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Problem
Answer published by the source. Consult the official source to check your work against its answer.
choice A
Aggressive Fiscal Realignment with Carbon Tax and Green Bond Program： Introduce a substantial carbon tax on oil production and exports, increasing gradually over the next decade. Launch a large-scale green bond program to fund solar and wind infrastructure, primarily targeting international investors. Gradually phase out fossil fuel subsidies over the next five years, redirecting savings toward green infrastructure projects. Implement social transfer programs to cushion the impact on low-income households as energy prices rise.
choice B
Gradual Energy Transition with National Green Investment Bank： Create a national green investment bank to de-risk renewable energy projects, using concessional financing from multilateral development banks (MDBs) and sovereign wealth fund reserves. Maintain existing fossil fuel subsidies for the next five years to ensure energy price stability while gradually scaling up renewable energy. Implement modest tax credits and subsidies for private renewable energy investments, while postponing the introduction of a carbon tax. Prioritize regulatory streamlining to reduce barriers for private sector participation in renewable energy projects.
choice C
Immediate Fossil Fuel Subsidy Removal with Regulatory Overhaul： Remove all fossil fuel subsidies immediately to create a level playing field for renewable energy, and redirect savings to fund public investments in renewable energy infrastructure. Implement a comprehensive regulatory overhaul, fast-tracking the approval process for renewable energy projects, and introducing mandatory renewable energy purchase agreements (PPAs) for utilities. Introduce a carbon pricing mechanism within two years, focused on industrial sectors to reduce emissions. Provide direct cash transfers to low-income households to offset rising energy costs due to subsidy removal.
choice D
Blended Finance and Export-Led Renewable Development： Establish a public-private blended finance fund to attract foreign direct investment (FDI) for large-scale renewable energy projects, especially focused on export markets (e.g., green hydrogen, solar exports). Issue sustainability-linked bonds (SLBs) that tie coupon payments to national greenhouse gas reduction targets, tapping into international capital markets. Implement a modest carbon tax on oil production, while retaining fossil fuel subsidies domestically to avoid sharp increases in local energy prices. Use revenues from carbon taxes and SLBs to invest in education, retraining programs, and social welfare for workers in the fossil fuel sector who will be displaced by the energy transition.
context · full text (391,714 characters)
The shaded areas of the map indicate ESCAP members and associate members.*
The Economic and Social Commission for Asia and the Pacific (ESCAP) is the most inclusive intergovernmental platform in
the Asia-Pacific region. The Commission promotes cooperation among its 53 member States and 9 associate members in
pursuit of solutions to sustainable development challenges. ESCAP is one of the five regional commissions of the United
Nations.
The ESCAP secretariat supports inclusive, resilient, and sustainable development in the region by generating action-oriented
knowledge, and by providing technical assistance and capacity-building services in support of national development
objectives, regional agreements, and the implementation of the 2030 Agenda for Sustainable Development.
*The designations employed and the presentation of material on this map do not imply the expression of any opinion
whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or
area or of its authorities, or concerning the delimitation of its frontiers or boundaries.
ESCAP FINANCING FOR DEVELOPMENT SERIES NO. 5
SUSTAINABLE FINANCE: BRIDGING THE GAP IN ASIA AND THE PACIFIC
ii
Sustainable Finance: Bridging the Gap in Asia and the Pacific
United Nations publication
Sales No.: 23.II.F.6
Photo credits:
Cover design: Dilucidar
Page iii: UN Photo/John Isaac
Chapter 1: www.iStockphoto.com/Nikada
Chapter 2: www.iStockphoto.com/jaynothing
Chapter 3: UN Photo/Eskinder Debebe
Chapter 4: www.iStockphoto.com/Ian Dyball
Chapter 5: www.iStockphoto.com/LeoPatrizi
The views expressed in this document are those of the authors and do not necessarily reflect the views of the United
Nations Economic and Social Commission for Asia and the Pacific (ESCAP). The designations employed and the
presentation of the materials in this publication also do not imply the expression of any opinion whatsoever on the part of
the secretariat of the United Nations concerning the legal status of any country, territory, city or area, or of its authorities
or concerning the delimitation of its frontiers or boundaries. This publication follows the United Nations practice in
references to countries.
This publication should be cited as: United Nations, Economic and Social Commission for Asia and the Pacific (2023).
Sustainable Finance: Bridging the Gap in Asia and the Pacific. ESCAP Financing for Development Series, No. 5. Bangkok.
This publication may be reproduced in whole or in part for educational or non-profit purposes without special permission
from the copyright holder, provided that the source is acknowledged. The ESCAP Publications Office would appreciate
receiving a copy of any publication that uses this publication as a source. No use may be made of this publication for
resale or any other commercial purpose whatsoever without prior permission. Applications for such permission, with a
statement of the purpose and extent of reproduction, should be addressed to the Secretary of the Publications Board,
United Nations, New York.
ESCAP FINANCING FOR DEVELOPMENT SERIES NO. 5
SUSTAINABLE FINANCE: BRIDGING THE GAP IN ASIA AND THE PACIFIC
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ESCAP FINANCING FOR DEVELOPMENT SERIES NO. 5
SUSTAINABLE FINANCE: BRIDGING THE GAP IN ASIA AND THE PACIFIC
iv
FOREWORD
In 2022, the Asia-Pacific region experienced unprecedented weather catastrophes such as heat
waves and droughts, typhoons, and floods that resulted in substantial human and economic
losses and eroded hard-won development gains. Evidence is mounting that the severity and
frequency of such catastrophes are increasing due to climate change, which is serving as a
“threat multiplier” for existing social, political, and economic challenges.
These challenges have been further exacerbated by the ongoing war in Ukraine which caused a
“polycrisis” related to food, energy, and finance, with cascading multifaceted effects on the
global economy already severely impacted by the COVID-19 pandemic. To effectively respond to
these crises – Covid, conflict and climate change – and to rebuild our economies in a manner consistent with the
ambitions of the 2030 Agenda for Sustainable Development and Paris Agreement on climate change, substantial financial
resources are needed. But it is also clear that, alarmingly, the gap between the resources required and those currently
available is substantial and growing. To close this gap, especially to address climate change, the participation and
commitment of all relevant stakeholders – governments, regulators, and private finance – is urgently needed.
The Asia-Pacific region is not on track to meet the SDGs by 2030 nor achieve climate ambitions, with current financial
requirements far exceeding available resources. Thus, inaction to raise sufficient additional financing, or to channel
available resources in support of SDGs and climate action, is not an option anymore. It is time for all stakeholders to
commit to accelerated change by committing to net zero emissions and transforming their financing priorities, processes,
and programs to meet the growing financing needs of the region.
This report focuses on sustainable finance, which, in a broader sense, refers to the financing of sustainable activities as
well as finance that is sustainably managed. In this vein, the report examines the trends, challenges, and opportunities
that policymakers, regulators, and private finance (banks, issuers, and investors) in Asia and the Pacific face to mobilize
and deploy sustainable finance, particularly for climate action. It then presents specific recommendations for
governments, regulators, and private finance – summarized in ten principles for action – to chart the way forward. We aim
to spur more robust and informed debate amongst our member States, drive consensus on key policy and regulatory
measures to move the region towards sustainability and bring greater clarity regarding the benefits and consequences of
enhancing sustainable finance in both the short and long term.
I am confident that policymakers, regulators, private sector representatives as well as researchers in the Asia-Pacific
region will benefit tremendously from our report. My team and I look forward to engaging with member States, partners,
and other key stakeholders to translate the ideas presented in this report into practical measures so that the pressing
financing gap can be closed.
Hamza Ali Malik
Director
Macroeconomic Policy and Financing for Development, ESCAP
ESCAP FINANCING FOR DEVELOPMENT SERIES NO. 5
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EXECUTIVE SUMMARY
The Asia-Pacific region is not on track to meet the SDGs
by 2030 nor achieve climate ambitions, with current
financial requirements far exceeding available
resources. The Sharm-el-Sheikh Implementation Plan,
agreed at the 27th Conference of the Parties of the
United Nations Framework Convention on Climate
Change (UNFCCC) in 2022 highlighted that the world will
need between 6 trillion per year to
transition to a low-carbon economy. For developing
countries the financing gap to meet their Nationally
Determined Contributions (NDC) is estimated at close to
$6 trillion for the period 2023-2030.
Urgent and systemic change is required to deliver
funding at such a scale. It requires recognition and
willingness by all countries to transform policies,
regulations, and the financial system. In Asia and the
Pacific this change has proceeded at too slow a pace.
Policymakers still need to implement credible NDC
financing plans, with corresponding resource
mobilization strategies to achieve sequenced NDC
targets that are progressively ambitious (and to adopt
more ambitious NDC targets in the future). Regulators
must act decisively to manage the risks that climate
change and biodiversity threats pose to the financial
system, while at the same time decisively shifting
capital towards green objectives consistent with their
NDCs.
In the private sector, banks and businesses need to
adopt net zero commitments and implement credible
transition pathways. As they do so, and the supply of
net-zero aligned financing increases, the demand side
for this capital also needs to increase. For this, projects,
particularly in the energy transition and new green
technologies, are needed at sufficient scale and quality
to meet a range of investor needs. These projects need
to be built through new financing partnership
approaches. In this vein, multilateral development banks
and development financial institutions will play a key
role in providing catalytic capital with the right terms
related to concessionality and risk-sharing. As they do
so, local banks and investors in Asia-Pacific must
decide increasingly to finance the net-zero transition,
particularly in providing local currency financing, which
is essential in today’s difficult macroeconomic
environment. Sustainable finance (and transition
finance) frameworks, roadmaps, disclosure frameworks
and taxonomies increase the integrity and clarity of
financing sustainable activities, through the use of
appropriate standards. Achieving increased regional
alignment, convergence and interoperability in these
standards will be highly desirable, which can reduce
cross-border compliance costs and create an efficient
and level playing field.
This report discusses challenges, opportunities, and
recommendations for policymakers, regulators, and
private finance in the Asia-Pacific region to bridge the
gap in sustainable finance. It outlines two tracks of
sustainable finance; Track 1 refers to use-of-proceeds or
objective/outcome driven finance; and Track 2 refers to
sustainably managed finance that manages
environment, social, governance, and increasingly
climate, risks in its deployment. The aim of this report is
to spur a robust and informed debate amongst member
States, establish consensus on key measures to move
towards increased sustainable finance, and bring
greater clarity regarding the benefits and consequences
of various policy, regulatory and private finance choices.
What can governments do?
Policymakers have an important role to play in building
sustainable finance markets and driving down risk and
perceptions of risk. When commitments and priorities in
climate action and sustainable finance are
communicated clearly to markets, long-term
investments can be accurately priced and undertaken
with investor confidence. Policymakers are also
responsible for budget allocations in terms of incentives
or tariffs that affect the returns in fossil fuel dependent
sectors, and in thus shifting the financing of the energy
mix of sectors. Their actions have vast implications on
various sectors of the economy that need to finance the
shift to new and cleaner energy sources, reduce the
carbon intensity of their output, track their emissions,
and plan their transition to net-zero emissions.
Governments also have a role in shifting capital towards
green objectives. There has been a promising increase
by governments in the region in issuing sovereign green,
social, sustainable and other bonds, labelled GSS+, that
raise capital for specifically GSS+ uses. The global
market for GSS+ bonds has grown to more than $3.8
trillion outstanding by the end of 20221, and annual
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issuances in Asia and the Pacific increased from 206 billion in 2022. Although
corporate issuances dominate this market, sovereigns
and jurisdictions are increasingly tapping into it, with
Hong Kong, China; Indonesia; Malaysia; New Zealand;
Philippines; Singapore; and Thailand issuing between 2.5 billion each in 2022.
Governments in the region also have a role in accessing
multilateral climate funds (MCFs), such as the
Adaptation Fund, the Global Environment Fund, or the
Green Climate Fund. While the money available from
MCFs will not be sufficient to close the financing gap,
MCFs remain a critical source and channel for
developed countries to meet their Paris Agreement
obligations to developing countries. In 2021, for
instance, according to the OECD2, funds from MCFs
provided more than $1.2 billion to Asia-Pacific
countries. This source of sustainable finance is
attractive because a large portion is available as grants
— about 50 per cent in 2021, compared to 29 per cent of
financing from bilateral donors and 3 per cent of
financing from multilateral development banks.
Moving forward, the most immediate step for
policymakers to take is to ensure that Nationally
Determined Contributions are supported by concrete,
targeted, and sequenced national financing strategies.
Climate mitigation and adaptation activities need to be
mapped out with expected sources of domestic public
finance, international financial assistance, and private
finance. Governments must accelerate the difficult work
of translating national net zero commitments into net-
zero commitments by financial institutions and
businesses. In doing so, policymakers should ensure
clarity, reliability, predictability and stability, thereby
setting trusted signals to markets and investors who
must make the long-term investments that underpin the
net zero transition. Sustainable finance frameworks
(such as roadmaps and taxonomies) can then further
embed and clarify financing parameters to support the
NDC financing strategies.
Finally, new climate finance partnerships are needed at
scale to tackle the challenge. Policymakers can also
drive sustainable finance at scale through engaging in
multi-dimensional partnerships with donor countries and
private financial institutions such as the recent Just
Energy Transition Partnerships (JETPs) launched by
Indonesia and Viet Nam in 2022. These JETPs
coordinate national commitments to peaking emissions,
phasing out coal, improving regulations and designing
effective pipelines of bankable projects — all initiatives
which provide a strong basis to mobilize even more
private and public finance. While not every country in the
region can and should replicate the JETP model, the
engagement between policymakers and financial
providers (whether public or private) from the planning
and inception stages of energy transitions are mutually
beneficial and serve to focus efforts, concentrate minds,
and bridge the financing gap.
What can regulators do?
Regulators can increasingly ensure coherence and
coordination across other regulators as well as
policymakers. Regulators have an important role in
preserving stability of the financial system, managing
risks, and increasingly, shifting capital towards climate-
related investments. To effectively tackle the scale of
the sustainable finance challenge, financial regulators
need to work increasingly closely with other regulators,
such as environmental protection agencies,
departments of industries that regulate the fiduciary
duties of directors and trustees of fund and investment
managers, competition and consumer regulators
guarding against potential greenwashing of products
and services, energy regulators and regulators related to
the introduction of new green technologies. Such an
integration of climate-related and increasingly nature-
related risks into regulation also calls for substantial
investment into building the right skills and capacities
across the financial system.
Effective regulation requires clear, consistent, and
comparable data. A major challenge to implementing
regulatory approaches that would account for climate-
related and nature-related financial risks is the lack of
available quality data. Data challenges reported by
supervisory authorities include the lack of granular,
consistent, and comparable data reporting standards for
counterparties and for financial institutions. The data
required includes: the identification of sectors or
economic activities that are vulnerable to physical,
transition and liability risks; financial institutions’
exposures to such sectors or economic activities; the
geographical location of financial institutions’
exposures most prone to physical risk; and reports on
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carbon-related metrics, including Scope 1, 2, and 3
greenhouse gas emissions, by financial institutions and
their counterparties. The International Sustainability
Standards Board’s (ISSB) inaugural standards for
sustainability-related disclosures, issued in June 2023,
is expected to establish a common global baseline for
corporate sustainability disclosures. However,
regulators in countries where institutions are not yet
required to adopt ISSB standards will still face data
challenges around the standards, costs, and verification
aspects of the required data.
In addition to playing a supervisory role to manage
finance sustainably (what this report refers to as Track 2
of the two types of sustainable finance), regulators can
also decisively shift capital into low-carbon investments
(Track 1 of the two types of sustainable finance). Their
work in sustainable finance roadmaps, sustainable
finance taxonomies, and GSS+ bond and loan
frameworks create clarity, boost integrity, and signal to
investors the credibility of intentions to undertake a
sustainable finance trajectory. Emerging transition
finance taxonomies have the potential to also credibly
direct the market towards supporting the transition from
brown to green activities and incentivize the reduction of
emissions. Regulators can thus steadily encourage
financial institutions and corporations to credibly
transition through the implementation of voluntary and
mandatory sustainable finance requirements.
The adoption of sustainable finance roadmaps is a
promising first step, but their mostly voluntary nature
may not accelerate urgent and widespread change. Net
zero commitments, or any obligation to the net zero
transition, are currently not mandatory across most of
Asia and the Pacific. Coal financing and fossil fuel
financing is still on the rise, powered by the increase in
energy demand across Asia and the Pacific.
Policymakers and regulators in the region must
therefore take urgent and decisive action as the report
outlines.
What can private finance do?
The Sixth Assessment Report of the Intergovernmental
Panel on Climate Change (IPCC) 2023 highlights that
there is sufficient global capital and liquidity to close
the global investment gap. In Asia and the Pacific,
trillions of dollars of capital are held predominantly in
the bank lending market, and trillions are also held in
capital markets. This private finance will now have to
step up to the challenge. Regulators have an important
role, as discussed, in incentivising this private finance to
shift towards green objectives, and in creating an
efficient and level playing field. The universe of private
finance in Asia and the Pacific includes banks who lend
to businesses in the real economy; capital market
issuers of equity and debt securities; asset owners
(pension funds, sovereign wealth funds, foundations,
endowments, trusts, family offices); and asset
managers (mutual fund managers, investment advisors,
stockbrokers). Development financial institutions such
as multilateral development banks (MDBs), bilateral
development financial institutions, and national
development banks play an increasingly critical and
catalytic role in shifting risk, promoting standards,
mobilising private finance and building capacity.
Historically, private finance has operated under
traditional norms of fiduciary duty, which is now
changing. The architecture governing both the duties of
directors of companies as well as companies’ climate-
related and sustainability disclosures, which are mostly
voluntary in Asia and the Pacific now, is being
transformed. Financial institutions and companies will
increasingly be required to comply with a strengthening
mesh of sustainability requirements if they wish to
continue operating in regulated markets. As they do so,
and they increasingly commit to net-zero aligned
operations, these Asia-Pacific private finance actors will
have to increase the scale of their investing operations
in net-zero aligned activities. This will infuse much
needed local currency into the net zero transition in the
region, if suitable projects and activities are present at
scale.
On the supply side, much more needs to be done
differently in terms of building green projects that are
ready to meet the needs of a range of investors.
Common transaction templates in new sectors and
countries can be developed and shared by investors,
creating a common transaction lexicon in uncharted
territories. Investors also need to participate in pre-
investment project-building, at earlier stages, despite the
resource costs such efforts may entail, in order to bring
first-mover projects in challenging sectors and locations
to fruition, and then to replicate such projects. Private
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financial institutions in Asia and the Pacific need to
engage in learning how to invest in what may seem to be
riskier projects, and how to build and assess capital
structures that involve blended finance and a multiplicity
of standards. For such green project pipelines to
genuinely meet the needs and standards of multiple
investors at scale, new partnership approaches are
needed that move away from a deal-by-deal basis to a
platform basis. This is a different way of doing
business, and part of the transformation that is needed
across the system.
Ten principles of action to bridge Asia-Pacific's
sustainable finance gap
This report puts forward a ten-point action plan to
accelerate sustainable finance in Asia and the Pacific.
These ten actions summarize in-depth
recommendations found in each chapter for
governments, regulators and private finance. These ten
actions below are grouped into actions to be taken by
governments, regulators, and private finance.
Governments and regulators
1. New climate finance partnerships are developed
through which governments, regulators, MDBs, and
private finance commit to action around specific
goals and contribute specific tasks in line with this
shared goal. Just Energy Transition Partnerships,
which are led and owned by countries, provide a
useful model for the region, especially if execution
can be accelerated.
2.
Effective NDC financing strategies are developed,
led by authorities with clear mandates, which signal
credible transition pathways with interim targets
and clear resource mobilization plans. This will
provide a clear and vital signal to investors,
businesses, and project developers that
governments are committed to change. This signal
of reliability, stability, and predictability is a core
part of costs around projects.
3. Policy coherence and capacities are developed
across key government ministries such as finance,
energy, transport, and environment, ultimately
reducing the costs of financing. Governments need
to invest in both the effort for such coordination
and the capacities for such coordination. This will
also allow governments to better work with MDBs,
DFIs, and development partners to obtain the
assistance they need in the timeframe they need it
in.
4. Decisive regulatory action takes place to shift
capital in Asia and the Pacific towards the net zero
transition. Asia and the Pacific is home to
significantly large pools of capital capable of
bridging the gap in sustainable finance. Regulators
need to adopt a more active role in shifting capital
towards climate action, recognizing that doing so
will strengthen financial stability in the system, as
well as create a level playing field for all. In doing
so, regulators will also need to move towards
consistent taxonomies and roadmaps across
countries, to create a level playing field.
5. Investment in the capacities of financial personnel
to assess climate risk, innovate green financial
instruments, and supervise the transition path of
the green economy is undertaken. International
groupings such as the Network for Central Banks
and Supervisors for Greening the Financial System
(NGFS) or the Sustainable Banking and Finance
Network (SBFN) can be effective to promote peer-
learning among members.
6. Investment in much-needed sectoral and project-
based financial data is undertaken. Common data
platforms that share valuable data on ESG, climate,
nature, contracts, clauses standards, targets, and
deals (where possible) will streamline investment,
assist benchmarking, strengthen credibility and
ensure higher replicability.
Private finance - Asia-Pacific banks, investors and
issuers.
7. Commitments to net zero pledges for 2050 with
credible transition pathways including 2030 goals
are made. The slowness of banks in Asia and the
Pacific to commit to net zero and transition their
lending and investing portfolios with interim 2030
science-based targets is a serious brake on driving
finance towards climate action in the region.
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8.
Local-currency financing of energy transition
projects as well as green technologies and other
net-zero investments is increased. Local-currency
financing is critical to accelerate the scale and pace
of private finance because it can fund projects that
do not have to reach a higher rate of return just to
cover exchange rate risk as well as provide other
benefits. Increased net-zero commitments by
private finance in Asia and the Pacific (number 7
above) combined with a focus on investing in the
energy transition in their local currency will leverage
and bring forward the needed investment at scale.
9. Concessional financing and risk-sharing by
multilateral development banks, bilateral
development financial institutions, and public
development banks is expanded and accelerated.
This will de-risk otherwise sound projects and
ultimately leverage significant private capital. A 1:5
ratio, like ADB’s goal, can be one benchmark to
ensure that concessional funds truly leverage
private finance and go towards well-structured
projects. This will also guarantee well-designed
projects in which concessional finance truly
catalyzes and mobilizes greater private finance. In
doing so, however, it is critical to ensure the project
is both high impact to support the net-zero-
transition and commercially attractive.
10. Investment of time and effort with partners in
project preparation is increased in more challenging
markets, whether it is in the LDCs, SIDS, or in new
green technologies. Setting up a modality in which
project developers and financial institutions
regularly meet and co-create green projects in a
progressive and iterative manner can accelerate the
preparation of effective pipelines of bankable green
projects at scale. While large projects have lower
transaction costs, investing in project preparation
for smaller-ticket projects will ensure a long-term
pipeline of large projects. Ultimately good project
preparation brings down the risk of projects when
implemented.
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ACKNOWLEDGMENTS
Since its inception in 2015, the ESCAP biennial series on financing for development has published research on a range of
critical issues on financing for development from the regional perspective of Asia and the Pacific. This research
contributes to regional and national dialogues on strategies for the implementation of selected aspects of financing for
development as advanced by the Addis Ababa Action Agenda.
The 5th edition of the series was prepared by a core team at ESCAP led by Suba Sivakumaran (Chief, Financing for
Development Section) and comprising of Chiara Amato, Pierre Horna, Alberto Isgut and Latipat Mikled from the Financing
for Development Section of the Macroeconomic Policy and Financing for Development Division as well as external
consultant Michael Coates.
Hamza Ali Malik, Director of the Macroeconomic Policy and Financing for Development Division, has provided overall
leadership and shared valuable comments and suggestions at various stages of preparation of this publication.
A technical review was conducted by Patrick Martin and Deanna Morris, also from the Financing for Development Section
of the Macroeconomic Policy and Financing for Development Division. Michael Williamson and Michael David Waldron
from the Energy Division of ESCAP provided technical inputs on financing the energy transition. Heather Lynne Taylor-
Strauss from the Trade, Investment and Innovation Division provided inputs on foreign direct investment.
Significant research assistance was provided by the following ESCAP consultants, interns and UN volunteers: Maria d’
Amato, Zeinab Elbeltagy, Riley Green, Sophie Hunter, Nilaphy Phommachanh and Haoyue Tan.
The preparation of the report benefitted from extensive discussions and consultations with a broad range of stakeholders.
Two review discussions were held: at the ESCAP Roundtable on The Next Frontier for Sustainable Finance at the
Singapore FinTech Festival on 4 November 2022 and during the ESCAP Expert Group Meeting on Public Debt and
Sustainable Financing that took place on 28 November – 2 December 2022 in Bangkok, Thailand. Additional feedback was
provided through a series of consultations with experts and practitioners, including representatives of government
agencies, regulators, investors, banks, private organizations, think-tanks, and academia listed below. We would also like to
thank a number of stakeholders for their inputs who wished to remain anonymous.
Name
Organization
Title
Abhishek Kaul
IBM
Associate Partner, Sustainability & Analytics
Aigul Kussaliyeva
Astana International Financial Centre - Green
Finance Centre
Director of Sustainable Development of AIFC
Authority
Allinnettes Adigue
Global Reporting Initiative
Head GRI ASEAN Regional Hub
Aziz Durrani
ASEAN+3 Macroeconomic Research Office
Capacity Development Expert
Chea Serey
National Bank of Cambodia
Director General
Darian McBain
Outsourced Chief Sustainability Officer Asia
CEO
Erik Grigoryan
Environment Group
Founder and CEO
Eugene Wong
Sustainable Finance Institute Asia
CEO
Ines Marques
Green Hydrogen Organization
Director of the Green Hydrogen Development
Plan
Jaclyn Dove
Standard Chartered Bank
Head of Sustainable Finance Strategic
Initiatives
Kelvin Lester K. Lee
Securities and Exchange Commission,
Philippines
Commissioner
Kelvin Tan
HSBC
Managing Director, Head of Sustainable
Finance & Investments, ASEAN
Kosintr Puongsophol
Asian Development Bank
Financial Sector Specialist
Kristina Anguelova
WWF Sustainable Finance Institute Asia
Head of Asia Sustainable Finance
Lise Pretorius
Matter
Head of Sustainability
Liz Curmi
Citi Global Insights
Head of Energy transition and Climate finance
ESCAP FINANCING FOR DEVELOPMENT SERIES NO. 5
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Name
Organization
Title
Lyn Javier
Bangko Sentral ng Pilipinas
Assistant Governor, Policy and Specialized
Supervision Sub-Sector
Maria Perdomo
UNCDF
Regional Coordinator, Asia and the Pacific
Michael Salvatico
S&P Global Sustainable1
Head of Asia, Pacific, Middle East & Africa ESG
Solutions
Miranda Carr
MSCI
Global Head of Applied ESG & Climate
Research
Nasir Zubairi
Luxembourg House of Financial Technology
CEO
Nicholas Gandolfo
Sustainalytics Corporate Solutions, Singapore,
Sustainalytics
Vice President
Nikita Bajracharya
Dolma Advisors
Senior Investment Manager
Paul Dickinson
CDP - Disclosure Insight Action
Founder Chair
Piyawan Khemthongpradit
Bank of Thailand
Assistant Director, Financial Institutions
Strategy Department
Ricco Zhang
International Capital Market Association
Senior Director, Asia Pacific
Robert Willem van Zwieten
Route17
Founding Partner
Satoru Yamadera
Asian Development Bank
Advisor
Steve Cochrane
Moody’s Analytics
Chief APAC Economist
Thammachart
Thammaprateep
Bank of Thailand
Senior Analyst, Financial Institutions Strategy
Department
TMJYP Fernando
Central Bank of Sri Lanka
Senior Deputy Governor
Ulrich Volz
SOAS University of London
Director, Centre for Sustainable Finance &
Professor of Economics
Youraden Seng
National Bank of Cambodia
Director, Banking Supervision Department II
Yuki Yasui
Asia-Pacific Network of the Glasgow Financial
Alliance for Net Zero
Director
Bank of America
Patchara Arunsuwannakorn and Pranee Samchaiwattana of the Financing for Development Section in the Macroeconomic
Policy and Financing for Development division provided valuable administrative and logistical assistance throughout the
project. Communication strategies, typesetting and layout for this report was led by Veerawin Su, also of the Financing for
Development Section in the Macroeconomic Policy and Financing for Development Division.
The manuscript was edited by Dana MacLean.
Graphic design and typesetting services were provided by Dilucidar.
This report is available online here: https://hdl.handle.net/20.500.12870/6224
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EXPLANATORY NOTES
▪ The United Nations Economic and Social Commission of Asia and the Pacific (ESCAP) is one of the five regional
commissions of the United Nations Secretariat and promotes cooperation among its 53 member States and nine
associate members in pursuit of solutions to sustainable development challenges. The Economic and Social
Commission for Asia and the Pacific (ESCAP) is the most inclusive intergovernmental platform in the Asia-Pacific
region.
▪ The ESCAP secretariat supports inclusive, resilient, and sustainable development in the region by generating action-
oriented knowledge, by providing technical assistance and capacity-building services in support of national
development objectives, regional agreements, and the implementation of the 2030 Agenda for Sustainable
Development, and in supporting and facilitating member states in inter-governmental coordination, resolutions, and
commitments.
▪ For all enquiries to the Financing for Development Section, Macroeconomic Policy and Financing for Development
Division, please send queries to: escap-mpdd@un.org
Groupings of countries and territories/areas referred to are listed alphabetically as follows:
▪ ESCAP region: Afghanistan; American Samoa; Armenia; Australia; Azerbaijan; Bangladesh; Bhutan; Brunei
Darussalam; Cambodia; China; Cook Islands; Democratic People’s Republic of Korea; Fiji; France; French Polynesia;
Georgia; Guam; Hong Kong, China; India; Indonesia; Iran (Islamic Republic of); Japan; Kazakhstan; Kiribati;
Kyrgyzstan; Lao People’s Democratic Republic; Macao, China; Malaysia; Maldives; Marshall Islands; Micronesia
(Federated States of); Mongolia; Myanmar; Nauru; Nepal; Netherlands (Kingdom of the); New Caledonia; New
Zealand; Niue; Northern Mariana Islands; Pakistan; Palau; Papua New Guinea; the Philippines; the Republic of Korea;
the Russian Federation; Samoa; Singapore; Solomon Islands; Sri Lanka; Tajikistan; Thailand; Timor-Leste; Tonga;
Türkiye; Turkmenistan; Tuvalu; United Kingdom of Great Britain and Northern Ireland; United States of America;
Uzbekistan; Vanuatu; and Viet Nam.
▪ Least developed countries: Afghanistan, Bangladesh, Bhutan, Cambodia, Kiribati, Lao People’s Democratic Republic,
Myanmar, Nepal, Solomon Islands, Timor-Leste, Tuvalu. Samoa and Vanuatu were part of the least developed
countries prior to their graduation in 2014 and 2020, respectively.
▪ Landlocked developing countries: Afghanistan, Armenia, Azerbaijan, Bhutan, Kazakhstan, Kyrgyzstan, Lao People’s
Democratic Republic, Mongolia, Nepal, Tajikistan, Turkmenistan, and Uzbekistan.
▪ Small island developing States: American Samoa, Cook Islands, Fiji, French Polynesia, Guam, Kiribati, Maldives,
Marshall Islands, Micronesia (Federated States of), Nauru, New Caledonia, Niue, Northern Mariana Islands, Palau,
Papua New Guinea, Samoa, Solomon Islands, Timor Leste, Tonga, Tuvalu, and Vanuatu.
▪ East and North-East Asia: China; Democratic People’s Republic of Korea; Hong Kong, China; Japan; Macao, China;
Mongolia; and the Republic of Korea.
▪ North and Central Asia: Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, the Russian Federation, Tajikistan,
Turkmenistan, and Uzbekistan.
▪ The Pacific: American Samoa, Australia, Cook Islands, Fiji, French Polynesia, Guam, Kiribati, Marshall Islands,
Micronesia (Federated States of), Nauru, New Caledonia, New Zealand, Niue, Northern Mariana Islands, Palau, Papua
New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu.
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▪ South and South-West Asia: Afghanistan, Bangladesh, Bhutan, India, Iran (Islamic Republic of), Maldives, Nepal,
Pakistan, Sri Lanka, and Türkiye.
▪ South-East Asia: Brunei Darussalam, Cambodia, Indonesia, Lao People’s Democratic Republic, Malaysia, Myanmar,
the Philippines, Singapore, Thailand, Timor-Leste, and Viet Nam.
Owing to the limited availability of data, selected small island developing States are excluded from the analysis.
This publication and the material herein are provided “as is”. All reasonable precautions have been taken by ESCAP to
verify the reliability of the material in this publication. However, neither ESCAP nor any of its staff, consultants, data or
other third-party content providers provides a warranty of any kind, either expressed or implied, and they accept no
responsibility or liability for any consequence of use of the publication or material herein.
References to dollars ($) are to United States dollars, unless otherwise stated.
The term “billion” signifies a thousand million. The term “trillion” signifies a million million.
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ABBREVIATIONS AND ACRONYMS
ADB. . . . Asian Development Bank
GBP. . . .
Green Bond Principles
AIFC . . .
Astana International Financial Centre
GCF . . . . Green Climate Fund
AIIB. . . .
Asian Infrastructure Investment Bank
GDP . . . . Gross Domestic Product
APAC. . .
Asia-Pacific
GEF. . . .
Global Environment Facility
ASEAN. . . Association of Southeast Asian Nations
GFANZ . . . Glasgow Financial Alliance for Net Zero
AUM. . . . Assets Under Management
GFSG. . . . G20 Green Finance Study Group
BCBS. . . . Basel Committee on Banking Supervision
GGGI. . . . Global Green Growth Institute
BII. . . .
British International Investment
GH2. . . .
Green Hydrogen Organisation
BIS. . . .
Bank of International Settlements
GHGs. . . . Greenhouse Gas Emissions
BoE. . . .
Bank of England
GISD. . . . Global Investors for Sustainable Development Alliance
BOJ. . . .
Bank of Japan
GPIF. . . . Government Pension Investment Fund of Japan
BOT. . . .
Bank of Thailand
GRI. . . .
Global Reporting Initiative
BSP. . . .
Bangko Sentral ng Pilipinas
GSF. . . .
Green and Sustainable Finance Grant Scheme
BSTDB. . . Black Sea Trade and Development Bank
GSLS. . . . Green and Sustainability-Linked Loan Grant Scheme
CAF. . . .
Capital Adequacy Frameworks
GSS+. . . . Green, Social, Sustainability and Other Labeled
CBD. . . . Convention of Biological Diversity
HKD. . . .
Hong Kong Dollar
CBI. . . .
Climate Bonds Initiative
HKMA. . .
Hong Kong Monetary Authority
CBIT. . . . Capacity-building Initiative for Transparency
HTA. . . .
Hard to Abate
CCLI. . . . Commonwealth Climate and Law Initiative
ICMA. . . . International Capital Market Association
CEB. . . .
Council of Europe Development Bank
IEA. . . .
International Energy Agency
CEO. . . .
Chief Executive Officer
IFC. . . .
International Finance Corporation
CEPR. . . . Center for Economic Policy Research
IF-CAP. . . Innovative Finance Facility for Climate in Asia and the
Pacific
CGI. . . .
