The Asian Development Bank (ADB), in a report, has proposed the creation of national green financing vehicles to catalyze environmentally and financially sustainable infrastructure investments in Asia and the Pacific.
The report, titled Catalyzing Green Finance: A Concept for Leveraging Blended Finance for Green Development, highlights the constraints for developing a large pipeline of bankable green infrastructure projects and calls for an integrated approach to transforming country financial systems.
The report outlines the concept of a Green Finance Catalyzing Facility (GFCF), which would serve as a model for countries to create their own financing vehicles and implementing mechanisms. This would leverage public funds and policies to catalyze a blend of financing from private sources for increasing green infrastructure investments.
Mobilizing additional funds from the capital markets is a major objective of these vehicles. Public funds would be used as risk mitigators to create bankable projects and crowd in private funds, technology, and efficiency improvements.
GFCF’s nature as a facility, rather than a fund, would enable a holistic approach to green finance, through raising private funds not just for projects but also at the portfolio level, providing project development and structuring support, and establishing a financing mechanism which links financial incentives with green targets, leveraging, credit ratings, and capital markets access.
An imperative for dynamically changing Asia
"A paradigm shift in infrastructure planning and design is an imperative for dynamically changing Asia. The choice that Asia makes in bridging infrastructure gaps will have profound implications for its people and the planet," said Bambang Susantono, ADB Vice-President for Knowledge Management and Sustainable Development.
“The publication is timely in providing practical institutional solutions for enhancing countries’ financial systems to help them chart a greener, more sustainable future.”
The report directly responds to ADB member countries’ needs to address the persisting shortfalls in infrastructure investments, estimated at over $1.7 trillion annually until 2030, taking into account climate change mitigation and adaptation costs.
The proposed national green financing vehicles would help meet these needs while ensuring the best use and conservation of scarce natural resources.
Bigger scope than climate finance
Green finance covers a much bigger scope than climate finance and includes all financing instruments and investment decisions that are geared towards low-carbon, sustainable, and inclusive development.
The private sector, regarded as a critical contributor to meeting the region’s development financing needs, would have to contribute over 50% of required green investments in many countries. In China, this contribution is estimated at 90%.
The report is targeted at government and private sector professionals and informs country-specific structures that can assist in strengthening green growth initiatives, while allowing countries to reduce their national-level fiscal burden.
The catalyzing green finance concept emerged late last year during ADB meetings with key government officials, various G20 green finance task force members including from China and the United Nations Environment Programme, and experts from the private sector. ADB worked with several of these experts to develop the report.