Devastating floods, deadly heatwaves, and intense droughts in Asia and the Pacific over the past year confirm what scientists have been warning for years: the impacts of climate change are here and they’re getting worse.
The world must urgently step up investments to help stabilize the climate and protect people and infrastructure from the worst impacts – nowhere more so than in Asia and the Pacific, which emits more than half of global greenhouse gases.
We urgently need innovations and new funding models to meet the region’s yawning climate financing gap. According to the United Nations, developing countries need to spend an estimated $160-$340 billion on adaptation by 2030, but the amount of international finance flowing to developing countries is 5-10 times below this – and the gap is widening.
As Asia and the Pacific’s climate bank, ADB has launched several financing innovations to boost funding for climate mitigation and adaptation. Here are seven of them:
1. Innovative Finance Facility for Climate in Asia and the Pacific (IF-CAP)
What it is: IF-CAP is a multi-donor financing facility that will use guarantees for ADB’s sovereign loan portfolios for leverage to accelerate billions in much-needed climate finance – a program never before attempted by a multilateral development bank.
How it works: IF-CAP partners guarantee parts of ADB’s sovereign loan portfolio, enabling the bank to free up capital to increase lending for climate investments. Models show that for every $1 that is guaranteed, up to $5 in new climate loans could be generated. Supplementary grants will facilitate project preparation, capacity building, and knowledge solutions.
What’s been done so far: IF-CAP was launched this week at ADB’s 56th Annual Meeting. The initial partners are Denmark, Japan, the Republic of Korea, Sweden, the United Kingdom, and the United States. By increasing ADB’s lending capacity, IF-CAP will allow ADB developing members to build a larger pipeline of potential investments that will help them achieve their carbon reduction and climate resilience goals.
2. Energy Transition Mechanism (ETM)
What it is: ETM is a scalable, collaborative initiative that uses concessional and commercial capital to retire or repurpose existing coal and other fossil fuel plants on an accelerated schedule, replacing them with clean power capacity.
How it works: Governments, multilateral banks, private investors, and philanthropies finance country-specific funds to retire coal power assets more quickly than if they remained with their current owners. This will help unlock investments in cost-effective renewable energy and technologies that are critical to the energy transition such as smart grids, hydrogen, and electric vehicles.
What’s been done so far: ADB has signed a memorandum of understanding to explore the early retirement of Cirebon-1, a 660-megawatt coal-fired power plant in West Java, Indonesia. Kazakhstan, Pakistan, the Philippines, and Viet Nam are also working with ADB to study the feasibility of ETM.
3. ASEAN Catalytic Green Finance Facility (ACGF)
What it is: Owned by ASEAN members and ADB, supported by development partners, and managed by ADB, the ACGF helps governments in Southeast Asia prepare and finance infrastructure projects that promote environmental sustainability and contribute to climate goals.
How it works: With co-financing, the ACGF provides technical assistance to ASEAN member governments helping them conceive, identify, and prepare commercially viable, green infrastructure projects. The facility also enables access to over $1.9 billion in loans to cover upfront capital investment costs. This two-pronged approach “de-risks” green infrastructure projects, making them more attractive to private investors.
What’s been done so far: As of 2022, ADB has financed six ACGF-eligible projects representing $2.1 billion in total project costs, including for energy efficiency, low-carbon transport, and natural resource management.
4. ADB Ventures
What it is: ADB Ventures is an investment platform that supports and invests in early-stage companies offering bold technology solutions with potential to drive climate actions and contribute to green and resilient economic growth in emerging Asia. The facility is backed by governments, top institutional funds, and other link-minded investors.
How it works: ADB Ventures’ inaugural $60 million Equity Fund invests up to $4 million in scalable, technology-driven solutions supporting climate change and gender equality. A separate, technical assistance program can provide up to $200,000 in seed funding and also gives the platform the option to make future investments in the companies.
What’s been done so far: ADB Ventures’ Equity Fund has made nine investments and six follow-on investments since its final close in September 2020 in early-stage companies. The facility has awarded nearly 40 seed fundings to date, including in e-mobility, green materials, circular economy, logistics, and financial risk management solutions that result in better climate risk and disaster preparedness. The vision is to crowd in more than $1 billion of risk capital by 2030.
5. ADB Frontier
What it is: ADB Frontier is a newly launched initiative that will support and invest in small and medium-sized enterprises (SMEs) in frontier markets. It focuses on firms with strong potential to drive growth, create jobs, and advance climate action and gender equality. It addresses a gap in the market for risk capital in Asia and the Pacific’s frontier markets through equity investments, debt financing, and technical assistance.
How it works: The fund targets SMEs with demonstrated revenue growth, a clear path to commercial scale, a viable exit, and the potential to attract global and regional investors. Recipients use ADB Frontier investment to scale up their operations while building capacity to pitch for and receive new funding. The fund partners with multinational corporations to validate SMEs’ potential to supply multiple markets and participate in global and regional value chains.
What’s been done so far: ADB Frontier recently announced it will deploy capital to support companies in Cambodia, Lao People’s Democratic Republic, and the Pacific during its 2023-2024 pilot phase. Supported companies include SMEs in Cambodia and Lao PDR that are using green technologies to contribute to climate mitigation and adaptation.
6. Asia Pacific Project Preparation Facility (AP3F)
What it is: AP3F is a multi-donor trust fund that helps ADB’s developing member countries prepare commercially feasible infrastructure projects under public-private partnership models. It promotes sustainable, resilient, and inclusive infrastructure development with strategic emphasis on climate change. AP3F was established and has been supported by the founding financing partners: the governments of Australia, Canada, and Japan. The Republic of Korea joined the group this week as the newest member.
How it works: AP3F provides technical support to client governments for capacity building, policy reform, project preparation, and project monitoring. Through these activities, AP3F advocates the development of quality infrastructure that is resilient to the changing climate, fosters gender equality, and accelerates technological innovation.
What’s been done so far: As of March 2023, AP3F had catalyzed $1.34 billion of commercial investments, of which $345 million was climate finance. AP3F has demonstrated a multiplier effect of 25 times over the funds it has disbursed. Assistance has been provided to 68 projects in 23 countries across Asia and the Pacific. This includes solar power projects in the Maldives, Palau, and Uzbekistan as well as a solid waste management project in Timor-Leste.
7. Asia-Pacific Climate Finance Fund (ACliFF)
What it is: ACliFF is a multi-donor trust fund that supports the development and implementation of financial risk management products that can help unlock capital for climate investments and improve resilience to climate change impacts.
How it works: ACliFF supports the use of innovative, scalable, and commercially viable financial risk management products that help scale up the adoption of climate technologies, mobilize new sources of private sector climate financing, promote investments in climate-sensitive sectors, and address extreme weather events.
What's been done so far: ACliFF has approved financial support amounting to $10.7 million for several sovereign and private sector ADB projects, including in India, Kazakhstan, the Philippines, Tonga, and Uzbekistan. ACliFF is also supporting the first project under the V20's Sustainable Insurance Facility which involves analyzing potential business models and insurance product design options to help micro, small and medium enterprises to manage climate risk better. Furthermore, ACliFF is funding the development of climate risk financing and insurance solutions to protect coral reef ecosystems in Fiji, Indonesia, the Philippines, and Solomon Islands. To accelerate investment in sustainable blue economies, ACliFF supported the world’s first Blue Bond Incubator which ADB launched during the 7th Our Ocean Conference in Palau in 2022.