Climate Governance Initiative
IFRS. . . .
International Financing Reporting Standards
CGIF. . . . Credit Guarantee and Investment Facility
IISD. . . .
International Institute for Sustainable Development
CGT . . . . Common Ground Taxonomy of European Union and
China
IMF. . . .
International Monetary Fund
COP. . . . Conference of the Parties
INFFs. . . . Integrated National Financing Frameworks
DFC. . . .
The United States International Development
Finance Corporation
IPCC . . . . Intergovernmental Panel on Climate Change
DFIs. . . . Development Financial Institutions
IPG. . . .
International Partners Group
EBRD. . . . European Bank for Reconstruction and Development IPOs. . . . Initial Public Offerings
EIB. . . .
European Investment Bank
IRENA. . . . International Renewable Energy Agency
ESCAP. . . United Nations Economic and Social Commission
for Asia and the Pacific
IsDB. . . . Islamic Development Bank
ESG. . . .
Environmental, Social, and Governance
ISSB. . . . International Sustainability Standards Board
ESMA. . . European Securities and Markets Authority
ITAP. . . . Independent Technical Advisory Panel
ESRM. . .
Environmental and Social Risk Management
ITMOs. . .
Internationally Transferred Mitigation Outcomes
ETS . . . . Emissions Trading Systems
JETPs. . . . Just Energy Transition Partnerships
EUR. . . .
Euro
KPIs. . . . Key Performance Indicators
FDI. . . .
Foreign Direct Investment
LDCs. . . . Least Developed Countries
FIs. . . .
Financial Institutions
LDCF. . . . Least Developed Countries Fund
FMO . . . . Dutch Entrepreneurial Development Bank
LHoFT . . . Luxembourg House of Financial Technology
FSB . . . . Financial Stability Board
MAS. . . . Monetary Authority of Singapore
G20. . . .
Group of Twenty
MCFs. . . . Multilateral Climate Funds
GBF . . . . Global Biodiversity Framework
MDBs. . . . Multilateral Development Banks
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MRV. . . . Monitoring, Reporting, and Verification
SGX. . . .
Singapore Exchange
MSCI. . . . Morgan Stanley Capital International
SIDS. . . . Small Island Developing States
MSMEs . . .
Micro, Small and Medium Enterprises
SIFEM. . . . Swiss Investment Fund for Emerging Markets
NDBs. . . . National Development Banks
SLBs. . . . Sustainability-linked Bonds
NDCs. . . . Nationally Determined Contributions
SLLs. . . . Sustainability-linked Loans
NGFS . . . . Network for Greening the Financial System
SMEs. . . . Small and Medium Enterprises
NGO. . . . Nongovernmental Organization
SPTs. . . . Sustainability Performance Targets
Norfund. . . Norwegian Investment Fund
SSE. . . .
Sustainable Stock Exchange
NPIF. . . . Northern Powerhouse Investment Fund
SUSREG. . . WWF's Sustainable Financial Regulations and Central
Bank Activities
NZBA. . . . Net-Zero Banking Alliance
TCFD. . . . Task Force on Climate-Related Financial Disclosures
ODA. . . . Official Development Assistance
tCO2. . . . Tons of carbon dioxide
OECD. . . . Organisation for Economic Co-operation and
Development
TNFD. . . . Taskforce on Nature-Related Financial Disclosures
OECD DAC. OECD Development Assistance Committee
UNCDF. . . United Nations Capital Development Fund
OJK. . . .
Otoritas Jasa Keuangan (Financial Services
Authority of Indonesia)
UNCTAD. .
United Nations Conference on Trade and Development
PCT. . . .
Preferred Creditor Treatment
UNDP. . . . United Nations Development Programme
PEPs. . . . Politically Exposed Persons
UNEP. . . .
United Nations Environment Programme
PV. . . .
Photovoltaic
UNEP FI. . . United Nations Environment Programme Finance
Initiative
SBFN. . . . Sustainable Banking and Finance Network
UNFCCC. . . United Nations Framework Convention on Climate
Change
SBV. . . .
State Bank of Viet Nam
UNICEF. . .
United Nations Children’s Fund
SDGs. . . . Sustainable Development Goals
USD. . . . United States Dollar
SERC. . . . Securities and Exchange Regulator of Cambodia
WBG. . . . World Bank Group
SGD. . . . Singapore Dollar
WWF. . . . World Wildlife Fund
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CONTENTS
FOREWORD
IV
EXECUTIVE SUMMARY
V
ACKNOWLEDGMENTS
X
EXPLANATORY NOTES
XII
ABBREVIATIONS AND ACRONYMS
XIV
1. INTRODUCTION
2
A.
Progress in the Asia-Pacific region towards the Sustainable Development Goals
3
B.
What is sustainable finance?
10
C.
Concluding remarks: How can countries raise sufficient sustainable finance?
18
2. WHAT CAN GOVERNMENTS DO?
21
A.
Introduction
21
B.
Trends and opportunities
25
C.
Challenges
40
D.
Recommendations
43
3. WHAT CAN REGULATORS DO?
50
A.
Introduction
50
B.
What is the role of financial regulators in sustainable finance?
50
C.
Trends and opportunities
51
D.
Challenges
65
E.
Recommendations
66
F.
Conclusion
68
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4. WHAT CAN PRIVATE FINANCE DO?
70
A.
Introduction
70
B.
Trends and opportunities
72
C.
Challenges
85
D.
Recommendations
88
5. TEN PRINCIPLES OF ACTION TO BRIDGE THE SUSTAINABLE FINANCE GAP
IN ASIA AND THE PACIFIC
92
REFERENCES
94
ANNEXES
99
Annex A: Climate financing needs in Asia and the Pacific
99
Annex B: Credit ratings
100
Annex C: Access to UNFCCC Financing
102
Annex D: Carbon pricing initiatives in Asia and the Pacific
103
Annex E: List of stakeholders
104
ENDNOTES
106
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FIGURES AND TABLES
Figure 1.1: Progress in achieving the SDGs in Asia and the Pacific as of 2022.
................................................ 4
Figure 1.2: Progress in achieving the 2030 SDGs targets in Asia and the Pacific by subregion and goal
as of 2022. ................................................................................................................................................... 5
Figure 1.3: Status of carbon neutrality commitments of ESCAP members, 2022. ............................................. 6
Figure 1.4: Asia-Pacific scenarios for GHG emissions. ................................................................................... 7
Figure 1.5: Global climate finance flows in 2017-2020 by sector. .................................................................... 8
Figure 1.6: Inflation rate in Asia and the Pacific and the upper bound of inflation target, 2021-2022.
................ 9
Figure 1.7: Interest rates in Asia-Pacific economies follow monetary tightening in selected economies. .......... 9
Figure 1.8: 10-year sovereign bond yield in selected economies in Asia and the Pacific, as of end of
2022. ......................................................................................................................................................... 10
Figure 1.9: The two tracks of sustainable finance: use-of-proceeds-based and sustainably-managed
finance.
...................................................................................................................................................... 13
Figure 1.10: The sustainable finance ecosystem. ......................................................................................... 15
Figure 1.11: Sustainable finance stakeholder mapping. ................................................................................ 16
Figure 2.1: Strong correlation between IMF Financial Development Index and GDP per capita. ....................... 21
Figure 2.2: Status of IMF financial market and financial institutions index components, 2020. ....................... 22
Figure 2.3: Thematic and performance-based bonds mapping. ..................................................................... 26
Figure 2.4: GSS+ bond issuance value in Asia and the Pacific, 2015-2022 (billions of United States
dollars). ..................................................................................................................................................... 26
Figure 2.5: Cumulative GSS+ sovereign, corporate and public bond issuance in Asia and the Pacific by
country, 2015-2022 (billions of United States dollars).
.................................................................................. 27
Figure 2.6: Cumulative GSS+ bond issuance value of public sector in Asia and the Pacific by country
and issuer type since 2015, as of end of 2019 and 2022 (billions of United States dollars). ........................... 28
Figure 2.7: Cumulative GSS+ bond issuance value in Asia and the Pacific by currency and issuer type,
2015-2019 and 2015-2022. ......................................................................................................................... 30
Figure 2.8: Cumulative GSS+ bond issuance in Asia and the Pacific by currency (per cent), 2015-2022.
.......... 31
Figure 2.9: Carbon pricing initiatives at national and sub-national level in Asia and the Pacific....................... 32
Figure 2.10: Climate finance to Asia and the Pacific over time and by financing instrument. .......................... 39
Figure 2.11: Access to GEF and GCF climate finance in Asia and the Pacific. ................................................ 46
Figure 3.1: Transmission channels from climate risks to financial risks. ....................................................... 52
Figure 3.2: Alternative scenarios and impacts of financial risks due to climate-related risks. ......................... 53
Figure 3.3: Scope 1 emissions of the top 100 issuers by market. .................................................................. 54
Figure 3.4: Implementation of the TCFD recommendations and use of climate-related disclosures. ............... 55
Figure 3.5: Number of organizations in Asia and the Pacific that have declared support for TCFD
recommendations.
...................................................................................................................................... 56
Figure 3.7: Green and sustainable finance taxonomy development in Asia and the Pacific. ............................ 62
Figure 3.8: Timeline of taxonomy development. ........................................................................................... 64
Figure 4.1: Bank lending to private sector as % of GDP. ................................................................................ 73
Figure 4.2: GSS+ loans in Asia and the Pacific, 2017–2022 (billions of United States dollars). ....................... 74
Figure 4.3: GSS+ loans in Asia and the Pacific by country, 2017–2022 (billions of United States
dollars). ..................................................................................................................................................... 74
Figure 4.4: GSS+ bonds and loans of corporate issuances in Asia and the Pacific, 2021–2022 (billions
of United States dollars). ............................................................................................................................ 75
Figure 4.5: Debt levels of emerging market and developing economy companies operating in fossil fuel
industries. .................................................................................................................................................. 76
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Figure 4.6: Market capitalization of Asia-Pacific stock exchanges by country, 2019-2023. ............................. 76
Figure 4.7: Total equity capital raised in Asia and the Pacific, 2019-2022. ..................................................... 77
Figure 4.8: FDI inflows into climate mitigation and adaptation versus fossil fuels in Asia and the
Pacific, 2016-2022 (millions of United States dollars). ................................................................................. 78
Figure 4.9: FDI inflows into climate mitigation projects in Asia and the Pacific, 2016-2022 (millions of
United States dollars). ................................................................................................................................ 78
Figure 4.10: Top nine MDBs and DFIs in Asia and the Pacific by climate-related development finance.
........... 80
Figure 4.11: MDBs climate-related development finance in Asia and the Pacific by adaptation and
mitigation, 2020 (millions of United States dollars) ...................................................................................... 81
Figure 4.12: MDBs and DFIs climate-related development finance in ESCAP members by sector,
financial instrument, and concessionality type. ............................................................................................ 82
Figure 4.13: Total amount of mobilized private finance by MDBs across regions, 2020. ................................. 83
Table 1.1: Examples of sustainable finance definitions. ............................................................................... 11
Table 1.2: Range of potential approaches to accounting for climate finance flows. ....................................... 17
Table 2.1: First time GSS+ bond issuers in 2021–2022. ................................................................................ 29
Table 2.2. Opportunities and challenges of debt swaps for the involved parties. ........................................... 35
Table 2.3: Climate-related development finance committed by developed countries to Asia-Pacific
countries through various channels in 2021 (in millions of United States dollars). ......................................... 37
Table 2.4: GSS+ bond issuance and sovereign/jurisdiction credit ratings. ..................................................... 42
Table 3.1: The TNFD revised draft nature-related disclosure recommendations. ............................................ 57
Table 3.2: Implemented national sustainable finance roadmaps. .................................................................. 60
Table A.1: Financing needs for mitigation and adaptation in Asia and the Pacific from nationally
determined contributions (millions of United States dollars).
........................................................................ 99
Table B.1: Credit ratings of ESCAP members and rated dates. .....................................................................
100
Table B.2: Investment VS non-investment grade.
.........................................................................................
101
Table C.1: ESCAP members and associate members that have not accessed UNFCCC climate finance
mechanisms.
.............................................................................................................................................
102
Table D.1: Status and progress of carbon pricing initiatives at national and sub-national level in Asia
and the Pacific. .........................................................................................................................................
103
Table E.1: Singapore FinTech Festival expert roundtable discussants. .........................................................
104
Table E.2: Stakeholders consulted for the key informant interviews. ............................................................
105
Table E.3: List of speakers at ESCAP Expert Group Meeting on Public Debt and Sustainable Financing
in Asia and the Pacific. ..............................................................................................................................
105
Box 2.1: LDCs and SIDS and carbon offset markets.
..................................................................................... 34
Box 3.1: Cambodia and ASEAN sustainable finance roadmaps. .................................................................... 60
Box 3.2: Thailand sustainable finance initiatives. ......................................................................................... 60
Box 3.3: ESCAP’s work on green bond frameworks.
...................................................................................... 61
Box 3.4: Cambodian Sustainable Bond Accelerator. ..................................................................................... 63
Box 4.1: Foreign direct investment into climate mitigation and adaptation .................................................... 78
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2
1. INTRODUCTION
The global financing gap to reach net zero emissions by
2050 is substantial. For example, the Sharm-el-Sheikh
Implementation Plan of the COP 27 highlights that
approximately 4 and 5.8-5.9 trillion5 in the pre-2030 period to
meet their Nationally Determined Contributions (NDCs).
To adapt to climate change, according to the
Intergovernmental Panel on Climate Change (IPCC),
developing countries require 295 billion per year by 2050. But the
disparities are stark; funds for adaptation only reached
49 billion in 2019/20, accounting for about 6 per cent of
tracked climate finance.6 At the same time, the IPCC
found that public and private financial flows for fossil
fuels are greater than those directed toward climate
mitigation and adaptation.7
Climate change under a high emissions scenario could
impose Gross Domestic Product (GDP) losses of 24 per
cent in the whole of developing Asia, 35 per cent in
India, 30 per cent in South-East Asia, and 24 per cent in
the rest of South Asia by 2100.8 According to ESCAP,9
the region faces increasing frequency and severity of
storms, flooding, heat waves, and droughts due to
climate change. Of the 10 countries most affected by
these disasters globally, six are in Asia and the Pacific,
where climate-related impacts have disrupted food
systems, undermined economies and damaged
societies.10 Across the region, the average economic
losses resulting from disaster-related and other natural
hazards in Asia and the Pacific costs an estimated 1.1
trillion in a moderate climate-change scenario and $1.4
trillion in a worst-case scenario.11 On the other hand,
economic losses as a percentage of GDP have risen
faster in Asia and the Pacific than at the global level.12
Natural resource–based sectors, such as agriculture
and fisheries, that are directly affected by climate,
account for around one-third of total employment in the
region.13 Beyond threatening the livelihoods of Asia’s
poor, climate change may also put at risk regional and
global food security. For these reasons, climate action
is at the heart of 2030 Agenda for Sustainable
Development for the region.
Asia-Pacific economies urgently need to step up action
to tackle the climate challenge. The Asia-Pacific region
is home to five of the 10 largest emitters in the world
and accounts for almost half of the world’s greenhouse
gas emissions. It is also one of the most vulnerable
regions to climate change. Economic growth in the
region has relied heavily on emission-intensive
activities, with the emission intensity of GDP estimated
to be 41 per cent higher than the rest of the world.14
Additionally, there is a climate ambition gap,15 with Asia-
Pacific regional NDCs falling short of the required
climate ambition to effectively reduce greenhouse gas
emissions in support of the 1.5ºC global warming
pathway.
The Sixth Assessment Report of the IPCC 2023
highlights that there is sufficient global capital and
liquidity to close the global investment gap.16 However,
there are barriers to deploy capital for climate action,
both within and outside the financial sector and in the
context of increased economic vulnerabilities and
indebtedness facing developing countries.17 Reducing
the obstacles to scale up financial flows requires clear
signalling and government support, including stronger
alignment from public finances to lower the real and
perceived regulatory cost, and market barriers and risks
while improving the risk-return profile of investments. At
the same time, depending on national contexts, financial
actors — including investors, financial intermediaries,
central banks, and financial regulators — can address
the systemic under-pricing of climate-related risks and
reduce sectoral and regional mismatches between
available capital and investment needs.18 These insights
are echoed in our analysis, consultations, and interviews
and are further elaborated in this report.
In addition to financing climate action, a separate
stream of public and private finance is required for
biodiversity and nature objectives. Countries will have to
further align both climate and nature financing
approaches with their commitments to the landmark
Kunming-Montreal Global Biodiversity Framework (GBF),
adopted by 188 countries19 to halt and reverse nature
loss, as well as the Paris Agreement. The Kunming-
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3
Montreal GBF includes four overarching goals and
twenty-three accompanying targets to be achieved by
2030, together with four long-term goals to achieve the
2050 Vision for Biodiversity. To achieve these
biodiversity objectives, it aims to mobilize $200 billion
per year globally by 2030 to implement national
biodiversity strategies. Additionally, a target to increase
financial flows from developed countries to developing
countries to at least 30 billion per year by 2030, has also been set.
Furthermore, deforestation driven by land‑use change
and agriculture contributes around 11 per cent of annual
global greenhouse gas emissions, according to the
IPCC, reducing the effectiveness of existing carbon
sinks. As such, it has been suggested that the global
economy will not be able to reach net zero by 2050
without ending deforestation by 2025.20
The polycrisis brings further complexity to the choices
that need to be made to increase sustainable finance.
The term polycrisis, defined as the simultaneous
occurrence of related global adversities with
compounding effects,21 aptly describes the current set
of interlocking challenges that countries face. Rising
inflation, high public debt levels and increased debt
servicing burdens, combined with projections of
moderate economic growth across the globe, places
limits on fiscal manoeuvrability. Meanwhile, the food
and energy crisis spurred by the war in Ukraine has had
wide-ranging detrimental global impacts. The need to
ensure that the world limits global warming to between
1.5 ºC and 2ºC above pre-industrial levels, while also
addressing rising poverty and inequality, has increased
the importance of making clear and sustainable
financing choices.
Delivering sufficient sustainable finance to achieve
climate and biodiversity goals will require a
transformation of the financial system. It will also
require engagement with governments, central banks,
securities and exchange commissions, ministries of
environment, energy and transport, commercial banks,
institutional investors, and other private finance actors
— to name just a few. In this moment of interconnected
crises, there is heightened recognition and willingness
among all actors to systemically transform policy,
regulation, and finance. If chaos breeds opportunity,
then this is an opportunity for systemic transformation
that should not be missed.
In this report, we discuss the choices and implications
that policymakers, regulators, and private finance
institutions in Asia and the Pacific face. The decisions
and investments made today will have long-term
consequences for the region. In this biennial report, the
fifth within ESCAP’s Financing for Development series,
we examine the trends, challenges, and opportunities for
policymakers, regulators, and private finance (banks,
issuers, and investors) in Asia and the Pacific to
mobilize and deploy sustainable finance, particularly for
climate action. We then put forward ten principles for
action for our member states to chart the way forward.
Our focus in this report is to help policymakers,
regulators and private finance actors understand the
implications of choices that need to be made to bridge
the financing gap in the region. The report aims to spur
a robust and informed debate amongst member States,
drive consensus on key measures to move the region
towards sustainability and bring greater clarity to the
short- and long-term benefits and consequences of
these policy and financing choices.
A.
Progress in the Asia-
Pacific region towards
the Sustainable
Development Goals
The region is falling behind on
achieving the Sustainable
Development Goals
As of 2022, the region is not on track to achieve any of the
SDGs, as seen in Figure 1.1. While the region has
progressed relatively more in Goals 7 (Affordable and
clean energy) and 9 (Industry, innovation, and
infrastructure) and 10 (Reduced Inequalities) since
2015, it has regressed significantly in Goal 13 (Climate
action) – a major focus of sustainable finance. This is
the case for all five subregions of ESCAP. On the other
end of the spectrum, although no SDG is on track in any
subregion, progress on Goals 1 (No poverty), 3 (Good
health and well-being), and 9 (Industry, innovation and
infrastructure) was higher than 50 per cent of being on
track in at least three of the five subregions.
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Figure 1.1: Progress in achieving the SDGs in Asia and the Pacific as of 2022.
Source: ESCAP Statistical Database.22
Among the five subregions, the largest challenges are
faced by the Pacific subregion, where six out of the 17
SDGs show regression in 2022 compared to 2015.
Across subregions, as seen in Figure 1.2 below, the top
performer economies are in the East and North-East
Asia and South-East Asia subregions, particularly on
SDG 1 (No poverty) and SDG 15 (Life on Land) in East
and North-East Asia and SDG 11 (Sustainable cities and
communities) and SDG 10 (Reduced inequalities) in
South-East Asia. Unfortunately, for all SDGs across
subregions in the table, SDG progress as of 2022 is less
than half of its 2030 target.
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Figure 1.2: Progress in achieving the 2030 SDGs targets in Asia and the Pacific by subregion and goal as of 2022.
Source: ESCAP Statistical Database.23
With regards to estimates of the financial needs of
developing countries to implement the Sustainable
Development Goals (SDGs), there is wide variation. This
indicates both different methodologies as well as a lack
of data. In 2014, the United Nations Conference on
Trade and Development (UNCTAD) estimated the
annual financial gap at 4.3 trillion per year.24
A similar figure was cited at a recent meeting between
global business leaders that are members of the Global
Investors for Sustainable Development (GISD)
Alliance and the Secretary General of the United Nations
to discuss solutions to bridge the SDG financing gap.25
For Asia and the Pacific, ESCAP estimated in 2019 an
average annual financing gap to achieve the SDGs of
$1.5 trillion per year — equivalent to 5 per cent of the
aggregate GDP of the region’s developing countries.26
With regards to Asia and the Pacific, there is substantial
heterogeneity across countries and subregions. For
instance, the annual gap estimated by ESCAP in 2019
was as high as 16 per cent of the GDP for the region’s
least developed countries, and 10 per cent for the South
and South-West subregion.27 More recently, the
International Monetary Fund estimated the SDG
financing gap of Asia-Pacific emerging market
economies and low-income developing countries,
respectively, as 5.4 per cent and 10.6 per cent of the
GDP.28 While such estimates vary, all of them show that
the SDG financing gap is substantive.
The lack of progress on climate
action in Asia and the Pacific is
alarming
Carbon neutrality commitments are still being translated
into policy and regulatory changes in the region. Figure
1.3 below shows the policy and legislative status of the
existing carbon neutrality commitments of Asia-Pacific
member states as of December 2022. Bhutan is the only
country to have achieved carbon-neutrality in the region
and is the world’s first carbon-negative country.
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Figure 1.3: Status of carbon neutrality commitments of ESCAP members, 2022.
Source: ESCAP based on ESCAP, UNEP, and UNICEF (2022).
Most countries have not yet assessed and reported the
financial needs to meet their Nationally Determined
Contributions (NDCs). At the time of writing, of 51 Asia-
Pacific countries that are party to the UNFCCC, only 17
reported that information in their latest NDCs, and only 7
have a breakdown of financial needs for adaptation and
mitigation. This points to a significant need in the region
to develop effective NDC financing strategies to meet
clear financial needs.
Furthermore, the latest NDCs at both the global and
regional levels have been assessed as not being
ambitious enough to contain global warming to between
1.5°C and 2°C. The Sixth Assessment report of the
IPCC29 shows that emissions of greenhouse gases from
human activities are responsible for approximately
1.1°C of warming since 1850-1900 and estimated that
the average global temperature will reach or exceed
1.5°C of warming in the next 20 years. A recent analysis
using global data finds that reaching a temperature rise
of between 1.5°C and 2°C goal would require cuts in
global greenhouse gas emissions (GHG) by 2030 of
between 25 and 50 per cent compared to 2019.
However, current country pledges in NDCs would cut
only 11 per cent, if fully implemented.30 This is also
referred to for the Asia-Pacific region in Figure 1.4
below. Similarly, in Asia and the Pacific, GHG emissions
are expected to decline by only 7.6 per cent between
2020 and 2030, which falls significantly short of the 45
per cent reduction required by the 1.5°C pathway for the
region, as shown in Figure 1.4.31
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Figure 1.4: Asia-Pacific scenarios for GHG emissions.
Source: ESCAP, based on ESCAP, UNEP and UNICEF (2022).
Note: The provided scenarios, which are developed on the data in the NDCs include: (i) Unconditional NDCs (the level of GHG emission
reduction a country can achieve on its own); (ii) conditional NDCs (the level of GHG emission reductions a country can achieve subject to
some conditions, e.g. support from international financing, capacity building, existence of favourable condition, carbon market, etc.) (iii)
NDC + net zero pledges (the level of GHG emission reductions based on NDCs, and current net-zero pledges) (iv) 45 per cent reductions (a
45-per cent GHG emission reduction from 2010 level is required to keep the world within the 1.5C temperature rise.
Estimates of financing requirements range higher and
are frequently being revised upwards the more the
action is delayed. The Report of the Independent High-
Level Expert Group on Climate Finance states that
emerging markets and developing countries (excluding
China) will need to spend approximately $1 trillion per
year by 2025 (4.1 per cent of GDP compared with 2.2 per
cent in 2019) and around $2.4 trillion per year by 2030
(6.5 per cent of GDP) on three investment and spending
priorities:32 (i) the transformation of the energy system,
(ii) responding to the growing vulnerability of developing
countries to climate change; and (iii) investing in
sustainable agriculture and restoring the damage human
activity has done to natural capital and biodiversity in
terms of degraded land, deforestation, and damage to
water supplies and the oceans.
Financing gaps for climate mitigation, adaptation, and
transition face different challenges. According to
UNFCCC,33 as seen in Figure 1.5 below, global climate
finance flows were 12 per cent higher in 2019–2020
than in 2017–2018, reaching an annual average of $803
billion, with the trend being driven by an increasing
number of mitigation actions in buildings and
infrastructure and in sustainable transport, as well as by
growth in adaptation finance. While mitigation finance
constituted the largest share of climate-specific
financial support through bilateral, regional, and other
channels, at 57 per cent, the share of adaptation finance
continues to be small. However, adaptation finance
from the private sector is difficult to keep track of
because governments do not maintain a centralized
system that can account for private funds.34
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Figure 1.5: Global climate finance flows in 2017-2020 by sector.
Source: ESCAP based on UNFCCC (2022a)
Finance for adaptation needs to rise dramatically.
According to the World Resources Institute, quoting the
IPCC, developing countries alone will need 295 billion per year by 2050, to
adapt to climate change.
In addition to the climate finance
gap, there is a large biodiversity
financing gap.
According to the Kunming-Montreal Global Biodiversity
Framework (GBF), 200 billion per year by 2030 globally from all sources,
including by increasing financial flows from developed
countries to developing countries to at least 30 billion per year by 2030, to
implement national biodiversity strategies. Beyond the
need to meet agreed-upon biodiversity financing targets,
it is vital to recognize the strong reliance of economies
on nature, particularly in low and lower-middle-income
countries. According to the World Bank,35 low and lower-
middle-income countries stand to lose the most in
relative terms if ecosystem services collapse, severely
hampering prospects to grow out of poverty. For
example, South Asia would suffer a 6.5 per cent
contraction of real GDP in the case of a severe
disruption to the natural environment and healthy
ecosystems by 2030.36
The macroeconomic environment
in Asia and the Pacific has become
challenging in recent years.
The ability of governments to spend public finances on
climate action is becoming increasingly constrained due
to unfavourable economic conditions, which is
worsening the financing gap. As the figures below show,
rising inflation accompanied by rising interest rates, and
rising risk premiums on sovereign bonds, suggest that
the cost of borrowing is rising. For private sustainable
finance, the key consideration is that with more costly
capital, projects, and investment opportunities will have
to provide greater, and substantially higher, hurdle rates
(i.e. the minimum acceptable rate of return) to
investors. This will have serious implications for the
volume, quality, terms, and tenors of sustainable finance
available to close the gap.
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Figure 1.6: Inflation rate in Asia and the Pacific and the upper bound of inflation target, 2021-2022.
Source: ESCAP based on CEIC, accessed on 15 February 2023
Figure 1.7: Interest rates in Asia-Pacific economies follow monetary tightening in selected economies.
Source: ESCAP based on CEIC, accessed on 15 February 2023.
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Figure 1.8: 10-year sovereign bond yield in selected economies in Asia and the Pacific, as of end of 2022.
Source: ESCAP based on World Government Bonds, accessed on 1 March 2023.
Note: The 10-year sovereign bond yield is at the end of the period.
In conclusion, the need to redirect more finance towards
climate mitigation and adaptation goals in the region as
well as nature and biodiversity goals is critical. Although
raising public and private liquidity is challenging in the
current macroeconomic environment, significant
measures can be taken to increase and accelerate
sustainable finance by removing policy, regulatory, and
institutional barriers to climate action. In the next
section, we explore definitions surrounding sustainable,
green and climate finance, which are relevant for
policymakers and regulators in the region as they
continue to engage in transforming financial systems.
B.
What is sustainable
finance?
Sustainable finance encompasses a wide set of
definitions, with binding and non-binding implications. It
has an evolving lexicon. Definitions are important
because they define not only the volume of sustainable
finance available, but also its integrity. Definitions also
guide future choices about the allocation of capital. We
list below in Table 1.1 the most used definitions and
their sources, so that policymakers can understand the
nuances in differences between definitions. The
implications of the definitions of climate finance are
further discussed below.
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Table 1.1: Examples of sustainable finance definitions.
Body
Definition
European Union (Regulation
EU 2019/2088)
The definition of ‘sustainable investment’ in Regulation EU 2019/2088 includes
investments in economic activities that (i) contribute to an environmental objective and
(ii) do not significantly harm any environmental or social objective. The regulation covers
six predominantly environmental objectives: climate change mitigation, climate change
adaptation, the sustainable use and protection of water and marine resources, the
transition to a circular economy, pollution prevention and control, and the protection and
restoration of biodiversity and ecosystems.37
G20 Sustainable Finance
Roadmap
The G20 Sustainable Finance Roadmap released in October 2021 encourages jurisdictions
that intend to develop their own approaches to align finance and sustainability to refer to
a set of voluntary principles. These include:
Principle 1: Ensure material positive contributions to sustainability goals and focus on
outcomes;
Principle 2: Avoid negative contribution to other sustainability goals (i.e. do no significant
harm to any sustainability goal requirements)
Principle 3: Be dynamic in adjustments reflecting changes in policies, technologies, and
state of the transition
Principle 4: Reflect good governance and transparency;
Principle 5: Be science-based for environmental goals and science- or evidence-based for
other sustainability issues; and
Principle 6: Address transition considerations.
The International Capital
Market Association (ICMA)
Sustainable finance incorporates climate, green, and social finance while also adding
wider considerations concerning the longer-term economic sustainability of the
organizations being funded, as well as the role and stability of the overall financial system
in which they operate. ICMA’s definition is based on market usage and draws on the G20
and European Union references, according to ICMA.38
International Finance
Corporation’s Sustainable
Banking and Finance
Network 39
Sustainable finance refers to policies, regulations, and practices by regulators,
supervisors, industry associations, and financial institutions (FIs) to
(i) reduce and manage environmental, social, and governance (ESG) risks resulting from
and affecting financial sector activities, including the risks of climate change; and
(ii) encourage the flow of capital to assets, projects, sectors, and businesses that have
environmental and social benefits.
A balance of definitions that both incorporate rigour and
act as an incentivizing and inclusive force is necessary.
By no means are these definitions exhaustive or
mutually exclusive. While the broadness of sustainable
finance definitions has also contributed at times to
confusion, or to claims that some sustainable finance is
less ‘sustainable’ than purported (conveying a false
impression, or ‘greenwashing’), broad definitions of
sustainable finance allow at this stage more
stakeholders to participate and classify their activities
as sustainable. As exemplified by the European Union
Taxonomy Regulation, the definitions of sustainable
finance and their subsequent use in regulation can be
progressively strengthened over time. And while the
term is well-understood and well-embedded in finance,
regulations, and policy in more mature markets, it is
nevertheless also true that wide swaths of stakeholders
still need to be convinced of the value of sustainable
finance activities.
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Definitions are important to guide regulators and
policymakers. Evolving sustainable, green and transition
taxonomies in certain countries in Asia and the Pacific
further try and clarify to the financial sector how
financing of activities can be considered green,
sustainable, or transitioning from brown to green. It is
thus important for policymakers, who are considering
voluntary and mandatory approaches in sustainable
finance, to understand the differences in definitions, so
that they can guide the financing of sustainable, green
or transition activities in the real economy. With regards
to the definition of climate finance, we discuss this
further below.
The two tracks of sustainable
finance
Sustainable finance can be categorized by two tracks.
Both foster sustainable economic, social, and
environmental development, but there are two different
routes towards fostering that impact.
Track 1 refers to the financing of sustainable activities.
Track 1, as shown in Figure 1.9 below, refers to use-of-
proceeds defined sustainable finance, in which the
proceeds go towards clearly demarcated, pre-defined,
sustainable, green, or climate-oriented uses, activities,
objectives, or outcomes. With regards to green finance,
for example, the G20 Green Finance Study Group
describes it as “the financing of investments that
provide environmental benefits in the broader context of
environmentally sustainable development.”40 Again,
there is no single universal agreed-upon definition.
Climate finance, as defined by UNFCCC,41 refers to local,
national, or transnational financing – drawn from public,
private and alternative sources of financing – that seeks
to support mitigation and adaptation actions that will
address climate change. This definition is objective-
based, and it falls within Track 1 of sustainable finance.
Track 2 refers to sustainably-managed finance. The
second track is not about where the investment goes or
which activities are financed but, rather, how
sustainability or climate or green-related risks materially
impact the financial performance of the investment and
how those risks should be managed. For example, when
environmental, social and governance (ESG) risks are
analysed with respect to how they would affect the
financial returns of the investment, the resulting
investments are often labelled as ESG investments.
Here, greening finance refers to the mainstreaming of
environment and climate risk management in the
financial sector. For example, the purpose of the
Network for Central Banks and Supervisors for Greening
the Financial System (NGFS), launched at the Paris One
Planet Summit in 2017, is to enhance the role of the
financial system in managing risks and capital for green
and low carbon investments in the broader context of
environmentally sustainable development. While green
finance falls within Track 1, greening finance falls within
Track 2 of sustainable finance. We refer to this track as
sustainably-managed finance.
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Figure 1.9: The two tracks of sustainable finance: use-of-proceeds-based and sustainably-managed finance.
Source: ESCAP
ESG standards in risk management
do not necessarily mean high ESG
impact.
ESG-related investment risks have come under
increasing scrutiny by investors in recent years, and
these risks also include non-financial considerations
which can affect a company’s financial performance,
reputation, and long-term sustainability. ESG investing,
or ESG finance, has come to the fore of public
consciousness worldwide as sustainable social and
environmental practices have become a strategic
imperative for businesses. Much of the critique on ESG
in the global narrative has been due to its lack of
standardization for compliance and the risks of so-
called greenwashing.42 It is therefore important to
understand what constitutes ESG and what does not.
The assessment of ESG risks is important for both the
banking sector and capital markets. There is a fast-
emerging and increasingly well-established regulatory
risk management framework that incorporates
environmental and social risk considerations into
banking and fund management. Typically known as
Environmental and Social Risk Management (ESRM), the
framework has been widely adopted by nearly all central
banks in the Asia-Pacific region, though the specifics
vary across countries. ESRM frameworks measure how
risks will affect the banking sector and thus managed,
but importantly, they are not designed to evaluate social
or environmental impact — i.e. the institution’s activities
on the environment or its communities.
