A green economic reset will deliver an inclusive, lasting recovery for Asia and the Pacific

As Asia and the Pacific looks to emerge from the coronavirus disease (COVID-19) pandemic, countries in the region need to decide how to rebuild their shattered economies and reverse major setbacks to poverty reduction and other development goals.

Governments have spent trillions of dollars to offset the immediate economic impacts of the pandemic but a full recovery still remains a long way off and ensuring all groups benefit from future growth is a critical challenge for policy makers. Women, the young, and informal workers have suffered disproportionately, while poverty reduction gains of the past three to four years have been undone.

There is a growing body of opinion that governments must use the worst global crisis since World War II to reset their economies on a green growth path that can lock in and expand development gains for all citizens, while protecting the environment, slowing climate change, and reducing the threat of future pandemics.

“We have to find investment opportunities that serve multiple outcomes and allow us to meet the recovery targets, the economic goals of our countries, but also the long-term aspirations on how to address climate change and other development goals,” said Preety Bhandari, Director of the Climate Change and Disaster Risk Management Division in the Asian Development Bank’s (ADB) Sustainable Development and Climate Change Department.¹

Gains from green growth

Green-led growth goes well beyond the expanded use of renewable energy, to include any economic intervention that supports sustainable jobs and development while preserving and protecting natural resources. For example, restoring forestland and mangroves, building low-carbon transport solutions like cycleways, and creating sustainable community-based tourism opportunities can create large numbers of jobs, while protecting the environment.

Major studies illustrate the huge gains that pursuing a green path will bring in contrast to fossil-fuel led growth. The Global Commission on the Economy and Climate has estimated that countries’ taking strong climate actions between 2018 and 2030 could, by 2030, generate over 65 million new low-carbon jobs, deliver at least $26 trillion in net global economic benefits, and avoid 700,000 premature deaths from air pollution.² Another study found that every $1 million spent on renewable energy creates around 7.5 full time jobs and every $1 million spent on energy efficiency creates 7.7 jobs, well above the 2.7 jobs generated from the same amount of investment in fossil fuels.³

Costs for shifting away from a fossil fuel-driven economic model are compelling. In its World Energy Outlook for 2020, the International Energy Agency, noted that the cost of electricity generated from solar power is now the cheapest in history, and is significantly lower than the cost of coal and gas-fired power in most countries.⁴ In addition, prices for battery storage and electric vehicles over the past decade have fallen markedly.⁵

Finding finance

Putting economies on a low-carbon growth path, and meeting the Sustainable Development Goal targets by 2030, requires vast resources with annual investment needs for Asia and the Pacific estimated at $1.5 trillion from 2016 to 2030.⁶ Financing these enormous requirements is something developing countries cannot do on their own.

Seeking private sector support for infrastructure finance and other needs has become a central part of the growth strategy of developing economies, and there is fast-growing private sector interest in investing in projects and financial instruments which provide environmental, social, and financial benefits. Green finance involves investments targeted at environmental and climate improvements, and includes products like green loans and green bonds.

Impact bonds, meanwhile help connect private capital to social programs that finance the delivery of social services, such as health and education. One striking example of how these bonds can deliver major benefits, was the issuance of the Educate Girls Development Impact Bond in India, which helped improve education outcomes for marginalized school-age girls.⁷

Global issuance of these products is booming, with over $30 trillion, or one third of all global assets now under management, guided by environmental, social and governance considerations.⁸ Asia has played an important role in the rise of green finance, contributing about 20% of all green bonds issued in 2020, with Japan and the People’s Republic of China now accounting for about a fifth of all global green bonds.⁹

Working with partners

The onset of the pandemic, however, has increased risk perception around infrastructure projects, so ADB and other multilateral institutions have been working with developing member countries to find ways to de-risk and incentivize private support for green projects. One of the most significant financing vehicles for this purpose is the ASEAN Catalytic Green Finance Facility which was set up in 2019 to help scale up green infrastructure investments in Southeast Asia. Up to $1 billion in loans as well as technical assistance from cofinancing partners, including ADB, is made available to help governments identify and prepare commercially viable projects and to cover upfront capital costs to make them attractive to private capital investors.

ADB also uses a wide range of other financing tools to attract cofinancing support from private investors for its green projects, and is actively involved in both issuing and investing in green finance products. In 2020, it committed its first ever loan to support a private sector company recycling plastic waste from the ocean and other sources, and it also acted as an anchor investor for Georgia’s first ever green bond which raised funds to help rehabilitate water supply systems in the capital Tbilisi and neighboring areas.

Boosting the private sector’s role in helping countries meet the Sustainable Development Goals by 2030 will require clearer laws and regulations for green finance and projects, and more effective carbon pricing, including scaled up carbon taxes. Such actions will lead to more green investments from multinational companies and help countries in the region meet increasingly high environmental standards for imported goods in key markets like the European Union.

Strategies for recovery

There is no one size fits all formula for an effective recovery, but countries looking for long term gains will need to promote skills development, particularly the reskilling of the unemployed, and greater adoption of new digital technologies across industries. They will also need to focus stimulus packages and support for sectors that can drive new job opportunities while preserving the environment, including sustainable agriculture and tourism, clean energy, low- carbon transport and recycling.

None of these outcomes will be achieved automatically. Many countries in Asia and the Pacific with finances heavily squeezed by COVID-19 have little scope for spending on long-term development – green or otherwise - and will require substantial support from private, public and multilateral partners. A number are continuing to fund polluting state-owned enterprises and to provide subsidies for fossil fuels. One study in 2020 which examined, 17 stimulus packages totaling around $3.5 trillion globally, found that governments have largely ignored the broader sustainability impact of their stimulus measures.¹⁰

However, others are showing a new way forward by pursuing green growth opportunities as they simultaneously battle the pandemic. The Republic of Korea and Japan both provided economic stimulus packages with green components in 2020, while the People’s Republic of China has established a $12.6 billion National Green Development Fund to invest in green projects and firms that can help put the economy on a greener path...¹¹

The stakes for the region and the world couldn’t be higher. A failure by countries to meet their commitments to keep global temperatures from rising more than 1.5 degrees Celsius above preindustrial levels will see the world economy suffer $23 trillion in economic losses by midcentury from natural disasters and the spread of disease, according to a report from Swiss Re, one of the world’s largest providers of insurance to other insurance companies.¹² Another recent study notes that insufficient action on climate change could push an additional 100 million people around the world into poverty by 2030.¹³

“The COVID-19 pandemic has brought into stark focus the already critical issues of poverty, inequality, the environment, and the changing climate and the design of recovery interventions will be crucial, as decisions made now will create systems, institutions, and assets, and define development directions that will last well into the future,” said Preety Bhandari. “It is vital that economic stimulus measures are cognizant of long-term, sustainable, and inclusive solutions that put us on a sustainable recovery pathway.”¹⁴

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