The Asian Development Bank has announced an ambitious plan to scale up its work on climate finance by targeting 50% of its annual lending to climate-related projects by 2030 from its previous target of 35%. This strategic shift is an important element of broader ADB efforts in fighting urgent development issues across Asia and the Pacific, as outlined in its updated Strategy 2030 Mid-term Review.
ADB also has a specific dollar-based target on climate finance with the deployment target of $100 billion between 2019 and 2030. While ADB already contributed $30 billion to this target, much still needs to be accomplished in the next coming years if it wants to meet the remaining amount of $70 billion. During an interview with Reuters, the Director of Strategy at ADB, Tomoyuki Kimura, emphasized that “We want to be the climate change bank in the region.”.
Scaling Up Climate Finance and Private Sector Mobilization
Key focuses for the new strategy of ADB include mobilizing private sector capital to supplement its public financing effort. It targets $13 billion in private sector financing by 2030, significantly higher than the $3.7 billion mobilized to date. To this end, it would increase direct lending to the private sector and seek contributions from partner institutions.
It has also been recognized that private sector involvement is the backbone of ADB’s strategy, as not only will developing robust private sectors enhance climate finance efforts, but they will also be responsible for driving broader economic resilience in the region. ADB is aiming to mobilise at least $4.5 billion in direct private capital; an unprecedented increase on the $1.4 billion secured to date since 2019. In its endeavor to achieve these targets, the bank works with a variety of private sector entities, including investment funds and philanthropic organizations.
Climate Change and Development Challenges
The Updated Strategy 2030 Mid-term Review now focuses on five areas that ADB is to concentrate on and help address some of the most urgent challenges facing Asia and the Pacific:
1. Climate Change: Given that climate change presents an existential threat for many countries in the region, increased ADB commitment to climate finance becomes imperative to help countries meet their mitigation and adaptation imperatives in light of global warming impacts. Increased funding will be committed to projects that involve renewable energy, sustainable infrastructure, and resilience in vulnerable communities.
2. Private Sector Development: ADB will focus on the stimulation of private sector growth and instrumental unlocking of additional financing for climate action and sustainable development. In innovating and entrepreneurship, ADB is aspiring to catalyze investments in green technologies, clean energy, and climate-resilient infrastructure.
3. Public Goods and Health Care: The COVID-19 pandemic has given a fillip to health care as well as to other public goods. ADB will continue to support its member countries in strengthening their healthcare systems and building resilience to face future health crises, among other shocks.
4. Digital Transformation: Recognizing the role of technology in driving development, ADB will support digital transformation in various areas, including better public service delivery, productivity enhancement, and climate adaptation and mitigation.
5. Building Resilience for Vulnerable Communities: Most of the countries in Asia and the Pacific are highly vulnerable to disasters related to climate change. In its strategy, ADB lays emphasis on building resilience through investments in disaster risk management, early warning systems, and community-level adaptation projects.
Responding to Cascading Shocks
The ADB renewed focus on climate finance and development comes when the region faces multi-interlinked cascading shocks ranging from COVID-19 pandemic to supply chain breakdowns, and extreme weather conditions triggered or worsened by climate change. “Cascading shocks have derailed years of development progress in Asia and the Pacific,” said ADB President Masatsugu Asakawa. ADB updates its vision, boosts financial capacity, and modernizes its operational approach to help its members cope with these unprecedented challenges.
In the face of growing demand for climate finance and development support, ADB increased its lending capacity by $100 billion last year in response to calls by U.S. Treasury Secretary Janet Yellen for the bank to meet demands. Yellen urged development banks to scale up operations to deal with climate change, among other global challenges. With this new financial capacity, ADB is well-positioned to deploy more loans and grants to client countries, enabling them to attain their climate and development objectives.
Improving Project Preparation to Ensure Better Outcomes
While ADB’s financial capacity is growing, Kimura underscored that realizing the full potential of these funds calls for improvement in the preparation of projects. “We need to ensure that we are preparing projects in a way that maximizes their impact and delivers results for our client countries,” he said. Stronger project pipelines and, therefore, better coordination with local governments and stakeholders would be critical to achieving ADB’s ambitious climate finance targets.
Conclusion
These new ambitions of ADB on climate finance show the determination of the bank to take center stage and help in mitigating climate change and ensuring sustainable development in the Asia-Pacific region. With ADB raising its climate finance lending to 50% of total lending by 2030, it has set a target of $100 billion for this purpose, which puts it at the front line of global efforts against climate change. The bank said it will continue to raise private sector capital, spur digital transformation, and build resilience in vulnerable communities while confronting the region’s most complex development challenges in a way that ensures a sustainable and resilient future.
As ADB embarks on the implementation of Strategy 2030, it is faced with both opportunities and challenges to realize its climate and development objectives. With strong partnerships, innovative financing mechanisms, and a clear focus on long-term resilience, ADB can be uniquely placed to foster positive change throughout Asia and the Pacific in the decade ahead.