Keynote statement by Ashok Lavasa, ADB Vice President for Private Sector Operations and Public–Private Partnerships, at the World Sustainable Development Summit 2021's Session on Mainstreaming Climate Finance Solutions into SMEs, 12 February 2021
It is a pleasure to once again participate in the World Sustainable Development Summit, which has become an event associated with sustainable ideas and which also serves like an annual health checkup for the state of environment. And while it is distressing to be told that “all is not right with the world,” it is at events like these that one is reminded that all is not lost and that solutions to remedy past wrongs are available, but only if we will. Therefore, I truly appreciate the invitation extended to me to join an exercise that seeks solutions. I would like to believe that all of us here are part of the solution, even if we might have been part of the problem in the past.
I am particularly glad that I have been provided time to speak on a subject that is very close to my heart. As secretary for environment, forests, and climate change, Government of India, I had the opportunity to lead the official Indian delegation in the climate change negotiations for the Paris Agreement and to contribute to finalizing India’s nationally determined contributions, which included a major role for the private sector. In many ways, my current role as Vice-President for private sector and PPP operations of ADB allows me to take India’s NDCs and that of other Asian DMCs to their next stage—of implementation.
Resilience is at the center of ADB’s Strategy 2030, which has identified “tackling climate change, building climate and disaster resilience, and environmental sustainability” as one of its seven operational priorities, and has set ambitious climate targets to help achieve its climate objectives. The targets include:
- 75% of the number of ADB’s operations, including private sector operations, will be supporting climate change mitigation and adaptation by 2030; and
- Climate finance from ADB’s own resources will reach $80 billion cumulatively from 2019 to 2030.
The Strategy 2030 recognizes the importance of adopting a holistic approach for building resilience, which includes supporting countries, businesses, and communities to strengthen (i) physical, (ii) ecological, (iii) social and institutional, and (iv) financial resilience.
Mainstreaming climate risk management and associated climate finance in the private sector is critical for achieving ADB’s climate targets and operationalizing its resilience approach.
Recognizing that small and medium enterprises (SMEs) play a critical role in our economies and are also often very vulnerable to the impacts of climate shocks and stresses, building their resilience becomes paramount. Disasters in the region, such as the 2011 floods in Thailand and the 2013 Typhoon Yolanda in the Philippines have highlighted the devastating impacts faced by the SMEs. Climate change is a major concern for small and medium-sized enterprises. As per Zurich Insurance Group’s (Zurich) fourth annual global SME survey conducted a year after the Paris Agreement, almost four-fifths (78%) of SMEs surveyed expected risks associated with climate change to have a significant effect on their business.
The survey revealed that downpours and heavy rain (22%) and droughts and severe heat (20%) were the natural events believed to have the most potential to hurt business. The risks to business due to climate change identified were material damage, business interruptions, including supply chain interruptions, potentially higher costs for energy and water, and the impact of climate extremes on employees’ health. Over a third (34%) of SMEs in Asia Pacific reported droughts and heat as likely to have the biggest potential impact on their businesses and were most worried about the impact climate change could have on business continuity—the fear of business interruptions.
A technical assistance project undertaken by ADB in Indonesia, the Philippines, Thailand, and Viet Nam, on strengthening SME resilience, has identified the need to support SMEs:
- in assessing risk on their assets and supply chain due to increasing climate risk;
- in undertaking actions to reduce the risk through structural and nonstructural measures; and
- in managing the residual risk by strengthening business continuity planning and adopting financial risk management solutions.
Equally important is to support governments in strengthening the wider enabling environment that could support SMEs in building resilience through the provision of climate risk data, incentives for investing in resilience, and wider capacity building.
Along with addressing risk, actions in climate resilience can also provide new business opportunities, such as resilient building materials, green infrastructure, and agribusinesses for new crops.
Climate finance can play a catalytic role in supporting SMEs manage climate risk and exploring opportunities for building resilience. ADB is increasingly deploying its climate finance to support SMEs in building resilience to extreme weather events.
For example, under ADB’s Asia Pacific Climate Finance Fund (ACliFF), supported by the Government of Germany, ADB is working with the Vulnerable Twenty (V20) Group of Ministers of Finance to develop climate risk insurance solutions that address the financial protection needs of SMEs in the context of climate change.
