China, People's Republic of : Shandong Green Development Fund Project (Additional Financing)

Finance / Infrastructure finance and investment funds

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.

ADBs 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.

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

Climate resilience in Shandong Province enhanced

SGDF established with PIC financing leveraged

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

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.

Follows ADB Procurement Framework for Financial Intermediation Loan

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