Promotion of green finance

Explanation

As a leader in climate finance, the ADB plays a crucial role in catalysing green finance across Asia and the Pacific. Beyond its own USD 100 billion climate finance commitment for 2019–2030, the ADB has actively developed innovative financing mechanisms to enhance regional access to green finance, detailed below. These efforts aim to accelerate the adoption of sustainable financial practices throughout the regional financial system.

Greening the system

The ADB has made concerted efforts to green the financial system and increase private green finance mobilisation in Asia and beyond. Illustratively, the ADB has been an observer for the Network for Greening the Financial System (NGFS) since 2020, which the Bank’s Chief Economist views as a “vital component of the regional and global financial system”.[1] Since joining the NGFS, the Bank published a working paper on making financial systems more environmentally resilient. Building on the findings of the report, the Bank subsequently also organised a conference on Greening Financial Systems and the Role of Multilateral Development Banks and International Financial Institutions.

Building on the recommendations and research by the NGFS, the ADB published a report titled: “Greening the Financial System: Climate Financial Risks and How ADB Can Help” in December 2023. This report connects the ADB’s strategic framework to recommendations from the NGFS. Specifically, it acknowledges the Bank’s regional outreach – something that differentiates it from individual developing member countries (DMCs). Utilising this comparative advantage, the Bank plans to continue its existing work in policy dialogues, enter strategic partnerships, and proactively support DMC supervisors with capacity building to effectively manage climate risks.

One avenue through which this approach is being operationalised is the ADB’s Fiscal Resilience Facility.[2] The Facility supports Ministries of Finance in DMCs to transform fiscal planning systems to scale up investment and better align financial flows with climate action priorities. It does so through policy dialogues, the development of climate-resilient fiscal instruments and country-specific support.

Beyond the activities relating to the NGFS, the Bank also manages the ASEAN Catalytic Green Finance Facility (ACGF). This facility aims to de-risk green infrastructure projects by providing technical assistance for governments to identify projects which are commercially viable, and loans to cover upfront capital investment costs. So far, nine financing partners (including high income countries (HICs), other PDBs, and the Green Climate Fund (GCF)) have pledged USD 1.8 billion in cofinancing and technical assistance funds to the AGCF. The ADB is also working with ASEAN countries in the development of the ASEAN Climate Finance Policy Platform, which aims to help finance ministries strengthen their role in climate action and incorporate climate risks into fiscal planning and management.

The ADB has also been supporting DMCs to undertake policy reforms to unlock climate finance through policy-based loans, such as in Bangladesh and the Philippines.[3]

Green bonds

As of 2024, the ADB’s green bond programme, launched in 2015, has raised USD 10 billion to help finance climate mitigation and adaptation projects. Transactions are issued across a diverse range of currencies, including but not limited to Australian dollar, Brazilian real, Georgian lari, Norwegian krone, and Hong Kong dollar. The majority of proceeds have been used to fund transport sector projects (69.9%), followed by renewable energy (17.4%) and agriculture, water, and urban infrastructure (7.7%). The ADB has since expanded its sustainable bond offering to include ocean health investments and introduced blue bonds in 2021.[4] The Bank also issued an inaugural biodiversity and nature theme bond in 2024, mobilising an additional USD 100 billion in private capital to finance nature and biodiversity projects throughout the Asia and the Pacific region.

The ADB published its Green and Blue Bond Framework in 2021, which details eligible projects for financing under each bond type. The framework is aligned with the voluntary Green Bond Principles, and ADB Blue Bonds are aligned with voluntary Sustainable Blue Economy Principles. Eligible green bond projects include investments that support climate change mitigation and adaptation objectives, while blue bonds include investments that “contribute to ocean health through ecosystem and natural resources management, pollution control, and/or sustainable coastal and marine development”. Both bond types exclude lending through financial intermediaries and any fossil-fuel-related projects. Use of proceeds and the environmental and social outcomes of funded projects are detailed through the ADB Green and Blue Bonds Newsletter (published yearly).  

Beyond its own (increasingly large) local currency green bond issuances, the ADB has actively contributed to growing the regional green bond market by supporting issuances in member countries. For example, in 2023 the ADB invested 20 million lari (USD 7.6 million) in Tegeta Motors’ (Georgia’s leading automotive products and services company) inaugural 2-year and 6-month lari-denominated green bond. This was the first local currency-denominated approved green bond issued in Georgia. The proceeds are due to be used to finance the deployment of zero-emissions light, road, and non-road electric vehicles and charging infrastructure. Since this initial investment, the ADB has invested USD 40 million in a green bond issuance by Georgia Global Utilities (reportedly the largest ever green bond issued by a Georgian private corporate entity) to modernise the local water supply network.

