Integration of climate mitigation and resilience in key sectoral strategies

Energy

The ADB Energy Policy was updated in 2021 to replace the previous version dating from 2009. The updated sectoral policy is centred around the low-carbon transition in Asia and the respective challenges and opportunities, covering specific areas such as just transition and climate change. It reaffirms the ADB’s commitment to align financial flows with the Paris Agreement and support member countries in the fulfilment of their Nationally Determined Contributions (NDCs). [1] The policy also states that it will assist Developing Member Countries (DMCs) in planning for carbon neutrality “by about 2050” and support them in updating their NDCs and Long-Term Strategies (LTSs) for decarbonisation.

In terms of specific climate mitigation measures, the energy policy solidifies the ADB’s commitment to not fund new coal power production or any upstream gas investments. Mid- and downstream gas investments will still be funded under specific conditions.[2] The energy policy emphasises pursuing a just transition approach, supporting planning and policies to transition away from fossil fuels while mitigating negative socio-economic impacts on affected communities and workers.[3]

Regarding climate adaptation considerations, the energy policy recognises that many of the ADB’s DMCs are highly exposed and vulnerable to climate-related natural hazards. Correspondingly, it outlines ADB support for DMCs in building enhanced resilience in the transmission and distribution sector, which includes improving the reliability of electricity supply and reaching outlying and previously unserved regions. The policy also explicitly commits to incorporating resilience planning into the Bank’s support for long-term energy planning. This includes considering climate change impacts on energy systems, such as through increased cooling demand due to rising temperatures, and hydrological changes. This is promising evidence that the Bank is proactively supporting building structural resilience in the energy sector, in line with a best practice, transformational approach.   

Operations in the energy sector are also governed by the Energy Sector Directional Guide, which guides the operationalisation of both the ADB’s energy policy and its overarching strategy in the sector. The directional guide specifies that the ADB’s assistance will be oriented around the “4Ds”: decarbonisation, decreasing energy intensity, digitalisation and decentralisation. It reaffirms the commitments of the aforementioned energy policy, with increasing support for accelerating the deployment of renewable energy. It also mentions the ADB’s support in introducing market-based instruments, such as carbon pricing, for its member countries. The guide further acknowledges the vulnerabilities of the energy systems to climate change, though does not discuss this in detail. The ADB is due to undergo a midterm review on the implementation of its energy policy in 2025.

In addition to the above core sectoral strategy documents, the ADB published guidelines for climate proofing investment in the energy sector in 2013. The publication contains preliminary climate risk screening tools, and guidance on how to integrate climate change adaptation and risk management into energy sector project design and implementation. However, these guidelines make no explicit reference to the Paris Agreement, or the Bank’s current strategies (Strategy 2030, Climate Change Action Plan). 

Transport

The transport sector continues to account for the highest proportion of the ADB’s lending, expected to remain at 25–30% up to 2030. The Bank has stated that transport sector assistance “will be central to delivering ADB’s (broader portfolio) target for 75% of its operations to support climate mitigation and adaptation”. Accordingly, the Bank plans to increase its policy-based and results-based lending to the sector, while meeting the global commitments of the Bank and its member countries, including the Paris Agreement.

Despite this, the ADB has not developed a “transport sector policy” to mirror that for the energy sector. Nonetheless, the Bank published the Transport Sector Directional Guide (TSDG) in 2022 to guide the Bank’s  interventions in the sector. The directional guide outlines how the ADB aims to address climate change through applying the principle of “Avoid–Shift–Improve” (ASI), in order to limit greenhouse gas emissions. Accordingly, the TSDG outlines support for better land use planning and increased use of digital access to reduce need for travel (avoid), shifting to less-emitting modes of transport (shift), and uptake of improved technologies, such as low-emission powertrains and electric vehicles (improve). To support practical implementation of the ASI principle, the Bank will also allocate climate specialists to be transport sector climate change focal points and inform and advise DMCs on low-carbon transport investments.

The TSDG acknowledges the need for adaptive infrastructure planning and climate resilience as a thematic driver for transport sector operations under the ADB’s overarching Strategy 2030. Moreover, the TSDG’s results framework includes an indicator (3.2.5), which looks at the number of new and existing infrastructure assets made climate and disaster resilient. The ADB’s January 2022 report “Reimagining the Future of Transport Across Asia and the Pacific” identifies climate change and environmental risk as two trends with major expected influence on transport in the region, calling on member countries to “deliver resilient transport infrastructure systems” and “environmentally considerate outcomes”. 

