Major Boost in Finance is Key to Helping Asia Manage Climate Change

Article | 1 July 2015

Asia needs at least $40 billion annually to adapt to climate change. Climate finance will need to come from different sources, such as multilateral funds, private investments, and capital markets.

From the farmer confronting the prospect of a delayed monsoon to governments seeking to protect people, natural resources, and cities, climate finance is key. Without it, developing Asia’s farmers and leaders alike will be unable to build a climate-resilient future. But it won’t be cheap: in Asia and the Pacific, just adapting to climate change is expected to cost at least $40 billion per year between now and 2050.

“The upcoming climate meeting in Paris in December needs to be very clear on how we are going to mobilize the needed finance or we will not be able to keep the global temperature increase below 2 degrees Centigrade, putting lives and economies at risk.”

Carmela Locsin, Director General of ADB's Sustainable Development and Climate Change Department

Climate financing gap

In 2010, wealthy countries set a goal of providing $100 billion annually from 2020 to help developing countries mitigate and adapt to climate change. In 2013, only $34 billion was forthcoming, according to the Climate Policy Initiative, a non-profit think tank dedicated to support low-carbon development.

“The recent heatwave in India is a harsh reminder of the brutal effects of a hotter world. The upcoming climate meeting in Paris in December needs to be very clear on how we are going to mobilize the needed finance or we will not be able to keep the global temperature increase below 2 degrees Centigrade, putting lives and economies at risk,” said Carmela Locsin, Director General of ADB's Sustainable Development and Climate Change Department.

In 2014, ADB provided $3.2 billion in climate finance to developing Asia; 81% from its own funds, the rest from other external donors who work with ADB to manage climate finance on their behalf. Since 2011, the bank has provided almost $13 billion in climate finance. 

Some 77% of ADB’s climate finance is targeted at mitigation efforts. Recently these have included loans such as $11.2 million to build up to six solar power plants in the Cook Islands, which will cut carbon dioxide (CO2) emissions by 2,930 tons per year. ADB has also loaned $173 million to upgrade power grids in Ha Noi and Ho Chi Minh City in Viet Nam, saving 662.6 gigawatt hours of energy and cutting CO2 emissions by 460,000 tons annually. Helping countries and communities adapt accounted for the remaining 23%.

Putting external funds to work

External funds that are accessed by ADB, such as the Climate Investment Funds and Global Environment Facility, are being deployed to finance innovative new approaches to climate resilience.

“Communities and town planners in vulnerable places like Cambodia, Nepal, and Tonga are now working on ways  to improve climate resilience under programs funded by the Climate Investment Funds that will show how it can be done elsewhere,” said Preety Bhandari, Director of the ADB’s Climate Change and Disaster Risk Management Division. These include introducing rainwater harvesting, climate-proofing infrastructure such as roads or bridges, and introducing crops more suited to a variable climate.

ADB also manages a variety of other projects in Bangladesh, Papua New Guinea, and Tajikistan as well as a Pacific-wide project as part of the $1.7 billion allocated to it by the multi-donor Climate Investment Funds.

ADB’s accreditation in March 2015 to the Green Climate Fund, which will be instrumental in helping to mobilize the pledged $100 billion per year, should also ensure more climate financing is channeled to Asia, the region where the largest number of climate vulnerable people live.

Private sector and capital markets key

As an anchor project investor, ADB lending also attracts private sector investors that might otherwise be reluctant to participate. Last year, ADB made private sector investments in clean energy alone of $760 million.

Together with ORIX Corporation and Robeco Institutional Asset Management, ADB has set up Asia Climate Partners, a fund with an initial capitalization of $400 million that will make private equity investments in low-carbon projects, generating risk-adjusted returns and, simultaneously, having a positive environmental impact.

Private sector investment can also demonstrate the viability of new technologies. A 100-megawatt solar energy plant in western Rajasthan, built by a subsidiary of Reliance Power and supported by a loan from ADB, became fully operational in May. It is using large-scale, grid-connected Compact Linear Fresnel Reflectors, a new technology that uses mirrors to intensify the sun’s energy.

Meanwhile, ADB is also tapping institutional investors and pension funds using the market. The bank’s inaugural issuance in March of $500 million in green bonds drew in many buyers from Asia - adding to the now multi-billion-dollar market in green bonds around the world.

The $115 million ADB-managed Future Carbon Fund has also provided much-needed carbon finance through the pre-purchase of Certified Emission Reductions under the Kyoto Protocol’s Clean Development Mechanism.  

In short, there is no single source for climate finance. Asia needs both the public and, increasingly, the private sector to kick in if countries are to get the funding they need to both prosper and cope with a changing climate.