Innovative financial instruments

The ADB has developed numerous dedicated innovative financing mechanisms to expand its lending capacity and leverage resources for climate financing. Notable examples include:

• Innovative Finance Facility for Climate in Asia and the Pacific (IF-CAP): Established in 2023, the multi-donor financing partnership facility is a pioneering initiative among MDBs that aims to leverage USD 2.5 billion in guarantees to generate up to USD 11 billion in new climate investments.[5] Under IF-CAP, donors guarantee a portfolio of sovereign ADB loans, thereby reducing the capital the ADB holds for credit risk and freeing up capital for new climate lending.[6]  
• Climate Action Catalyst Fund (CACF): CACF aims to mobilise approximately USD 100 million in financial commitments to support mitigation action in member countries. The Fund mobilises finance through the purchase of carbon credits to catalyse transformative mitigation actions in DMCs, also supporting the development of international carbon markets in DMCs. The fund’s operations started in 2024, and seeks to help the ADB’s DMCs achieve and progressively raise their Nationally Determined Contributions (NDCs). The Swedish Energy Agency has already committed the equivalent of USD 27 million in funding.
• World’s first “Blue Bond Incubator”: Building on the ADB’s first blue bond issuance, the Bank is developing standardised global guidance for the issuance of blue bonds, in collaboration with the UNEP, UNGC, ICMA, and IFC. The ADB will also provide technical assistance to sovereign and corporate partners. The incubator’s first partner is the Fiji Ministry of Economy, which the ADB will support with issuing its first blue bond.
• Energy Transition Mechanism (ETM): Launched in 2021, the ETM seeks to reduce GHG emissions from the energy sector by retiring and repurposing coal power plants. This is achieved by creating a pool of blended capital to finance related transactions in DMCs. During COP28, the ADB announced its first deal under the ETM, in which it agreed a provisional deal with Indonesia to shut down a coal-fired plant seven years earlier than planned. The Bank also established a blended finance partnership with the Global Energy Alliance for People and Planet (GEAPP) and the Monetary Authority of Singapore (MAS) to raise up to USD 2 billion in financing for the ETM. The ADB is also considering how the ETM could benefit from the generation of carbon credits, though is yet to outline the specifics of the framework that will be used and how it will ensure high integrity in the supply and use of credits.

In addition to these dedicated innovative mechanisms and initiatives, the Bank offers (since 2005) local currency loan products to both private and public sector borrowers. This can help to reduce risks associated with foreign exchange hedging and thus the cost of capital relative to typical hard currency loans.[7] The ADB has also used a results-based lending (RBL) approach in programs since 2013. In 2016 the ADB disbursed its first results-based loan in the energy sector, to Indonesia’s state electricity corporation for the upgrading of its national power and transmission system. The Bank has also notably worked with other development partners, such as the African Development Bank (AfDB) and the European Bank for Reconstruction and Development (EBRD), to share its experience in this area.

In terms of knowledge sharing and exchange, the Bank’s Climate Action Plan 2023–2030 states that the Bank is considering establishing a number of hubs to combine financing with knowledge partnerships. These hubs are intended to bring together the ADB and partners with technical, business, and financial expertise to develop scalable, sustainable solutions supported by concessional finance. This includes through facilitating technical assistance aiming to foster innovative, replicable project models.[8]

Recommendations: 

• Building on its success to date, the ADB could further strengthen its green bond programme in several areas, including:
  • Improving transparency of realised green bond project results. This could involve augmenting existing reporting in the annual green and blue bond newsletter with an overview of targeted ex-post evaluations of green bond projects (through existing processes such as project completion reports and assessment by the Bank’s Independent Evaluation Department (IED)) against key performance indicators.
  • Building on the successful support for green bond issuance in Georgia, the ADB should consider supporting issuance (by local actors) of local currency denominated green bonds across more member countries. This could involve providing technical assistance and capacity building for local financial institutions to develop their own green bond programs.
• There is an opportunity for the ADB to contribute to further scaling green finance by integrating its upstream green finance policy work with the national level, real economy oriented, development and climate support it provides. This would be especially relevant as green finance policies and products are rolled out in the ASEAN region, with the ADB well positioned to support implementation and international coherence. Practically, this could include working with countries to deploy regulatory toolkits, including taxonomies and other mechanisms, to help client countries anticipate and respond to the requirements and opportunities of private sector transition planning. As part of this, the ADB should look to further its engagement in relevant international sustainable finance fora (such as the International Platform on Sustainable Finance). This would enable it to increase the role of the region in shaping and implementing internationally recognised best practice initiatives and standards.
• Noting the potential for the ETM to generate carbon credits to mobilise finance for accelerating coal phase-out, the ADB should set out how it plans to ensure adherence with international best practice and high integrity standards in the supply and use of carbon credits.

[1] The Network for Greening the Financial System (NGFS) is a global coalition of central banks and financial supervisors. Established in 2017, the NGFS aims to accelerate the scaling up of green finance and develop recommendations for central banks’ role in addressing climate-related risks in the financial sector.

[2] Information obtained directly from the ADB.

[3] For further details on the ADB’s policy-level support, please see the “Technical assistance for implementing Paris goals” metric.

[4] See the “Innovative financial instruments” subheading for further details.

[5] As this initiative is still at a nascent stage, limited information is available regarding implementation progress and impact so far.

[6] The IF-CAP founding partner countries include Denmark, Japan, Sweden, Republic of Korea, the United Kingdom, and the United States. Discussions are ongoing with regards to the potential future participation of Australia and Norway.

[7] In the ADB’s case, loans are traditionally offered in either USD, Japanese yen, or euro.

[8] One example of this push is the Nature Solutions Finance Hub launched during COP28. For more information, see the “Nature based solutions” metric.