Corporate governance risks (the G) on the other hand
are determined separately, and usually carry a different
weight than the ‘E’ and the ‘S’. Corporate governance
risks around shareholder and board practices, politically
exposed persons (PEPS) on boards and their
involvement in decision-making, as well as complicated
family ownership structures within businesses are also
assessed by financial institutions that employ ESG risk
management practices. ESG risk management
frameworks for different sectors and products apply
different weights and analytical approaches to the E, S
and G components of ESG risks. Strengthening E, S
and/or G standards are the subject of continued difficult
political conversations between financial institutions,
businesses, and policymakers.
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ESG risk assessments in capital markets use the
principle of whether ESG risks are material to the
financial performance of the company’s stock or the
fund’s performance. Morgan Stanley Capital
International (MSCI), one of the leading providers of ESG
ratings to corporates and funds, defines ESG investing
in capital markets as the consideration of
environmental, social and governance factors, alongside
financial factors in the investment decision-making
process. This is further echoed by Morningstar
Sustainalytics, another leading ESG rating provider and
industry standard setter. Sustainalytics’ ESG risk ratings
measure a company’s exposure to industry-specific
material ESG risks and evaluate how well the company
is managing those risks. Their multi-dimensional way of
measuring ESG risk combines the concepts of
management and exposure to arrive at an absolute
assessment of ESG risk.
MSCI’s ESG ratings are designed for one purpose: to
measure a company’s resilience to financially material
environmental, societal and governance risks.43 ESG
risks are therefore evaluated in the assessment of a
company to understand how such ESG risks may impact
current and future financial performance – not
sustainability performance. MSCI notes that “Our ESG
ratings provide a window into one facet of risk to
financial performance. They are not a general measure
of corporate ‘goodness,’ a barometer on any single issue
or a synonym for sustainable investing... They are not
climate ratings.”44 To add further clarity, MSCI considers
three methods of ESG investing: a) ESG integration, b)
impact investing, and c) values-based investing. Of
these three methods, the first is by far the most
frequently adopted method of ESG investing in markets
today. As an extreme example, a fossil fuel investing
fund can still be labelled as an ESG fund if it considers
and actively manages ESG risks as it invests in fossil
fuels.
Furthermore, the UN’s Principles for Responsible
Investing notes that there is “no single definitive list of
ESG issues”.45 This has led a to plethora of different
standards, due diligence processes, analytical methods,
and measurement methods around ESG assessment by
companies, banks, investors, funds, and markets across
the world. Movements are underway to centralize
standards, as through the inaugural standards in June
2023 of the International Financing Reporting Standards
(IFRS) Foundation’s International Sustainability
Standards Board (ISSB), which recommends a
comprehensive global baseline of sustainability-related
disclosures.
Use or outcome-based sustainable finance (Track 1) is
mutually strengthened by sustainably managed finance
(Track 2), and both are critical to a resilient financial
system. These two aspects of sustainable finance are of
course not mutually exclusive; use-based sustainable
finance can have, and frequently does have, strong ESG
risk management and safeguards. Some ESG-rated
investing will also be directed to sustainable uses even
if that is not explicitly measured yet. Importantly both
are critical to the robust functioning and stability of the
financial system. The ability to manage risks, including
climate-related risks, leads to the stable provision of
sustainable finance and strengthens the transition to a
low-carbon economy.
Who are the key constituents of the
sustainable finance ecosystem?
The sustainable finance ecosystem captures a nexus of
national commitments, public and private sector
incentives and standards, and financing relationships
between policymakers, regulators, and private finance
stakeholders. Sustainable financial markets are made
up of a large ecosystem of actors, as shown below in
Figure 1.10 (adapted from the International Finance
Corporation). However, the activities financed by this
ecosystem are contained within the real economy, or
within sectors such as power, transportation, trucking,
agriculture, forestry, manufacturing etc. Therefore,
financing sustainable activities follows, or lags behind,
developments in the real economy. Net-zero pledges by
financial institutions can drive financing towards net-
zero related activities, but only if the projects and
activities by corporations and households themselves
qualify as net-zero related activities.
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The frontier where the actual work will be done to
accelerate sustainable finance is thus within the real
economy. In particular, it will take place within the
businesses that adapt their choices, make meaningful
net-zero commitments, and measure and disclose
sustainability impacts. A serious pivot is required
immediately if the 2015 Paris Agreement commitments
— in which 196 countries pledged to limit global average
temperature increase to well below 2°C above pre-
industrial levels and make efforts to halt the
temperature increase to 1.5°C above pre-industrial
levels46 — is to be met. Whilst we limit our discussion in
this sustainable finance report to policymakers,
regulators, and private finance, it is no exaggeration to
say that the scope and scale of the change required in
the real economy in the Asia-Pacific region is breath-
taking, exacerbated by the urgency of the time frame in
which it must do so.
The sustainable finance ecosystem has many
stakeholders. While Figure 1.10 shows the traditional
financial sector’s role in sustainable finance, Figure 1.11
below depicts the universe of private finance actors that
are instrumental for determining whether private finance
is sustainable and how it can be deployed to more
sustainable uses. This universe represents a set of
stakeholders and countries that need to mobilize in a
systematic and coherent fashion (through setting
coordinated policy and regulatory actions). For example,
incorporating sustainable or green elements into the
compliance and disclosure burden; the tax regime; and
the fees from advisory, verifiers, and auditors that asset
owners bear, can change the flow of capital in this
sustainable finance ecosystem.
Figure 1.10: The sustainable finance ecosystem.
Source: ESCAP adapted from the International Finance Corporation
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Figure 1.11: Sustainable finance stakeholder mapping.
Source: ESCAP
An evolving definition of climate
finance
The UNFCCC definition of climate finance includes
binding commitments for developed countries with
implications for recipient developing countries. The
United Nations Framework Convention on Climate
Change (UNFCCC) refers to climate finance as local,
national, or transnational financing —drawn from public,
private and alternative sources of financing — that
seeks to support mitigation and adaptation actions that
will address climate change.47 The definition of climate
finance has acquired scrutiny due to the implications for
the COP15 pledges made by developed countries in
200948 to mobilize 83.3
billion was mobilized in 2020 – the last available
estimate at the time of writing), the work of the Standing
Committee on Finance of the UNFCCC indicates that this
is an area of continued debate, stating, “there are
varying understandings of what climate finance
encompasses, including which sectors and activities are
covered, the range of financial instruments available
and which tracking and reporting processes apply, as
well as different perspectives of what definitions of
climate finance should include and the detail with which
associated concepts should be defined.”50
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There are at least nine key variables relevant to any
definition of climate finance. The Standing Committee
on Finance’s report shows nine components necessary
to operationalize a given definition of climate finance
for reporting purposes, as shown in Table 1.2 below.
The complexity described here can seem daunting, but it
adds valuable clarity to policymakers, regulators, and
private finance actors from developing countries (to
whom these commitments have been made). Climate
finance is objective-based and falls within Track 1 of the
two tracks discussed earlier.
Table 1.2: Range of potential approaches to accounting for climate finance flows.
Factors
Range of approaches
Geographic scope International flows only
Domestic flows only
Global flows
Recipient
Public sector
Private sector
NGOs and civil society
Objective
Programmed or budgeted
climate objectives
Addresses climate as one of
multiple objectives
No stated climate goals but
possible co-benefits
Causality
Direct finance
Finance mobilized as
co-finance
Finance mobilized
through support for
project preparation or
technical assistance
Finance mobilized
through support for
enabling environments
Instruments
Grants
Concessional
loans
Non-
concessional
loans
First loss/
patient
equity
Equity
Guarantees
Insurance
Total or
incremental cost
Total cost of a project or action
Incremental cost of a climate project or action
compared to the baseline case
Point of
measurement
Commitments: Counting finance when the
commitment is made, irrespective of when the
finance will be disbursed (e.g. over several
subsequent years of a project)
Disbursements: Counting disbursed and received
finance
Cost of
expenditure
Nominal value: The face value of a loan
Subsidy cost: The cost of providing the loan
measured by discounted cash flows
Gross/net flows
Gross flows: The amount spent or committed
over a given year
Net flows: The amount spent accounting for
repayments over time (e.g. loans)
Source: UNFCCC (2022c).
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Does more sustainable finance
translate into progress towards the
Sustainable Development Goals?
There is currently no overall Sustainable Development
Goal or sub-target that measures the flow of sustainable
finance. In addition, financing the SDGs does not always
directly correlate with improved SDG indicators for
several reasons. For example, use-based sustainable
finance directed towards the provision of
environmentally sustainable renewable energy would
affect Goal 7,51 which can be measured by the
proportion of the population that relies mainly on clean
fuels and technology (indicator 7.1.2); the share of
renewable energy out of total energy consumption
(indicator 7.2.1); and/or how much money is flowing to
countries for clean energy research (7.a.1).52 However,
the corresponding results are not always visible for
many reasons. Firstly, reporting use-based proceeds
within most of the currently accepted sustainable
finance frameworks does not include reporting on SDG
impacts. Secondly, national statistics agencies and
bodies do not have the resources to measure all 17-
interlinked goals and 231 indicators. Thirdly,
improvement in SDGs may take considerable time and
may be affected by other trends occurring in parallel,
making it difficult to isolate the impact of sustainable
finance alone. This was noted earlier in the Roadmap for
Financing the 2030 Agenda for Sustainable
Development, which pointed out that misaligned
incentives and regulations, limited awareness, and
difficulties in identifying, measuring, and reporting on
sustainable investments impede private investment53 in
the SDGs at scale.54 The lack of hard evidence to justify
sustainable finance in terms of the SDGs need to be
counterbalanced by greater awareness of how
sustainable financing works. This lack of reporting
ability is thus an important hurdle to overcome, so as to
better drive national conversations and choices towards
financing for development as well as to advocate more
clearly for increases in climate finance.
C.
Concluding remarks: How
can countries raise
sufficient sustainable
finance?
The sums are staggering, whichever estimate of the
financing gap is used. Yet while the gap to finance the
SDGs will continue to be substantial, the discrepancy
between need and availability of funds for financing
climate action to achieve the 1.5-2°C target looms larger
and larger. There is no single silver bullet to mobilize the
finance needed in the short time frame needed. Instead,
only concerted and targeted action by all stakeholders
will transform the region’s pathway. As the Sharm-el-
Sheikh action plan noted, delivering such funding will
require a transformation of the financial systems and its
structures and processes, engaging governments,
central banks, commercial banks, institutional investors,
and other financial actors.
How can countries increase the volume of sustainable
finance in the time frame needed? The central question
for this report, therefore, is “How can countries in Asia
and the Pacific, especially developing countries
including the Least Developed Countries (LDCs) and the
Small Island Developing States (SIDS) increase the
quantity and quality of sustainable finance available in
the time frame needed?” We focus particularly on the
environmental aspects of sustainable finance, already
heavily weighted in most sustainable finance definitions,
and in international and regional regulatory and policy
norms and processes. This includes a focus on green
and climate finance. We also further note that LDCs and
SIDS have contributed disproportionately little to GHGs
but are significantly impacted by regional and global
emissions. Their ecosystems are also particularly prone
to and affected by the collapse of biodiversity; however,
they do hold a disproportionate amount of high
biodiversity assets.
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19
The challenges are greater for LDCs and SIDS. LDCs and
SIDS face a set of interconnected challenges in scaling
sustainable finance. LDCs and SIDS are generally far
more exposed to the impact of climate change related
extreme weather events due to their reliance on
subsistence agriculture in the former, and their exposure
to sea-level changes in the latter. LDCs and SIDS are
also highly exposed to the negative implications of
growing global macroeconomic uncertainties. Finally,
the limitations of government revenue means that public
finance is naturally constrained in implementing the
adaptation changes required to protect the livelihoods
and lives of their vulnerable populations. LDCs and SIDS
also face difficulties obtaining the data and building the
capacities needed to track and accelerate sustainable
finance.
We thus propose action by three sets of stakeholders
who are the subject of this report: policymakers;
regulators; and private finance. We analyse trends,
challenges, and opportunities faced by these three main
stakeholders and aim to answer the following policy
questions:
▪ What can government policymakers do?
▪ What can regulators do?
▪ What can private finance do?
The goal of this report is to contribute to a better-
informed debate that can guide timely choices amongst
our member states. Our focus is to outline the choices
that stakeholders face, as well as discussing the
evidence, data, and current debates around such
choices. We hope that this will better inform much-
needed actions, and spur accelerated action.
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2. WHAT CAN
GOVERNMENTS DO?
A.
Introduction
In this chapter we examine the trends, challenges, and
opportunities that policymakers within governments
face in unlocking further sustainable finance, and
particularly climate finance, from public and private
stakeholders. We then propose recommendations for
policymakers which are aggregated in our final chapter
into our ten point action plan for the region.
There is a strong link between financial sector
development and GDP growth. According to the World
Bank, “countries with better-developed financial systems
tend to grow faster over long periods of time, and a
large body of evidence suggests that this effect is
causal: financial development is not simply an outcome
of economic growth; it contributes to this growth.”55
However, there is substantial debate over the extent to
which the financial sector contributes to growth, which
types of financial systems are most beneficial to
growth, and even whether all growth in the financial
sector is beneficial to society.56 What is clear is that a
positive correlation exists between GDP per capita and
the International Monetary Fund’s (IMF) financial
development index, as seen in Figure 2.1 below.
Nevertheless, it is important to note that the growth of
sustainable finance markets depends on the depth,
integrity, and liquidity of countries’ financial systems.
Figure 2.1: Strong correlation between IMF Financial Development Index and GDP per capita.
Source: ESCAP based on IMF, Financial Development Index Database, accessed on 8 February 2023; World Bank, accessed on 8 February
2023.
Note: The IMF Financial Development Index is an aggregate measure that summarizes how developed financial institutions and financial
markets are in terms of their depth, access, and efficiency. There is significant correlation between the Financial Institutions index and
GDP per capita (corr = 0.73, p <0.001) and between the Financial Market index and GDP per capita (corr = 0.62, p <0.001).57 Both GDP per
capita values and IMF Financial Market Index and Financial Institution Index values are from 2020. Countries lacking sufficient
information on Financial Market Index components were excluded from the analysis due to missing data. The figure shows countries in
Asia and the Pacific based on ESCAP groupings at sub-regional level.
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Figure 2.2 below shows the relative state of financial
market development in the region. Interestingly, one
may intuitively expect countries with more financially
developed systems to be further along in adopting
sustainable finance taxonomies or regulation and
experiencing higher sustainable finance flows. For
example, Cambodia and Viet Nam, which have
seemingly less developed financial systems, have
nevertheless issued maiden green bonds using green or
sustainable finance taxonomies. This suggests that
countries can leapfrog traditional timelines of financial
system maturation in developing sustainable finance
systems. Such sustainable finance flows often include
new types of investors for developing countries;
investors who specifically seek sustainable/green
impact investments even in the face of high sovereign or
currency risk. For issuers, such diversification in
investors expands the depth of the market.
Figure 2.2: Status of IMF financial market and financial institutions index components, 2020.
Source: ESCAP based on IMF, Financial Development Index Database, accessed on 8 February 2023.
Note: The IMF Financial Market Index measures how developed financial markets are in terms of their depth, access, and efficiency.
Countries/jurisdictions highlighted in green represent countries/jurisdictions that have issued a green bond. Countries lacking sufficient
information on Financial Market Index components were excluded from the analysis due to missing data. In case of insufficient
information on financial markets’ depth, access and efficiency, only available information on the other components is shown in the figure.
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To grow, sustainable finance markets need depth,
access, efficiency, and stability. According to the Center
for Economic Policy Research (CEPR), in traditional
financial markets, ‘depth’ means that financial
institutions and financial markets are of a sufficient
size. ‘Access’ reflects the degree to which economic
agents use financial services. ‘Efficiency’ means that
financial institutions can successfully intermediate
financial resources and facilitate transactions. Finally,
‘stability’ refers to low market volatility and low
institutional fragility.58 These elements are also
necessary for an increase in sustainable finance flows.
LDCs and SIDS face particular challenges in financial
sector development, which affects their ability to attract
private finance. Many LDCs and SIDS in the Asia-Pacific
region continue to face challenging fiscal situations,
which are exacerbated by low levels of tax revenue and
domestic savings, disruptions in the tourism sector for
SIDS, low productivity, and volatile GDP growth. Many
LDCs and SIDS also frequently struggle to expand
capital markets and deepen financial sectors, especially
with regards to attracting private and/or foreign capital.
For example, of all the private finance mobilized globally
between 2012 and 2018, LDCs received only 6 per
cent,59 — approximately US 84 bn.
Meanwhile, lower middle income countries were the
recipients of 33 per cent, or $68 bn. Given the low share
of LDCs in global GDP, this may seem to be a
substantial amount; however, in light of the discrepancy
between sustainable finances and what is required, a
significant increase in private investment is vital. With
10 out of the 12 LDCs in Asia and the Pacific en route to
graduation, official development assistance will need
replacement with alternative sources of public and
private finance, particularly to support the Sustainable
Development Goals.
“Data limitations for adaptation projects, high transaction
costs, and small project sizes make it difficult for SIDS to
attract investments and compete for or access climate
resilience financing. The climate and development finance
systems need to adequately take into account SIDS unique
needs and vulnerabilities, whilst ensuring a more consistent,
long-term focused, and systematic way to attract climate
finance working alongside national stakeholders” – Peseta
Noumea Simi, Chief Executive Officer, Ministry of Foreign
Affairs and Trade of Samoa
What is the role of policymakers in
supporting sustainable finance?
The financing of sustainable development, including the
financing of climate action, requires strong leadership
and commitment to implement the Nationally
Determined Contributions (NDCs) in time. The Paris
Agreement, now ratified by 193 countries, requests each
country to outline and communicate their post-2020
climate actions, known as their NDCs. These NDCs form
the basis for countries to achieve the objectives of the
Paris Agreement, and contain information on targets,
policies and measures to reduce national emissions and
adapt to the impacts of climate change. In Asia and the
Pacific, countries have started to implement the NDCs
domestically by (i) mainstreaming climate activities into
national development plans, policies, strategies and
roadmaps; (ii) creating an institutional framework; (iii)
mobilizing resources; and (iv) elaborating transparency
measures to monitor and evaluate climate action.
However, as outlined earlier, the state of climate
ambition in Asia and the Pacific (as manifested in the
NDC commitments collectively) is insufficient to meet
the global goal of limiting temperature rise to 1.5
degrees Celsius.
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Importantly, even where (insufficiently ambitious) NDCs
are in place, NDC financing plans lack progress. A 2020
assessment by ESCAP suggests that 26 countries in the
region, well more than half, have not taken any steps to
integrate NDC actions in national budgetary processes;
29 countries have no relevant policy frameworks for
aligning private sector actions with NDCs; and 22
countries do not have frameworks for aligning lending
with NDCs.60 While this is improving, concerted and
systematic efforts to devise and implement
comprehensive financing strategies for the NDCs are
not advancing fast enough.
Nevertheless, progress has been made in certain areas.
The issuance of green, social, and sustainable bonds
continues apace. Climate budget tagging — the practice
of identifying, measuring, and monitoring climate
relevant expenditures — is slowly increasing. More
countries are exploring the viability of debt-for-climate
or debt-for-nature swaps, especially in situations of
potential debt distress. Several countries are developing
and implementing integrated national financing
frameworks (INFFs), which could strengthen planning
processes and drive sustainable financing. These are
promising trends. But to avoid fragmentation, they
should be accompanied by a national vision that is
central, overarching, and integrated to finance both the
NDCs and the SDGs together.
Policymakers have an important role to play in signalling
credible intentions and presenting national climate
action priorities to markets. Such intentions and
national priorities are closely watched by markets, who
use them to price long-term investments. Emissions-
reducing investments — whether it is phasing out of coal
or the adoption of new technologies in carbon capture,
utilization and storage — require upfront, lump sum
payments of significant amounts to finance capital
expenditure in equipment, factories, renewable energy
installations, and technologies. Meanwhile returns are
collected over a long-term basis, and often in the later
years of the project. Policy signals thus need to act to
reduce both the actual risks and the perceptions of risks
associated with such long-horizon, upfront investments.
For public and private sustainable finance to flow
towards the NDCs, contradictions in the enabling
environment of sustainable finance need to be resolved.
Firstly, it is important to recognize the scale of the
transformation currently underway in sustainable
finance. Regulations, taxonomies, standards, and
markets are in flux, alongside countries’ evolving NDC
implementation plans. Policymakers are responsible for
budget allocations in terms of incentives or tariffs that
affect the returns in, for example, coal versus green
hydrogen offtake, and in shifting economic structures
away from using traditional energy sources to cleaner
energy sources. This has vast implications for real
economy industries, which have to adapt to new and
cleaner energy sources, reduce the carbon intensity of
their output, track their emissions, and plan for
transition. In turn, this affects those who finance such
industries and companies, whether it is public or private
finance. Therefore, when regulation and policy are
constantly evolving, investment returns are difficult to
forecast with predictability or stability and affect go-no-
go financing decisions with deleterious effects on long-
term investment projects. Coherence across policies
and sectors along with an enabling environment is thus
critical to accelerate sustainable finance.
“The enabling environment signals an incoherence in policies:
for example, with a subsidized coal industry on one part and a
different picture for the renewable energy market, which lacks
competitiveness as a result of the returns emerging due to
challenges on the regulatory front.” – Anonymous
Sustainable finance roadmaps are one tool that
governments can use to signal their priorities to
markets. In many cases, though such roadmaps are
announced by governments and their ministries of
finance, the design and implementation of such
roadmaps are led by regulators. These roadmaps can
chart a path for the development of a sustainable
finance market, often by creating priorities and timelines
for the development of key enabling tools such as (i)
sustainable or green taxonomies; (ii) green, social, and
sustainable bond frameworks; (iii) corporate
sustainability reporting; (iv) climate disclosures; (v) and
net-zero transition reporting; and other similar
requirements. However, while sustainable finance
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roadmaps lay out the planned trajectory of a sustainable
finance market, policymakers still need to grapple with
how underlying sectors in the real economy (which is
financed by sustainable finance) can be guided to
transition in time.
Furthermore, it is important to distinguish between the
standards and ambition of sustainable finance
roadmaps in developed countries versus least
developed countries. LDCs, SIDS and other countries
with special situations should be able to attract enough
capital required for climate action and the SDGs. The
danger is that by imposing strict ESG standards on risk
management (Track 2), or on use of proceeds (Track 1),
capital ends up being diverted away from more
challenging markets that already face high sovereign
risk and deter investors. The ASEAN taxonomy for
example is a multi-tiered framework that takes into
account differences amongst its member states.
Policymakers also have a role in advocating for and
mobilizing committed climate finance from developed
countries. In 2009 at COP15, developed countries
committed to a goal of jointly mobilizing $100 billion a
year by 2020 to address the needs of developing
countries in the context of meaningful mitigation
actions. This funding would come from public and
private, bilateral, and multilateral sources, including
grants as well as concessional and non-concessional
debt. In 2016, parties to the Paris Agreement decided
that they shall “set a new collective quantified goal from
a floor of $100 billion per year, taking into account the
needs and priorities of developing countries before
2025”.61 In 2021, at COP26 in Glasgow, parties decided
to initiate deliberations to establish a new collective
quantified goal that are to be concluded in 2024, and are
to include inter alia, quantity, quality, scope and access
features as well as sources of funding.62 In spite of
strong commitments, funding has fallen short of the
goal of $100 billion annually ($83.3 billion was
mobilized in 2020, according to the latest data available
at the time of writing). Nevertheless, on the demand
side, developing countries can continue strengthening
their ability to seek access to these funds through
concrete financing plans and strategies.
B. Trends and opportunities
This section discusses recent trends among
governments and policymakers across Asia and the
Pacific which are strengthening the depth, access,
efficiency, and stability of sustainable finance markets.
These trends, which are largely positive, point to
increasing policy momentum across the region and are
a positive harbinger of further sustainable finance at an
imperative scale and pace. We discuss, in particular: the
growth of green, social, sustainability and other labeled
(GSS+) bonds; the role of carbon pricing; potential of
debt for climate swaps; trends in accessing multilateral
climate funds; and the potential offered by the Just
Energy Transition Partnerships (JETPs).
Sovereign green, social,
sustainability and other labeled
(GSS+) issuance
Many countries in the region are increasingly issuing
sovereign bonds that finance climate action and
sustainable development. Green, social, sustainability,
sustainability-linked bonds, and transition bonds,
together referred to as GSS+ bonds or thematic bonds,
fall within Track 1 of sustainable finance, whereby their
proceeds are explicitly directed to fund green, social, or
sustainable activities, as seen in Figure 2.3 below. While
green, social and sustainability bonds follow a strict
use-of-proceeds criteria, sustainability-linked bonds
(SLBs) are used by issuers who commit explicitly to
future improvements in the sustainability outcomes of
their entity within a predefined timeline, and the
proceeds of SLBs are intended to be used for general
purposes.63 SLBs therefore offer the issuer greater
flexibility in terms of proceeds, while still setting
specific targets for sustainable outcomes in a
predefined timeline. Transition bonds are an emerging
asset class whereby the issuer can either commit to use
of proceeds terms directed to climate or just-transition
purposes, or issue general purpose bonds aligned to
sustainability linked bond principles.64 On the London
Stock Exchange, for example, transition bond issuers
must publish a transition framework in line with ICMA’s
Climate Transition Finance Handbook, engage in
climate-related financial disclosures, commit to net-zero
targets and commit to report annually on its transition
performance.
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Figure 2.3: Thematic and performance-based bonds mapping.
Source: ESCAP
Figure 2.4 below shows the steep growth in GSS+ bonds
in Asia and the Pacific from 2015 to 2022 and the
promising growth of new asset classes. Globally, the
market for GSS+ bonds (corporate and sovereign) has
grown to around $3.8 trillion as of the end of 2022
(excluding transition bonds).65 These new asset classes
provide flexibility by issuers to meet different climate
objectives and enable the issuer to obtain further
unrestricted funding. While green bonds continue to
dominate both corporate and sovereign bond issuances,
sustainability bonds and more recent instruments, such
as sustainability-linked and transition bonds, are making
progress. The growth of these debt instruments, despite
global turmoil in debt markets, is a proof of their
resilience. Additionally, maiden issuances continued to
grow and by the end of 2022, 43 sovereigns from five
continents brought out debut GSS issues.66 Of these,
green bonds dominate the market with social bonds,
sustainability bonds, and sustainability-linked bonds
following.
Figure 2.4: GSS+ bond issuance value in Asia and the Pacific, 2015-2022 (billions of United States dollars).
Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
Note: The data labels show the total GSS+ bond issuance for the following countries and jurisdictions: Armenia, Australia, Bangladesh,
China, Fiji, Georgia, Hong Kong, China; India, Indonesia, Japan, Kazakhstan, Malaysia, New Zealand, Pakistan, Philippines, Republic of
Korea, Russian Federation, Singapore, Thailand, Türkiye, Uzbekistan, Viet Nam. It shows annual issuances and includes sovereign,
financial and non-financial corporate and other public sector issuances.
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Figure 2.5: Cumulative GSS+ sovereign, corporate and public bond issuance in Asia and the Pacific by country, 2015-2022
(billions of United States dollars).
Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
Note: Figure shows cumulative values across countries for the period 2015-2022. It includes sovereign, corporate, and other public sector
issuances.
In Asia and the Pacific, China, Japan and the Republic of
Korea have issued 78 per cent of the GSS+ bonds
between 2015 and 2022. Among developing countries,
India, Singapore, Indonesia, Philippines, and Thailand
have issued GSS+ bonds for over 863.4 billion from
more than 487.1 billion), followed by
sustainability bonds (130.2 billion), SLBs (3.5 billion).
Sovereigns lag behind corporate issuers of GSS+ but
their share is growing, sending important signals to the
market. Sovereign GSS+ issuance is still about 5 per
cent of the total debt issuance globally, while corporates
are globally issuing 8 per cent of their issuance in GSS+
instruments. Similarly, international financial institutions
are raising more than 30 per cent of their total bond
issues via green instruments.68 Sovereign green
issuances catalyze domestic market development and
send important signals to markets about the direction
and commitment of policymakers to climate and
sustainability goals. In Asia and the Pacific, the growth
in sovereign and other public issuance by countries in
the region has been substantial between 2019 and 2022,
as seen in Figure 2.6 below.
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Figure 2.6: Cumulative GSS+ bond issuance value of public sector in Asia and the Pacific by country and issuer type since
2015, as of end of 2019 and 2022 (billions of United States dollars).
Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
Note: Other public sector includes development banks, municipal government, and public enterprises.
Countries with less developed financial systems have
also moved ahead to mobilize sustainable finance
markets. Despite the challenges associated with
emerging regulation for new GSS+ markets, increased
premiums due to lower sovereign credit ratings, and a
nascent base of issuers and investors in GSS+ bonds,
there have been promising maiden issuances in Asia-
Pacific countries over the past two years — a trend that
signals growth and continued strength of sustainable
finance markets across the region.
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Table 2.1: First time GSS+ bond issuers in 2021–2022.
Country
Bond label
Issuer type
Issuance year
Issuance value
(million US dollars)
Bangladesh
Green
Green
Public sector
Corporate
2021
2021
11.58
17.16
Pakistan
Green
Public sector
2021
500
Uzbekistan
Sustainability
Sustainability
Sovereign
Sovereign
2021
2021
233.82
635
Viet Nam
Green
Sustainability
Corporate
Corporate
2021
2021
200
425
Source: Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
Note: No GSS+ sovereign bonds were issued by ESCAP members for the first time in 2022. It is expected more ESCAP members will issue
a GSS+ bond for the first time in 2023, including Mongolia and Cambodia.
There is also promising local-currency issuance of GSS+
bonds, signalling uptake of GSS+ bonds by local
investors. This not only increases the depth of the GSS
markets but importantly signals that investment appetite
is no longer driven solely by international investors.
Ensuring the participation of local investors in
sustainable finance markets is essential to achieving a
country’s climate objectives. As seen in Figure 2.7
below, there has been significant local currency
issuances of GSS bonds by both corporate and public
actors. This signals that domestic investors are
understanding and purchasing these securities and
signifies the promise of depth and access in these
markets.
Importantly, it also means projects financed by such
green bonds do not need to add a premium to overcome
hard-currency financing costs, which are aggravated by
the depreciation of local currencies against the United
States dollar. This unlocks larger volumes of
sustainable finance that can meet environmental
objectives at a higher and faster scale. Finally, as seen
in Figure 2.8 below, there has been substantial issuance
in many local currencies in Asia-Pacific countries that
do not necessarily have an investment-grade rating. This
also shows that investors have an appetite for what may
be perceived as more risky local currency financing, in
the GSS+ asset class. Interestingly, some of these GSS+
bonds are also being used as long-term financing
instruments (with maturities beyond five years), which is
essential as a potential tool to finance capital
expenditure-heavy, upfront investments in climate
action.
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Figure 2.7: Cumulative GSS+ bond issuance value in Asia and the Pacific by currency and issuer type, 2015-2019 and
2015-2022.
Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
Note: 1) Other public sector includes development banks, municipal government, and public enterprises. Corporate refers to both financial
and non-financial corporations.
2) Note that the issuance values of Chinese yuan, Japanese yen, and Korean won are among the top issuance currencies in Asia and the
Pacific during 2015-2022. However, these were mostly domestically issued in local currencies. Ninety-nine per cent of issuance in Chinese
yuan were in China, 99 per cent of issuance in Japanese yen were in Japan, and 100 per cent of issuance in Korean won were in the
Republic of Korea.
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Figure 2.8: Cumulative GSS+ bond issuance in Asia and the Pacific by currency (per cent), 2015-2022.
Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
The emergence of sustainability-linked bonds (SLBs)
could allow the financing of projects with direct impact
in cutting GHG emissions. While green bonds are
directed to financing green projects under green bond
criteria, they are usually not linked to financing the
reduction of emissions. SLBs are instruments with pre-
defined sustainability performance targets that the
issuer commits to meet by a given date (the "penalty
event date"). If the targets are not met, the issuer is
typically subject to a penalty, a mechanism that is
absent in the case of conventional green bonds. SLBs
can be linked directly to reduced greenhouse gas
emissions through the contractual choice of the
Sustainability Performance Target (SPTs). Data for the
first half of 2022 shows that 58 per cent of SLB
issuances were tied to greenhouse gas emissions – and
28 per cent of these covered scope 1, 2, and 3
emissions.69
Furthermore, mainstream green bonds tend to be
concentrated in green infrastructure (buildings and
transport) and renewable energy but SLBs are issued
across a more diverse range of sectors. Alongside the
financial services and utilities sectors, which are
responsible for a combined total of 30 per cent of all
SLB issuance in 2021 and H1 2022, the industrials,
materials, and consumer sectors have a sizeable share
of the market, with a combined total of almost 50 per
cent of all SLB issuance, suggesting that companies in a
wider range of sectors are using the instrument to help
finance their net zero or low-carbon transitions.70
Trends show that sovereign issuances tend to raise
overall sustainable bond standards. According to the
Bank of International Settlements (BIS), the inaugural
issue of sovereign green bonds tends to tighten
standards for overall green issuance in that country.
After such an issue, not only does the annual number of
corporate issues tend to increase across jurisdictions,
but so does the percentage of corporate issuance with
second-party opinions. This tendency is apparent in both
advanced and emerging market economies.71 This
further enhances the integrity of the markets and allows
investors to trust and trade. According to BIS, while all
sovereign issuers have solicited a seal of approval from
an external reviewer, in contrast, as many as one-fifth of
corporate green bonds globally are self-labelled as
green by the issuer without any external review.72
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Sovereign sustainable finance instruments can
potentially finance other SDG objectives as well,
including gender equality. While the sustainable finance
market keeps expanding, investors’ requests for more
inclusive and innovative financial instruments that
address social issues are also growing. These include
financial products which include women’s leadership,
employment or incorporation into investment strategy
and analysis. Social bonds, Sustainable Development
Goal bonds,73 gender bonds, sustainability bonds, and
sustainability-linked bonds can help direct capital to
reduce the financial and economic inequalities between
women and men. Such instruments can enable capital to
flow to fund social projects targeting specific
populations. However, green or sustainability-linked
bonds which include a gender or diversity dimension
remain scarce.
Governments are increasingly
active in carbon markets
In addition to fostering the development of the GSS+
bond markets in the region, carbon markets should be
seriously considered by governments for climate action.
Voluntary carbon markets remain predominantly global
in nature, but in the region, China, Thailand, Japan, the
Republic of Korea, Singapore, Australia and New
Zealand have also developed emissions trading
schemes or carbon credit markets, as can be seen in
Figure 2.9 below and Annex D. New carbon markets in
Asia and the Pacific are also expected to go live in 2023,
when Indonesia will launch the first phase of mandatory
carbon trading for coal power plants.74
Figure 2.9: Carbon pricing initiatives at national and sub-national level in Asia and the Pacific.
Source: ESCAP based on World Bank Carbon Pricing Dashboard75 and UNCTAD Sustainable finance regulations platform.76
Note: Carbon pricing initiatives are considered "scheduled for implementation" once they have been formally adopted through legislation
and have an official, planned start date. Carbon pricing initiatives are considered “under consideration” if the government has announced
its intention to work towards the implementation of a carbon pricing initiative and this has been formally confirmed by official government
sources.77 ETS refers to cap-and-trade systems, but also baseline-and-credit systems.78
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Governments can allocate carbon pricing revenues to
critical social and environmental policies to support
sustainable development. The World Bank estimates
that $84 billion in carbon pricing revenues was raised by
governments in 2021, yet carbon pricing still only
accounts for less than 5 per cent of global emissions.
