Unlocking Climate Finance in Asia-Pacific: Transitioning to a Sustainable Future
Departmental Papers, January 29, 2024
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Bibliographic details
- Authors: Cheng Hoon Lim, Ritu Basu, Yan Carriere-Swallow, Kenichiro Kashiwase, Mahmut Kutlukaya, Mike Li, Ehraz Refayet, Dulani Seneviratne, Mouhamadou Sy, Ruihua Yang
- Published: January 29, 2024
- Series: Departmental Papers
- DOI: https://doi.org/10.5089/9798400256752.087
Key findings and context
- The Asia-Pacific transition to sustainability has global economic significance and the region has been a recent driver of global growth while remaining heavily reliant on coal, leading to significant greenhouse gas emissions.
- Investment needs for climate mitigation and adaptation in emerging and developing Asia are at least $1.1 trillion annually.
- Actual climate-related investment falls short by about $800 billion.
- Asia-Pacific’s environmental performance has constrained access to private flows from the fast-growing ESG asset class and has kept the cost of issuing sustainable debt instruments relatively high compared to other regions.
- Major challenges identified include gaps in the climate information architecture, policy conflicts, and global complexities that hinder mobilization of climate finance.
Policy recommendations — Governments
- Establish a well-defined climate strategy with strong institutional oversight and coordination to strengthen the framework on data, taxonomies, and disclosures.
- Phase out fossil fuel subsidies.
- Expand carbon pricing schemes to create fiscal space for sustainable investments.
- Strengthen macroeconomic management to attract private capital.
Policy recommendations — Financial supervisors and central banks
- Coordinate across jurisdictions to promote global, interoperable disclosure standards.
- Enhance climate risk analysis and reporting.
- Incorporate climate-related financial risks into prudential frameworks.
- Develop climate labels for sustainable investment funds.
- Shift the focus of ESG scores to better capture sustainability and climate impact to foster trust in evaluations.
Roles for the IMF and multilateral institutions
- The IMF should integrate climate discussions into surveillance activities and strengthen data and statistics through capacity building and peer learning to develop common standards around climate risk measurement and analysis.
- The Resilience and Sustainability Trust could help reduce financing gaps through catalytic and reform-supporting functions.
- Multilateral development banks could scale up grant financing and concessional lending and, where appropriate, adopt risk-mitigating mechanisms to expand lending capacity.
- Cooperation among multilateral institutions is essential to align efforts and resources and to achieve a balanced allocation between mitigation and adaptation lending.
Implications for mobilizing private finance
- Improving environmental performance and the climate information architecture is critical to tapping private ESG flows.
- Interoperable disclosure standards, trusted climate labels, better ESG scoring focused on climate impact, and strengthened macroeconomic policies are central to lowering the cost of sustainable debt issuance and attracting private capital.