What banks do to tackle climate change matters, as the Asia-Pacific braces for the worst

What banks do to tackle climate change matters, as the Asia-Pacific braces for the worst

The Asian Development Bank (ADB) has just finalised an ambitious new framework, setting out how it will face the challenge of climate change up to 2030.

What the ADB does matters. It is the regional development bank for Asia and the Pacific, with operations of over US$30 billion last year, and it recognises the huge threat climate change poses to this vast region.

Most of Asia’s economic centres are located on coastlines, and the Asia-Pacific has the largest number of climate-vulnerable people worldwide. By 2050, more than 1.6 billion people in the region are expected to be at risk of cyclones, which are set to become more intense.

Other climate impacts include heat waves, rising sea levels and changes to rainfall patterns, with effects on health, agriculture and migration. At just 2 degrees of warming, the world’s coral reefs would be wiped out, with disastrous impacts for the world’s fish stocks.

Making cities climate change resilient

The ADB will, for the first time, commit to measuring and monitoring carbon emissions, finally catching up with the Inter-American Development Bank (IDB). The ADB will also reduce its emissions over its portfolio, a new approach that is already best practice among many international companies, from Coca-Cola to Sony. While the ADB has been slow to lay out these plans, it is a good first step.

Another important improvement is that the ADB is now going to support member countries in implementing their pledges under the Paris climate accord. This will mean the bank is better positioned to provide expert advice to countries, and might also mean that staff at the ADB will require further training. By contrast, the World Bank – often a competitor to the ADB – has yet to set out how it will do this, although it has committed to do so.

Decisions made in Asia today are critical to maintaining a safe global climate. Phasing out coal is essential to achieving climate goals, yet our analysis shows that Asia has more coal-fired power plants under construction and development than any other region.

Shifting from a high-carbon to clean-energy future will be critical to achieving the goal of the Paris agreement, to stay below 2 degrees of global warming. Investment decisions must factor in the true economic costs of coal plants – both in terms of toxic air pollution and the rising costs of disasters.

ADB has said it will continue to help member countries understand the economics of climate change. For example, if the world were to stay on the current fossil-fuel-intensive growth model, total climate change costs in the Pacific alone are estimated to reach the equivalent of 12.7 per cent of annual GDP by 2100. Losses can be minimised only by reducing emissions.

Climate change: the coming storm

In 2015, Takehiko Nakao, the ADB president, announced that the bank would double its annual climate financing to US$6 billion by 2020, with specific opportunities for renewable energy, energy efficiency, sustainable transport and urban development. ADB has shown progress, with estimates of its own climate finance reaching a record US$3.7 billion last year.

However, one area the bank is falling behind on is clean energy investments. As E3G noted earlier this year, ADB’s targets are not ambitious on this when compared with regional trends.

China is a global leader on renewable energy, and is also exporting clean technologies internationally. In India, solar power is a fast-growing industry, with solar capacity quadrupling in the past three years.

Despite this regional progress, ADB’s clean energy investment has remained constant over the past few years. If the bank wishes to improve its offer on climate change, it should seek to improve its ambition on clean energy to align with regional progress.

What does this mean for other banks?

Other regional and national banks would do well to look towards the progress made in reforming the ADB. A major issue for the region is that coal-fired plants are being supported by public funding from several Chinese banks, such as China Development Bank, found to be the biggest development bank lending to coal projects. The biggest financers of coal projects last year were all institutions from China, Japan and Korea. This is not in line with a pathway towards a safe climate.

Critically, China’s leadership must stop supporting public subsidies that are going to fossil fuels abroad, otherwise the country will be complicit in funding a global pathway towards devastating climate impacts.

China is already working to reduce coal emissions domestically, and needs to ensure that it does not contradict that effort by exporting the coal problem to emerging economies. The reforms in international financial institutions such as the ADB and IDB could be helpful in marking a better way forward for China’s banks.

A new regional financial institution, the China-backed Asian Infrastructure Investment Bank (AIIB), earlier this year approved a new energy policy and its leadership has pledged it will be a “lean, green and clean” investor. Can the AIIB also take lessons from the changes at the ADB?

This article first appeared in the South China Morning Post.


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