ESCAP’s Economic and Social Survey 2020 highlights
that phasing out fossil fuels and introducing carbon
pricing could open up significant fiscal space for
countries in the region. For example, at a carbon price of
$70, the survey estimates that several countries in the
region could increase revenues by over 2 per cent of
GDP by 2030. In sum, if the revenue raised from carbon
taxes is collected effectively and then partially
channelled back into the economy to compensate low-
income groups for the impact on energy and
transportation costs, it can potentially increase the level
of economic activity and reduce inequality and poverty,
while simultaneously progressing towards emissions
targets and reducing air pollution.
Several countries in the Asia-Pacific region have already
adopted different forms of carbon pricing. This includes
China (the largest carbon market in the world), Japan,
Republic of Korea, Australia, Singapore, New Zealand,
and Kazakhstan. In addition, several others are currently
considering carbon pricing policies, including Thailand,
Malaysia, Brunei Darussalam and Indonesia. (However,
Indonesia recently announced it would delay the
introduction of its carbon tax due to the impact of high
energy prices). Furthermore, nascent discussions are
underway to link compatible ETSs with each other to
reduce costs, increase liquidity, and harmonize carbon
pricing across jurisdictions. According to the World
Bank,79 73 different carbon pricing instruments globally
have been implemented as of the end of 2022 with a
share of global GHG emissions covered around 23 per
cent. Record high revenues from emission trading
schemes and carbon taxes approached 40-50 by 2030 in 2010
terms (or 200 (or $276 in 2023 terms) by 2050 to achieve a
below-2°C outcome.82 The majority of current carbon
prices remain far below this range, and such prices are
commanded in high income countries, mainly in Europe
and the United States.
Most countries have now included emission reductions
targets in their NDCs. Carbon offsets are an integral part
of the UNFCCC Paris Agreement, including the rules to
establish pathways for their use. A carbon offset is
equal to one metric tonne of carbon dioxide (or
equivalent GHG) that has either been removed from the
atmosphere or prevented from being released into the
atmosphere. Critically for carbon offsets to serve their
purpose of incentivizing abatement and encouraging
countries to meet their international climate change
obligations, they must have environmental integrity.
Carbon offsets are created by certified activities that
create and measure the number of tonnes of removals
or reductions in GHGs from the atmosphere. Only
additional removals or reductions in GHGs that happen
because of the activities, and that would not have
happened otherwise, can be counted and made into
carbon credits.
Article 6 allows parties to the UNFCCC to use
international trading in carbon offsets, referred to as
internationally transferred mitigation outcomes (ITMOs)
to help achieve their emissions reduction targets. ITMOs
enable countries to buy and sell carbon offsets from
each other to meet their obligations under the Paris
Agreement. Importantly, this creates opportunities for
developing countries to sell carbon offsets to developed
countries.
Carbon markets are being explored by governments to
accomplish their NDCs, while corporations are taking
the initiative by establishing their own reduction targets
and utilizing offsets to achieve them. Consequently, the
demand for carbon offsets is increasing, with both
mandatory compliance and voluntary markets becoming
more widespread. It is hoped that Article 6 will provide a
framework for integrating compliance and voluntary
markets in the future.
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Box 2.1: LDCs and SIDS and carbon offset markets.
Carbon offset markets are increasingly valuable to enable companies and governments to meet their emission reduction
targets by purchasing carbon offsets. Carbon offsets are generated by projects that reduce or remove GHG emissions.
Article 6 of the Paris Agreement encourages countries to use cooperative approaches that enable them to use carbon
offsets to help achieve their emissions targets. These projects can include nature-based solutions, such as projects to
reduce deforestation. Forests absorb carbon dioxide from the atmosphere — thus acting as natural sinks for GHG
emissions — although they release GHGs when cleared or degraded. Reducing deforestation can, therefore, significantly
enhance efforts to mitigate climate change.
Blue carbon ecosystems, such as mangrove forests and seagrass meadows, also act as carbon sinks and contain more
sequestered carbon per square meter than almost any other ecosystem. Importantly, projects must be certified according
to agreed methodologies and have in place appropriate monitoring, reporting, and verification (MRV) protocols to
guarantee that they create actual measurable reductions in GHGs, which increases compliance costs. However, if
structured appropriately, a project designed to conserve a forest or blue carbon ecosystems can generate carbon offsets
that can be sold, earning valuable income for local communities and governments that can contribute to broader
sustainable development priorities. Regional partners — including Australia, Fiji, Papua New Guinea, among others — are
working together to develop high-integrity carbon offset schemes in the Indo-Pacific region. The rich stock of biodiverse
green and blue ecosystems within the Asia-Pacific region, particularly in LDCs and SIDS, means that carbon offsets
generated from these types of projects have the potential to play a critical role in generating much-needed sources of
climate finance for LDCs and SIDS in the region.
Debt for nature and debt for
climate swaps
In the current context of high, and increasing, public
debt levels amid a narrowing fiscal space in developing
countries, the availability of public finance for climate
action projects is curtailed. Debt for nature or debt for
climate swaps represent a promising solution.
Policymakers are increasingly exploring this tool.
A debt swap is an agreement between a creditor and a
debtor by which the former cancels a portion of the
latter's foreign debt in exchange for a commitment to
invest in a specific environmental project. Debt for
nature swaps have a precedent in the debt for nature
swaps first implemented in the context of the global
debt crisis of the 1980s. Debt for nature swaps invested
mainly in conservation projects, and they are flexible
instruments that can be funded through a variety of
sources in addition to donor countries. These may
include grants from philanthropical organizations, as in
the Seychelles debt swap of 2015 — when nearly $22
million of debt was forgiven in exchange for greater
ocean protection — or an issuance of a blue bond
backed by political risk insurance by the US International
Development Finance Corporation (DFC), as in the Belize
debt-for-nature swap of 2021, through which
approximately $107 million was dedicated to
conservation projects amid debt restructuring.
A debt for climate swap is a type of debt swap that
cancels foreign debt in exchange for a commitment to
redirect savings in debt services towards climate-
friendly objectives. Bilateral official creditors that are
Annex II parties to the United Nations Framework
Convention on Climate Change can make their funding
of debt for climate count as part of the developed
countries’ commitment to provide $100 billion per year
in climate finance to developing countries.83 According
to the IMF, “under bilateral debt swaps, previously
committed debt service to official bilateral creditors is
redirected to the financing of mutually agreed projects
in areas such as nature conservation and climate.84
Tripartite swaps involve buybacks of privately held debt
financed by donors and/or new lenders, usually
intermediated by an international nongovernmental
organization (NGO), conditional on nature- or climate-
related policy actions and/or investments. In the most
common type of operation the NGO lends the funds to
the debtor country at below-market interest rates, on
condition that (1) the debtor uses the funds to buyback
commercial debt at a discount, and (2) a portion of the
resulting debt relief (the difference between the cost of
the retired commercial debt and the new debt to the
NGO) is used to fund climate-related actions or
investments.”85
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Debt swaps are not the same as unilateral debt
forgiveness. They are mutually beneficial agreements
through which both the debtor and its creditors gain.
Debtors benefit by reducing their debt burden and
opening fiscal space for dedicated investments in
climate projects. They also benefit by reducing pressure
on the exchange rate, as their new obligations to invest
in climate projects are in domestic currency. With
regards to creditors, private bondholders can benefit
from a buyback agreement at a price that exceed the
market price, and bilateral official creditors can make
their funding of a debt for climate swap deal count as
part of the $100 billion commitment, as mentioned
earlier. Table 2.2 provides a broader description of
costs and benefits of debt swaps which policymakers
can use to assess the suitability of these instruments.86
Table 2.2. Opportunities and challenges of debt swaps for the involved parties.
Advantages and positive outcomes
for the debtor country
Advantages and positive outcomes for
the creditor country
Shortfalls and challenges
▪ Through debt relief and conversion,
the overall debt burden on the debtor
country is lowered and the strain on
the national budget is reduced.
▪ Since counterpart payments into
environmental projects are generally
made in local currency, debtor
governments save scarce hard
currency which they can then use to
build foreign exchange reserves.
▪ Debt swaps have the potential to
improve the overall macroeconomic
situation of an indebted and
developing country through alleviating
its public debt burden in the medium
term and creating fiscal space in the
short term.
▪ Debt relief can strengthen economic
stability, improve the credit rating of a
debtor, and attract new investments.
▪ Environmental projects benefit from
freed finance that would have
otherwise gone towards the creditor’s
budget, often bringing economic and
social benefits at a local level.
▪ Grants to environmental projects or
local NGOs are typically distributed via
a trust fund which is set up according
to the original repayment schedule.
This long-term regular funding
facilitates investments in climate
finance.
▪ From a financial perspective, creditor
countries’ remaining debt claims
increase in value through such swaps,
and creditors can recover either full or
at least a larger part of their debt. Debt
swaps are particularly beneficial if parts
of the debt have been already written
off, but full repayment remains unlikely.
▪ Creditors must mobilize less additional
finance to meet their international
climate commitments and, at the same
time, can register the instrument as the
provision of Official Development
Assistance (ODA). Since the nominal
value of non-concessional debt can be
registered as ODA, many creditor
countries have used this instrument to
boost their ODA numbers.
▪ Further, creditor countries can raise
their environmental credentials by
mobilizing co-financing through
international funding institutions. A debt
swap that is carefully designed can
guarantee an adequate use of funds and
carry a greater weight than a single
donation.
▪ Debt for climate swaps can help
developed countries reach their COP26
target to mobilize at least $100 billion
annually by 2023 while providing
developing countries with additional
resources to mitigate and adapt to
climate change.
▪ If the write-off rate is low or even zero, no
extra-budgetary room is provided, which
leaves the overall macroeconomic
situation unaffected.
▪ If the debt swap volume is small, the
positive impact on the debtor’s economic
situation is negligible or might even be
outweighed by the costs incurred when
negotiating a swap and setting up a trust
fund.
▪ Debtor countries must have sufficient
funds to put into trust funds, and there
exists a risk of inflation if debtor
governments print money to pay the
agreed amount in local currency. This
risk does not apply to countries that do
not have a national currency.
▪ Debt swaps carry the threat of crowding
out other forms of finance that are
potentially more effective. Debt swaps
should be additional to the already
delivered ODA and not substitute other
channels of new aid.
▪ Climate-relevant debt swaps have to
compete with other sectors (health,
education, infrastructure) for a limited
amount of eligible debt.
▪ Countries will need to negotiate with
creditors specifying the conditions of the
swap, reduced debt, selection of projects,
implementation and monitoring,
additional financial sources, connections
with the SDGs and the Paris Agreement.
Source: ESCAP
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Accessing multilateral climate
funds and development finance
In addition to GSS+ bonds, carbon pricing, and debt for
climate or debt for nature swaps to finance, accessing
multilateral climate funds and/or development finance
is another source of sustainable finance for
policymakers.
Multilateral climate funds (MCFs) are a significant
source of sustainable finance for developing countries
but may be insufficient to meet their financing gaps.
Multilateral climate funds were established through
international agreements with a mandate to provide
finance for the transition to a green, inclusive, and
climate resilient economy in developing countries. The
visions and missions of the MCFs are partially shared
and mutually reinforcing in their support to developing
countries to implement the United Nations Framework
Convention on Climate Change and the Paris
Agreement. They are to be accessed by developing
countries for mitigation, adaptation or transition funding
and use a variety of financing methods. They form a
significant channel for the $100 billion per year
promised by developed countries to developing
countries. The main MCFs and their purposes are:
▪ Finance for adaptation in developing countries:
The mission of the Adaptation Fund is to
accelerate the quality of adaptation action in
developing countries by financing concrete
adaptation actions, innovation and multi-level
learning that engage, empower, and benefit the
most vulnerable communities through inclusive
and country-driven processes.
▪ Finance to adopt new green technologies in
developing countries: The Climate Investment
Fund’s mission is to mobilize its Multilateral
Development Bank partners, governments, the
private sector and local communities, to test and
pioneer new technologies, create markets, and
catalyze transformational change toward a more
prosperous, equitable climate economy.
▪ Finance to meet climate goals by developing
countries: The Global Environment Facility’s
(GEF’s) mission is to safeguard the global
environment by helping developing countries meet
their commitments to multiple environmental
conventions and by creating and enhancing
partnerships at national, regional, and global
scales based on the principle of sectoral
integration and systemic approaches to project
and program financing.
▪ Finance for LDCs to meet national adaptation
programmes of action. The GEF operates the Least
Developed Countries Fund (LDCF).
▪ Finance to adopt low-emission development
strategies by developing countries. The Green
Climate Fund’s (GCF’s) vision is to promote the
paradigm shift towards low-emission and climate
resilient development pathways in the context of
sustainable development.
In Asia and the Pacific, $5.3 billion was mobilized by the
multilateral climate funds between 2018 and 2021,
based on OECD development finance statistics.87 This is
still a small proportion of overall climate finance flows,
and of the climate finance gaps, and many developing
countries in the region face challenges in applying for
and meeting the requirements of financing from these
funds. Table 2.3 below presents data on access to
sustainable finance in Asia and the Pacific in 2021 from
three main sources: multilateral climate funds,
multilateral development banks, and bilateral donors.
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Table 2.3: Climate-related development finance committed by developed countries to Asia-Pacific countries through
various channels in 2021 (in millions of United States dollars).
Multilateral climate funds
Multilateral development banks
Bilateral donors
Grants
Loans
Grants
Loans
Grants
Loans
South and South-West Asia
189
182
111
9,366
1,222
7,096
Afghanistan
3
103
173
Bangladesh
0
1
906
188
2,181
Bhutan
12
1
23
35
India
21
64
2
3,272
255
4,043
Iran (Islamic Republic of)
0
20
Maldives
26
0
40
13
14
Nepal
27
1
67
133
Pakistan
1
15
1
1,993
191
77
Sri Lanka
1
1
482
31
27
Türkiye
2
2,583
113
742
Subregional funding
95
103
1
71
11
North and Central Asia
77
12
151
1,742
274
593
Armenia
4
128
18
76
Azerbaijan
0
40
16
Georgia
10
233
63
177
Kazakhstan
0
0
401
7
Kyrgyzstan
12
6
38
57
20
Tajikistan
9
7
113
59
48
Turkmenistan
29
1
3
Uzbekistan
12
0
823
15
338
Subregional funding
0
84
1
South-East Asia
157
53
5
2,905
1,057
1,966
Cambodia
7
61
104
340
Indonesia
51
0
1,303
298
821
Lao People’s Democratic Republic
6
28
83
Malaysia
4
19
Myanmar
0
95
Philippines
5
1,304
96
352
Thailand
23
11
14
Timor-Leste
42
0
37
99
Viet Nam
7
18
2
160
165
428
Subregional funding
13
35
3
0
83
25
East and North-East Asia
89
375
8
1,953
105
72
China
30
2
1,899
48
71
Democratic People’s Republic of
Korea
0
1
Mongolia
52
130
1
54
48
Subregional funding
7
245
5
0
8
1
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Multilateral climate funds
Multilateral development banks
Bilateral donors
Grants
Loans
Grants
Loans
Grants
Loans
The Pacific
97
178
157
908
Fiji
0
1
49
60
Kiribati
11
47
Marshall Islands
6
18
16
Micronesia (Federated States of)
22
40
10
Nauru
6
Niue
5
3
Palau
0
1
8
Papua New Guinea
26
84
305
Samoa
0
42
Solomon Islands
6
3
1
124
Tonga
9
62
27
Tuvalu
6
18
6
Vanuatu
3
29
23
85
Subregional funding
2
6
167
Totals
613
623
461
16,124
3,788
9,758
Regional funding
4
9
0
221
32
Source: ESCAP based on OECD, Climate Change: OECD DAC External Development Finance Statistics.88
Notes: The table shows climate-related development finance in current United States dollars committed by bilateral and multilateral
sources in 2021. Flows from bilateral donors are provided directly to an aid recipient country. A bilateral donor’s contribution is
considered multilateral if it is pooled with other contributions and disbursed by multilateral development banks or multilateral climate
funds. The data in the table covers 96.3 per cent of the climate finance flows to the region in 2021. For simplicity, flows from private
philanthropies and flows in the form of equity and mezzanine financing instruments from all sources, which contribute the remaining 3.7
per cent of the total, are not shown in the table. Regional and subregional funding is funding to the region or a specific subregion that
does not identify the recipient countries.
In total, Asia and the Pacific received 88.3 billion) and bilateral donors
(7.5 billion). In addition, private philanthropies
contributed 24.2 billion in 2016 to 32.6 billion in 2021. The 6.2 billion, while multilateral climate funds and
multilateral development banks increased their
financing slightly. A possible explanation of the drop in
Official Development Assistance (ODA) channelled to
climate finance in 2021 could be the increase in global
ODA allocations towards COVID-19 related activities,
from 21.9 billion in 2021.89
The increase in climate finance between 2016 and 2021
has been largest for adaptation finance, 101 per cent
from 12.5 billion in 2021.
Finance for mitigation increased by 11 per cent, from
18.5 billion in 2021. As
percentage of total climate finance from such sources,
adaptation increased from 25.6 per cent in 2016 to 38.2
per cent in 2021 (Figure 2.10, Panel A).
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Much of the financing has been debt creating, which is a
concern when countries are already experiencing
increased indebtedness. With regards to financing
instruments, 82.8 per cent of the flows during 2016-
2021 consisted of debt finance, 15.6 per cent consisted
of grants, and 1.6 per cent consisted of other
instruments such as equity and mezzanine financing.90
The share of debt is higher for mitigation projects (90
per cent) and lowest for projects where there is an
overlap of mitigation and adaptation (37 per cent). (See
Figure 2.10, Panel B).
Over 70 per cent of the climate finance received by the
region between 2016 and 2021 was concentrated in four
sectors: Transport & Storage (29.6 per cent of total
climate finance flows in 2016-2021), Energy (22.7 per
cent), Water Supply & Sanitation (9.9 per cent), and
Agriculture, Forestry, Fishing (8.9 per cent). Within the
transport sector, rail transport was the main subsector
(18 per cent of total climate finance flows in 2016-
2021), followed by road transport (6 per cent), and
Transport policy and administrative management (3.7
per cent). Within energy, the main subsectors were
Electric power transmission and distribution (5 per
cent), Energy policy and administrative management (4
per cent), Energy generation, renewable sources -
multiple technologies (3 per cent), Hydro-electric power
plants (2.5 per cent), Solar energy for centralized grids
(1.9 per cent), and Energy conservation and demand-
side efficiency (1.3 per cent).
Figure 2.10: Climate finance to Asia and the Pacific over time and by financing instrument.
Source: ESCAP based on data from OECD91.
Note: The figures show total climate finance measured in current United States dollars committed by developed countries from
multilateral climate funds, MDBs, and bilateral sources.
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Achieving climate goals requires developing countries to
go beyond reliance on promised funding from developed
countries. It is encouraging that publicly sourced
climate finance to Asia-Pacific developing countries is
on the rise. However, even if these flows continue
growing at an annual rate of 12 per cent, as they did
between 2016 and 2020, the amounts will not suffice to
cover the large financial gaps faced by countries in the
region for the transition to a low carbon economy, nor
will the funds be enough to meet the investment
required for the energy transition.
The Just Energy Transition
Partnerships
The Just Energy Transition Partnerships (JETPs)
present a promising model of partnership between
policymakers, regulators, donors, and private investors
for the region. While it is not feasible for every country
in the region to participate in a JETP, policymakers can
nonetheless take away several key lessons from the
initiative.
The Indonesia Just Energy Transition Partnership
(JETP) was launched in November 2022. Following the
South Africa model, this is a country platform of
coordinated policies, regulatory improvements,
(anticipated) project pipelines, and financing
commitments that together aim to mobilize 10 billion of private finance will be mobilized
and facilitated by the Glasgow Financial Alliance for Net
Zero (GFANZ) Working Group.
The Viet Nam Just Energy Transition Partnership
launched in December 2022 will rally an initial $15.5
billion of public and private finance over the next three
to five years to support Viet Nam’s green transition.
Initial contributions to Viet Nam’s JETP include $7.75
billion in pledges from the IPG together with the Asian
Development Bank and the International Finance
Corporation. This is supported by a commitment to work
to mobilize and facilitate a matching $7.75 billion in
private investment from an initial set of private financial
institutions coordinated by the Glasgow Financial
Alliance for Net Zero (GFANZ), including: the Bank of
America, Citibank, Deutsche Bank, HSBC, Macquarie
Group, Mizuho Financial Group, MUFG, Prudential PLC,
Shinhan Financial Group, SMBC Group, and Standard
Chartered.
The Indonesia and Viet Nam JETPs provide a model to
the rest of the region to focus their financing strategies.
Their JETPs coordinate national commitments to
peaking emissions, phasing out coal, improving
regulations and ensuring bankable projects for private
finance as well as public finance. In turn, this
commitment and coherence at the national level has
attracted private finance commitments in addition to
donor finance. For the rest of the region’s developing
countries, the model suggests that pragmatically
focusing on coherence and change within a specific
sector can yield results. Strong policy and regulatory
commitment in a specific sector and area signals to
investors that pricing risks around regulatory and policy
uncertainty will likely subside, reducing the cost of
financing (or the “uncertainty premium”).
C. Challenges
This section discusses some of the challenges faced by
governments, particularly in developing countries, to
strengthen the depth, access, efficiency, and stability of
sustainable financial markets; and to bridge the gap by
mobilizing enough sustainable finance to meet national
goals.
The lack of policy coherence by policymakers affects
the amount of sustainable finance flows to countries
and the integrity (standards) of these flows. A lack of
coordinated policymaking between goals, trade-offs,
activities and resources between ministries,
departments, and agencies responsible for designing
and implementing climate-related mandates and
financial sector mandates adversely affects transaction
costs and reduces efficiency. It also negatively drives
risk perceptions about the reliability, predictability, and
stability of the policy and regulatory regime.
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Coherence between policy commitments and
independent regulatory approaches is also essential.
Scaling up green and climate finance involves
transforming not only green and climate finance policies
but also other areas of business and investment
policies, especially with regards to the real economy.
The policy environment exerts a strong influence over
investment decisions, and if the legal and regulatory
system is unclear, contradictory, or creates unintended
barriers, a country is less likely to attract the necessary
climate finance. One example is a country with an
ambitious emission reduction target, but legal and
regulatory frameworks that provide preferential
treatment for fossil fuels. Policymakers thus need to
balance numerous competing policy choices and
regulatory arrangements in many different sectors and
levels of government.
Expertise, skills, and resources are required by
policymakers to access multilateral climate fund
funding. The GCF project approval time, for instance, for
LDCs is often long. In the time span between November
2015 and July 2021, the median time for processing an
application was of 619 days or 21 months. Because
submissions are made quarterly in accordance with the
GCF project submission schedule, this could represent
up to six or seven rounds of reviews of the funding
proposal at the GCF Secretariat and/or from an
Independent Technical Advisory Panel (ITAP). The
shortest approval time for LDC projects was 113 days
(about four months) and the longest was 1,727 days or
58 months. Adaptation projects bore the longest
average time — 22 months compared to 20 months for
mitigation and cross-cutting projects.92
“Public sector of SIDS like Samoa inherently face major human
and technical capacity constraints throughout the project cycle,
from project origination to implementation. The complexity of
the climate finance landscape and the lack of harmonization
among the requirements of multilateral climate funds and
donors further exacerbate this challenge. Improved capabilities,
more predictable and long-term financing can be key to the
development of pipeline projects for potential investments and
access to funding opportunities for SIDS.” – Peseta Noumea
Simi, Chief Executive Officer, Ministry of Foreign Affairs and
Trade of Samoa
The cost of sustainable finance is affected by countries’
sovereign credit ratings. Sovereign credit ratings are
usually a combination of domestic economic risk, public
finance risk, external economic risk, financial stability
risk and environmental, and social and governance risk.
We see this in Table 2.4 below, which shows that
investment-grade sovereign ratings are correlated with
much larger volumes of GSS+ bond issuance. Such
bonds enjoy a cheaper cost of financing for green
projects and can be issued in larger volumes, given the
lower debt servicing costs. However, sustainable
finance instruments can still be issued successfully
without investment-grade ratings. As Table 2.4 also
shows, countries with non-investment grade sovereign
ratings have also successfully issued GSS+ bonds. The
volumes are still low, but they signal that there exists
appetite for such instruments.
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Table 2.4: GSS+ bond issuance and sovereign/jurisdiction credit ratings.
Country / Economy
GSS+ bond issuance, 2015-2022
(Millions of United States dollar)
Sovereign/Jurisdiction
Corporate
Sovereign/Jurisdiction
and corporate
Year of first issuance between
2015-2022 and type
Investment grade
China
280,759
280,759
2015 (Green)
Japan
94,536
94,536
2015 (Green)
Republic of Korea
1,315
71,959
73,274
2016 (Green)
Hong Kong, China
9,817
15,349
25,166
2015 (Green)
Australia
22,163
22,163
2015 (Green)
India
22,144
22,144
2015 (Green)
Singapore
1,737
8,778
10,516
2017 (Green)
Philippines
4,309
6,146
10,455
2016 (Green)
Indonesia
6,468
3,892
10,361
2018 (Green)
Thailand
3,382
6,169
9,552
2018 (Sustainability)
Malaysia
2,269
2,805
5,074
2017 (Green)
New Zealand
1,828
2,234
4,062
2016 (Green)
Non-investment grade
Uzbekistan
869
869
2021 (Sustainability)
Georgia
830
830
2020 (Green)
Türkiye
700
700
2016 (Sustainability)
Viet Nam
625
625
2021 (Green)
Armenia
64
64
2020 (Green)
Fiji
54
54
2017 (Green)
Bangladesh
17
17
2021 (Green)
Kazakhstan
0.4
0.4
2020 (Green)
Pakistan93
-
2021 (Green)
Non-rated
Russian Federation
117
117
2018 (Green)
Total
32,050
539,289
Number of issuances
45
2,212
Source: ESCAP based on Environmental Finance Data, accessed on 4 April 2023 and Trading Economics, accessed on 26 February 2023.
Note: Corporate refers to both financial and non-financial corporations. Issuances by government agencies and municipality are not
included.
Despite an increasing demand for green projects, the
paucity of bankable projects in national pipelines is a
serious issue. For governments, building a pipeline of
projects that meet the bankability needs of the relevant
investors in terms of climate finance is often a
challenging process. Outreach to the relevant investors
is also challenging. From a returns perspective, green
projects (particularly in adaptation) may involve high
upfront costs and a longer term for payouts. Pricing may
be better in non-green asset classes, though that may
not always be the case. However, risks in the interim
period between costs being paid upfront and returns
materializing later are still challenging to financiers.
These include risks at the country level, sector level,
borrower/project developer level, and increasingly,
related to external shocks. Untested regulatory
environments and green business models can also
create liabilities for first movers. In this instance, the
global discussion on reform within multilateral
development banks can help boost financing for riskier
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projects. But building climate finance or green pipelines
is nonetheless a whole-of-government process due to
the need to coordinate standards, sectors, and MDB and
investor outreach.
D. Recommendations
Based on the thorough discussion of trends,
opportunities, and challenges presented above, this
section puts forward a series of recommendations for
governments and policymakers. While they are not
exhaustive, they nevertheless present the most critical
areas for policymakers to begin as soon as possible. In
addition, these recommendations (which are set out in
detail here) have been aggregated into our final set of
ten principles of action for the region to bridge the
sustainable finance gap in Asia and the Pacific, set
forward in the final chapter.
▪ Develop effective and coherent NDC financing
strategies with interim 2030 and 2040 targets, and
clear resource mobilization plans. Efforts should
be spearheaded by authorities with clear
mandates. This would clearly signal to investors,
businesses, and project developers that
governments are committed to change. While most
governments have submitted NDCs, many of them
do not include financial needs – ideally broken
down by industry, sector, use, and area. Such
needs should ideally be identified in the form of a
national level NDC financing strategy which maps
climate mitigation and adaptation projects or
programs with expected/planned sources of
government finance, international financial
assistance, and private finance. Large ballpark
financial figures are currently included in some
NDC action plans, but without a clear methodology
that depicts how such figures were arrived at, it is
difficult for countries to begin mobilizing the
finance necessary from the best sources. What is
needed are defined investment priorities,
concomitant policy and regulatory improvements
related to those priorities, investor, DFI and MDB
outreach plans, including to potential international
donors, and a list of properly vetted projects that
are matched to possible financing sources. This
coherent and cohesive process itself requires
government investment in building capacity, data,
and systems.
The process would similarly include an
evaluation of regulatory and policy barriers to
enabling private sector investment in
adaptation.94 For example, in China (the largest
green bond market in the world), such a regime
is implemented with a focus on inter-ministerial,
central-local and international collaborations,
centralized policymaking, and the alignment of
green goals with performance assessments of
local officials.95 Interestingly, evidence reviewing
current financing strategies suggests that “it is
not clear that a strategy that includes detailed
costing of adaptation actions is more effective
than a high-level strategy that builds awareness
and high-level political buy-in.”96
Consequently, any financing strategy should be
broader than merely seeking resources from
developed countries. Improvements to the
enabling environment encourage increased
private sector investment. The political economy
of sustainable financing within a country should
also be considered, especially regarding
domestic investors and businesses. Finally, the
preparation of the strategy should involve private
finance from the beginning, even though this
compounds multi-stakeholder coordination
challenges. Such involvement is key for the lead
ministry in charge of NDC planning to translate
the country’s needs and opportunities into a
national priority list of feasible investments.
"When Armenia presented its NDCs, it was followed by a
concrete implementation plan that highlighted potential sources
for financing the NDCs and an annual financial plan, particularly
focusing on energy sector projects." - Erik Grigoryan, former
Minister of Environment, Armenia.
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▪ Encourage the financial sector and the private
sector to proactively plan for the net zero
transition, ahead of 2030 or 2050. This will also
increase local currency financing for the net zero
transition. As part of the above, the whole-of-
society transformation that needs to be
accelerated can kick off with governments
requiring the financial and private sectors to begin
disclosing their transition planning strategies.
Governments also need to call on the financial
industry (and therefore their underlying borrowers
the private sector) to set strategies and targets
that progressively align financial portfolios with
the NDCs. Of relevance to governments and other
public sector stakeholders is to ensure that any
legislation passed (particularly as it pertains to
corporate transparency and disclosure) is
supportive of emerging international sustainability
standards. As part of this approach, governments
should also encourage the use of central net zero
data platforms to overcome critical data gaps,
such as Singapore is doing through the
forthcoming Project Greenprint.97 Project
Greenprint is a blockchain-enabled, trusted,
common platform to manage and access ESG data
and to meet disclosure requirements locally and
internationally. It promotes data consistency and
clarity in disclosures and enables comparability of
data.
▪ Consider subsidizing the costs of measurement
and disclosures in green or sustainable finance, to
whatever extent possible, as part of the transition.
For example, the Monetary Authority of
Singapore’s sustainable bond grant scheme
offsets up to SGD 100,000 (approximately
$73,890) of additional expenses for external
reviews of eligible green, social, sustainability and
sustainability-linked bonds and promotes the
adoption of internationally accepted standards.
This has led to an increase in green issuance in
Singapore both by sovereigns and corporates.
Various, relatively small, incentives like these have
been used in Thailand, Indonesia, and China in
different forms such as discounts on pricing,
grants, tax breaks, tax credits, and other
incentives. While this may not be appropriate for
every economy, nevertheless their availability may
be useful to launch new markets and reduce first-
mover disadvantages.
▪ Ensure development of a pipeline of bankable
projects. The pipeline of projects needs to fit the
volumes, scales, and risk-return profiles that
interest multilateral climate funds, multilateral
development banks, development financial
institutions, and private investors. Solving this is a
complex issue and must include bringing relevant
investors onboard for advice at early stages,
despite the increased coordination costs faced by
investors. Private investors could in fact benefit by
not having to engage in the high transaction costs
related to identifying, developing, and financing
low-carbon bankable projects. Missing policy or
regulation in new sectors — such as renewable
energy or green technologies — further hinders the
development of such projects, where again,
governments can play a key role to develop them.
Additionally, governments may need proper
emissions-based assessments, disaster impact
assessments and nature-based assessments to be
able to prioritize projects. This activity also
requires significant capacity building within
ministries around the identification of such
projects. For example, the OECD’s review of green
infrastructure project pipelines98 highlights six
essential factors to attract investment to projects
in the pipelines. We underscore three of them for
all-sector green project pipelines:
Ensuring authority and ownership of the green
bankable project pipeline by ministries,
departments, or agencies with adequate ability to
co-ordinate public and private actors, signal
investment needs, translate national climate
commitments into prioritizing green projects, and
capable of outreach to multilateral climate funds
and private finance actors.
Ensuring that the right priorities are translated
through the pipeline is critical to build project
pipeline at the scale and rates far beyond current
volumes. Such priorities are not only about which
projects will reduce emissions the fastest but
should also reflect an understanding of the
commercial risks, potential returns, requirement
of heavy upfront capital expenditure and contract
enforcement risks.
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Ensuring transparency in how project pipelines
have been identified and using clear data and
criteria to specify why projects have entered the
pipelines. According to the Organisation for
Economic Co-operation and Development
(OECD),99 improved transparency equips
investors with information to justify subsequent
commitments and positions in pipelines, and to
develop exit strategies.
▪ Expand the role of national development banks, as
limited public capital must be deployed in a
manner that increasingly catalyzes private finance.
National Development Banks are a key element of
financial infrastructure in many emerging markets.
The Addis Ababa Action Agenda emphasizes the
fundamental role that well-functioning national and
regional development banks can play in financing
sustainable development. National banks play a
countercyclical role, especially during crises. The
Addis Agenda specifically calls on national and
regional development banks to expand their
contributions to areas important for sustainable
development. It also urges relevant international
public and private actors to support such banks in
developing countries. They are particularly
effective at accessing concessional financial flows
(either through directed lending or private
placement of bonds) from MDBs and bilateral DFIs
and intermediating them into the real economy,
either directly or as an apex lender. “Greening” an
existing national DFI or creating a new specialist
entity is a vital underpinning of continued access
to concessional finance. MDBs and bilateral DFIs
increasingly expect credit to be directed towards
sustainable economic development, and for
borrowers to demonstrate this through enhanced
ESG reporting and disclosure.
▪ Advocate for MDBs and bilateral development
financial institutions to increase local currency
lending. The global macroeconomic stability
concerns have again highlighted the profound
problems caused by the predominance of hard
currency lending by MDBs and bilateral
development finance institutions (DFIs). National
DFIs that previously borrowed cheaply in hard
currency are now struggling to manage these
dollar or euro liabilities against a loan book
dominated by local currency assets. The same
challenge affects the interface with MDBs and
DFIs looking to finance the commercial banking
sectors directly. The appetite for hard currency
lending during periods of currency depreciations in
the region has changed. As the global discussion
underway is tilting towards, MDBs and bilateral
DFIs need to explore new modalities for helping
borrowers absorb these exchange rate risks.
