China, People's Republic of : Shandong Green Development Fund Project

Project Name

Shandong Green Development Fund Project

Project Number

51194-001

Country / Economy

• China, People's Republic of

Project Status

Active

Project Type / Modality of Assistance

• Loan

Source of Funding / Amount

Loan 3824-PRC: Shandong Green Development Fund Project

Source	Amount
Ordinary capital resources	US$ 100.00 million

Loan: Shandong Green Development Fund Project

Source	Amount
KfW Bankengruppe	US$ 113.69 million
Agence Francaise de Developpement	US$ 84.53 million

Loan 8385-PRC: Shandong Green Development Fund Project (Additional Financing)

Source	Amount
Green Climate Fund	US$ 100.00 million

Operational Priorities

• OP1: Addressing remaining poverty and reducing inequalities
• OP2: Accelerating progress in gender equality
• OP3: Tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability
• OP6: Strengthening governance and institutional capacity

Sector / Subsector

• Finance / Infrastructure finance and investment funds

Gender

Effective gender mainstreaming

Description

The Shandong Green Development Fund Project (SGDF) will pilot an innovative leveraging mechanism to catalyze private, institutional and commercial (PIC) capital for the development of climate positive infrastructure and business in Shandong Province, People's Republic of China (PRC). The project will support a portfolio of mitigation and adaptation subprojects assessed against both climate and financial eligibility criteria. The project will contribute to the province's transition to low-carbon and climate-resilient development patterns: Shandong faces mounting climate change (CC) and environmental protection challenges. The Province tops the country's energy consumption and the number of motor vehicles, responsible for most of the greenhouse gas emissions (GHG). The project aims to leverage private, institutional and commercial (PIC) finance for climate resilient subprojects assessed against both climate and financial eligibility criteria. The project consists of a mix of public and private sector capital of $1.2 billion and catalytic resources of $300 million from international financing institutions (IFI), which is required to reach sufficient critical mass of funding to achieve a significant leverage ratio over 5. The project finances a portion of the total capital expenditures of selected climate resilient subprojects for a capped period to make the subprojects bankable, by addressing the upfront project risks, as well as promoting advanced technologies and an integrated approach for climate change. The level of catalytic fund and the financing terms are linked to the climate criteria and performance in line with the Green Climate Fund (GCF) investment criteria and framework.

The SDGF is expected to be effective in July 2020.

Additional financing from the Green Climate Fund is expected to be approved in 2020 Quarter 3.

Project Rationale and Linkage to Country/Regional Strategy

Policy Framework (National): Under the 13th Five Year Plan, PRC actively promotes a paradigm shift from gross domestic product (GDP)-oriented development to a development model centered on quality of growth. The Intended Nationally Determined Contribution (INDC) details the PRC's commitment to climate change actions by 2030, notably to: (i) achieve the peaking of carbon dioxide emissions around 2030; and (ii) increase the share of non-fossil fuels in primary energy consumption to around 20%.

Context (Regional): Shandong ranks the 8th in terms of provincial GDP per capita and the GDP of Jinan ranks 21 out of 34 PRC provincial capital cities. Shandong is a labor reservoir for migrants, partially a result of extensive industrial investment. However, the Province is facing multiple climate vulnerability challenges and investment is now targeted for industrial transformation and low carbon development that supports Climate Change (CC) adaptation and mitigation policies. Because of its history of rapid industrial development, the Province tops greenhouse gases (GHG) emissions and was selected to pilot for this Project. Shandong is required to reduce its CO2 emission intensity by 20.5% by 2020, the most stringent goal set at the provincial level. Shandong also targets to achieve peaking of CO2 emissions around 2027, three years earlier than the national goal. The Province faces many challenges in meeting these goals due to heavy reliance on coal and expanding traffic concerns; in 2017, Jinan was ranked as the most congested city in the PRC. In response, the State Council approved Shandong to become a comprehensive pilot area for shifting the growth paradigm with new drivers and investment. Meeting this paradigm shift and CC targets requires better access to climate specific finance, which the Project aims to support.

