ADB Launches Climate Finance Facility for Asia and the Pacific

Asia and the Pacific face increasing climate shocks from unprecedented floods to extreme drought costing massive losses to the lives and livelihoods of millions of people. As a region known for its high vulnerability to climate change, it is also becoming a significant contributor to GHG emissions.

The ADB report released on April 2023 says that since the 1980s, Asia’s GHG emissions have grown faster than the global average. Its share of global emissions has also nearly doubled from 22% in 1990 to 44% in 2019. The region’s rising emissions are due to its heavy reliance on fossil fuels for its growth, having a carbon intensity of 41% higher than the rest of the world.

But there are positive signs that the region is changing course, but more is needed to meet climate goals. Asia’s biggest emitters accounting for 80% of its total emissions, have pledged a net zero in their NDC, yet their sector plans and policies have yet to align with their NDCs.

For the region to avoid a climate catastrophe and meet the Paris Agreement to keep the warming limit by 1.5°C, dramatic changes have to happen, including improving energy efficiency, rapid adoption of renewables, especially in power generation, phasing out of coal quickly, and increased protection and expansion of forests. The transformation needed will require hundreds of billions of dollars of additional annual investment in power supply alone. Regarding the investment required to meet Paris Agreement goals, the reports say that average yearly investments until 2050 must increase to $707 billion, corresponding to 1.5%–2.7% of GDP for the economies and subregions analyzed.

Yet, countries could keep economic costs relatively low if the right policies are adopted. The slowing down of economic growth, equivalent to a few months as a cost to achieving global net zero, is still offset by the benefits of action estimated at five times the cost.

ADBs President Masatsugu Asakawa says that ADB supports the critical transition to net-zero in the region and has increased climate financing to $100 billion to its developing member countries from 2019 to 2023. He says that even if it’s a fraction of the region’s requirements, it is still considerable and will be provided through innovative finance and partnerships.

Asakawa announced the Innovative Finance Facility for Climate in Asia and the Pacific (IF-CAP). This landmark program could significantly ramp up support for the region in the battle against climate change.

The IF-CAP is ADB’s first of its kind and has never been attempted by a multilateral development bank. It could accelerate billions in much-needed climate investment in the region.

The ADB’s News Release on May 2023 says that the announcement by Asakawa was made on the opening day of ADB’s 56th Annual Meeting in Incheon.

He says that the IF-CAP, an innovative program, will have a real impact in the region as it faces increasing climate threats, and another example of how ADB serves as the climate bank for Asia and the Pacific.

“IF-CAP’s initial partners are Denmark, Japan, the Republic of Korea, Sweden, the United Kingdom, and the United States. Those partners are discussing with ADB about providing a range of grants for project preparation along with guarantees for parts of ADB’s sovereign loan portfolios. The reduced risk exposure created by the guarantees will allow ADB to free up capital to accelerate new loans for climate projects. With a model of ‘$1 in, $5 out’, the initial ambition of $3 billion in guarantees could create up to $15 billion in new loans for much-needed climate projects across Asia and the Pacific. A multilateral development bank has never before adopted a leveraged guarantee mechanism for climate finance.”

In the video below, Warren Evans, ADB’s Climate Envoy says IF-CAP explains how IF-CAP works.