▪ Invest resources to build the necessary skills,
capacities, and data collection systems to bridge
the sustainable finance gap. For example, given
the substantial new commitments by donors100 to
multilateral climate funds, eligible governments of
developing countries should invest in improving
their capabilities to access the funds, particularly
when the transaction costs are worth the benefits
of the projects. Many countries also have
considerable room to improve their access to the
UNFCCC Financial Mechanism in the form of the
Green Climate Fund (GCF) and the Global
Environment Facility (GEF). Development of a
robust pipeline of project opportunities at a
national level is a critical success factor, as is the
accreditation of entities (particularly financial
institutions) that will curate projects and apply for
funding through the UNFCCC Financial
Mechanism. Figure 11 shows where countries have
already successfully applied to the GEF and GCF,
and where countries have been less successful or
not yet been successful, representing a set of
countries that would benefit from further
resources to strengthen capacities.
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Figure 2.11: Access to GEF and GCF climate finance in Asia and the Pacific.
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Source: ESCAP based on the World Bank Data, GCF Open Data and GEF Projects Database.101,102
Note: The figure shows the sum of GEF and GCF total financing at country level and excludes regional programmes. Total GCF financing
amount is calculated as the sum of Readiness Grants Financing and Funded Activities Financing. GEF financing corresponds to the sum of
project financing approved at country level. It includes grants and other types of financing under the following instruments - CBIT Trust
Fund, GEF Trust Fund, LDC Fund, Multi Trust Fund, NPIF, and the Special Climate Change Fund. Per capita financing is calculated based on
2021 population data.
▪ New climate finance partnerships, inspired by the
JETP model, should be considered. These
partnerships can bring together commitments to
transform the real economy by policymakers,
regulatory reform, donor capital, and private
finance. For example, in the energy sector, long-
term commitments to financing energy transitions
rely on the presence of comprehensive national
planning strategies that include energy efficiency,
electrification of end uses, clean power, and clean
fuels. Such integrated energy strategies are
lacking in many Asia-Pacific countries, but the
JETPs move decisively towards such integration.
Several cross-cutting barriers also inhibit clean
energy project development. These include lack of
carbon pricing and inefficient fossil fuel subsidies,
which can tilt the economic playing field against
clean energy. Inadequate regulatory frameworks,
including onerous permitting and licensing
processes, can exacerbate risks in early-stage
clean energy project development, for which
funding is particularly constrained. Again, these
barriers to climate action are anticipated to be
overcome to some extent by the JETPs.
▪ Adopt a conducive taxation regime towards the
net-zero-transition, and further align policy
coherence. Perhaps the most important role that
governments can play is to incentivize sustainable
economic development. Ultimately, financial
institutions will direct credit on the balance of risk
versus reward. Governments can reduce the risks
of enterprises adopting sustainable business and
operating models by creating fiscal incentives that
support extra financial headroom for financing.
This approach can be controversial with fiscal
planners that are rightly wary of undermining
public finances. Implementing well-aligned tax
incentives or deterrents can enable investors to
achieve their threshold of investment (referred to
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as the “hurdle rate” or the minimum rate of return
on a project or investment required by an investor)
— thus enabling more private finance.
▪ A combination of policy and regulatory
improvement and investor participation from the
inception of projects is what is needed in any
sector, not just the energy transition, to overcome
the current mismatch between the demand and
supply of private finance for the net zero
transition. For example, anecdotally, some private
investors in energy transition projects worldwide
find that they have been brought on too late and
are expected to co-finance projects that have been
pre-designed in too restrictive a fashion. In some
cases, the best returns within the project have
already been dedicated towards one investor
(often an MDB), leaving other private investors
with less attractive returns within their share of the
project and reducing the volume of financing
available. If private investors are brought onboard
at inception together with other investors to
communicate their preferences on risk, return,
tenors, corporate governance, ESG standards,
climate and social impact, domestic and
international regulatory compliance, legal clauses,
dispute resolution and other aspects of the
transaction; then truly investment-ready pipelines
can be built faster and better.
Conclusion
While there is no one-size-fits all policy for governments
in Asia and the Pacific, all countries face the challenge
of bridging the sustainable finance gap. Regional
cooperation on data, cross-border challenges, and
aligning investment norms through common taxonomies
or common regulatory approaches can work to level the
playing field between countries and reduce arbitraging
opportunities. Importantly, regional cooperation allows
less developed countries to learn from the lessons of
other policymakers and share best practices relevant to
the region’s unique context.
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3. WHAT CAN
REGULATORS DO?
A. Introduction
A well-functioning sustainable financial system has
depth, efficiency, access, and stability. A rich diversity
of instruments is available to meet the demands of
investors amid a fast-flowing current of exchange. As a
Bank of Thailand regulator notes, “An efficient financial
market is one with proper depth and breadth. That is, on
the supply side there is a wide range of financial
instruments, offering choices of issuers, credit risks,
etc. to satisfy all classes of asset demand. On the
demand side, there has to be sizable investment
demand from various types of investors, with different
risk-return appetites. Also, a good diversity among
issuers and investors usually brings about a good mix of
market views, leading to an active exchange of financial
assets. A highly liquid financial market as such is able
to accommodate large and varied issuance of financial
instruments with minimum price effect. Here, financial
instruments can be quickly exchanged at reasonable
cost. [An] efficient clearing and settlement system is a
key supporting factor that helps lower transaction
cost.”103
Sustainable finance requires the participation of far
more regulatory bodies than just the financial
regulators. To date, much of the fast-changing
regulatory advances seen regionally and globally have
been driven by central banks and securities and
exchange commissions. While this report concentrates
on the role of financial regulators, sustainable or green
finance demands significant coordination and
coherence with other regulators. For example,
environmental protection agencies issue the permits
that allow investments to go ahead. Departments of
industries regulate the fiduciary duties of directors of
companies,104 especially in a context where litigation
that challenges companies’ contribution to climate
change is increasingly common. Competition and
consumer protection regulators are also involved,
through implementing guardrails against the potential
greenwashing of products and services. Real economy
regulators, such as energy regulators with science-
based targets involving emissions reductions, or
national electricity boards that make offtake
agreements with set prices in renewable energy,
similarly play a profound role in financing the energy
transition. New green technologies, such as green
hydrogen, may also involve regulators for carbon
trading, the greenhouse gas quota system, or to enforce
other compliance requirements around the carbon-
intensity of production of steel, fertilizer, and heavy
transportation. While financial regulators’ decisions
undoubtedly influence investment in sustainable
finance, and are at the heart of the regulatory debate,
they are unquestionably not the “only game in town”
when it comes to sustainable finance.
B. What is the role of
financial regulators in
sustainable finance?
There is currently significant debate about the extent
and substance of the role of financial regulators. On the
one hand there has been accelerating momentum to
develop sustainable finance taxonomies; on the other
hand, varied definitions, and degrees of implementation
throughout the region creates the risk of arbitraging
opportunities and disadvantaging actors with less
capacity. Consistency remains a work in progress.
Nevertheless, to varying degrees across the region,
regulators have adopted either piecemeal or in full the
following regulatory roles related to sustainable finance
(both Track 1 and Track 2):
▪ Ensuring that financial stability, which is affected
by climate change and biodiversity loss, is
maintained in the system through macroprudential
policies105
▪ Ensuring adequate microprudential supervision106
for the safety and soundness of financial
institutions and ensuring that capital by financial
institutions is sustainably managed
▪ Shifting capital towards low-carbon investments
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▪ Aligning national sustainable finance regulation
with international norms and standards
▪ Supporting policy priorities as articulated by
member States in the Paris Agreement and related
commitments
▪ Confirming that sufficient information and
capacities for the above are available throughout
the financial system
In the following section, the report discusses trends and
opportunities in regulatory roles, noting that this is an
extremely dynamic field and by time of publication the
landscape will have evolved significantly.
C. Trends and opportunities
Integrating climate-related
financial risks into macroprudential
stability assessments remains
challenging.
It is now widely accepted that physical risks and
transition risks undermine the stability of the financial
system. Physical risks refer to the risks arising from
weather-related events (rising sea levels, floods, heat)
which affect financial portfolios and can be jarring for
financial stability. Transition risks occur when
economies move towards a less polluting, greener
economy. Such transitions could mean that some
sectors of the economy face big shifts in asset values or
higher costs of doing business.107
The “tragedy of the horizon” poses significant additional
challenges to maintaining financial stability. Mark
Carney, former governor of the Bank of England and
Chairman of the Financial Stability Board, coined the
term “tragedy of the horizon” to refer to the decade-long
forecast used by central banks to manage monetary
policy and financial stability. However, the catastrophic
impacts of climate change will be felt beyond the
traditional horizons of most actors, with actions
undertaken today resulting in less costly adjustment.108
As Mark Carney noted, the risks to financial stability will
be minimised if the transition begins early and follows a
predictable path, thereby helping the market anticipate
the transition to a 2 degree world.109
In addition, physical and transition risks are prone to
being experienced as “green swans”. According to the
Bank of International Settlements, a ‘green swan’ is a
climate black swan, named after Nassim Nicholas
Taleb’s popular concept for events with major effects
that come as a surprise and are recognised only in
hindsight. The physical and transition risks of climate
change are characterized by deep uncertainty and
nonlinearity, so their chances of occurring are not
reflected in past data. These unknown unknowns make
traditional approaches to risk management largely
irrelevant.110 This is an indication of the challenges that
lie ahead — not only for central banks — but for the
entire financial system to assess and incorporate
climate-related risks into operations.
Climate risks translate into credit, market, underwriting,
operational, and liquidity risks. Figure 3.1 shows the
types and complexity of physical and transition risks,
the latter of which are particularly difficult to forecast.
Along with transmission channels, sources of variability,
and five types of threats – to credit systems, the market,
underwriting, operations, and liquidity — traditional
methods of financial risk management are at a loss in a
climate stress context. This profoundly affects the
traditional methods of managing macro and
microprudential risks in the region. It is therefore
equally, if not more, important that individual banks and
businesses acting in the financial system mainstream
the diagnosis, assessment, and planning into their
portfolios and operations. This will in turn help central
banks perform their supervisory duties well and to
conduct stress-tests under accurate parameters.
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Figure 3.1: Transmission channels from climate risks to financial risks.
Source: NGFS (2021a).
Assessing risk channels, given their complexities,
continues to be extremely challenging. According to
recent research published at the Journal of Financial
Regulation, difficulties in stress testing are exacerbated
by their long-time horizon (generally 30 years) and
radical uncertainty about possible climate pathways and
their probability distribution. Their unprecedented and
potentially catastrophic consequences mean that well-
established risk management tools in the financial
industry, such as Value-at-Risk models and stress tests,
cannot readily be used. Exploratory scenario-based
impact assessments must be used instead. In addition,
if climate-related risks materialize, they would affect the
economy and the financial system as a whole and may
be amplified by the pro-cyclical behaviour of market
participants; the self-reinforcing reductions in bank
lending and insurance provision; the bank-sovereign
nexus;111 the feedback loops with the real economy; and
network and cross-border effects.112
In addition, the ability to perform appropriate climate-
based stress testing by regulators is contingent on the
data quality and capabilities of regulators. The Network
for Greening the Financial System has made significant
advances to develop climate-based scenarios for
regulators which, due to the challenges and costs of
creating such scenarios, are beyond most individual
institutions. The first iteration of NGFS scenarios was
released in 2020. In Asia and the Pacific, four central
banks as of November 2022 concluded a first exercise
in stress-testing based on the three NGFS scenarios
known as the “hothouse” scenario, the “disorderly
transition” scenario, and the “orderly transition”
scenario, as shown in Figure 3.2. These scenarios imply
significant per cent changes in GDP from physical and
transition risks as seen in Panel 2 of Figure 3.2. For
example, the delayed transition scenario implies a close
to 5 per cent reduction in GDP globally by 2050 due to
the manifestation of both physical and transition risks.
While regulators in the region are increasingly
conducting climate stress-testing, gaps in data and
abilities remains a major hurdle. The four regulators who
have already conducted NGFS stress testing at time of
writing include: the Monetary Authority of Singapore,
People’s Bank of China, Japan Financial Services
Agency/Bank of Japan, and Bangko Sentral ng Pilipinas.
The Reserve Bank of India, Bank Indonesia, Bank of
Korea, Bank Negara Malaysia, and the National Bank of
Georgia are five additional central banks that are in the
midst of conducting the scenario exercise or planning to
do so.113 According to the NGFS, in light of challenges
posed by data gaps and methodological uncertainties,
no members as of yet have envisaged calibrating
prudential policies, such as capital requirements, on the
basis of their exercise.114
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Figure 3.2: Alternative scenarios and impacts of
financial risks due to climate-related risks.
Source: NGFS (2021a)
Ensuring financial stability also
hinges upon climate and nature-
related disclosures and data from
individual financial institutions.
Supervisory authorities report the lack of granular and
sectoral counterparty-level emissions data, as well as a
dearth of consistent and comparable data reporting
standards for counterparties and financial institutions,
as a major challenge.115 This is echoed by the Financial
Stability Board,116 which reports that “the lack of
sufficiently consistent, comparable, granular and
reliable climate data reported by financial institutions is
one main challenge for authorities in the development of
supervisory and regulatory approaches to climate-
related risks. Areas where data contribute to identifying
exposures and understanding the impacts from climate-
related risks include: sufficiently granular data on
sectors or economic activities that are sensitive,
vulnerable or exposed to physical, transition and liability
risks; financial institutions’ exposures to such sectors or
economic activities; geographical location of financial
institutions’ exposures most prone to physical risk; and
financial institutions’ and their counterparties’ reporting
of carbon-related metrics, including Scope 1, 2, and 3
Greenhouse Gas (GHG) emissions.”117 Figure 3.3 below
is an analysis118 of more than 2,000 companies on 22
stock exchanges in G20 countries, and shows the top
100 Scope 1 emissions data. Such data allows capital
markets regulators to work with issuers to take well-
calibrated and orderly actions towards the net-zero
transition.
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Figure 3.3: Scope 1 emissions of the top 100 issuers by market.
Source: Miller, and others (2021).
Note: the figure shows the analysis of the scope 1 emissions of the top 100 issuers by market capitalization listed on each of the 22
exchanges in G20 countries.
As outlined by the Bank of England in 2015, and is worth
being reminded of, data is required to be consistent,
comparable, reliable, clear and efficient. This means
that data should be consistent in scope and objective
across the relevant industries and sectors.
Comparable means it should allow investors to assess
peers and aggregate risks. Reliable means that it should
ensure that users can trust the data. Clear means that it
should be presented in a way that makes complex
information understandable. Efficient means that it
should minimize costs and burdens while maximizing
benefits. Convergence in standards across jurisdictions
ensures comparability regarding the quality and scope
of data.
This is not yet the case. Standards and frameworks are
rapidly fluctuating and improving for the better, but it
remains widely acknowledged that current sustainable
finance data disclosure frameworks do not (yet) meet
these objectives — impeding uptake and application.
Furthermore, the availability of quality data is critical to
set appropriate science-based targets and benchmarks
for future pathways of corporates, financial institutions,
and sectors. However, there are reasons to be optimistic
about the state of data for the sake of sustainable
finance. The International Sustainability Standards
Board (ISSB) plans to streamline sustainability
disclosures through its 2023 standard-setting work; the
EU’s Sustainable Financial Disclosure Regulation will
apply to all EU capital investing in the region; and the
upcoming United States Securities and Exchange
disclosure requirements will modernize reporting
structures. We hope that sustainability and green
disclosures will increasingly become consistent, clear,
and comparable.
In the meantime, voluntary international climate-related
disclosures to support regulators with the right
information is increasing by leaps and bounds.
According to the Taskforce on Climate Related Financial
Disclosures (TCFD),119 in its fifth annual TCFD status
report in December 2022, a survey of asset owners and
managers found that more than 60 per cent of managers
and 75 per cent of owners report climate-related
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information to their clients and beneficiaries. Nearly 50
per cent of asset managers and 75 per cent of asset
owners120 disclosed information aligned with at least
five of the 11 recommended disclosures. In addition,
participation in climate-related data disclosures through
financial filings or annual reports (including integrated
reports) surged from less than half of companies (45
per cent) in 2017 to more than 70 per cent of companies
in 2021.121 This clear hike in disclosures is reflected
below in Figure 3.4.
Figure 3.4: Implementation of the TCFD
recommendations and use of climate-related
disclosures.
Source: FSB (2022b).
Asia and the Pacific is the second leading region for
climate-related financial disclosures, after Europe.
According to TCFD, more than 4,227 organizations have
become supporters of the TCFD recommendations as of
February 2023, a number which has steadily risen since
the recommendations were first published in 2017.
Supporters include upwards of 1,500 financial
institutions, responsible for 26 trillion.122 Asia-Pacific organizations
account for 46 per cent of this number (1,956) – of
which 792 organizations became supporters between
2022 and February 2023 (40 per cent of the total for the
Asia-Pacific region). Figure 5 below shows the
distribution of sectors and countries where companies
are following TCFD disclosure requirements. Of these,
all regions have significantly broadened their levels of
disclosure over the past three years. While the number
of companies (1,956) is still a tiny proportion of all the
large companies in Asia and the Pacific,123 growing
adoption of the practice of disclosures is nonetheless a
positive trend that needs to be encouraged further.
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Figure 3.5: Number of organizations in Asia and the Pacific that have declared support for TCFD recommendations.
Source: TCFD124.
Note: The list of TCFD supporters includes organizations that have publicly declared support for the TCFD and its recommendations,
demonstrating that they are taking action to build a more resilient financial system through climate-related disclosure. TFCD supporters
include private companies, industry associations, banks, credit rating agencies, central banks, stock exchanges, government agencies,
and other types of organizations.
Finally, while climate-related disclosures are gaining
momentum, nature-related disclosures have yet to
become mainstream. The Taskforce on Nature-Related
Disclosures has published a draft framework125 to bring
clarity and methodological guidance to assessments of
nature-related dependencies, impacts, risks, and
opportunities. Like climate-related disclosures, such
disclosures should be in line with country commitments
within the Kunming-Montreal Global Biodiversity
Framework. As an indication for regulators and private
finance in the region, Table 3.1 below shows the
preliminary scope and possible extent of the
recommended nature-related disclosures.
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Table 3.1: The TNFD revised draft nature-related disclosure recommendations.
Source: TNFD (2022).
TNFD nature-related disclosure recommendations
Governance
Strategy
Risk & impact management
Metrics & target
Disclose the
organization’s governance
around nature-related
dependencies, impacts,
risks and opportunities.
Disclose the actual and
potential impacts of
nature-related risks and
opportunities on
businesses, strategy, and
financial planning where
such information is
material.
Disclose how the
organization identifies,
assesses, and manages
nature-related dependencies,
impacts, risks, and
opportunities.
Disclose the metrics and
targets used to assess and
manage relevant nature-
related dependencies,
impacts, risks, and
opportunities where such
information is material
Recommended disclosures
A. Describe the board’s
oversight of nature-related
dependencies, impacts,
risks, and opportunities.
A. Describe the nature-
related dependencies,
impacts, risks, and
opportunities the
organization has identified
over the short, medium,
and long term.
A. Describe the
organization’s processes for
identifying and assessing
nature-related dependencies,
impacts, risks, and
opportunities.
A. Disclose the metrics
used by the organization to
assess and manage nature-
related risks, and
opportunities in line with its
strategy and risk
management process.
B. Describe the
management’s role in
assessing and managing
nature-related
dependencies, impacts,
risks, and opportunities.
B. Describe the impact of
nature-related risks, and
opportunities on the
organization’s businesses,
strategy, and financial
planning.
B. Describe the
organization’s processes for
managing nature-related
dependencies, impacts, risks,
and opportunities.
B. Disclose the metrics
used by the organization to
assess and manage direct,
upstream and, if
appropriate, downstream
dependencies and impacts
on nature.
C. Describe the resilience
of the organization’s
strategy, taking into
consideration different
scenarios.
C. Describe how processes
for identifying, assessing,
and managing nature-related
risks are integrated into the
organization’s overall risk
management.
C. Describe the targets
used by the organization to
manage nature-related
dependencies, impacts,
risks, opportunities and
performance against
targets.
D. Describe the
organization’s integrations
with low integrity
ecosystems, high
importance ecosystems
and areas of water stress.
D. Describe the
organization’s approach to
locate the sources of inputs
used to create value that may
generate nature-related
dependencies, impacts, risks,
and opportunities.
D. Describe how targets on
nature and climate are
aligned and contribute to
each other, and any other
trade offs.
E. Describe how
stakeholders, including right-
holders, are engaged by the
organizations in their
assessment and response to
nature-related dependencies,
impacts, risks, and
opportunities.
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Trends in microprudential
supervision of financial institutions
Regulators have developed environmental and social
risk management (ESRM) guidelines for financial
institutions in the region. Many central banks in Asia
and the Pacific, notably in Bangladesh, Nepal, and
Philippines, have taken active steps to develop and roll
out ESRM guidelines for banking sectors and individual
financial institutions. Unlike the voluntary nature of
most roadmaps and taxonomies, ESRM guidelines —
which incorporate policies into institutional banking
processes and procedures — are mandatory. ESRM
strategies are risk management focused, and as such
they do not incorporate science-based targets or focus
on emissions reductions.
In addition to standard ESRM guidelines, there are
increasing calls for financial institutions to formulate
and disclose net-zero transition plans to regulators. The
Taskforce on Climate Related Financial Disclosures
recommended the introduction of climate transition
plans in 2021, which have been further reinforced by the
efforts of the G20 and the Glasgow Financial Alliance for
Net Zero.126 Such transition plans, set forward by both
financial institutions as well as real economy
businesses, differ by jurisdiction. The latest NGFS
stocktake of financial institutions’ transition plans127
relates that there are a range of approaches and
priorities put forth in transition plans. While some
economies have focused on emissions reduction, others
have prioritized sustainable development, enhancing
resilience to climate change, or developing the economy
while keeping emissions low, consistent with
international agreements. This, in turn, changes the
context for expectations of different jurisdictions.
Microprudential authorities will also assess financial
institutions’ safety and soundness during the transition
to a low-emission economy in different ways depending
on the prospects outlined in the plan.
Net zero and biodiversity transition plans are
increasingly called for. The World Wildlife Fund
(WWF)128 further urges central banks, financial
institutions, and actors such as insurers to adopt
credible transition plans, set out clear and actionable
steps to achieve science-based climate and nature
targets, and enable an economy-wide transition towards
sustainability. Transition plans must provide necessary
clarity and guidance to financial market actors and have
clear quantifiable, legally binding climate and
biodiversity goals for 2025, 2030, and 2050. The plans
should include all central banking, financial regulation,
and supervision activities. The WWF asks stakeholders
to ensure that monetary policies and financial regulatory
instruments better reflect the economic cost and
financial risk of “always environmentally harmful”
economic activities, companies, and sectors as these
assets represent the highest financial risks. Financial
institutions lending to companies involved in
environmentally harmful activities should face far higher
capital requirements to account for the long-term risks
involved.
How regulators are supporting
government priorities and shifting
capital to low carbon investments
Regulators play a key role in translating policy
commitments into systematic actions. Every country has
a set of policy commitments and legislation, and they
are sometimes subject to internationally binding
financial regulations or norms. All these provide the
parameters for the national development of sustainable
finance and can be summarized through one or a
combination of the following: sustainable finance
roadmaps, sustainable finance taxonomies, green bond
frameworks, sustainable stock exchanges and/or other
sustainable finance initiatives. These sustainable
finance regulatory approaches for the most part specify
how capital can be deployed towards environmental
objectives and are different from the ESRM and climate
or nature-related risk assessment approaches discussed
above. It is important to note that although roadmaps,
taxonomies, and other sustainable financing
frameworks are usually not binding, they are
nonetheless critical tools to guide the development of
the sustainable finance ecosystem and signal the future
intentions of regulators.
Financial authorities are increasingly producing
sustainable finance roadmaps presenting the pathway
to achieve government targets. For example, in 2014,
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Indonesia’s Financial Services Authority (OJK) produced
a Sustainable Finance Roadmap as a comprehensive
plan for promoting sustainable finance. The roadmap
covered both the medium-term (2015–2019) and the
longer term (2015–2024) plan for the financial services
industry.129 The aim of the roadmap was to promote
sustainable development through key governmental,
industry, and international institutions. Given the
ongoing high demand for energy to support Indonesian
development, the sustainable finance roadmap (led by
the financial regulator) promotes energy conservation,
as well as the funding of new and renewable energy
sources. Other focus areas include agriculture,
processing industries, general infrastructure, and
measures to assist micro-, small- and medium-sized
enterprises. Since July 2017, OJK mandates banks to
develop sustainable finance action plans for sustainable
financing and to issue sustainability reports, as well as
to report their green financing exposures.130
Many countries globally are developing Sustainable
Finance Roadmaps to guide this process. These
roadmaps vary in depth and approach but are typically
understood as something more tangible than pure
strategy — without striving for the detail of an
implementation plan. Most aim to describe a suite of
sequenced tasks and activities, and assign stakeholder
responsibilities, in a way that improves communication
and cooperation between actors. Often the task of
developing a roadmap is spearheaded by regulators, due
to their convening power and thorough appreciation of
their respective franchises – whether banking, capital
markets, or insurance. The list of existing roadmaps in
the region can be seen in Table 3.1 below.
The type and purpose of each country’s sustainable
finance roadmap is different. For example, the Bangko
Sentral ng Pilipinas (BSP)’ Sustainable Finance
Roadmap131 was prepared to a) outline the goals to
support the current initiatives and policies to create a
supportive environment for the widespread adoption of
sustainable finance in the Philippines, b) determine
priority areas and acknowledge the basis for
improvements relating to sustainable finance, c) provide
strategic direction and recommendations to accelerate
sustainable finance and d) provide investment and
policy signals to support the transition to a sustainable
economy. Through this Roadmap, the BSP
communicates its expectations that banks should
disclose their sustainability strategy objectives, risk
appetite, and risk management system in annual
reports. In Singapore, the recent Finance for Net Zero
Action plan announced by the Monetary Authority of
Singapore covers four strategic outcomes around 1)
data, definitions and disclosures, 2) a climate resilient
financial sector (including climate-scenario analysis), 3)
credible transition plans (supporting the adoption of
science-based transition plans by FIs) and 4) green and
transition solutions and markets (including an
expansion of grant schemes totalling SGD15 million, or
more than $11 million, over the next five years till 2028)
to include transition bonds as well as incentives to
encourage the early adoption of entity-level
sustainability disclosures.132
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Table 3.2: Implemented national sustainable finance roadmaps.
Country
Sustainable finance roadmap
Date of issuance
Azerbaijan
Sustainable Finance Roadmap 2023-2026
2023
China
China’s Guidelines for Establishing the Green Financial System
2016
Georgia
Roadmap for Sustainable Finance in Georgia
2019
Indonesia
Sustainable Finance Roadmap Phase II (2021 - 2025)
2014 (Phase I), 2021 (Phase II)
Mongolia
National Sustainable Finance Roadmap
2018 (1st version), 2022 (2nd version)
Philippines
The Philippine Sustainable Finance Roadmap
2021
Singapore
Finance for Net Zero Action Plan
2023
Thailand
Sustainable Finance Initiatives for Thailand
2021
Sri Lanka
Roadmap for Sustainable Finance in Sri Lanka
2019
Source: ESCAP based on IFC and SBFN (2023).
Note: Australia and New Zealand have non-government-led sustainable finance roadmaps.
Box 3.1: Cambodia and ASEAN sustainable finance
roadmaps.
ESCAP is supporting the National Bank of Cambodia in
its development of a Sustainable Finance roadmap to
advance Cambodia's green and social finance agenda.
The roadmap aims to enable Cambodia to deliver on its
climate and sustainable development goals, enhance
Cambodia's financial sector's competitiveness and
resilience, coordinate activities between different
stakeholders, and analyze possible synergies and
tradeoffs in the current financial ecosystem.
In addition, in coordination with partners the Global
Green Growth Institute (GGGI) and the ASEAN
Secretariat, ESCAP is supporting the development of
the ASEAN Green Map, a regional approach focused on
green and climate-related financing aligned with the
ASEAN Secretariat's vision to mobilize finance for the
SDGs in the region. The roadmap will draw together
stakeholder views, international best practices, and
lessons learned. It will identify the challenges
policymakers and market participants face and provide
clear measures to help overcome existing barriers and
assist with concrete steps to enhance green finance,
particularly in ASEAN’s LDC member states.
Furthermore, it will discuss the available opportunities
to mobilize finance to support the environmental
transformation needed in ASEAN to meet the SDGs by
2030.
Box 3.2: Thailand sustainable finance initiatives.
Recognizing the crucial role sustainable economic growth
plays in bringing about better living standards and
inclusive economic development for all, in 2015 Thailand
adopted the United Nations’ 2030 Agenda for Sustainable
Development (consisting of the 17 Sustainable
Development Goals), and, in 2016, committed to the Paris
Agreement to advance its Greenhouse Gas Emissions
reduction by 20 to 25 per cent from the business-as-usual
level by 2030.
The Three Regulators Steering Committee (Bank of
Thailand, the Securities and Exchange Commission, the
Office of the Insurance Commission, and the Ministry of
Finance) is a non-statutory body that provides a regular
platform for the three key financial regulators to discuss
policy issues. Recognizing the importance of the finance
sector to sustainable development, the Three Regulators
Steering Committee formed the Sustainable Finance
Working Group.
On 18 August 2021, the Working Group on Sustainable
Finance jointly published Sustainable Finance Initiatives
for Thailand (known as the Initiatives), with one of their
key work plans being the focus on setting the direction
and framework to drive sustainable finance across the
financial sector.
Source: WG-SF, GBRW Consulting and IFC (2021).
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Green and sustainable finance taxonomies in the region
further help direct investment towards national green
priorities. According to ICMA, a green taxonomy is a
classification system to identify activities or
investments that will move a country towards meeting
specific targets related to priority environmental
objectives. The taxonomy aims to help financial actors
determine which investments can be labelled as green
or sustainable for their jurisdictions. According to the
World Bank,133 taxonomies assist regulators to green the
financial system by a) supporting regulatory
interventions on the taxonomy to encourage banks to
lend to eligible green companies, b) facilitating new
climate or sustainability-related reporting and disclosure
guidelines for financial market actors or enhancing
existing ones, c) measuring financial flows toward
sustainable development priorities at the asset,
portfolio, institutional, and national levels and d)
avoiding reputational risk by preventing “green-
washing”.
Green bond frameworks can be part of taxonomies or
exist separately. In the case of green bond frameworks,
ICMA’s Green Bond Principles (GBP) can be considered
a global standard for issuers. The ASEAN Green Bond
standards are, for example, closely aligned with the
Green Bond Principles. Developing a green bond
framework is a crucial step to prepare for the release of
a green bond by all issuers, including sovereign and
corporate. The framework reveals to investors the
critical elements of any thematic bond issuance. The
core components of the framework include: the
rationale and strategy; use of proceeds, including
eligible project categories and exclusions; evaluation
and selection processes; processes for management of
proceeds; reporting; external reviews; and amendments
to the framework. The framework helps to ensure that
bonds adhere to international best practices and
incorporate high-level oversight to ensure transparency
and accountability. While in general green bond
frameworks should match national green taxonomies,
they can be developed by both sovereign and corporate
issuers without a national taxonomy.
Sustainable finance taxonomies allow regulators to
guide markets based on national priorities. They provide
information to investors to understand whether an
economic activity is sustainable (usually and mostly
meaning environmentally sustainable) and to navigate
the transition to a clear environmental objective. Some
taxonomies have an overarching objective around
climate change mitigation, others on low-emissions
development strategies. In the Russian Federation, for
example, the green finance taxonomy covers both green
and transition activities. It is compatible with recognized
international taxonomies and reflects criteria for
sustainable projects. For transition projects, it includes
projects in hard-to-abate industries substantially
contributing to the Russian Federation’s net zero target.
Across Asia and the Pacific, many countries have
adopted their own individual taxonomies of sustainable
finance. Activities, assets and/or project categories,
such as what the finance is used for, are ranked by
contribution to environmental objectives. For example,
activities could be labelled green, amber, or red, based
on contribution to the environmental objectives of the
taxonomy.
Box 3.3: ESCAP’s work on green bond frameworks
ESCAP is currently supporting three member
countries (Sri Lanka, Cambodia, and Bhutan), to
develop green and sustainability bond frameworks
and build institutional capacity on thematic bond
issuance. In Sri Lanka, collaboration with the Ministry
of Finance and Sri Lanka’s Sustainable Development
Council facilitated the development of a sovereign
green bond framework that was subsequently
approved by Cabinet in May 2023. ESCAP and GGGI
will provide continued support for a second-party
opinion of Sri Lanka’s Green Bond Framework. In
addition, ESCAP is collaborating with Cambodia’s
Ministry of Economy and Finance and GGGI to
contribute to the Sovereign Thematic Bond Issuance
section of Cambodia’s Comprehensive Policy
Framework on the Development of Government
Securities 2023 – 2028 and a subsequent Sustainable
Finance Framework for future thematic bond
issuance. In Bhutan, ESCAP and the Ministry of
Finance of Bhutan conducted a workshop with key
stakeholders at the end of 2022 to create shared
understanding of the best practices and principles of
sovereign thematic bond issuance, which will guide
the future development of Bhutan's Sustainable
Finance Framework, which ESCAP is supporting.
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Figure 3.7: Green and sustainable finance taxonomy development in Asia and the Pacific.
Source: ESCAP
Emerging transition finance taxonomies are charting the
path for financing activities that reduce emissions and
move brown activities towards green activities.
Sustainable finance taxonomies so far have mainly been
green taxonomies that do not, for example, permit the
financing of coal or fossil fuels. However, there is now
increased global recognition that it is essential to
finance transition in hard-to-abate sectors, such as the
phase out of coal or the transition of brown to green
activities as in the transportation sector. The recently
released second version of the ASEAN Taxonomy
includes not only green activities but charts a path for
phasing out brown assets.134 It is a further example of
how taxonomies iterate and evolve as living
classification systems and expand to incorporate
transition objectives as well. According to Sustainable
Fitch, the localized approach of the ASEAN taxonomy to
incorporate the coal phase out as a supported activity (a
world first in taxonomies) is expected to promote more
regional ESG-labelled debt issuances and back the
funding needs for a scalable energy transition.135 The
Indonesian presidency of the G20 in 2022 led to the
formation of a framework on transition finance136 which
guides financial institutions and real economy firms to
identify and understand what constitutes a transition
activity or investment opportunity and reduce the
identification barriers, costs, and transition-washing
risk.
In addition to roadmaps, taxonomies, and green bond
frameworks, some central banks also utilize directed
lending policies towards green objectives. According to
a survey of central banks in the region by the Asian
Development Bank Institute,137 22 per cent (or four) of
18 central bank respondents stated that their institution
currently has a strategic investment mandate or
approach to scale up private investment in low-carbon
sectors. The research cites that to boost green finance
in Bangladesh, banks were instructed to provide
financial assistance to green projects, with a minimum
of 5 per cent of their total loan disbursement or
investment. In addition, banks and financial institutions
were mandated to set up a climate risk fund. As much
as 10 per cent of banks’ and financial institutions’
corporate social responsibility budget must be allocated
to the climate risk fund. Funding can be undertaken
either via the provision of grants or through financing at
lower interest rates. Starting from December 2016,
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banks and financial institutions were instructed to
establish sustainable finance units.138 Similarly, in Viet
Nam, in accordance with the National Green Growth
Strategy and the National Action Plan on Green Growth
between 2014 and 2020, the State Bank of Vietnam
(SBV) has been assigned to lead institutional
improvement and capacity building in the banking sector
for green growth.139 In 2015, the SBV issued Directive
No. 3 to promote green credit growth and incorporate
ESRM into lending operations. Decision No. 1552 is an
action plan for the banking sector to contribute to the
National Green Growth Strategy to 2020.140
Regulators are putting forth green incentives for issuers
and borrowers. The Monetary Authority of Singapore
(MAS) launched the Green and Sustainability-Linked
Loan Grant Scheme (GSLS), to support corporates in
obtaining green and sustainable financing by defraying
up to SGD100,000 ($75,000) of the expenses of
engaging independent service providers to validate the
green and sustainability credentials of the loan. (This
has now been expanded to cover the period from 2023
to 2028 under MAS’ Finance for Net Zero Action Plan).
