptation with disaster risk management.
Looking ahead
Negotiations in the lead-up the Paris gathering have been intense. Countries have already worked out several elements of the new agreement and established ground
rules on how nations can contribute to the new agreement in the context of common but differentiated responsibilities.
We are encouraged by the submissions of Intended Nationally Determined Contributions by developing countries in Asia-Pacific. We are also encouraged by joint agreements on limiting emissions by the US with India and the People’s Republic of China, as well as the August announcement by US President Obama that his administration will limit carbon emissions from domestic power plants.
The outcomes of the Paris meeting should certainly galvanize concrete action – and realize further financing – to combat climate change. ADB will continue to support
the Asia and Pacific region after December and beyond to ensure the region faces a clean and sustainable future.
(Bambang Susantono, Vice-President Knowledge Management and Sustainable Development, ADB)