The ADB also supported the development of The Aichi 2030 Declaration for Sustainable Transport in Asia, according to which it will continue to play a critical role in supporting implementation of the Declaration goals.[4] As part of this, the Bank has developed the Asian Transport Outlook (a knowledge base on transport in the Asia–Pacific region) and committed to active coordination with “national and local governments, other relevant donor organizations, NGOs, and other organizations supporting sustainable transport in Asia”.  

Water

The Climate Change Action Plan 2023–2030 (CCAP) links the water sector to the ADB’s overall strategy to tackle climate change. While the water sector is not identified as a standalone priority, water-related issues are integrated throughout the priority areas. This includes the need to improve integrated water resource management for food production, irrigation and flood risk management. Between 2017 and 2021, water sector projects already comprised 41% (USD 2.2 billion) of the ADB’s climate adaptation finance portfolio.

In 2022, the ADB published the Water Sector Directional Guide (WSDG). The WSDG provides a framework for water sector investments, with five guiding principles:

• building resilience and adaptive capacity
• promoting inclusiveness and gender equality
• embracing environmental sustainability and the circular economy
• improving governance and catalysing finance
• fostering innovation and technological advancement.

Both mitigation and adaptation are consequently clearly integrated in the WSDG, in particular through principles one and three. Specific opportunities for climate mitigation in the water sector are outlined, including energy efficiency measures in water supply, wastewater treatment, and pumped irrigation systems. The guide also acknowledges the value of hydropower projects in contributing toward national carbon mitigation targets, while recognising the significant environmental and social risks hydropower projects can involve.[5]

Further complementing the dedicated principle for resilience and adaptive capacity in the WSDG, the ADB published the “Guidance Note: Mainstreaming Water Resilience in Asia and the Pacific” in 2022. This note provides technical advice on integrating climate change adaptation and resilience considerations within the water sector. The ADB is also currently leading the development of a more water-sensitive climate risk and adaptation assessment tool for Paris alignment.

Cities

The ADB has published an urban strategy – Making Cities More Liveable, 2019–2024 – dedicated to the corresponding operational priority 4 of the overarching Strategy 2030. The strategy emphasises the need for building cities that are green, inclusive, competitive and resilient. It makes explicit reference to the Paris Agreement, including the role of cities in implementing article 6 of the Agreement on carbon markets.

The ADB has also published an Urban Sector Directional Guide (USDG) that is broader in scope, detailing how the sector will contribute to other operational priorities within the Bank’s overarching strategy. The directional guide reaffirms the ADB’s aim for full Paris alignment, including in the urban sector, committing to supporting DMCs to localise their Nationally Determined Contributions (NDCs) at the city level.[6] Notably, one of seven guiding principles for the USDG is for the ADB to “focus on environmental sustainability, low-carbon development, and climate and disaster resilience”.

In underscoring the role cities can play in mitigating climate change the guide refers to the ADB’s focus on low-carbon urban infrastructure and services in other sectors, such as energy, transport, wastewater treatment, and housing. Relevant areas for support include low-carbon public mass transit infrastructure, use of renewable energy for urban facilities, and energy efficiency improvements in buildings.

The publication also emphasises the need for resilient infrastructure, referring to utilising public–private partnerships, promoting nature based solutions, and adopting a system-based resilience approach for urban development projects to this end.

In terms of operationalisation, the USDG includes an extensive set (18 in total) of “development solutions” as appendices, each outlining an area of intervention. Of these, six relate directly to the pillar on “promoting climate resilience, and healthy and environmentally sustainable cities”, strong evidence of the Bank’s intent to implement its commitments in this regard. The USDG also details the “outcome-level indicators” the ADB will use to track implementation through the Corporate Results Framework. Dedicated indicators for both climate change mitigation and adaptation feature among these, including notably “people with strengthened climate and disaster resilience”, and total annual greenhouse gas emissions reductions, among others. 

Agriculture

Agriculture is included as an “Operational Priority” for the ADB under OP5: Promoting Rural Development and Food Security. However, the agriculture sector is the only sector (covered by E3G’s Public Banks Climate Tracker Matrix assessment) that does not have a Sector Directional Guide for ADB’s Strategy 2030. This falls short of best practice among peer institutions, such as the Inter-American Development Bank (IDB), that have developed an up-to-date agriculture sector framework document.

The ADB previously had a dedicated Operational Plan for Agriculture and Natural Resources (covering 2015–2020) to guide sectoral implementation of the Bank’s Strategy 2020. There is no public indication why a corresponding directional guide for the ADB’s current Strategy 2030 has not been developed. Moreover, the Bank pledged in its previous operational plan to make 90% of its incremental investments in agriculture, food, and natural resources (AFNR) climate smart, emphasising both the mitigation and adaptation benefits.[7] Given the operational plan has expired, it is not clear whether this pledge was realised, or is still upheld.  