The Hong Kong Monetary Authority (HKMA) launched
the Green and Sustainable Finance Grant Scheme (GSF)
in its 2021-22 budget to provide subsidies for eligible
bond issuers and loan borrowers to cover their expenses
on bond issuance up to HKD2.5 million (100,000).
To support net-zero goals, the Bank of Japan (BOJ)
introduced a new fund-provisioning measure in 2021
providing funds for investments or loans made by
financial institutions that contribute to addressing
climate change at a zero-interest rate.
Box 3.4: Cambodian Sustainable Bond Accelerator.
While bond issuers in developing markets generally face considerable barriers to issuance, issuers of thematic bonds
(green, social, and sustainability bonds) are further constrained due to the limited awareness and capacities on the side
of issuers as well as high issuance costs. In March 2023, ESCAP, the Global Green Growth Institute, and the Securities
and Exchange Regulator of Cambodia (SERC), in collaboration with the Credit Guarantee and Investment Facility (CGIF)
and GuarantCo, launched the Cambodia Sustainable Bond Accelerator to provide technical assistance and support to
prospective private sector issuers.
Three private-sector bond issuers have been selected and will be provided with support, including developing bond
frameworks, meeting best practices, facilitating post-issuance reporting, and providing co-financing options to decrease
bond issuance costs and investment support. As H.E. Sou Socheat, Director General of the Securities and Exchange
Regulator of Cambodia (SERC), noted, "This is a crucial step towards growing Cambodia's capital market and achieving
our goal of encouraging the use of green, sustainability, and sustainability-linked bonds to aid private sector growth and
sustainable development in Cambodia." Through this support, ESCAP and its partners will be supporting the early stages
of green and sustainable bond issuance in Cambodia.
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There is growing momentum and consensus to
mainstream green regulation in the region. The
International Sustainability Standards Board global
baseline disclosure standards, released in June 2023,
will take a further step towards taxonomy unification
and allow for comparability and interoperability between
taxonomies across the region. Between the EU’s
Sustainable Financial Disclosure Regulation, which will
apply to all EU capital investing in the region, the
upcoming United States Securities and Exchange
disclosure requirements, and the strengthening
Environmental and Social Risk Management
frameworks, there is now a remarkably fast-growing
consensus regarding the need for green regulation in the
region. The pressure on policymakers, regulators, and
private finance to mainstream sustainable/green
principles into regular investing, credit decisions,
operations, risk management, and reporting is mounting.
We believe this means sustainable finance taxonomies
will only iterate to become even more clearer and
convergent, especially on environmentally-focused and
science-based definitions. This is important to reduce
high transaction costs, arbitraging opportunities and to
create an efficient and level playing field. In addition,
convergence towards common frameworks is essential
to reduce global emissions. Otherwise, one investor
divesting from brown activities may be replaced by
another investor who does not need to follow similar
guidance in their region, thus not reducing overall global
emissions.
Figure 3.8: Timeline of taxonomy development.
Source: ESCAP adapted from Gondjian and Merle (2021).
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D. Challenges
This section discusses some of the key challenges that
regulators face, as revealed in the discussion of the
trends and opportunities that they face.
Clear, consistent, comparable, reliable, and efficient
data is lacking. One of the key elements required for a
thriving sustainable finance regulatory framework is
data. From the perspective of scaling sustainable
finance, the reporting frameworks for most financial
institutions in the Asia-Pacific region do not capture
flows of sustainable finance. Most reporting to
regulators is rooted in prudential monitoring and
focused on specific sector, product, or risk exposures.
There is little transparency on the ultimate purposes of
funding and how it may either directly or indirectly affect
sustainable development goals. From the viewpoint of
making finance sustainable, few regulators in the Asia-
Pacific region have the complex mix of data required
from financial institutions, government, supranational
agencies, and scientific bodies to effectively model
climate risks. Nor do many have the complex models
required to measure and monitor climate risk within
their portfolios, or the expertise to build or adapt
existing models for use. While the forthcoming
disclosure requirements will apply to companies that fall
within those jurisdictions, for the multitude of FIs and
corporates in Asia and the Pacific to which global
disclosure requirements may not apply, data will
continue to be a challenge.
The costs of collecting, cleaning, verifying, and
publishing data continue to be disproportionately high
for smaller firms and financial institutions. Analyzing
and collating data from both financial institutions and
real economy clients can be expensive, especially where
substantial changes in business and operating models
are called for. Regulators are already reporting concerns
from financial institutions and their industry
associations about the potential cost of implementing
measures to support sustainable finance. They argue
that many customers, particularly SME bank borrowers,
are ill-placed to provide the required data, and the
additional compliance costs will result in reduced
access to finance. There is already a perception
amongst bank subsidiaries with parents in more highly
regulated jurisdictions that the reporting obligations of
the parent may cause them to be uncompetitive.
Establishing a “level playing field” both within a
jurisdiction (and regionally) is important to avoid the
dangers of regulatory arbitrage. While new technologies
and artificial intelligence will naturally reduce the costs
of analysis and monitoring, nevertheless data collection
is an activity that needs to be embedded at all levels of
an organization and requires investment.
Better alignment of taxonomies across countries is
needed to level the playing field. As reported by
Refinitiv,141 a global provider of green finance data, there
are multiple ongoing conversations about taxonomies
around the world. The implications for financial market
participants are significant because most organizations
are global in nature and operate across boundaries.
Having to comply with multiple “definitions” can be
costly, risky, and may not deliver the transparency and
reduced risk of greenwashing objectives underpinning
the regulatory developments. Investors also report142
that for companies operating across multiple Asian
jurisdictions, this multiplicity presents a difficult and
expensive compliance and reporting challenge,
particularly when businesses are already straining under
the weight of increasing anti-financial-crime compliance
burdens (as well as a shortage of expertise to manage
these burdens).
Coordination and coherence between policymakers,
standard-setters and regulators continues to be
essential. In this chapter we have focused mainly on
financial sector regulators, but there are a wide range of
other intermediary actors such as industry associations
(both financial sector and real economy); international
and national standard setting bodies; government
agencies; academic and training institutions; and
scientific and research agencies, amongst others, that
are relevant to sustainable finance products. Tight
coordination between these players is essential for the
effective and timely rendition of government sustainable
finance ambitions into the business and operating
models of financial institutions.
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“We need to convince all our stakeholders about their
engagement and move beyond individual roles and individual
mandates, because at the end of the day this is going to help all
of us to accomplish all of our mandates if we concentrate
properly” T M J Y P Fernando, Deputy Governor, Central Bank of
Sri Lanka.
Only a few regulators have committed to mandatory
green regulation, preferring to rely on voluntary
approaches. For example, banks in Hong Kong, China,
are expected to start making disclosures in line with
guidelines from the international Task Force on Climate-
related Financial Disclosures from mid-2023 and this
will become mandatory in 2025. In December 2021, the
Singapore Exchange (SGX) mandated climate and board
diversity disclosures.
While climate stress testing is underway, regulators are
not currently incorporating nature-related concerns into
their frameworks. The World Wildlife Fund’s 2022
Sustainable Regulation Annual Report evaluates
progress on sustainable financial regulations and
central bank activities in 44 jurisdictions representing
over 88 per cent of the global GDP and has put forward
an ambitious series of recommendations on nature-
based macroprudential supervision. Recommendation
3143 states that central banks should consider climate
and nature as a single twin crisis and ensure their
monetary policy implementation does not contribute to
either climate change or nature loss. The WWF further
proposes that central banks and supervisors should
further develop a risk-based classification framework
for sectors and assets exposed to biodiversity loss,
which may enhance the data required for stress-testing
and scenario analyses and reallocate capital flows from
biodiversity-negative to -positive projects.144 Lastly,
supervisors should mandate financial institutions to
report their management of nature-related risk and
opportunity based on the Taskforce on Nature-related
Financial Disclosures (TNFD) framework.145 According
to the WWF's Sustainable Regulations and Central Bank
Activities (SUSREG) Tracker, only about 20 per cent of
the jurisdictions have nature-related issues listed among
a list of general considerations, the remaining 80 per
cent lacking any supervisory consideration. Only one
Asia-Pacific jurisdiction has clearly requested banks to
consider deforestation issues in decision-making.146
Capacity constraints will continue to disadvantage
lesser developed economies. Regulators and
policymakers together will need to conduct proper
environmental impact assessments, map their
biodiversity and carbon sink assets, estimate and
protect against climate-related losses in their portfolios,
institute locally-appropriate safeguards in the financial
system, shift their economy to low emissions pathways
carefully, and ensure that a just transition is maintained.
Therefore, without the appropriate skills and capacity at
the level of financial regulators, the danger is that
inappropriate, long-term investments are made which
lock in countries to unsustainable and economically
disadvantageous pathways. Furthermore, differences in
standards between LDCs, SIDS, and other countries in
the region could mean that there are less sustainable
financial flows to those who most need it, as the stricter
ESG policies of major financial institutions toss these
economies into the “too hard” basket. This applies not
only to commercial financiers, but also to MDBs and
bilateral DFIs who tend to make bigger deals in bigger
economies.
Integrity matters. According to the United Nations
Environment Programme’s Finance Initiative (UNEP-FI),
in the absence of a universally accepted definition of
what is green and sustainable, it is important that
effective frameworks, taxonomy standards, and
regulations set the foundation for global best practices
and an equal playing field. In this regard, Asia-Pacific
regulators can play a role in encouraging the growth of a
robust ecosystem for third party verification/ assurance
and impact assessment. Strengthening the green
credentials of businesses and projects can further
assuage greenwashing concerns.
E. Recommendations
This section outlines recommendations for the region’s
regulators, in line with the trends, opportunities and
challenges discussed. In addition, these
recommendations (which are set out in detail here) have
been aggregated into our final set of ten principles of
action for the region to bridge the sustainable finance
gap in Asia and the Pacific, set forward in the final
chapter.
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Effort should be undertaken to facilitate interoperability
between taxonomies. As discussed, the growth of
individual taxonomies implies that autonomy is
maintained at the country level and that locally
appropriate pathways are embedded in such
taxonomies. However, the downsides of varied
taxonomies across the region are significant.
Compliance costs are higher, risks are multiplied,
arbitraging opportunities may be created and an
efficient and level playing field is not created. One large
institutional investor in the region has outlined three
areas to steer Asia-Pacific taxonomies147 to
convergence: a) adopt a principles-based approach to
provide flexibility when tailoring taxonomies in different
regions and economies; b) align taxonomies with widely-
adopted global or international standards, such as the
Common Ground Taxonomy (CGT) between the
European Union and China; and c) actively collaborate
amongst regulators, policymakers, and stakeholders to
develop transparent, relevant, comparable, and
interoperable standards and guidance.
Roadmaps, taxonomies, and sustainable finance
frameworks put forth by regulators should be aligned
with policymakers’ commitments, especially the NDCs.
One example is Thailand. In December 2022, the Bank of
Thailand and Thailand's Securities and Exchange
Commission issued a consultation on their pilot
sustainable finance taxonomy, which includes
objectives largely drawn from the EU taxonomy and a
traffic light system to categorize activities. This
followed the November 2022 announcement of
Thailand’s second updated nationally determined
contribution, which showed a more ambitious target to
reduce its greenhouse gas emissions by 30‑40 per cent
from the projected business-as-usual level by 2030. The
Thai government also announced a revised version of its
Long-Term Low Greenhouse Gas Emissions
Development Strategy, which proposed accelerated
efforts to combat greenhouse emissions.
Regulators should ensure fair and predictable
enforcement of current green finance requirements, for
example around ESRM management. A complaint often
heard in emerging markets is that while the ESRM
guidance by the central bank exists on paper,
enforcement is not always fairly implemented, allowing
financial institutions who are not actively penalized or
deterred to charge more competitive pricing. Ensuring
that fair enforcement is a key priority, and that there are
no exceptions (and thus ensuring adequate staff and
supervision to ensure comprehensive fair enforcement)
is therefore essential to create a level playing field.
Strengthening monitoring, reporting, and verification
capacity in markets. One of the most vexing challenges
faced by many emerging markets is the absence of ESG
Monitoring, Reporting, and Verification (MRV) capacity
and other ESG data vendors or ratings agencies. Organic
development is inhibited without a critical mass of
corporate customers or project sponsors, and the
demand from the latter is curtailed by the lack of a
competitive and competent local market. Furthermore,
financial sector industry associations and training
bodies should also take care to ensure that both the
theory and practice of sustainable finance is embedded
in academic curricula and professional qualifications for
financial services professionals.
More supervisors from the region should join peer-
learning based international alliances. International
peer-learning is of great importance when embarking on
the uncharted journey of scaling up sustainable finance.
Financial regulators are increasingly sharing knowledge,
developing common approaches, and attempting to
understand the landscape both within and outside their
own country through membership in key peer-based
international organizations. These include the Network
for Central Banks and Supervisors for Greening the
Financial System, which consists of 121 regulatory
authorities and 19 observers; the Sustainable Banking
and Finance Network housed at the International
Financial Corporation, consisting of financial sector
regulators, central banks, ministries of finance,
ministries of environment and industry associations; and
the Alliance for Financial Inclusion. The regulatory and
policy enabling environment surrounding climate finance
is evolving by leaps and bounds in developed countries,
and this rising tide will inexorably arrive at less
developed countries. The advantage that less developed
countries have in this regard is that they can leapfrog
the learning journey by learning from developed
countries, and take advantage of existing training, new
regulatory technology, and political economy lessons
learned on how to cascade regulations that avoid vested
interests.
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Mandatory verification and audit could accelerate
compliance in the region. This remains a topic of
debate, and only a few jurisdictions in the region for
example China, Hong Kong, China, and Singapore (to
name a few) have moved towards mandatory
regulations in green finance. Nevertheless, given the
urgency of meeting the 1.5C goal, and in terms of
pushing the real economy faster towards the net zero
transition, mandatory requirement of, and/or verification
of climate-related disclosures can be a powerful stick
while also unleashing green investment and green jobs
as a significant growth opportunity. This was also
echoed by banking leaders as part of UNEP-FI’s
Leadership Council meeting. While Council members
welcomed the ISSB’s draft sustainability standards,
although voluntary, they said sustainability reporting
should be treated like financial accounting and allow for
auditing. They also recognized that a harmonized
approach should recognize country and sector
differences and allow time to set and comply with
national sustainability disclosure rules.148
For LDCs and SIDS, regulators should continue to
prioritize standard financial sector development. While it
was beyond the scope of this report to discuss the
importance of deepening and expanding traditional
financial sectors, it is important to appreciate that
sustainable finance is still just finance, and most of the
barriers that impede access to finance that currently
prevail, will equally apply to sustainable finance flows.
Regulators in LDCs and SIDs should continue to pay
attention to mainstreaming financial sector
development including the following standard themes:
▪
Deepening formal savings and investments:
Increasing domestic savings and the role of
investment to capitalize the formal financial
sector remains vital.
▪
Improving financial inclusion: Boosting access to
finance for adaptation to climate change and
local mitigation efforts such as off-grid
renewables etc.
▪
Developing access to finance for sustainable
enterprise: Overcoming gaps in financing for
small and medium enterprises (SMEs)
(particularly larger ones seeking to expand fixed
assets and transform value chains) remains a
major challenge in many Asia-Pacific markets.
▪
Growing capital markets: Countries accumulating
long-term pools of domestic capital should
improve market and legal infrastructure to match
savings and investments with longer-term
financing for financial institutions and corporates.
F. Conclusion
This is a time of great change and forward momentum
for financial regulators in Asia and the Pacific. Like
policymakers, regional cooperation is of the utmost
importance to ensure interoperability between regulatory
frameworks, convergence towards widely accepted
norms around investment aligned with climate goals and
equalizing the playing field. To establish a level playing
field, however, special attention must be paid to the
least developed countries and small island developing
states. These countries should not be disadvantaged by
the imposition of standards and norms that
disproportionately redirect capital elsewhere. This is not
an easy task, but regional cooperation can do much to
reduce fragmentation and present a unified approach.
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4. WHAT CAN PRIVATE
FINANCE DO?
A. Introduction
The role of private finance to meet global climate goals
and the sustainable development goals has never been
more important than right now. This comes at a time
when expansionary fiscal support by governments are
constrained by difficult macroeconomic conditions.
Furthermore the staggering size of the amounts to be
financed in order to meet these goals means that private
finance must be crowded in at substantial scale and
pace. While the actions of policymakers and regulators
are critical in creating enabling conditions for private
finance to invest at greater scale and pace, the call for
private finance actors to expand their activities and
deepen pre-investment activities is increasing.
The universe of private finance in Asia and the Pacific is
vast and growing, with each actor bearing distinct
incentives and challenges. The universe includes banks
who lend to businesses and entrepreneurs in the real
economy; capital market issuers of equity and debt
securities, usually businesses and financial institutions;
asset owners such as pension funds, sovereign wealth
funds, foundations, endowments, trusts, and family
offices; and asset managers, such as mutual fund
managers, investment advisors, and stockbrokers. For
the purposes of this report, we also include development
financial institutions, such as multilateral development
banks like the Asian Development Bank and the World
Bank Group’s International Finance Corporation; bilateral
development financial institutions, such as the Dutch
Entrepreneurial Development Bank (FMO), the United
States Development Finance Corporation (DFC), British
International Investment (BII), the Norwegian Investment
Fund (Norfund), and the Swiss Investment Fund for
Emerging Markets (SIFEM); as well as some national
development banks (NDBs).
Private finance has historically operated under a
traditional fiduciary mandate to provide risk-managed
growth and returns (as well as other specific mandates)
in good faith to stakeholders. It does this through
financing specific projects or entities in various sectors
of the economy, such as industry, services, energy,
agriculture, transportation etc. In recent years, other
mandates such as specific environmental, climate and
social impact objectives (Track 1) or environment, social
and governance (ESG) risk management mandates
(Track 2) have been added, over and beyond what may
be regulatorily required in the investor’s jurisdiction.
These include environmental, climate and social impact
mandates related to the use of proceeds or objectives
(Track 1) or environment, social and governance (ESG)
risk management mandates (Track 2).
Today, the nature of fiduciary duty is changing around
the world. Historically private finance has operated
under managing appropriate risk-return ratios as part of
their oversight and duty of care related fiduciary duties
and climate risk was seen as a non-fiduciary issue.
Directors and trustees around the world are now re-
evaluating their roles to include climate risk as a
standard financial risk, especially as such risks now
have become increasingly foreseeable and thus can be
legitimately considered to be part of their oversight and
duty of care responsibilities. In a correlated trend,
climate litigation has also risen globally.149
The financial risk-return profile is naturally driven by the
regulatory framework in place, which is rapidly evolving.
Often, two regulatory frameworks related to sustainable
finance are in play simultaneously. The country where
the underlying projects, activities, and sectors are
located has its own mandatory or voluntary sustainable
finance (ESG and/or climate) standards; the second
sustainable framework is in the country where the asset
owner or manager is based. It is important to note that
the risk-return profile is also heavily influenced by the
perceptions of risk related to the destination country,
manifested in that country’s exchange rate as well as its
sovereign credit rating.
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Many asset owners, especially pension funds and
insurance funds, are prohibited by their mandate from
investing in non-investment-grade projects or entities,
due to their responsibility to provide a “safe pair of
hands” for clients. Deposit-regulated financial
institutions, MDBs, DFIs, and other banks are required to
comply with regulation on risk-weighted capital
adequacy ratios, meaning they must reserve a certain
amount of capital to protect against their risk-weighted
lending. Reserving capital also means that they are
unable to lend out that reserved capital and obtain
interest revenue, affecting the profit of the institution.
Put simply, lending to riskier activities means less profit
not only due to the inherent risk of activities going into
default, but also because of the need to set aside more
reserves; and the implication that this ‘idle capital’ will
produce less interest revenue.150 In addition, many asset
owners and managers have pension funds or mutual
funds that are dollar, euro, yen, or yuan denominated.
When they invest in other countries, they take on the
exchange rate risk, which substantially influences the
risk-return profile of investments, even though it does
not change the underlying real risk-return profiles of the
activities themselves.
This means that riskier projects, entities, and countries
(such as the Least Developed Countries) cannot qualify
under traditional norms as a destination for many funds.
It also means that these riskier projects, entities, and
activities located in such countries — which if funded,
might make substantial contributions to emissions
reductions or to the SDGs — unfortunately entail
extremely high capital costs for financing. Therefore,
only projects or entities that can cover the capital costs
and/or investors who either do not have to comply with
capital reserve requirements or have high risk tolerance
can invest in such projects.
In practice, this means that for private finance to flow
naturally to such “riskier” projects, they must generate
very high returns. For example, projects in new green
technologies, novel nature-based finance, or renewable
energy in LDCs, who face such parameters may have to
generate much more profit than less-risky projects
(located for example in countries with higher credit
ratings, or in established sectors where risks can be
clearly mitigated), just to cover the higher capital costs
of financing. This naturally drastically reduces the pool
of investment-ready project (under traditional norms of
investment-readiness).
For such projects where the potential to achieve
environmental impact is high, and the underlying project
is sound, concessional and risk-sharing finance as well
as local currency financing is essential. Concessional
finance is below market-rate finance and takes on many
forms, ranging from loans and grants to technical
assistance or guarantees. The degree of concessionality
is also highly heterogeneous. Financing from MDBs,
DFIs, NDBs, overseas development assistance (ODA)
and other grant or concessional capital can be used to
“de-risk” these projects, drive up their “grade” and
safety, and attract more and cheaper commercial
financing that can be layered on top of the capital
stack.151 It also exemplifies why local-currency financing
into such projects is of critical importance if the scale
and pace of private finance is to be accelerated because
local-currency financing can fund projects that do not
have to reach a higher rate of return simply to cover
exchange rate risk.
This places a focus on how enough ‘bankable’ projects,
activities and entities can be built, to investor-
specifications, in a regulatorily compliant manner, to
meet climate goals, at speed. Different investors in the
capital stack have different requirements. Therefore, it
is fundamental that a pipeline of projects, activities, and
entities with adequate risk-return-mandate profiles are
generated at scale and pace to enable Asia and the
Pacific to its meet climate and SDG goals. The scale of
this challenge should not be underestimated, nor the
requirements of project preparatory work (and costs)
required to substantively build viable project pipelines.
This also requires a new way of building projects –
especially in sectors and areas, such as in renewables
or in new decarbonization technologies, where
regulation has not yet emerged and, therefore, costs are
particularly prohibitive, and where new industries and
decarbonisation technologies risk upsetting long-
entrenched balances of power and interests that may
exist. This new way necessitates deeper participation by
investors in the pre-investment stage of pipeline
building.
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It is time for shareholders, boards, and personnel to
enact accelerated change. While many private finance
institutions are already working to accelerate change,
now it is time for shareholders, boards, and personnel to
accelerate their response to the challenge. Considerable
wealth has been created over the last two decades in
financial markets, along with rising inequalities and
huge adverse climate impacts. It is now time for
substantial change. Hitherto, in pricing projects,
activities and entities and in realizing returns, private
finance has long enjoyed not being required to
incorporate the environmental (or social) externalities of
these costs, whilst also enjoying low costs of capital
due to low inflation. Many shareholders and boards are
indeed rising to this challenge with voluntary
stewardship codes and net-zero commitments. Yet
given the mounting consequences of inaction, more
needs to be done at urgent scale and pace to turn such
commitments into reality.
This chapter focuses on how to unlock more finance for
climate action. While the extent of change required in all
asset classes and instruments, owners and managers,
jurisdictions and geographies across Asia and the
Pacific is beyond the scope of this report, we discuss a
few key issues which are critical to unlocking further
private finance to meet climate goals. These include: the
building of bankable projects in renewable energy and
new decarbonization technologies, such as green
hydrogen, both of which have a direct link to reducing
emissions and meeting the 1.5-2C goal; the role of
green instruments such as green bonds, debt for
climate/nature swaps and green loans in financing; the
role of MDBs in unlocking further financing, and the role
of local currency financing in bringing down risks,
lowering transaction costs and in financing such
development.
B. Trends and opportunities
The Asia-Pacific region is predominantly a loan market,
which continues to be at the frontier of the transition to
net zero in the region. While some capital markets in the
Asia-Pacific region are extremely deep and liquid,
trading cutting-edge structured financial products, the
predominant financial instrument used for investment
purposes in Asia and the Pacific is still the standard
loan product from banks to corporates. There is also a
correlation between the size of bank lending to private
sector, and the level of financial development in the
country, as seen in Figure 1 below. While figures on total
bank lending in the region are varied, one estimate152 of
the top 50 largest banks in Asia alone places their total
asset size as of April 2023 at more than $56.5 trillion.
Naturally this includes all financial products, but it is still
a clear indication of the depth of funds that can
potentially be mobilized towards climate action.
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Figure 4.1: Bank lending to private sector as % of GDP.
Source: ESCAP based on World Bank, World Development Indicators and IMF, Financial Market Development Index Database.153
Note: Values on bank lending to private sector are from 2018 and 2020, while IMF Financial Market Index values are from 2020. Countries
lacking available data on Financial Market Index were excluded from the analysis.
Banks are slowly moving from a Track 2 approach,
where all lending was sustainably managed, to also
increasingly direct lending towards green, sustainable
and sustainability-linked uses and outcomes.
Sustainable loans, based on sustainable loan principles,
are generally structured in the same way as standard
loans, except that the loan proceeds are tracked and
allocated to eligible sustainability objectives.
Sustainable loans also require transparency about how
the sustainable projects are selected and how the funds
are allocated. There are consumer or smallholder
agricultural products that are easier to package as part
of a sustainable loan portfolio like:
▪ Consumer loans for clean cooking, household
solar, energy efficient home improvement, low
emissions vehicles, etc.
▪ Buyer credit or supplier pre-financing for value
chains, particularly for sustainable agricultural
value chain inputs, such as:
Environmentally friendly fertilizer, herbicides, or
pesticides
Climate and disease resistant crop varieties and
more productive livestock husbandry
Irrigation equipment
Farm enterprise solar or biogas installations
Increasing use of sustainability-linked loans allow for
more flexibility, if structured and verified well.
Sustainability-linked loans involve setting "sustainability
performance targets" for borrowers (e.g. internal targets
such as reducing greenhouse gas emissions; improving
energy efficiency; reducing pollution; increasing
biodiversity; reforestation; conducting external
assessments or achieving a sustainability certification
or rating). If targets are met, the borrower is rewarded
with reduced loan interest rates, or penalized with higher
interest rates if key performance indicators (KPIs) are
not met. Unlike green loans, the proceeds of
sustainability-linked loans (SLLs) do not need to be
allocated exclusively to green projects; rather, they
incentivize borrowers to improve their overall
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sustainability profile or targets. These can be technically
more difficult to design and structure, but are also more
amenable for jurisdictions, sectors, or customers in the
early stages of the adoption of sustainability standards.
SLLs may be more suitable for SMEs as well. SLLs open
the sustainable loan market to companies in a wider
variety of sectors and to smaller companies which are
unable to overcome entry barriers to green loans or
issuing a green bond. SMEs are a likely candidate for
SLLs since they may be unable to commit the entire
proceeds of a loan to specific green projects. They are
also much more amenable to a full suite of flexible
credit products because the incentive can be placed
around the “relationship” rather than a strict “use of
proceeds” which tends to require a fixed term capital
investment loan.
Within loan markets, green, sustainable, and
sustainability-linked lending is on the rise but is still
small. As seen in Figure 4.2 below, sustainability-linked
lending is particularly growing, reflecting its increasing
versatility to finance entities rather than projects or
activities; therefore, allowing more “unrestricted”
funding. Sustainability-linked lending can also ensure a
direct tie to sustainability outcomes and objectives,
depending on the KPIs used. In Asia and the Pacific,
banks are still at the frontline in the transition to net
zero, and clearer and more effective regulation can drive
banks to embark or accelerate the transition to net zero
in the region.
Figure 4.2: GSS+ loans in Asia and the Pacific, 2017–
2022 (billions of United States dollars).
Source: ESCAP based on Environmental Finance data154
Note: 1) The data labels show total sustainable loan value.
2) Based on voluntary disclosure, green and
sustainability-linked loan data are recorded if they are aligned
with the Green Loan Principles and the Sustainable-linked Loan
Principles provided by the Loan Markets Association.155
Figure 4.3: GSS+ loans in Asia and the Pacific by country, 2017–2022 (billions of United States dollars).
Source: ESCAP based on Environmental Finance data.156
Note: Based on voluntary disclosure, green and sustainability-linked loan data are recorded if they are aligned with the Green Loan
Principles and the Sustainable-linked Loan Principles provided by the Loan Markets Association.157
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In terms of corporate GSS+ bond issuances and lending,
the top-two categories in 2022 were green bonds ($95
billion) and SLLs ($72 billion). Corporate bond
issuances increased in 2022 compared to 2021 for
social and transition bonds, but decreased for green,
sustainability, and sustainability-linked bonds, as shown
in Figure 4.4 below. In terms of corporate borrowing of
GSS+ loans, sustainability-linked loans and social loans
made remarkable progress during that period.
On the other hand, lending to fossil fuels and coal in the
region is still on the rise. As can be seen from recent
research from the IMF,158 in Figure 4.5 below, the debt
levels (including corporate bonds and corporate loans)
of companies in the coal value chain, as well as in oil
and gas, in Asia and the Pacific continue to surge, and
are larger compared to other geographies in the globe.
Asia and the Pacific is also home to a significant
number of asset owners, with a very high volume of
assets under management. Recent research shows that
the world’s top 100 asset owners’ assets under
management (AUM) totalled $25.7 trillion at the end of
2021, growing 9.4 per cent from the previous year.159 Of
these, Asia and the Pacific accounts for 36.1 per cent of
total AUM, making it the largest region in the study.160
The Government Pension Investment Fund (GPIF) of
Japan remains the largest asset owner in the world, with
an AUM of 1.2 trillion).161 Additionally,
the top 20 asset owners of this top 100 made up 55 per
cent of total AUM (i.e. more than $12 trillion),
representing a small group of private finance
stakeholders (mainly pension funds and sovereign
wealth funds) that can take forward the transition to net
zero for trillions of dollars of assets.162 Such asset
owners need to convert their net zero commitments into
faster action, including transition plans with targets for
2030 and 2040.
Stock exchanges in the region continue to be a
significant source of capital but market capitalization
has been relatively stable. Listed equity capital across
the region’s major stock markets continues to be a
major source of private finance, with the potential to be
turned towards climate action in a faster manner. Figure
4.6 below lists the market capitalization of the region’s
major stock exchanges by year and shows the relative
values of total equity capital raised in the last four years
across the region. China, Japan, and Hong Kong, China,
remain the most popular destinations for capital raised,
with the highest volumes of market capitalization.
Figure 4.4: GSS+ bonds and loans of corporate issuances in Asia and the Pacific, 2021–2022 (billions of United States
dollars).
Source: ESCAP based on Environmental Finance data163
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Figure 4.5: Debt levels of emerging market and developing economy companies operating in fossil fuel industries.
Source: IMF (2022).
Figure 4.6: Market capitalization of Asia-Pacific stock exchanges by country, 2019-2023.
Source: World Federation of Exchanges.164
Note: Market Capitalization values show the monthly average as of the 1st January of each year. In case of data gaps in the World
Federation of Exchanges database, data from the annual report of stock exchanges was used.
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Figure 4.7: Total equity capital raised in Asia and the Pacific, 2019-2022.
Source: World Federation of Exchanges and World Bank, national accounts data.165
Note: Total capital raised corresponds to the sum of monthly values from 1st January 2019 to 31st December 2022. It is calculated as the
sum of capital raised through Initial Public Offerings (IPOs) and capital raised by already listed companies. It includes both newly issued
shares and already issued shares.
Asian banks and private finance are still considerably
slow to make net zero commitments. At the time of
writing, there were 131 banks globally that have made
net zero commitments to align their lending and
investment portfolios with net zero emissions by 2050,
as part of the UN-convened Net Zero Banking Alliance
(NZBA) — the industry alliance for banks under the
Glasgow Financial Alliance for Net Zero. Signatory
banks also commit to setting and publicly disclosing
2030 targets within 18 months of joining the NZBA. Out
of the 131 banks who have made net zero commitments,
33 members were from ESCAP’s Asia-Pacific region.
Twenty-three banks were based in Australia, New
Zealand, the Republic of Korea, and Japan. Of the
remaining 10 banks, three were from Bangladesh, two
from Malaysia, four from Türkiye, and one from the
Russian Federation.166
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Box 4.1: Foreign direct investment into climate
mitigation and adaptation
Foreign direct investment (FDI) has an important role to
play in limiting climate change and filling in climate
finance gaps globally. Yet despite ample opportunities
for FDI to contribute to addressing climate change in
Asia and the Pacific, greenfield investment, or
investment in new productive activity, FDI flows to
climate mitigation and adaptation have been declining
over the past several years. Meanwhile both the value
and volume of climate mitigation projects are
significantly larger than climate adaptation projects. For
example, since 2016 there have been 1,218 climate
mitigation projects worth $247 billion, compared to 83
climate adaptation projects worth $2.7 billion (Figure 8).
In 2022 there was a pronounced loss of momentum in
climate mitigation FDI, which was accompanied by
growing investment in fossil fuels in the region.
Figure 4.8: FDI inflows into climate mitigation and
adaptation versus fossil fuels in Asia and the Pacific,
2016-2022 (millions of United States dollars).
Source: ESCAP calculations based on fDi Markets (2023).167
The lion’s share of FDI in climate mitigation in Asia and
the Pacific has gone into renewable energy and other
energy efficiency projects (Figure 9). In terms of project
numbers, since 2016 there have been 667 projects
related to renewable energy, 518 in energy efficiency,
and a meager 83 on low carbon transport.
Figure 4.9: FDI inflows into climate mitigation projects in
Asia and the Pacific, 2016-2022 (millions of United
States dollars).
Source: ESCAP calculations based on fDi Markets (2023).168
The value and volume of climate adaptation projects has
been low in the region, and largely focused on
introducing clean technologies to foreign operations.
For instance, in 2021 Teijin Polyester of Japan invested
$17.2 million and created 44 jobs in its Thai subsidiary
to convert domestically-produced plastic bottles into
recycled polyester chips to produce high-quality
polyester filament. The facility is expected to produce
7,000 tonnes of recycled polyester chips annually by
2025. Some recent examples from 2022 include an
investment of $27 million by Covestro (Germany) into
China to set up a dedicated line of polycarbonate
mechanical recycling, and another investment by
Covestro (Germany) in Thailand to repurpose and
convert its existing compounding plant to a recycling
facility. Notably, no least developing countries or small
island developing countries – arguably two sets of
countries urgently in need of climate FDI – have
received climate FDI since 2011.