ACliFF is also supporting ADB Ventures to support start-up businesses with grant funding to develop and pilot innovative technology-enabled financial risk management solutions that address climate risks.
The worldwide focus on impact technologies to combat climate change has never been stronger. There is a vibrant ecosystem of sustainability-oriented start-ups, working to find innovative solutions in clean energy, energy efficiency, emissions reductions through the adoption of electric vehicles, and better waste recycling among others to mitigate the impact of climate change. Without continuous support to the start-up ecosystem, the innovation that is required to develop and advance impact technologies will not be sustainable, and the global effort towards tackling climate change will be discounted.
In 2020, ADB launched ADB Ventures that invests in technology start-ups contributing to reduced CO2 emissions and strengthened climate and disaster resilience. Proven climate technologies that conserve energy and reduce waste are widely available in developed markets. There is significant potential for climate impact in developing Asia as the cost of deploying and scaling these technology solutions falls dramatically. ADB Ventures provides equity investment up to $4 million initially and leverages ADB’s extensive operational networks and relationships to help these start-ups to validate and scale deployment of their products in frontier markets. It is expected that ADB Ventures will further scale up, providing more modalities to start-ups in order to generate climate change impacts. We have only recently approved the first transaction under ADB Ventures. We expect to do many more this year and in coming years.
As per a recent World Bank study, and using the example of one Asian region alone, there is an estimated $3.4 trillion climate investment opportunity for South Asia by 2030, assuming that each country will fully meet its nationally determined contributions and relevant sectoral targets and policy objectives as stated. Of this amount, more than half needs to be undertaken by SMEs, due to the small size of individual investments. The kinds of investments undertaken by SMEs span a broad range, from green-certified buildings and smart infrastructure technologies to electric vehicles and vehicle fleets, energy efficiency investments, and climate-smart agriculture. Investment in these sectors needs support to identify appropriate technologies and drive adoption. In this regard, financing often needs to be distributed through the local banking systems as individual smaller corporate loans to reach SME firms.
ADB’s private sector operations also seeks to scale and mainstream operations that enable SMEs access to finance for investments in climate. Let me share a few examples with you. In India, using technical assistance resources from the Clean Technology Fund, ADB will help identify key energy efficiency technologies and their financial viability, as well as suitable vendors to be identified for partnerships with private sector FIs. ADB will then select interested financial institutions (FIs) and support them to build the capacity needed to design specialized financial products, and launch strategies to drive more adoption of investments in energy efficiency and smart infrastructure technologies. In Bangladesh, ADB is working with selected FIs to provide blended finance programs. Using resources from donor funds administered such as the Canadian Climate Fund for the Private Sector in Asia II, ADB can help FIs to deploy longer-term loans that make it viable for SME companies to invest in more CO2 reducing technologies, including rooftop solar, green-certified buildings, energy-efficient machinery, and biological effluent treatment plants. In every case, ADB works closely with its clients to track the positive reduction in climate risk indicators and CO2 emissions that ensue as a result of the investments undertaken.
ADB along with other multilateral development banks has committed to align its operations with the objectives of the Paris Agreement. We are currently finalizing the methodology for Paris Alignment and it is expected that once operational, it will help us in ensuring our financing to the private sector, including SMEs to promote low-carbon and climate resilience objectives.
Moving forward, we expect that climate finance will play a catalytic role to unlock the opportunities for strengthening resilience in the private sector, especially by engaging the SMEs as they go about adopting science-based targets to demonstrate their commitment to follow a clearly defined pathway to reduce greenhouse gas emissions and helping prevent the worst impacts of climate change and future-proof business growth. This would require deploying climate finance in a more transformative way to address the barriers that restrain the uptake of climate solutions by SMEs.
We at ADB look forward to working with other development partners and financial institutions including the global climate funds to take forward this important agenda.
I once again thank DG TERI for thinking of me and including me in this journey, which is long and arduous, but without which we are going nowhere. I convey my best wishes to this session and this summit, which I hope will go some distance in making the Earth a greener planet.
Thank you.