Despite lacking a dedicated strategic level document for the sector, there is considerable evidence that the Bank is considering climate change in the context of its sectoral interventions. In the Strategy 2030, the ADB states it will support member states in “deepening the understanding of the linkages and trade-offs between food and energy security needs at the project, sector, and country levels”. To this end, ADB will increase its use of climate modelling and weather forecasting technologies to support the improvement of agricultural practices.

Under the Climate Change Action Plan, the ADB also highlights several current and future actions for low-carbon and climate-resilient agricultural development in the region. These include forging partnerships with donors, knowledge institutions and the private sector to improve access to finance and knowledge in the AFNR sector. The Bank is currently undertaking sector diagnostics on AFNR development to identify collaboration and potential investments for high-impact climate interventions in the sector. The ADB has accordingly stated that it will “launch an innovative program to support net-zero and a just transition in agrifood systems” by the end of 2024.[8]

In addition to coverage in the Bank’s core strategic documentation, the ADB has developed dedicated guidelines for incorporating climate change adaptation measures into agriculture sector projects. This details both the potential impacts of climate change on agriculture projects, and prospective adaptation options. It also provides a step-by-step guide to screen specific agriculture projects for climate risk and implementing adaptation options.

Recommendations: 

• Energy: The ADB should explicitly commit to ensuring that new energy sector projects are aligned with a pathway for limiting global warming to 1.5 °C, mirroring best practice among peer institutions. For example, the IDB’s individual Paris alignment methodology improves on the Joint MDB methodology (used by the ADB) through explicit reference to compatibility with the temperature goals of the Paris Agreement. As another leading example, the Dutch Entrepreneurial Development Bank (FMO) has committed in its overarching strategy to align all new transactions with a 1.5 °C pathway. Regardless of how this is implemented, the reference pathway used should feature a science-based 1.5 °C scenario (e.g. IEA Net-Zero by 2050 Scenario).
• Transport: Given the transport sector accounts for the largest proportion of the ADB’s lending, the ADB should consider developing and publishing a dedicated transport sector policy (similar to the existing policy for the energy sector). This would serve to establish a long-term vision and strategic approach to guide the Bank’s activities within this sector. A transport sector policy could establish the underlying safeguards and investment principles to underpin the effective operationalisation of short- to medium-term strategic orientations (such as the sector directional guide).
• Transport: The ADB should implement dedicated climate safeguards for transport infrastructure expansion projects (such as airports and highways, among others), requiring comprehensive assessments of potential induced emissions to ensure alignment with national climate commitments, before financing capacity increases.
• Agriculture: To facilitate the mainstreaming of climate across agriculture sector interventions, the ADB should develop an updated sector directional guide, corresponding to the Strategy 2030 priorities. This guide should make explicit reference to the considerable emissions profile of the sector, and the need to eliminate agricultural commodity-driven deforestation from the ADB’s investment and credit portfolios as a result.

[1] The ADB will align its financing with the mitigation and adaptation goals of the Paris Agreement, for 100% of sovereign operations and 85% of non-sovereign operations by July 2023, and 100% of non-sovereign operations by July 2025. See the “Climate and overarching strategy” metric for more details.

[2] For detailed analysis of the ADB’s fossil fuel exclusion criteria, see the “Fossil fuel exclusions” metric.

[3] Evidence of the ADB operationalising this approach in practice notably includes the Bank’s Just Transition Support Platform, which provides technical assistance grants to support countries with upstream analytical and policy work, as well as institutional strengthening and capacity building.

[4] The Aichi 2030 Declaration reinforces Asia’s commitment to achieving sustainable transport systems that are safe, secure, reliable, affordable, efficient, people-centric, and environmentally friendly with low-carbon emissions for both passenger and freight movement.

[5] Hydropower investments can involve significant environmental and social risks, such as disrupting river ecology, deforestation, biodiversity loss, release of CO₂ emissions, displacement and loss of livelihoods of communities, and impact on food systems. In view of this, the ADB acknowledges that “knowledge of impact avoidance and mitigation measures related to dam projects has advanced considerably, and international good practice will be applied in line with ADB’s Safeguards Policy Statement (2009)”.

[6] The ADB has committed to align financing flows with the goals of the Paris Agreement by 1 July 2023 for new sovereign operations and by 1 July 2025 for new non-sovereign operations. See the “Climate and overarching strategy” metric for further details.

[7] It is not made clear why 10% of the Bank’s incremental investments are excluded from the commitment.

[8] E3G will monitor the ADB’s activities and update the assessment regarding the specific details of this initiative once announced.