The low and uneven distribution of FDI to developing
countries in the region underscores the urgent need to
bring FDI into conversations about unlocking climate
finance for developing countries. FDI is an important
type of private sector investment with immense
potential to help developing countries fill climate
finance gaps; however, it has until now been left out of
the discussions at forums on climate finance.
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There is an urgent need to support developing countries,
especially least developing and small island developing
countries, and their investment promotion agencies
responsible for attracting and facilitating climate-related
FDI. Most importantly, these agencies need support to
identify the climate projects that would give their
countries a competitive advantage to attract and target
investors; generate leads; repackage and repurpose
brownfield investment sites into green projects; and
pitch investment opportunities to foreign investors.
Investment promotion agencies should consider
incorporating tailored indicators to assess, evaluate and
measure the climate relevant characteristics of
investments. UN ESCAP has developed sustainable FDI
indicators that would enable investment promotion
agencies to do precisely this.169 On a policy advocacy
level, they also need to build their capacity to articulate
to relevant ministries the need for better incentives for
climate FDI and to phase out fossil fuel subsidies and
incentives. UN ESCAP, through its assistance and
capacity building programme of FDI for sustainable
development, is supporting investment promotion
agencies in the region in each of these areas.170 More
information on this work can be found here:
www.unescap.org/our-work/trade-investment-
innovation/business-investment.
Trends in multilateral development
bank (MDB) and development
financial institution (DFI) lending
In addition to their role as investors, MDBs can play an
even more important role in unlocking sustainable
finance through encouraging and supporting policy
change and mobilizing additional private finance for
global and regional goals alongside their own
investments. While multilateral development banks are
considered public actors, in practice they operate in a
fashion like other private financial institutions, following
risk-return-mandate profiles instituted by their boards.
However, in addition to their global, regional, and in-
country role as investors, they are uniquely placed to
carry out investing for global public goods, and to
mobilize private finance for this purpose while assisting
and supporting policy changes to enable the
achievement of goals.
In 2021, MDBs delivered $82 billion in climate finance
and simultaneously mobilized an additional $41 billion
in private finance.171 The additional mobilization of
private finance usually is arrived at through MDBs taking
an anchor investor role in a (sometimes pioneering)
project that then signals to other investors that the
investment is ‘bankable’. This is not always because the
MDB has instituted a first-loss or partial credit
guarantee; sometimes it is simply a signal that an
adequate amount of due diligence and vetting of the
project and project sponsor’s financials, governance,
and ESG risks has been passed. MDBs and bilateral DFIs
can also support private credit institutions by investing
equity (increasing shareholder’s funds) in the financial
institution to allow them to expand their lending
portfolio; and/or buying bonds issued by the financial
institutions (usually in some sort of private placement);
and/or extending credit.
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Initiatives to support private FIs by MDBs and DFIs entail
a cost of capital that is attractive to the FI and/or with
terms and conditions that would be difficult to obtain
from commercial sources. Before engaging in debt or
equity investment, however, MDBs and DFIs will typically
work with FI partners by providing wholesale loans
typically on concessional terms. Increasingly these
funding lines need to be linked to ESG standards in
finance (Track 2, sustainably managed finance) by
which the recipient undertakes to build a portfolio of
lending that assesses ESG risks associated with that
lending. Figures 4.10 and 4.11 show the development
finance commitments to mitigation and adaptation in
Asia and the Pacific by the top nine MDBs and DFIs in
2020. On an aggregate level within the region defined by
the membership of ESCAP, in Figure 4.11 below, we see
that 64 per cent of MDB funds were committed to
mitigation-related finance, with the rest directed to
adaptation finance. The majority was committed by the
World Bank Group (including equity, grants, and loans).
Figure 4.10: Top nine MDBs and DFIs in Asia and the Pacific by climate-related development finance.
Source: ESCAP based on OECD, Climate Change: OECD DAC External Development Climate Finance Statistics.172
Note: Total climate-related development finance corresponds to the sum of MDBs and DFIs grants, loans, and equity in Asia and the
Pacific. Both concessional and non-concessional activities are included. Guarantees are excluded as they are categorized as non-flow
operations. The figure includes total amounts committed by MDBs and DFIs and includes regional investments.173
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Figure 4.11: MDBs climate-related development finance in Asia and the Pacific by adaptation and mitigation, 2020
(millions of United States dollars)
Source: ESCAP based on OECD, Climate Change: OECD DAC External Development Climate Finance Statistics.174
Note: The figure shows the share of Adaptation and Mitigation related finance in MDB lending to Asia and the Pacific. Both concessional
and non-concessional activities are included. Guarantees are excluded as they are categorized as non-flow operations. Values show the
total amount of committed climate-related development finance and correspond to the sum of debt, grants, and equity.175 The analysis
examined 8 MDBs in the region – World Bank Group (WBG), Asian Development Bank (ADB), European Bank for Reconstruction and
Development (EBRD), Asian Infrastructure Investment Bank (AIIB), European Investment Bank (EIB), Islamic Development Bank (IsDB),
Black Sea Trade & Development Bank (BSTDB), Council of Europe Development Bank (CEB).
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Most of the investment was in debt and was not
concessional. As seen in Figure 4.12 below, energy was
the single biggest destination for MDB/ DFI investment
funds in the region (followed by transport and storage).
Over 90 per cent of the instrument used was debt, and
only 30 per cent of the financing was concessional by
MDBs and DFIs.
Figure 4.12: MDBs and DFIs climate-related development finance in ESCAP members by sector, financial instrument, and
concessionality type.
Source: ESCAP based on OECD, Climate Change: OECD DAC External Development Climate Finance Statistics.176
Note: The figure includes total committed amounts by MDBs and DFIs and covers regional investments.
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MDB and DFI finance does leverage private finance, but
has the potential to leverage even more private finance.
According to Figure 4.13 below and the methodology
used by OECD, $2 billion in private finance was
mobilized by MDBs in Asia and the Pacific in 2020.
Estimates of how much private capital is leveraged by
MDBs vary widely. For example, the G20’s Independent
Review of Multilateral Development Banks’ Capital
Adequacy Frameworks cites that in 2020 the MDBs
covered by their review directly mobilised only 14 cents
for every dollar of own-account investments, mostly
through their private sector arms.177 This is still too
small. In 2023, the Independent Expert Group
commissioned by the Indian G20 Presidency issued a
report saying that MDBs only mobilise 0.6 dollars in
private capital for each dollar they lend on their own
account and that they should aim to at least double this
target.178 The Independent Expert Group further states
that they ‘envisage a doubling of concessional and non-
debt creating finance in the system as a whole, with
priority given to support for low-income countries.
Additional concessional finance should also support
vulnerable countries and incentivize projects with global
public good benefits. We further envisage a tripling of
non-concessional official finance by 2030, compared to
2019 pre-pandemic base year levels.179
Figure 4.13: Total amount of mobilized private finance by MDBs across regions, 2020.
Source: OECD Statistics, Mobilisation.180
Note: The term “mobilized climate finance” measures the amounts activated in the private sector by MDBs. It covers five instruments
(guarantees, syndicated loans, shares in collective investment vehicles, credit lines, and direct investments in companies) and is collected
based on instrument-specific methodologies, which measure the amounts mobilized from the private sector by official development
finance interventions. Total amount of private climate-related finance is calculated based on the OECD methodology in line with Rio
Markers. This differs from the methodology adopted by the Joint MDB report, which relies on the data and methodology of the MDB
Taskforce on Private Investment Mobilization for tracking the private share of climate co-finance. The methodology of the Joint MDB
report relies on a broader coverage of data disclosed on mobilized private climate finance; it covers more instruments and includes social
infrastructure (hospitals, schools, etc.), which are excluded from the OECD dataset.
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The call on MDBs to increase the concessionality of
their financing and expand risk-taking has intensified
but actual reform is still slowly emerging. While MDBs
recognized the need to increase concessional finance
and scale up private sector mobilization, among other
priorities at COP27, the methods remain a source of
much debate. The reforms under discussion at the
World Bank Group — with forthcoming announcements
following completed reviews and discussions at the
Spring and Autumn 2023 meetings — may mark a
historic moment and change in the MDB landscape.
Such momentous change has not been seen since the
Bretton-Woods negotiations in 1944, which led to the
formation of the IMF and the World Bank Group (WBG).
In this context, the development committee has asked
the WBG Management to identify gaps in WBG’s current
institutional and operational framework and deliver a
work program by the end of the year, for consideration
by the Executive Board (which oversees the routine day
to day matters at the WBG).181
According to the Development Committee, “This work
program should be aimed at strengthening the WBG’s
role and capacity to continue to be responsive to the
evolving needs of all client countries. This should
include designing pertinent financial reforms to
responsibly make the most efficient use of the WBG’s
balance sheets and generate new resources and
contribute to strengthening coordination and
collaboration across the broader international financial
architecture, as well as incentivizing country demand,
and addressing any operational obstacles to the WBG’s
effective response.”182
The Board of Governors additionally requested WBG
Management to explore the recommendations of the
Independent Review of MDB Capital Adequacy
Frameworks (CAF),183 commissioned by the G20, to
make the most efficient use of the Group’s balance
sheets to increase lending capacity, while preserving
long-term financial sustainability, robust credit ratings
(i.e. AAA ratings), and preferred creditor status. The
appeal for historic transformation has far-reaching
implications for how MDBs operate on the ground; how
operations, policy reforms and lending operations will be
sourced, built, made bankable, and financed; and how
private finance will be herded in.
The reforms under discussion at the World Bank Group
will have implications for other MDBs. The World Bank
Group, which is the largest provider of climate finance,
has been asked by its shareholders in the Development
Committee, known as the Boards of Governors of the
Bank and the International Monetary Fund, to “among
other things, support the following:
i)
the development of countries’ long-term
strategies for investing in climate action;
ii)
the preparation, screening, and structuring
of reforms and projects for bankable,
climate-resilient investments that mobilize
private capital and foster a business
environment aligned with low carbon and
resilient development;
iii)
increased concessional and blended
finance for adaptation and mitigation; and
iv)
bold investment in high-quality,
sustainable infrastructure that enables a
just energy transition.”184
ADB’s newly announced Innovative Finance Facility for
Climate in Asia and the Pacific (IF-CAP) could further
expand climate finance in the region. ADB’s stated
intention to be the climate bank for Asia and the Pacific
was further cemented in 2023 with IF-CAP’s
announcement to provide grants and guarantees for
parts of ADB’s sovereign loan portfolio. The ADB’s
proposed model of “5 out”, the initial ambition of
15 billion in
new loans for much-needed climate projects across Asia
and the Pacific. According to ADB, a leveraged
guarantee mechanism for climate finance has never
before been adopted by a multilateral development
bank.185
It is worth highlighting that MDBs occupy a unique
position in the global financial architecture. Their capital
adequacy frameworks are not subject to prudential
supervision and governance (unlike commercial banks
governed by the Basel Framework), but by the distinct
makeup of each MDB’s board. MDBs also have Preferred
Creditor Treatment (PCT), meaning that “sovereign
borrowers will continue to repay MDBs even if they go
into default or delay payment to other creditors. In
addition, MDBs typically do not reschedule, restructure
or write off sovereign loans.”186 Most uniquely to MDBs,
and the subject of much debate, is the matter of how to
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treat MDB’s unique callable capital. The assessment of
capital adequacy frameworks for individual MDBs
considers each one’s exclusive callable capital.
Ultimately, “shareholders define MDB objectives, supply
share capital and define the limits of risk that they are
willing to tolerate”.187 For example, the Independent
Expert Group of the 2023 G20 has said ‘in order to
respond to today’s challenges, MDBs need to reframe
their mission, raise their level of ambition and financing,
and change the way they work internally, with each other
and with other public and private development
partners’.188 Importantly, they ‘recommend that the G20
link the sustainable lending levels of the MDB system in
2030 to the financial support needed by developing
countries to invest to achieve these goals. This would
establish, for the first time, a clear link between
mandates and financing for the MDBs as a system. We
further recommend that the G20 review the adequacy of
such lending levels every three years in line with the
recommendations of the report of the G20 panel on
capital adequacy frameworks.189 It is therefore up to
shareholders to redefine how MDBs will play their part in
the global financial architecture.
C. Challenges
This section of the report addresses the challenges
confronting Asia and the Pacific to amplify privately
sourced finance for climate action and sustainable
development.
Asian banks are considerably slow in in making net zero
commitments and need to urgently commit to credible
net zero transition pathways. The state of net zero
commitments by Asian banks is a code red situation.
Asian banks are still considerably slow to pledge net
zero commitments by 2050. When they make 2050
commitments, it is necessary that they also outline
credible transition pathways by setting 2030 targets (as
is required for example by the industry-led, UN
convened, Net Zero Banking alliance which forms the
industry partnership for banks party to the Glasgow
Financial Alliance to Net Zero). Without setting the
appropriate 2030 targets, 2050 targets will not be
met.190 More than 90 per cent of the 500 largest banks
in Asia (with a combined 37.4 trillion in net loans, 425 billion in net profit in 2021)191 have
not yet made credible net zero commitments by 2050
with intermediate targets by 2030. Under such
circumstances, change is unlikely to happen fast
enough. It is possible for financing towards net zero to
happen in the absence of a net zero commitment; but as
discussed earlier, the picture emerging from Asia and
the Pacific is that coal financing is on the rise,
emissions are on the rise, and net-zero action is
insufficiently financed.
This also means a significant lack of local currency
financing for the net zero transition. The lack of net zero
commitments from Asia-Pacific also translates into a
lack of local currency financing for the net zero
transition. This is further corroborated anecdotally by
international banks and investors, who bemoan the
significant dearth of local banks investing in the energy
transition, the managed phase out of coal, and in new
green technologies in the region. The lack of mandatory
regulation to shift banks towards concrete
commitments, despite national commitments to the
Paris Agreement, may be an additional reason why
Asian banks are slow. Importantly, local banks bring
investment in local currency, removing the need for the
hurdle rate for investments to compensate for the
exchange rate risk. Without the credible participation of
Asian banks in the transition to net zero, adequate
finance cannot be mobilized to meet the 1.5C goal. To
the extent that finance can drive action and incentives
for the real economy to transition, the lack of progress
by Asian banks also acts as a brake on the transition of
the real economy.
Asia’s growing energy demand requires significant
private finance, but challenges abound in financing the
just energy transition. Coal power generation is the
largest source of carbon dioxide emissions globally.
According to the Glasgow Financial Alliance for Net
Zero, if existing coal power assets continue to operate
as planned, they alone will generate enough emissions
to exhaust two-thirds of the remaining carbon budget
associated with limiting warming to 1.5C. The
International Energy Agency predicts that more than 70
per cent of growth in global electricity demand will come
from Southeast Asia, India, and China over the next
three years.192 In addition, the average age of coal fired
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power plants in these regions is about 15 years,
compared to average ages in Europe and America of
more than 30 years.193 This means it will be more
expensive to phase out coal, and it is estimated that
there are about 5,000 coal fired power plants operating
in Asia and the Pacific.194 Financing is thus required to
acquire coal assets for early phaseout. While most net-
zero committed banks have a no-coal financing policy
(or at least a no-new-coal financing policy), what is
essential for the managed phase out of coal in an
orderly and just manner is to invest in the phaseout of
coal. This will mean investing in new coal in the short
term, and seeing emissions rise in the financing
portfolio in the short term. ADB’s energy transition
mechanism, as well as the Just Energy Transition
Partnerships, also further support the early retirement of
coal in the region. At a side event to the ECOSOC Forum
on Financing for Development organized by ESCAP in
2023, it was further noted that the cost of early
retirement of coal-based power plants varies across
plants and depends on when they will be retired. The
case of a specific power plant in Asia-Pacific was
mentioned which would cost 314 million to retire in 2030, and 495 billion globally. However, this still represents less
than one-third of the average investment needed each
year between 2023 and 2030, according to the 1.5°C
scenario predicted by the International Renewable
Energy Agency (IRENA). Investments are also not on
track to achieve the goals set by the 2030 Agenda for
Sustainable Development.195 Renewable power
investment has risen rapidly in Asia-Pacific countries to
more than 37
billion in public funding to hydrogen development, while
the private sector has announced investments of around
$300 billion. Nearly 40 per cent of the global demand for
hydrogen is generated from the Asia-Pacific region and,
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within Asia and the Pacific most of the demand comes
from China, which accounts for 26 per cent of global
demand. Global competition to win business for the
green hydrogen sector is increasing in an environment
of high interest rates. The massive subsidies offered to
green hydrogen under the US Inflation Reduction Act and
the EU’s contracts for difference scheme via its new
Hydrogen Bank seek to attract domestic green hydrogen
investment. However, it is unlikely that emerging
markets and developing economies have either the cash
to match these subsidies nor the credit ratings to
borrow competitively.
For both new renewable energy project investments and
new green technologies, particularly in more challenging
markets in Asia and the Pacific, building bankable
pipelines is fraught with challenges. While there are
substantially large pools of debt and equity available
regionwide in local currencies, there is a discrepancy
between available capital, ready projects, and the
execution of transactions. The absence of standardized
transaction templates to easily replicate requirements,
risk contingency clauses, and dispute resolution
mechanisms, remains a challenge. In addition, poor
connectivity between investors and projects leads to
poor visibility about what bankability means to different
investors. Therefore, it is likely that misunderstandings
about how to structure projects and engage with
multiple investors arise. High transaction costs for
adding guarantees, first-loss-tranches, and the blend of
concessional capital with commercial capital also
prohibit the rapid scale and replicability of projects.
Projects thus tend to be executed on a deal-by-deal
basis, with most deals taking anywhere between one
and two years to execute.
Private finance, whether local investors in local currency
or international investors in hard currency, need to
spend more effort in assessing and pricing risk
appropriately. Too often perceptions drive risk pricing in
countries where benchmarks on risk-return-mandates do
not exist. Investors without boots-on-the-ground and the
ability to conduct sustained due diligence prefer not to
engage with new countries where they have never done
a transaction before. This exacerbates the problem of
capital not flowing to where it is most needed (and
where in fact returns could be made). Large, capital
expenditure heavy projects with upfront payments and
returns spread over a long tail require long-term
financing solutions, preferably in local currency. But if
Asia-Pacific investors do not engage with trying to
understand how to finance new sectors and projects
without existing benchmarks and locally tailored lending
methodologies, there will continue to be a significant
bottleneck in financing.
Small-ticket projects are increasingly overlooked in the
urgent search for scale, but they also need to be
nurtured. For a full pipeline of energy transition projects
to materialize at large scale and high pace, underlying
pipelines of smaller energy transition projects at smaller
ticket sizes are often required. This is typical for
investments in general – angel investment offers a
proving ground for companies with strong ideas or
concepts. As their concepts reach the early stages of
becoming proven, companies can raise larger ticket
Series A and B venture capital. Upon proving themselves
more and growing even further, larger-ticket private
equity funds invest based on the belief that they can
grow these companies all the way to an initial public
offering and listing on a stock exchange where retail
investors can buy a share. Similar principles apply here.
Insufficient project preparation funds exist to ensure
projects meet the risk-return-mandate requirements of
different investors. Project preparation significantly
lessens the risks inherent to projects, particularly when
done in partnership with investors. Proper feasibility
studies conducted in line with a model of a transaction
template (which outlines what risks investors are willing
to take and what contingencies they may need) will
significantly lower the risks in projects. Third party
verification of such studies, as well as support to
investors (particularly local investors who may not have
experience in such investments) through technical
assistance in the sector or project also constitutes a
strong part of effective project preparation. In the
region, small ticket-size projects by businesses face
high transaction costs to get off the ground. In some
cases, they are simply not eligible for large grant
facilities like the Green Climate Fund or the Global
Environment Facility. Neither are they eligible for the
technical assistance grants delivered by multilateral
development banks which are mostly given alongside a
specific prospective investment by the MDB. In some
cases, even when they are eligible for these large
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facilities, applications require significant skills which
they lack. More inclusive and wide-reaching project
preparation funds, while requiring more funds and
possibly generating some failures in terms of
investment, may on a net basis however generate
significantly more bankable projects.
Since financing ultimately drives investment by the real
economy, two‑thirds of the largest listed businesses still
lack a net zero pledge.199 Only 8 per cent of companies
in Asia and the Pacific have set a net zero goal by 2021,
according to CDP, a climate disclosure nonprofit.200 Of
the one third of largest listed businesses that have
made a net zero pledge, only a portion have committed
to an independent voluntary initiative. Most
privately‑listed businesses and state‑owned enterprises
have no net zero target at all.201 Even with 2050 net zero
commitments, the challenge is that emissions need to
peak (in two years’ time) by 2025 globally, and
emissions need to be cut by nearly half by 2030,202 in
order to limit the temperature rise to 1.5C.203 Therefore
companies that have set a 2050 net zero goal need to
still commit to credible transition pathways with 2030
goals and other interim goals.
The absence of data that would enable transaction
benchmarks to be built remains a major challenge,
including in biodiversity finance. Investor-grade data on
risks, dependencies, and impact on science-based
targets, is needed. This would allow pricing benchmarks,
as well as other reference points for appropriate
covenants, impact standards, and outcomes to be
placed. For biodiversity finance, complex biodiversity
measurements — such as revenue related to carbon,
biodiversity net gain, and other new indicators for
traditional investors — create a challenge for
investment.
D. Recommendations
In this section, we outline the key recommendations for
private finance emerging from the discussion on trends,
opportunities, and challenges. In addition, these
recommendations (which are set out in detail here) have
been aggregated into our final set of ten principles of
action for the region to bridge the sustainable finance
gap in Asia and the Pacific, set forward in the final
chapter.
Instead of being on track to reduce emissions by 45 per
cent by 2030, emissions are set to increase by close to
11 per cent.204 Instead of delaying the efforts to
transition closer to 2050 or 2060, making the costs to
transition even greater, private finance needs to act now
to proactively plan for the transition to net zero. If
private finance adopts an active role and becomes the
vanguard of change, actions will cascade down to
businesses, corporates, and households who use private
finance for their activities, thereby spurring widespread
change in the timeframe needed. The groundbreaking
report by the High Level Expert Group on the Net Zero
Emissions Commitments of Non-State Entities, tasked
by the United Nations Secretary General and chaired by
the Honourable Catherine McKenna, put forth a series of
recommendations on net zero pledges for actors
including private finance. We refer to the following
relevant recommendations on credible transition
pathways for such actors including private finance
below:205
▪ A net zero pledge must contain stepping-stone
targets for every five years and set out concrete
ways to reach net zero in line with the
Intergovernmental Panel on Climate Change or
International Energy Agency net zero greenhouse
gas emissions modelled pathways that limit
warming to 1.5°C with no or limited overshoot.
Implementation needs to begin immediately, and
not delay action to the last minute, reflecting the
fact that global emissions must decline by at least
50 per cent by 2030. The plans must disclose how
capital expenditure plans, research and
development plans, and investments are aligned
with all targets (e.g. capital expenditure‑alignment
with a regional or national taxonomy) and split
between new and legacy or stranded assets. Net
zero plans must detail the third‑party verification
approach and ensure audited accuracy.
▪ On coal for power generation, net zero targets and
transition plans of all financial institutions must
include an immediate end of: (i) lending, (ii)
underwriting, and (iii) investments in any company
planning new coal infrastructure, power plants, and
mines.
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▪ Private finance should focus on renewable energy:
Financial institutions should create investment
products aligned with net zero emissions by 2050
and facilitate increased investment in renewable
energy.
▪ Private finance should also focus on financing
biodiversity: Businesses should invest in the
protection and restoration of ecosystems beyond
the emission reductions in their own operations
and supply chains to achieve global net zero. This
is important considering the systemic financial
risks associated with the loss of biodiversity and
the exacerbated climate impacts associated with
the loss of natural carbon sinks. Businesses,
especially financial institutions, should anticipate
the final guidance of the Taskforce on
Nature‑related Financial Disclosures by factoring
in nature risks and dependency to all elements of
their net zero transition plans.
Private finance, including MDBs and DFIs, need to
engage in partnerships now, not just transactions.
Solving the highly complex problem of financing climate
action at scale and pace requires moving beyond short-
term, transaction-oriented thinking and deploy strategic
thinking about how to generate many deals within a
country in the relevant sectors. This requires private
finance to partner with policymakers and regulators and
drive new climate finance partnerships. It also requires
investors with experience in financing the net zero
transition to build the capacity of regulators and
investors in-country who may not have such experience.
The Just Energy Transition Partnerships present one
model of ambitious partnerships. The caveat is that time
is of the essence and partnerships need to be built and
executed urgently.
Multilateral banks and development finance institutions
need to rethink their approaches to concessional
lending and their abilities to take on more risk. In doing
so, they will have to work closely with financial
institutions and businesses to build projects that are
well-structured, leverage more private financing than
before (thus ensuring shared returns to all investors, not
just one), mitigate risk through good preparation, design,
and execution, and genuinely require concessional or
grant tranches. These projects should also be aligned
with countries’ national and sectoral transition pathways
and MDBs and DFIs are a powerful partner in
conversations with countries on developing such
credible transition pathways.
Project pipeline building requires significantly reformed
approaches if scale is to be achieved. The classic model
of investors either building their own pipelines
confidentially or waiting for fully packaged bankable
projects to be referred to them will no longer work in
certain sectors relevant to the transition, such as often
in energy transition or in new technologies. The scale of
investment required, and the tight timeframe in which to
achieve such a scale, is too high and requires significant
pre-investment partnerships. Foreign investors and local
investors need to work together in the early stages of
project building, and to collaborate to blend local and
hard currency as well as grants and concessional
finance from multiple sources. While this report has
focused on concessional finance from MDBs and DFIs,
we note that there is also substantial concessional and
grant finance available from foundations. The newly
announced Energy Transition Accelerator by Rockefeller
Foundation and the Bezos Foundation206 aim to bring
substantial philanthropic capital to incentivize new
private-sector climate finance for mitigation and
adaptation that augments — not substitutes for — other
sources of public, private, multilateral, and philanthropic
finance and companies’ continued investments in deep
emissions reductions within their own value chains.
Finally, to ensure that project preparation funds are
optimally employed to ensure the creation of genuinely
investment-ready projects, investors should advise
project preparation fund implementation, even if in a
light-touch manner. This will avoid the unfortunate, but
common, occurrence of existing project pipelines for
investment which fail to receive financing as a range of
investors do not consider them investment-ready and
investors have not been engaged from the inception of
project development. By setting up a modality in which
project developer and financial institutions regularly
meet and co-create investment projects in a progressive
and iterative manner, supported by grant funds that
defray high-risks surrounding the project preparation,
higher-quality projects can be built.
Private finance also needs to invest in building the
capacity of staff and systems. For banks and investors
who are yet to make a net-zero pledge and transition
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their lending and investing operations, significant
investment in staff capacity and systems is required to
design, plan, and manage this transition urgently.
Investments by private finance are thus urgently
required. Private finance institutions can join peer-to-
peer learning networks. There are also international
principles that individual financial institutions of any
jurisdiction can apply to. The best known are those
developed by UNEP-FI encompassing the Principles of
Responsible Banking, the Principles of Responsible
Investment, and the Principles of Sustainable Insurance.
These self-organized peer-to-peer learning networks are
vital to share knowledge and raise standards.
Private finance should also encourage their real
economy borrowers and clients to implement the net
zero transition. Finance and the real economy are
intertwined, and neither can afford to lag behind the
other. Encouraging industry borrowers who seek finance
to adopt voluntary net zero standards relevant to their
sector, will help private finance. For many countries,
sectoral transition pathways will be needed, and these
will differ from other countries due to different starting
points and different goals. Finance and the real
economy businesses need to participate in those
sectoral transition pathways; both in design and in
implementation.
Conclusion
Private finance actors must redefine how they engage
with net zero, committing to net zero targets, as well as
a credible transition pathway, and driving action within
the real economy to the maximum possible extent. To
fulfill net zero targets and finance action, project
pipeline building must also be redefined to include
greater collaboration between a multitude of actors.
Commercial investors and development financial
institutions, such as MDBs and businesses/project
developers, need to work hand-in-hand with green
project developers at the pre-investment stage. Instead
of operating on a per deal basis, common approaches to
templating transactions can be adopted, creating a
replicable model for transactions in the net-zero arena,
and ensuring investments take place at scale and pace.
In Asia and the Pacific, local banks and investors need
to take their place at the forefront of investing in the net-
zero transition.
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5. TEN PRINCIPLES OF
ACTION TO BRIDGE
THE SUSTAINABLE
FINANCE GAP IN ASIA
AND THE PACIFIC
Climate change has been called “a wicked problem par
excellence”207 because it constitutes of a series of
interconnected problems that cannot be solved in
isolation. Financing climate action in time is thus also a
wicked problem par excellence. It requires policymakers
to collaborate with regulators and private finance to
drive action in the real economy. It calls for urgent
implementation, in a world in which we have already
experienced a 1.1C change, and in which if we continue
as normal, the carbon budget to stay within 1.5C will be
depleted in less than six years, according to the IPCC. It
has been said that the global battle for climate change
will be won or lost in Asia and the Pacific.208 If the Asia-
Pacific region is at the core of the problem, however, it
is also at the core of the solution.
In the previous chapters, we discussed at length the
trends, opportunities, challenges, and recommendations
for policymakers, regulators, and private finance related
to how sustainable finance can bridge the gap in the
region. Based on that analysis, we aggregate the
recommendations across the three actors into the
following ten-point principles of action, which we hope
constitutes an action plan for stakeholders in the region.
Governments and regulators
1. New climate finance partnerships are developed
through which governments, regulators, MDBs,
and private finance commit to action around
specific goals and contribute specific tasks in
line with this shared goal. Just Energy
Transition Partnerships, which are led and
owned by countries, provide a useful model for
the region, especially if execution can be
accelerated.
2. Effective NDC financing strategies are
developed, led by authorities with clear
mandates, which signal credible transition
pathways with interim targets and clear
resource mobilization plans. This will provide a
clear and vital signal to investors, businesses,
and project developers that governments are
committed to change. This signal of reliability,
stability, and predictability is a core part of
costs around projects.
3. Policy coherence and capacities are developed
across key government ministries such as
finance, energy, transport, and environment,
reducing the costs of financing. Governments
need to invest in both the effort for such
coordination and the capacities for such
coordination. This will also allow governments
to better work with MDBs, DFIs, and
development partners to obtain the assistance
they need in the timeframe they need it in.
4. Decisive regulatory action takes place to shift
capital in Asia and the Pacific towards the net
zero transition. Asia and the Pacific is home to
significantly large pools of capital capable of
bridging the gap in sustainable finance.
Regulators need to adopt a more active role in
shifting capital towards climate action,
recognizing that doing so will strengthen
financial stability in the system, as well as
create a level playing field for all. In doing so,
regulators will also need to move towards
consistent taxonomies and roadmaps across
countries, to create a level playing field.
5. Investment in the capacities of financial
personnel to assess climate risk, innovate green
financial instruments, and supervise the
transition path of the green economy is
undertaken. International groupings such as the
Network for Central Banks and Supervisors for
Greening the Financial System (NGFS) or the
Sustainable Banking and Finance Network
(SBFN) can be effective to promote peer-
learning among members.
6. Investment in much-needed sectoral and
project-based financial data is undertaken.
Common data platforms that share valuable
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data on ESG, climate, nature, contracts, clauses
standards, targets, and deals (where possible)
will streamline investment, assist
benchmarking, strengthen credibility and ensure
replicability and scale of green transactions and
deals.
Private Finance – Asia-Pacific banks, investors and
issuers
7. Commitments to net zero pledges for 2050 with
credible transition pathways including 2030
goals are made. The slowness of banks in Asia
and the Pacific to commit to net zero and
transition their lending and investing portfolios
with interim 2030 science-based targets is a
serious brake on driving finance towards
climate action in the region.
8. Local-currency financing of energy transition
projects as well as green technologies and other
net-zero investments is increased. Local-
currency financing is critical to accelerate the
scale and pace of private finance because it can
fund projects that do not have to reach a higher
rate of return just to cover exchange rate risk as
well as provide other benefits. Increased net-
zero commitments by private finance in Asia
and the Pacific (number 7 above) combined with
a focus on investing in the energy transition in
their local currency will leverage and bring
forward the needed investment at scale.
9. Concessional financing and risk-sharing by
multilateral development banks, bilateral
development financial institutions, and public
development banks is expanded and
accelerated. This will de-risk otherwise sound
projects and ultimately leverage significant
private capital. A 1:5 ratio, like ADB’s goal, can
be one benchmark to ensure that concessional
funds truly leverage private finance and go
towards well-structured projects. This will also
guarantee well-designed projects in which
concessional finance truly catalyzes and
mobilizes greater private finance. In doing so,
however, it is critical to ensure the project is
both high impact to support the net-zero-
transition and commercially attractive.
10. Investment of time and effort with partners in
green project preparation is increased in more
challenging markets, whether it is in the LDCs,
SIDS, or in new green technologies. Setting up a
modality in which project developers and
financial institutions regularly meet and co-
create investment projects in a progressive and
iterative manner can accelerate the preparation
of effective pipelines of bankable green projects
at scale. While large projects have lower
transaction costs, investing in project
preparation for smaller-ticket green projects will
ensure a long-term pipeline of large projects.
Ultimately good project preparation and
dedicated resources to that end will reduce the
risk of projects when implemented.
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ANNEXES
Annex A: Climate financing needs in Asia and the Pacific
Table A.1: Financing needs for mitigation and adaptation in Asia and the Pacific from nationally determined contributions
(millions of United States dollars).
Source: ESCAP based on data from IGES NDC Database.209
Note: Only parties to the UNFCCC that report financing needs are included in the table.210
Party to the UNFCCC
Financing needs (millions of United States dollars)
Submission dates
Mitigation
Adaptation
Total
Date of the last
submission
Initial/updated
submission
South and South-West Asia
Afghanistan
6,620
10,790
17,410
23/11/2016
1st update
India
834,000
206,000
1,040 000
26/08/2022
1st update
Iran (Islamic Republic of)
52,500
140,000
192,500
21/11/2015
Initial
Nepal
21,600
21,600
08/12/2020
2nd update
North and Central Asia
Georgia
2,000
2,000
05/05/2021
1st update
Kyrgyzstan
7,240
2,830
10,070
09/10/2021
1st update
Turkmenistan
10,500
10,500
21/10/2016
1st update
South-East Asia
Cambodia
5,800
2,000
7,800
31/12/2020
1st update
Lao People's Democratic
Republic
4,700
4,700
11/05/2021
1st update
The Pacific
Fiji
2,970
31/12/2020
1st update
Kiribati
80
21/09/2016
1st update
Niue
10
28/10/2016
1st update
Palau
10
10
22/04/2016
1st update
Solomon Islands
130
130
250
19/07/2021
1st update
Tuvalu
360
22/04/2016
1st update
Vanuatu
310
720
1,030
23/03/2021
1st update
East and North-East Asia
Mongolia
3,400
3,400
13/10/2020
1st update
Total
932,910
378,370
1,314,690
Count
10
10
17
Shares of mitigation/
adaptation (%)
71
29
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Annex B: Credit ratings
Table B.1: Credit ratings of ESCAP members and rated dates.