Priority Investments: Investment priorities are determined from the climate analysis and assessment of sectors, where financing mechanisms have most impact. For mitigation sectors the priorities are to address the main sources of GHG emissions (including but not limited to): (i) energy sector with renewable energy including wind, solar, biomass, geothermal and emerging technology investments; (ii) green (energy efficient) building and heating/cooling systems; and (iii) low carbon transport with supporting investments in new energy vehicles and bus rapid transit green corridors. Based on the Provincial modeling of climate vulnerabilities, Shandong's adaptation priorities are (including but not limited to): agricultural and urban water supply infrastructures; city flood resilience or sponge cities through low impact development that includes flood proofing and urban lifeline systems such as water supply, drainage; city greening, coastal protection and solid waste.

Challenges and Project Response: Over the last ten years, the Government with the support of the development partners built a strong policy and regulatory framework for CC. Given the very large investment identified, new mechanisms of financing climate-positive investments are required. Traditional sovereign financing and banking systems have little incentive to cater to CC investment needs that include longer term, flexible structuring and competitively pricing. A new approach is needed to unlock significant climate finance for cities, especially from Private, Institutional and Commercial (PIC) sources. The Project supports a long-term engagement in the PRC to finance a new generation of climate resilient infrastructure projects with higher risk profile that would otherwise rely on exclusively long-term sovereign funding or not proceed because of public funding gap.

ADB's country partnership strategy 2016-2020 facilitates the Government's reform agenda of "managing climate change and the environment." Investments under the Project also contributes to several Sustainable Development Goals (SDGs), namely SDG 9, "Industry, Innovation and Infrastructure" building climate resilient infrastructure and fostering new climate finance models innovation; and SDG 13, "Climate Action" taking urgent actions to promote climate related investments.

Impact

Peaking of carbon dioxide emission around 2030 or earlier on best efforts achieved

Project Outcome

Description of Outcome

Climate resilience in Shandong Province enhanced

Progress Toward Outcome

No issues.

Implementation Progress

Description of Project Outputs

SGDF established with PIC financing leveraged

Knowledge and skills of local governments, civil society, and private sector to prepare climate-positive subprojects enhanced

Status of Implementation Progress (Outputs, Activities, and Issues)

SGDF I has completed fund registration on 9th Feb 2021, and has raised RMB 1.46 billion capital (on a total commitment basis), including RMB 0.68 billion IFIs (i.e., ADB KfW, and AFD, here after as "IFIs), RMB 0.35 billion from Qingdao municipal government (including Laoshan District) and RMB 0.41 billion PICs.

The structure of SGDF II is planned to be preliminary established in 2022, with amount of RMB 3.3 billion.

During the reporting period, SGDF inspected the gender equality of the first qualified enterprise and found out that the female employees accounted 27.5% of the total, much higher than the rate of the whole industry (4.92%). To protect the rights of female employees, the qualified enterprise provided them with a more detailed physical examination plan and work benefits which are more suitable for women. The investment from SGDF will provide more job opportunities for women in its Qingdao branch.

SGDF planned to invest 2 mitigation subprojects and at least 1 adaptation subproject. The subprojects will be assessed under the green criteria. The assessment reports will be prepared.

Geographical Location

Shandong

Safeguard Categories

Environment

FI

Involuntary Resettlement

FI

Indigenous Peoples

FI-C

Summary of Environmental and Social Aspects

Environmental Aspects

The environmental and social management system (ESMS) was first cleared in March 2020 and the revised ESMS was cleared in July 2020.

Involuntary Resettlement

SPCM compliance memorandum was signed on 3 September 2020.

Indigenous Peoples

SPCM compliance memorandum was signed on 3 September 2020.

Stakeholder Communication, Participation, and Consultation

During Project Design

During Project Implementation

Business Opportunities

Consulting Services

$10 million capacity development assistance as per the Project Administration Manual

Procurement

Follows ADB Procurement Framework for Financial Intermediation Loan

Green Procurement for the supply chain implemented on a voluntary basis by subprojects sponsors

Contact

Responsible ADB Officer

Leung, Kang Hang

Responsible ADB Department

Sectors Group

Responsible ADB Division

Finance Sector Office (SG-FIN)

Executing Agencies

Shandong Provincial Finance Department

Timetable

Concept Clearance

03 Oct 2017

Fact Finding

30 Jul 2018 to 17 Aug 2018

MRM

09 Jul 2019

Approval

25 Sep 2019

Last Review Mission

-

Last PDS Update

28 Sep 2022

Funding

Loan 3824-PRC

Loan 8385-PRC