ADA Report – Mobilising Capital, Mitigating Risk: The Role of IFIs in Advancing Climate Finance in Asia-Pacific

Download the report here.

Foreward:

The Asia-Pacific region stands at a crossroads. As the engine of global economic growth, it also faces the brunt of climate change, with rising sea levels, extreme weather events, and environmental degradation threatening its future. Multilateral Development Banks (MDBs) play a crucial role in steering the region towards a sustainable future. However, achieving this requires a delicate balancing act – ensuring adequate climate finance reaches developing countries while promoting clean energy and climate resillience.

The challenge is significant. Despite boasting over 70% of global growth. Asia-Pacific economies remain heavily reliant on fossil fuels like coal. The region’s carbon footprint continues to rise, exceeding 58% of global emissions in 2021. This necessitates a substantial shift towards renewable energy sources and climate-resilient infrastructure. Here’s where MDBs can make a significant impact by funneling resources into clean energy projects, supporting adaptation measures, and assisting countries in meeting their climate pledges.

However, simply throwing money at the problem isn’t enough. MDBs need to ensure their climate finance leverages limited resources effectively. This involves prioritizing projects that maximize environmental and social benefits. Accountability and transparency are also critical. Local communities must be included in decision-making processes to ensure projects address their specific needs and minimize potential disruptions. The following sections of this report will delve deeper into the strategies MDBS can employ to optimize climate finance in the Asia-Pacific region, fostering a sustainable future for all. The reports emphasize the importance of enhancing transparency and accountability in climate financing initiatives to uphold environmental and social standards, and to ensure that funds are directed towards sustainable and climate-resilient projects in the Asia-Pacific region.

Jamila Asanova, ADA Chair
Linh Phuong Nguyen & Jay Hung, ADA Co-Chairs

Executive Summary

The Report entitled “Mobilising Capital, Mitigating Risk:TheRole of IFIs in Advancing Climate Finance in Asia Pacific” emphasizes the urgency of addressing climate change and the critical role of International Financial Institutions (IFIs) in providing climate finance to developing countries. Climate finance is highlighted as essential for supporting the transition to a low-carbon economy, building resilience, and addressing the impacts of climate change.

The importance of mobilizing $100 billion annually from developed countries for climate finance in developing countries is emphasized, with the United Nations Framework Convention on Climate Change playing a supervisory role in these transfers. The report underscores the significant role played by IFIs such as the World Bank, Asian Development Bank, and others in providing funding and technical assistance for climate change mitigation and adaptation projects in developing countries. It also acknowledges the need for greater accountability, transparency, and consideration of local needs and priorities in climate finance practices.

The joint report by Multilateral Development Banks highlights that MDB climate finance reached a record high in 2022, with close to USD 61 billion provided for low and middle-income economies, surpassing the 2025 climate finance targets. Additionally, the document critiques the controversial loans provided by IFIs and highlights specific instances such as the Typhoon Haiyan response in the Philippines to underscore the need for greater transparency, accountability, and consideration of social and environmental impacts in IFIs’ practices.

Moreover, the report provides recommendations for IFIs to improve their climate finance practices, including increasing transparency, prioritizing local needs, supporting bottom-up approaches, ensuring environmental and social safeguards, promoting gender equality, fostering partnerships, leveraging private sector investment, and promoting green bonds. It also emphasizes the need for greater support for climate resilience, ecosystem-based approaches, and addressing debt sustainability issues. Furthermore, recommendations for better IFIc-led initiatives to address loss and damage caused by climate change in the Asia Pacific region are outlined, focusing on increasing funding, enhancing collaboration, capacity building, community-based approaches, and ensuring accountability, among others.

Lastly, the report emphasizes the need for a comprehensive approach to addressing long-term challenges, including those related to governance, financing, and capacity building in addressing loss and damage caused by climate change, while promoting knowledge-sharing and learning among countries and communities.

Overall, the report underscores the critical role of IFIs in advancing climate finance in Asia, while also highlighting the need for greater accountability, transparency, and consideration of local needs and priorities in climate finance practices. It provides specific recommendations for IFIs to improve their climate finance practices and address loss and damage caused by climate change in the Asia Pacific region.

Some questions that this report addresses:

• What are the key areas that climate finance must be directed towards, according to the document?
• How do International Financial Institutions (IFIs) play a significant role in climate finance?
• What are the criticisms and controversies surrounding the climate finance practices of International Financial Institutions (IFIs) in the Asia-Pacific region?
• How can International Financial Institutions (IFIs) better address loss and damage (L&D) caused by climate change in the Asia Pacific region?

TABLE OF CONTENTS

Foreward
Executive Summary
Introduction
Importance of Climate Finance:
Role of International Financial Institutions:
The World Bank:
Role of the World Bank as Interim Trustee of GCF:
The International Finance Corporation:
The Asian Development Bank:
Asian Infrastructure Investment Bank (AIIB):
The New Development Bank:
International Monetary Fund (IMF):
Critique of the IFIs for their controversial loans
IFIs led initiatives to address L&D caused by climate change in the Asia Pacific region
Recommendations
Recommendations for better IFIs-led initiatives to address L&D caused by climate change in the Asia Pacific region:

PUBLISHED by Asia Development Alliance (ADA) with supports from Forus and Japan NGO Center for International Cooperation (JANIC), in March 2024.