The Asian Development Bank (ADB) is at a critical juncture. The Bank, which serves the Asia and Pacific region, is currently preparing its 'Road to 2030' strategy. The Board of Governors are meeting this week at the Bank’s Annual Meeting in Yokohama, Japan. This year also marks the Bank’s 50th Anniversary – making this a unique opportunity to take stock of its progress.
2015 saw two important international agreements being agreed – the Paris climate agreement and the UN’s Sustainable Development Goals. The ADB's new strategy is set to describe how the ADB aligns with the new goals – but how can this be effective? Will the ADB succeed in aligning with the goal of keeping global warming below 2°C (and aiming towards 1.5°C)?
Not only does the ADB have a responsibility to align with globally agreed goals by bringing its operations into line with sustainable development, it also has an opportunity. Asian countries are well positioned to prosper in the green economy – with Asia having the largest value of green sales per unit of GDP, compared with other continents. Countries and donors will now be looking towards ADB and assessing whether it is helping countries to take up these opportunities, as well fulfil their pledges under the Paris Agreement. This article outlines several things to look out for.
Renewing the ADB’s mission
The ADB was conceived in the early 1960s as a financial institution with the mission to help developing member countries reduce poverty and improve the quality of life of their people. However, climate change is a threat to the goal of ending extreme poverty as it often hits the poorest hardest. Many countries in Asia are particularly at risk, including fast-growing economies.
Furthermore, the Asian region is crucial for achieving the global climate change goals. The coal plants that are planned in Asia could tip the world over dangerous thresholds. Analysis by E3G has shown that the world’s new coal plants are predominantly in Asia: over 80% of the coals plants at pre-construction stages of development are in Asia.
That is why the World Bank President Jim Yong Kim said in a stark warning last year
If Vietnam goes forward with 40 GW of coal, if the entire region implements the coal-based plans right now, I think we are finished.
The future of millions of people, including those living in low-lying lands threatened by sea level rise, are therefore at stake in the Asian region. ADB should put climate change at the heart of its mandate, including its advice and support to country clients.
The World Bank is already embedding discussions of climate change in country strategies and systematic country diagnostics, while the Inter-American Development Bank (IDB) has updated its institutional strategy, identifying climate change as a cross-cutting issue. However, the ADB’s Country Partnership Strategy guidelines do not currently mention climate change. The ADB should look to follow other Multilateral Development Banks (MDBs) in embedding climate change into both its institutional strategy and operational guidelines.
Progress so far, a mixed record on clean energy ambition
The ADB’s clean energy targets need to be more ambitious in line with regional progress. ADB had set a target of reaching $1 billion annual investment in clean energy but this target was already achieved in its first year. Next, ADB set the target of $2 billion in annual clean energy investments by 2013 – but it achieved this target two years ahead of schedule. It was clear the original target was set too low, as the investments were already $1.75 billion in the first year.
Global trends on renewable energy investment in Asia and the Pacific have been striking, and record-breaking investments in renewable energy have taken place in China and India. If the ADB is not ambitious on clean energy, they are just going along with the business-as-usual trends, rather than having an additional impact.
ADB needs to actively seek out and build the project pipeline. It is not clear to what extent the ADB’s operations are driven by the principle of ‘additionality’ – classified by the European Investment Bank (EIB) as operations that could not have been carried out to the same extent without bank support. While this impact is difficult to assess, the ADB should be more proactive in seeking out new greenfield projects in the early stages of development and construction – which have the greatest potential benefit and value-added, including first-of-a-kind demonstration projects.
Aligning with the Paris goals will mean zero investment in coal and coal-related infrastructure. Between 60-80% of coal, oil and gas reserves of publicly listed companies are ‘unburnable’ if the world is to have a chance of not exceeding global warming of 2°C. For a target of below 1.5°C – all coal investment needs to halt immediately.
However, the ADB has not yet specifically excluded coal. ADB’s energy policy has not been updated since 2009, and states that a review will be undertaken ‘when circumstances warrant’. Arguably the Paris Agreement does warrant a review of the ADB’s policy. In 2013, for example, the ADB supported the Jamshoro coal plant in Pakistan. ADB should be doing more to help countries shift from coal to clean, especially since coal burning causes air pollution – putting an enormous burden on public health in the region. Aligning with Paris will mean zero funding for coal and coal-related infrastructure as well as taking up the opportunities of a thriving renewable energy sector.
Accounting for impacts and promoting green growth
Finally, ADB should follow the lead of the Inter-American Development Bank (IDB) in accounting for its emissions across the Bank’s portfolio. In 2015, IDB figures show that 0.6 million tonnes of CO2 equivalent were avoided while 0.5 million tonnes were generated. The European Bank for Reconstruction and Development (EBRD) also published emission figures for its portfolio.
Like these MDBs, the ADB should account for its portfolio emissions in terms of both emissions avoided and generated, and should go further by applying a portfolio-level emission reduction target. Many corporations are already reporting their emissions in their annual reports, so the development banks, as good stewards of public capital, ought to be aligning with global best practice on emission reporting. In fact, around 200 companies have already committed to science-based targets for emission reduction – including targets covering both direct and indirect emissions.
ADB is at an important moment in history. As regional governments and G7 shareholders, many of which are phasing out coal, wait for the ADB’s new strategy to be announced, the outcome is yet to be decided. The Bank can either support fossil-based infrastructure that will ultimately put the region at risk and threaten poverty goals, or the ADB can realign its strategy for a more sustainable and prosperous future – helping countries implement their Paris targets by taking up the opportunities of the clean energy revolution.