Asian Development Bank Report on Green Finance Highlights Key Messages from the Inquiry Team

Date: 30 Aug 2017

On 29 August 2017, the Asian Development Bank launched a report titled, Catalyzing Green Finance: A Concept for Leveraging Blended Finance for Green Development. The publication describes an innovative financing solution for enhancing both financially bankable as well as environmentally sustainable infrastructure projects. The report outlines the concept of a Green Finance Catalyzing Facility (GFCF), which would serve as a model for countries to create their own financing vehicles and implementing mechanisms. This would leverage public funds and policies to catalyze a blend of financing from private sources for increasing green infrastructure investments.

Simon Zadek, co-director of the UN Environment Inquiry into the Design of a Sustainable Financial System wrote a key message for the report as a reviewer where he said:

Scaling green finance is a precondition for aligning financial systems with long-term needs of the real economy, integrating environmental risks, opportunities, and policy imperatives in decisions that drive lending, investment, and insurance. Improving this alignment requires developments across the real economy, the use of public finance, and the financial system itself. The People’s Republic of China (PRC) has taken international leadership, working closely with the United Nations Environment Programme, in establishing a policy framework for catalyzing green finance, adopted by the State Council in August 2016, at the same time that the importance of green finance was embraced at the G20 (grouping of 20 major world economies) Leaders’ Summit in Hangzhou. Accelerating private green investment flows in the short- to medium-term require blending in public finance to secure public goods, such as environmental benefits, that will not be paid for by private capital. The extent of such subsidies will depend on the features of the potential investment, and a vehicle is required to effectively and efficiently differentiate such potentials and associate the design of appropriate financing instruments. The Green Finance Catalyzing Facility (GFCF) is just such a vehicle, providing a basis for assessing the merits of blended financing based on the value of such environmental and associated economic cobenefits, and so the optimal financing instrument that catalyzes green investments that would not otherwise happen.

Dr. Ma Jun, chief economist of the Research Bureau of the People’s Bank of China, and co-chair of the G20 Green Finance Study Group (for which the UN Environment Inquiry acts as Secretariat) also wrote a key message as a reviewer that stated:

Turning the commitments of the 2015 United Nations Climate Change Conference (COP21) into actions require the private sector’s contribution in transitioning to a green global economy. The public sector currently has a number of levers to pull in catalyzing the private sector within green finance, but innovative and scalable solutions are needed to speed up the transition. The GFCF provides exactly such a lever, and is therefore an initiative that should be warmly welcomed. First, the GFCF’s combination of simultaneously focusing on bankability as well as on green targets makes it both an advantageous tool for policy makers and also an attractive instrument for private investors. Second, the potential scalability of the GFCF provides the prerequisite for the initiative to have a long-term global impact. Third, the timing is right for the initiative since global financial markets are undergoing transformation toward a low-carbon economy. Consequently, the GFCF is a universally relevant concept. As the PRC has taken a leading role in green finance, both within its domestic policy framework as well as through the G20, the GFCF additionally provides a timely contribution to this process, with particular relevance as green finance rapidly expands and policy makers and investors seek new and innovative tools. As such, the GFCF has the potential to play a role in the green economy both within the PRC and globally.

Further information about the launch can be found here.