Sovereign/Jurisdiction
credit rating
S&P
Moody's
Fitch
Ratings
Date
Ratings
Date
Ratings
Date
Armenia
Non-investment grade
B+
12-Oct-21
Ba3
24-Mar-22
B+
10-Feb-23
Australia
Investment grade
AAA
6-Jun-21
Aaa
20-Oct-02
AAA
13-Oct-21
Azerbaijan
Non-investment grade
BB+
22-Jan-21
Ba1
5-Aug-22
BB+
21-Oct-22
Bangladesh
Non-investment grade
BB-
5-Apr-10
Ba3
9-Dec-22
BB-
29-Aug-14
Cambodia
Non-investment grade
B2
15-Nov-22
China
Investment grade
A+
21-Sep-17
A1
24-May-17
A+
5-Nov-07
Fiji
Investment grade
B+
22-Sep-21
B1
7-Oct-22
Georgia
Investment grade
BB
25-Feb-22
Ba2
28-Apr-22
BB
27-Jan-23
Hong Kong, China
Non-investment grade
AA+
22-Sep-17
Aa3
20-Jan-20
AA-
20-Apr-20
India
Non-investment grade
BBB-
26-Sep-14
Baa3
5-Oct-21
BBB-
10-Jun-22
Indonesia
Investment grade
BBB
27-Sep-22
Baa2
13-Apr-18
BBB
21-Dec-17
Japan
Investment grade
A+
9-Jun-20
A1
1-Dec-14
A
25-Mar-22
Kazakhstan
Investment grade
BBB-
2-Sep-22
Baa2
11-Aug-21
BBB
29-Apr-16
Kyrgyzstan
Non-investment grade
NR
23-Sep-16
B3
17-Oct-22
Lao People's
Democratic Republic
Non-investment grade
Caa3
14-Jun-22
Macao, China
Non-investment grade
Aa3
24-May-17
AA
15-Apr-21
Malaysia
Investment grade
A-
27-Jun-22
A3
11-Jan-16
BBB+
2-Dec-20
Maldives
Non-investment grade
Caa1
17-Aug-21
B-
13-Oct-22
Mongolia
Non-investment grade
B
9-Nov-18
B3
16-Mar-21
B
9-Jul-18
New Zealand
Investment grade
AA+
21-Feb-21
Aaa
20-Oct-02
AA+
9-Sep-22
Pakistan
Non-investment grade
CCC+
22-Dec-22
Caa1
6-Oct-22
CCC-
14-Feb-23
Papua New Guinea
Non-investment grade
B-
24-May-22
B2
10-Nov-22
Philippines
Investment grade
BBB+
30-Apr-19
Baa2
11-Dec-14
BBB
12-Jul-21
Russian Federation
Investment grade
NR
8-Apr-22
NR
31-Mar-22
NR
25-Mar-22
Singapore
NR
AAA
6-Mar-95
Aaa
14-Jun-02
AAA
14-May-03
Solomon Islands
Investment grade
Caa1
8-Oct-21
Republic of Korea
Non-investment grade
AA
8-Aug-16
Aa2
18-Dec-15
AA-
6-Sep-12
Sri Lanka
Non-investment grade
SD
25-Apr-22
Ca
18-Apr-22
RD
19-May-22
Tajikistan
Non-investment grade
B-
28-Aug-17
B3
17-Oct-22
Thailand
Investment grade
BBB+
13-Apr-20
Baa1
21-Apr-20
BBB+
17-Mar-20
Türkiye
Non-investment grade
B
30-Sep-22
B3
12-Aug-22
B
8-Jul-22
Turkmenistan
Non-investment grade
B+
10-Feb-23
Uzbekistan
Non-investment grade
BB-
4-Jun-21
Ba3
20-Jan-23
BB-
21-Dec-28
Viet Nam
Non-investment grade
BB+
26-May-22
Ba2
6-Sep-22
BB
1-Apr-21
Source: ESCAP based on Trading Economics.211
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Table B.2: Investment VS non-investment grade.
S&P
Moody's
Fitch
Description
AAA
Aaa
AAA
Prime
AA+
Aa1
AA+
High grade
AA
Aa2
AA
AA-
Aa3
AA-
A+
A1
A+
Upper medium grade
A
A2
A
A-
A3
A-
BBB+
Baa1
BBB+
Lower medium grade
BBB
Baa2
BBB
BBB-
Baa3
BBB-
BB+
Ba1
BB+
Non-investment grade
BB
Ba2
BB
Speculative
BB-
Ba3
BB-
B+
B1
B+
Highly speculative
B
B2
B
B-
B3
B-
CCC+
Caa1
CCC
Substantial risks
CCC
Caa2
Extremely speculative
CCC-
Caa3
In default with little prospect for recovery
CC
Ca
C
C
D
/
DDD
In default
/
DD
D
Source: ESCAP based on Trading Economics.212
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Annex C: Access to UNFCCC Financing
Table C.1: ESCAP members and associate members that have not accessed UNFCCC climate finance mechanisms.
UNFCCC
GCF
GEF
Adaptation Fund
American Samoa
American Samoa
American Samoa
Afghanistan
Australia
Australia
Australia
American Samoa
Hong Kong, China
Brunei Darussalam
Hong Kong, China
Australia
Macao, China
Hong Kong, China
Macao, China
Azerbaijan
French Polynesia
Macao, China
French Polynesia
Brunei Darussalam
Guam
French Polynesia
Guam
China
Japan
Guam
Japan
Hong Kong, China
New Caledonia
Japan
New Caledonia
Macao, China
New Zealand
New Caledonia
New Zealand
Democratic People's Republic
of Korea
Northern Mariana Islands
New Zealand
Northern Mariana Islands
French Polynesia
Northern Mariana Islands
Guam
Republic of Korea
Iran (Islamic Republic of)
Russian Federation
Japan
Singapore
Kazakhstan
Türkiye
Kiribati
Marshall Islands
Nauru
New Caledonia
New Zealand
Niue
Northern Mariana Islands
Palau
Philippines
Republic of Korea
Russian Federation
Singapore
Thailand
Timor-Leste
Tonga
Türkiye
Tuvalu
Vanuatu
Source: ESCAP based on GCF Open Data and GEF Projects Database.213
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Annex D: Carbon pricing initiatives in Asia and the Pacific
Table D.1: Status and progress of carbon pricing initiatives at national and sub-national level in Asia and the Pacific.
Jurisdiction covered (Country,
region, city)
Type of
jurisdiction
covered
Country of
subnational
jurisdiction
Name of initiative
ETS implemented/scheduled
Australia
National
-
Australia Carbon Credits Act (Carbon
Farming Initiative)
China
National
-
China national ETS (for power sector)
Kazakhstan
National
-
Kazakhstan ETS
Republic of Korea
National
-
Korea ETS
Beijing
Subnational
China
Beijing pilot ETS
Chongqing
Subnational
China
Chongqing pilot ETS
Fujian
Subnational
China
Fujian pilot ETS
Guangdong (except Shenzhen)
Subnational
China
Guangdong pilot ETS
Hubei
Subnational
China
Hubei pilot ETS
Saitama
Subnational
Japan
Saitama ETS
Sakhalin
Subnational
Russian
Federation
Sakhalin ETS
Shanghai
Subnational
China
Shanghai pilot ETS
Shenzhen
Subnational
China
Shenzhen pilot ETS
Tianjin
Subnational
China
Tianjin pilot ETS
Tokyo
Subnational
Japan
Tokyo CaT
ETS under consideration / in development
Malaysia
National
-
Malaysia ETS
Pakistan
National
-
Pakistan ETS
Russian Federation
National
-
Draft Bill on State regulation of emission and absorption
of GHG
Thailand
National
-
Thailand ETS
Türkiye
National
-
Türkiye ETS
Viet Nam
National
-
Viet Nam ETS
Shenyang
Subnational
China
Shenyang ETS
Carbon tax implemented/scheduled
Singapore
National
-
Singapore carbon tax
ETS implemented/scheduled & Carbon tax under consideration
New Zealand
National
-
New Zealand ETS & New Zealand carbon tax
ETS under consideration & Carbon tax implemented/scheduled
Indonesia
National
-
Indonesia ETS for the power sector & Indonesia carbon
tax
Japan
National
-
Japan ETS & Carbon Tax for Climate Change Mitigation
Source: World Bank Carbon Pricing Dashboard214 and UNCTAD Sustainable finance regulations platform.215
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Annex E: List of stakeholders
Table E.1: Singapore FinTech Festival expert roundtable discussants
Name
Organization
Title
Aziz Durrani
ASEAN+3 Macroeconomic Research Office (AMRO)
Capacity Development Expert
Darian McBain
Outsourced Chief Sustainability Officer Asia
Chief Executive Officer (CEO)
Kristina Anguelova
WWF - Sustainable Finance Institute Asia
Head of Asia Sustainable Finance
Nasir Zubairi
Luxembourg House of Financial Technology (LHoFT)
CEO
Nicholas Gandolfo
Sustainalytics Corporate Solutions, Singapore,
Sustainalytics
Vice President
Steve Cochrane
Moody’s Analytics
Chief APAC Economist
Miranda Carr
MSCI
Global Head of Applied ESG & Climate Research
Chea Serey
National Bank of Cambodia
Director General
Satoru Yamadera
Asian Development Bank
Advisor
Kelvin Tan
HSBC
Managing Director, Head of Sustainable
Finance & Investments, ASEAN
Abhishek Kaul
IBM
Associate Partner, Sustainability & Analytics
Lise Pretorius
Matter
Head of Sustainability
Maria Perdomo
UNCDF
Regional Coordinator, Asia and the Pacific
Eugene Wong
Sustainable Finance Institute Asia
CEO
Paul Dickinson
CDP - Disclosure Insight Action
Founder Chair
Jaclyn Dove
Standard Chartered Bank
Head of Sustainable Finance Strategic
Initiatives
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Table E.2: Stakeholders consulted for the key informant interviews.
Name
Organization
Title
Bank of America
Aziz Durrani
ASEAN+3 Macroeconomic Research Office (AMRO)
Capacity Development Expert
Erik Grigoryan
Environment Group
Founder and CEO
Eugene Wong
Sustainable Finance Institute Asia
CEO
Ines Marques
Green Hydrogen Organization
Director of the Green Hydrogen Development
Plan
Kelvin Lester K. Lee
Securities and Exchange Commission, Philippines
Commissioner
Michael Salvatico
S&P Global Sustainable1
Head of Asia, Pacific, Middle East & Africa ESG
Solutions
Miranda Carr
MSCI
Global Head of Applied ESG & Climate
Research
Piyawan Khemthongpradit
Bank of Thailand
Assistant Director,
Financial Institutions Strategy Department
Thammachart
Thammaprateep
Bank of Thailand
Senior Analyst, Financial Institutions Strategy
Department
Table E.3: List of speakers at ESCAP Expert Group Meeting on Public Debt and Sustainable Financing in Asia and the
Pacific.
Name
Organization
Title
Aigul Kussaliyeva
AIFC Green Finance Centre
Director of Sustainable Development of AIFC
Authority
Allinnettes Adigue
Global Reporting Initiative
Head GRI ASEAN Regional Hub
Liz Curmi
Citi Global Insights
Head of Energy transition and Climate finance
Lyn Javier
Central Bank of the Philippines
Assistant Governor, Policy and Specialized
Supervision Sub-Sector
Kosintr Puongsophol
Asian Development Bank
Financial Sector Specialist
Nikita Bajracharya
Dolma Advisors
Senior Investment Manager
Ricco Zhang
International Capital Market Association
Senior Director, Asia Pacific
Robert Willem van Zwieten
Route17
Founding Partner
TMJYP Fernando
Central Bank of Sri Lanka
Senior Deputy Governor
Youraden Seng
National Bank of Cambodia
Director, Banking Supervision Department II
Yuki Yasui
Asia-Pacific Network of the Glasgow Financial
Alliance for Net Zero
Director
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EXECUTIVE SUMMARY
ENDNOTES
1 World Bank Treasury (2023).
2 OECD (2021a).
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107
CH1. ENDNOTES
3 UNFCCC (2022d).
4 Ibid.
5 Ibid.
6 UNFCCC (2022b).
7 IPCC (2022a).
8 ADB (2023b).
9 ESCAP (2015).
10 ESCAP (2023)
11 ESCAP (2021).
12 ESCAP (2015).
13 ADB (2023b).
14 ADB (2023b).
15 ESCAP, UNEP and UNICEF (2022).
16 IPCC (2023)
17 Ibid.
18 Ibid.
19 CBD (2022).
20 United Nations (2022).
21 Torkington (2023).
22 Available at https://dataexplorer.unescap.org.
Accessed on 3 April 2023.
23 Available at https://dataexplorer.unescap.org.
Accessed on 3 April 2023.
24 UNCTAD (2014); OECD and UNDP (2012).
25 IISD (2022).
26 ESCAP (2019).
27 Ibid.
28 Vitor (2023).
29 IPCC (2021).
30 Black, and others (2022).
31 ESCAP, UNEP, and UNICEF (2022).
32 Songwe, Stern, and Bhattacharya (2022).
33 UNFCCC (2022a).
34 Larsen, Brandon, and Carter (2022).
35 Johnson, and others (2021).
36 Ibid.
37 The term investment and financing are often used
interchangeably, but they are not exactly the same.
Investment means allocating money to activities or
financial assets that will generate a future profit, while
financing means raising money to fund an investment.
38 ICMA (2020b).
39 The SBFN represents 63 institutions from 43
countries, accounting for over $42 trillion, or 86 per
cent, of the banking assets across emerging markets.
40 GFSG (2016).
41 UNFCCC (n.d.a).
42 There is no one uniform definition of greenwashing.
The European Securities and Markets Authority (ESMA)
have sought industry views on legally defining
greenwashing to be enshrined in law. A commonly
referred to analysis is regarding the seven sins of
greenwashing by TerraChoice (2010), The Cambridge
dictionary defines greenwashing as the practice of
making people believe that your company is doing more
to protect the environment than it really is.
43 MSCI (n.d.).
44 Ibid.
45 PRI (2018).
46 UNFCCC (n.d.d).
47 UNFCCC (n.d.a).
48 UNFCCC (n.d.b).
49 UNFCCC (n.d.c).
50 UNFCCC (2022c).
51 SDG Goal No. 7 is to ensure access to affordable,
reliable, sustainable, and modern energy for all. It has
five targets to be achieved by 2030, three of which are
outcome targets (universal access to modern energy,
increase global percentage of renewable energy, double
the improvement in energy efficiency) and two of which
are means of implementation targets (to promote
access to research, technology, and investments in
clean energy and to expand and upgrade energy
services for developing countries).
52 Indicator 7.1. 2 is the proportion of population with
primary reliance on clean fuels and technology, while
indicator 7.2.1 measures renewable energy share in the
total final energy consumption and indicator 7.a.1
measures international financial flows to developing
countries in support of clean energy research and
development and renewable energy production
(including in hybrid systems).
53 An exception is the SDG bonds, which are instruments
that clearly link the use of proceeds to the United
Nations Sustainable Development Goals (SDGs) through
a multiplicity of methods.
54 United Nations (2019).
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CH2. ENDNOTES
55 World Bank (2015).
56 See for instance, Zingales (2015).
57 The correlation is calculated through the Pearson
correlation coefficients to show the significance of the
correlation between GDP per capita and the IMF
Financial Development index components.
58 Krieger-Boden, Nunnenkamp and Görg (2016).
59 OECD and UNCDF (2020).
60 ESCAP, UNEP, and Greenwerk (2020).
61 UNFCCC (2016).
62 UNFCCC (2021).
63 ICMA (2020a)
64 London Stock Exchange (n.d.).
65 World Bank (2023).
66 CBI (2023).
67 CBI (2023).
68 Cheng, Ehlers , and Packer (2022).
69 Varez (2023).
70 Ahluwalia, and others (2022).
71 Cheng, Ehlers , and Packer (2022).
72 Ibid.
73 Mexico (2022, EUR 1.25 billion second issuance,
following the world’s first issuance of an SDG bond in
2020 by Mexico of EUR 735 million), Uzbekistan (2021,
$235 million SDG bond) and Benin (2021, EUR 500
million issuance) have issued SDG bonds, supported by
the United Nations Development Programme. SDG bond
proceeds feed into the federal budget and are
channelled into projects that support the Sustainable
Development Goals. Eligibility criteria and monitoring
standards are established by the United Nations
Development Programme.
74 Munthe (2023).
75 Available at
https://carbonpricingdashboard.worldbank.org/ ,
accessed on 1 March 2023
76 Available at https://gsfo.org/sustainable-finance-
regulations-platform, accessed on 29 March 2023.
77 Carbon pricing initiatives have been classified as
ETSs and carbon taxes according to how they operate
technically; local terminology may vary. Jurisdictions
that only mention carbon pricing in their NDCs are not
included.
78 Systems operating like a baseline-and-offsets
program, such as Australia Safeguard Mechanism, fall
outside the scope of the Carbon Pricing Dashboard.
79 World Bank (2023).
80 The High-Level Commission on Carbon Prices
concluded in 2017 that carbon prices needed to be at
the level of 80/tCO2 in 2020 and reach 100/tCO2 by
2030 to be on track to keep temperatures below 2°C—
the upper end of the limit agreed upon in the Paris
Agreement (2017 USD). Adjusting for inflation allows a
more direct comparison with current carbon prices—
prices would need to reach 122 by 2030 (in
2023 USD).
81 World Bank Treasury (2023).
82 Ibid.
83 Isgut and Taloiburi (2022).
84 Chamon and others (2022).
85 Ibid.
86 ESCAP (2022).
87 OECD (2021a).
88 Available at www.oecd.org/dac/financing-
sustainable-development/development-finance-
topics/climate-change.htm, accessed on 2 April 2023
89 OECD (2021b; 2022).
90 Mezzanine financing is a layer of financing that fills
the gap between senior debt and equity in a company. It
can be structured either as preferred stock or as
unsecured debt, and it provides investors with an option
to convert to equity interest. Mezzanine financing is
usually used to fund growth prospects, such as
acquisitions and expansion of the business. (Corporate
Finance Institute, 2023)
91 Available at www.oecd.org/dac/financing-
sustainable-development/development-finance-
topics/climate-change.htm, accessed in July 2023.
92 Climate Analytics (2021).
93 Issued by a government agency.
94 Tall and others (2021).
95 Lin and Hong (2021).
96 Murphy (2022).
97 MAS (2021).
98 OECD (2018).
99 Ibid.
100 GCF (2023).
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101 Available at
https://data.worldbank.org/indicator/SP.POP.TOTL,
accessed on 29 March 2023.
102 Available at www.thegef.org/projects-
operations/database, accessed on 3 March 2023.
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CH3. ENDNOTES
103 BOT (n.d.).
104 For example, according to the Commonwealth
Climate and Law Initiative (CCLI) and Climate
Governance Initiative (CGI) (2021), “Climate-related
disclosure standards have significant consequences for
boards. Directors have obligations to approve or attest
to the accuracy and completeness of disclosures made
in financial filings. Directors on audit committees will
likewise have additional responsibilities to engage in
testing and overseeing the robustness of the climate
scenario assumptions underpinning key aspects of the
audit process.”
105 Macroprudential policies are financial policies that
aim to ensure the stability of the financial system as a
whole in order to prevent substantial disruptions in
credit and other vital financial services necessary for
stable economic growth. The stability of the financial
system is at greater risk when financial vulnerabilities
are high, such as when institutions and investors have
high leverage and are overly reliant on uninsured short-
term funding, and interconnections are complex and
opaque. High vulnerabilities increase the likelihood that
a firm’s failure or other negative shock will cause
distress at other financial institutions because of direct
exposures and through fire sales, contagion, or other
negative externalities arising from the initial shock.
Macroprudential policies aim to reduce the financial
system’s sensitivity to shocks by limiting the buildup of
financial vulnerabilities (Yilla and Liang, 2020).
106 Microprudential supervision refers to the supervisory
role performed by central banks to monitor financial
institutions to ensure the stability and soundness of
practices by individual banks.
107 BOE (2019).
108 Carney (2015).
109 Ibid.
110 Green swans, or “climate black swans”, present many
features of typical black swans. Climate-related risks
typically fit fat-tailed distributions: both physical and
transition risks are characterized by deep uncertainty
and nonlinearity, their chances of occurrence are not
reflected in past data, and the possibility of extreme
values cannot be ruled out. In this context, traditional
approaches to risk management consisting of
extrapolating historical data and on assumptions of
normal distributions are largely irrelevant to assess
future climate related risks (Bolton, and others, 2020).
111 The bank-sovereign nexus refers to the fact that
many banks hold domestic sovereign debt, especially in
emerging economies, which can amplify
macroprudential risk. IMF research shows that an
increase in sovereign credit risk can adversely affect
banks’ balance sheets and credit supply especially in
countries with less well-capitalized banking systems.
Sovereign distress can also impact banks indirectly
through the nonfinancial corporate sector by
constraining their funding and reducing their capital
expenditure. Notably, the effects on banks and
corporates are strongly nonlinear in the size of the
sovereign distress (Deghi, and others, 2022).
112 Demekas and Grippa (2022).
113 FSB and NGFS (2022).
114 NGFS (2021b).
115 NGFS (2021a).
116 FSB (2022a).
117 The Greenhouse Gas Protocol Corporate Standard
classifies a company’s GHG emissions into three
scopes. Scope 1 emissions are direct emissions from
owned or controlled sources. These are usually the
easiest to measure. Scope 2 emissions refer to the
indirect emissions from the generation of purchased
energy. Scope 3 emissions refer to all indirect
emissions (not included in Scope 2) that occur in the
value chain of the reporting company, including both
upstream and downstream emissions. The latter is
usually the hardest to measure and can account for
more than 70 per cent of the carbon footprint
(Greenhouse Gas Protocol, 2019).
118 Miller and others (2021).
119 The TCFD is part of the Financial Stability Board
(FSB) in the Bank of International Settlements (BIS).
120 Asset owners refer to organizations that represent
the holders of long-term retirement savings, insurance,
and other assets such as pension funds, endowments,
family offices. Asset managers refer to those that plan,
acquire, deploy, and dispose of clients’ assets.
121 FSB (2022b).
122 FSB (2022b).
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123 According to one estimate by Statista (2021), there
were estimated to be 206,296 large companies
operating in Asia with a further 79,992 in Europe, 39,792
in North America, 15,606 in Latin America, 6,002 in
Africa, and 3,834 in Australia. (Estimated number of
large companies (250+ employees) worldwide from
2000 to 2021.
124 TCFD, available at www.fsb-tcfd.org/supporters,
accessed on 8 February 2023.
125 TNFD (2022).
126 GFANZ defines a net-zero transition plan as follows:
A net-zero transition plan is a set of goals, actions, and
accountability mechanisms to align an organization’s
business activities with a pathway to net-zero GHG
emissions that delivers real-economy emissions
reduction in line with achieving global net zero. For
GFANZ members, a transition plan should be consistent
with achieving net zero by 2050, at the latest, in line with
commitments and global efforts to limit warming to
1.5C, above pre-industrial levels, with low or no
overshoot. Financial institutions’ net-zero commitments
should cover at least the Scope 1 and Scope 2
emissions associated with clients or portfolio
companies. They should also cover Scope 3 emissions
associated with clients or portfolio companies in
sectors that are significant climate change contributors
or where company Scope 3 emissions are material and
can be incorporated based on data availability (GFANZ,
2022).
127 NGFS (2023).
128 WWF (2022).
129 Durrani, Volz, and Rosmin (2020).
130 Ibid.
131 BSP (2022).
132 MAS (2023).
133 Hussain, Tlaiye, and Rolando Marcelo (2020).
134 ASEAN (2023).
135 Sustainable Fitch (2023).
136 G20 Sustainable Finance Working Group (2022).
137 Durrani, Volz, and Rosmin (2020).
138 Ibid.
139 Ibid.
140 Ibid.
141 Philipova (2022).
142 Regulation Asia (2022).
143 WWF (2022).
144 Ibid.
145 Ibid.
146 Ibid.
147 Jason Norman Lee, Managing Director for Legal &
Regulatory at Temasek International in Singapore,
quoted in Regulation Asia (2022).
148 UNEP FI (2022).
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CH4. ENDNOTES
149 In May 2021, the Court of the Hague delivered a
landmark decision, ordering Shell to reduce its global
CO2 emissions by 45 per cent by 2030 (Milieudefensie v
Shell plc). Similar claims were filed in Germany in 2021
against the car manufacturers BMW, Mercedes Benz,
and Volkswagen. In the US, ExxonMobil, its chairman,
CEO, and other directors have been subject to several
securities and financial regulation claims, relating to
alleged failures to disclose climate risks properly
(Ramirez v ExxonMobil) (Page and Butland, 2022).
In February 2023, activist group ClientEarth sought to
bring a derivative action against Shell's directors for
their alleged failure to effectively address the risks of
climate change. The case was ground-breaking as the
first-ever climate litigation attempting derivative action
to establish personal liability for a company's directors
who allegedly failed to address the threat of climate
change. While the High Court dismissed this case in
May 2023, it nevertheless accepted that ClientEarth had
established a prima facie case. "Shell faces material
and foreseeable risks as a result of climate change
which have or could have a material effect on it."
According to legal firm Dentons (2023), ‘this finding will
not be lost on others seeking to bring ESG claims.”
150 Most banking regulators follow the
recommendations of the Basel Committee on Banking
Supervision, which defines capital adequacy ratios using
risk-weighted assets in the denominator. With riskier
assets having a larger weight, they require larger
increases in capital reserves compared to less risky
assets.
151 The capital stack of a project or entity refers to the
mix of various forms of capital in the capital structure,
that is ordered by who has the rights and in what order
the capital owner gets paid in terms of both profits and
income as well as in event of default. Common capital
forms include senior debt (usually the first to get paid
out such as collateral-backed loans, commercial bank
loans), junior debt (a form of second-tier subordinated
debt such as mezzanine debt) and common equity.
Concessional funding can thus be blended with private
commercial finance and used at different levels of the
capital stack.
152 Yamaguchi and Taqi (2023).
153 Accessed on 8 February 2023.
154 Accessed on 4 April 2023.
155 For more information, see
https://efdata.org/pages/methodology.
156 Accessed on 4 April 2023
157 For more information, see
https://efdata.org/pages/methodology.
158 IMF (2022).
159 Thinking Ahead Institute (2022).
160 Ibid.
161 Ibid.
162 Ibid.
163 Accessed on 4 April 2023.
164 Accessed on 6 April 2023
165 Available at https://statistics.world-exchanges.org/
and
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD,
accessed on 6 April 2023
166 UNEP FI (n.d.).
167 See www.fdimarkets.com
168 Ibid.
169 See https://e-
learning.unescap.org/thematicarea/detail?id=43
170 More information on this work can be found here:
www.unescap.org/our-work/trade-investment-
innovation/business-investment.
171 EIB (2022).
172 Available at https://oe.cd/development-climate,
accessed on 17 February 2023.
173 This analysis examined 13 active MDBs and DFIs in
the region – World Bank Group (WBG), Asian
Development Bank (ADB), Kreditanstalt für
Wiederaufbau (KfW), European Bank for Reconstruction
and Development (EBRD), Asian Infrastructure
Investment Bank (AIIB), European Investment Bank
(EIB), Islamic Development Bank (IsDB), Black Sea Trade
& Development Bank, Proparco, Council of Europe
Development Bank (CEB), Export-Import Bank of Korea,
FinnFund, Austrian Development Bank. For more
information on the methodology, please consult:
www.oecd.org/dac/financing-sustainable-
development/development-finance-
data/METHODOLOGICAL_NOTE.pdf. We note that
Development Finance Corporation (USA), British
International Investment (BII), Nederlandse
Financierings-Maatschappij voor Ontwikkelingslanden
N.V. (FMO, the Netherlands) and others are not included
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113
here and would increase the figures if included.
174 Available at https://oe.cd/development-climate,
accessed on 17 February 2023.
175 More information on the methodology is available at:
www.oecd.org/dac/financing-sustainable-
development/development-finance-
data/METHODOLOGICAL_NOTE.pdf.
176 Available at https://oe.cd/development-climate,
accessed on 17 February 2023.
177 Boosting (2022).
178 G20 Independent Expert Group (2023).
179 Ibid.
180 Available at
https://stats.oecd.org/Index.aspx?DataSetCode=DV_DC
D_MOBILISATION, accessed on 28 February 2022.
181 In June 2023 at the President Macron’s Summit for A
New Global Financing Pact, the World Bank announced a
‘toolkit’ on financing for disaster-affected countries,
including a pause on debt repayments.
182 Arbeleche (2022).
183 Boosting (2022).
184 Arbeleche (2022).
185 ADB (2023a).
186 Boosting (2022).
187 Ibid.
188 G20 Independent Expert Group (2023).
189 Ibid.
190 As Ravi Menon, Managing Director of the Monetary
Authority of Singapore said, “2020 to 2030 is the critical
decade for climate action. Net zero commitments for
2050 are fine and good but a credible trajectory towards
that goal will be substantially determined by 2030. While
a growing number of countries and companies have set
net-zero targets, very few have credible plans to meet
them. The problem is that countries and companies
alike are pledging to hit targets in almost three decades'
time without committing to action for which they can be
held accountable in the short term. To achieve net-zero
by 2050, the necessary policies and the associated
investments must be made between now and 2030,”
(Menon, 2022).
191 The Asian Banker (2021).
192 IEA (2023).
193 IEA (2021).
194 GFANZ (2023).
195 IRENA and CPI (2023).
196 Hard to Abate (HTA) sectors are sectors in which it is
difficult to move away from fossil fuel energy uses and
in which it is hard to directly electrify using renewable
power. These include major industries that rely on fossil
fuels for high-temperature energy or for chemical
feedstocks and include steel, cement, iron, chemicals
and building materials which together are responsible
for approximately 30 per cent of the world’s annual CO2
emissions. Another HTA sector is heavy duty
transportation, such as trucking and shipping, which is
harder to electrify than passenger transport because it
would require enormous batteries that add to vehicle
weight and take a long time to charge. (Nault, 2022).
197 Andretich and others (2022).
198 Green Hydrogen Organisation (2022).
199 United Nations (2022).
200 CDP Disclosure Insight Action (2022).
201 United Nation (2022).
202 IPCC (2022a).
203 The IPCC report (IPCC, 2022a) additionally states
“tracked financial flows fall short of the levels needed to
achieve mitigation goals across all sectors and regions.
The challenge of closing gaps is largest in developing
countries as a whole. Scaling up mitigation financial
flows can be supported by clear policy choices and
signals from governments and the international
community (high confidence). Accelerated international
financial cooperation is a critical enabler of low-GHG
and just transitions and can address inequities in
access to finance and the costs of, and vulnerability to,
the impacts of climate change (high confidence). {15.2,
15.3, 15.4,15.5, 15.6}”
204 United Nations (n.d.).
205 United Nations (2022).
206 The Rockefeller Foundation (2023).
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CH5. ENDNOTES
207 Termeer, Dewulf and Breeman (2012).
208 ADB (n.d.).
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ANNEXES ENDNOTES
209 Available at www.iges.or.jp/en/pub/iges-indc-ndc-
database/en, accessed in October 2022.
210 For some countries the sum of mitigation and
adaptation financing needs does not add to the total as
total financing needs are based on different studies and
methodology. In some cases, only the country total
financing needs is available.
211 Accessed on 26 February 2023.
212 Ibid.
213 Available at www.thegef.org/projects-
operations/database, accessed on 3 March 2023.
214 Available at
https://carbonpricingdashboard.worldbank.org/,
accessed on 1 March 2023.
215 Available at https://gsfo.org/sustainable-finance-
regulations-platform, accessed on 29 March 2023.Plain-text mathematical notation (without MathML)
The shaded areas of the map indicate ESCAP members and associate members.*
The Economic and Social Commission for Asia and the Pacific (ESCAP) is the most inclusive intergovernmental platform in
the Asia-Pacific region. The Commission promotes cooperation among its 53 member States and 9 associate members in
pursuit of solutions to sustainable development challenges. ESCAP is one of the five regional commissions of the United
Nations.
The ESCAP secretariat supports inclusive, resilient, and sustainable development in the region by generating action-oriented
knowledge, and by providing technical assistance and capacity-building services in support of national development
objectives, regional agreements, and the implementation of the 2030 Agenda for Sustainable Development.
*The designations employed and the presentation of material on this map do not imply the expression of any opinion
whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or
area or of its authorities, or concerning the delimitation of its frontiers or boundaries.
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Sustainable Finance: Bridging the Gap in Asia and the Pacific
United Nations publication
Sales No.: 23.II.F.6
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ESCAP FINANCING FOR DEVELOPMENT SERIES NO. 5
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iv
FOREWORD
In 2022, the Asia-Pacific region experienced unprecedented weather catastrophes such as heat
waves and droughts, typhoons, and floods that resulted in substantial human and economic
losses and eroded hard-won development gains. Evidence is mounting that the severity and
frequency of such catastrophes are increasing due to climate change, which is serving as a
“threat multiplier” for existing social, political, and economic challenges.
These challenges have been further exacerbated by the ongoing war in Ukraine which caused a
“polycrisis” related to food, energy, and finance, with cascading multifaceted effects on the
global economy already severely impacted by the COVID-19 pandemic. To effectively respond to
these crises – Covid, conflict and climate change – and to rebuild our economies in a manner consistent with the
ambitions of the 2030 Agenda for Sustainable Development and Paris Agreement on climate change, substantial financial
resources are needed. But it is also clear that, alarmingly, the gap between the resources required and those currently
available is substantial and growing. To close this gap, especially to address climate change, the participation and
commitment of all relevant stakeholders – governments, regulators, and private finance – is urgently needed.
The Asia-Pacific region is not on track to meet the SDGs by 2030 nor achieve climate ambitions, with current financial
requirements far exceeding available resources. Thus, inaction to raise sufficient additional financing, or to channel
available resources in support of SDGs and climate action, is not an option anymore. It is time for all stakeholders to
commit to accelerated change by committing to net zero emissions and transforming their financing priorities, processes,
and programs to meet the growing financing needs of the region.
This report focuses on sustainable finance, which, in a broader sense, refers to the financing of sustainable activities as
well as finance that is sustainably managed. In this vein, the report examines the trends, challenges, and opportunities
that policymakers, regulators, and private finance (banks, issuers, and investors) in Asia and the Pacific face to mobilize
and deploy sustainable finance, particularly for climate action. It then presents specific recommendations for
governments, regulators, and private finance – summarized in ten principles for action – to chart the way forward. We aim
to spur more robust and informed debate amongst our member States, drive consensus on key policy and regulatory
measures to move the region towards sustainability and bring greater clarity regarding the benefits and consequences of
enhancing sustainable finance in both the short and long term.
I am confident that policymakers, regulators, private sector representatives as well as researchers in the Asia-Pacific
region will benefit tremendously from our report. My team and I look forward to engaging with member States, partners,
and other key stakeholders to translate the ideas presented in this report into practical measures so that the pressing
financing gap can be closed.
Hamza Ali Malik
Director
Macroeconomic Policy and Financing for Development, ESCAP
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EXECUTIVE SUMMARY
The Asia-Pacific region is not on track to meet the SDGs
by 2030 nor achieve climate ambitions, with current
financial requirements far exceeding available
resources. The Sharm-el-Sheikh Implementation Plan,
agreed at the 27th Conference of the Parties of the
United Nations Framework Convention on Climate
Change (UNFCCC) in 2022 highlighted that the world will
need between 4trillionand6 trillion per year to
transition to a low-carbon economy. For developing
countries the financing gap to meet their Nationally
Determined Contributions (NDC) is estimated at close to
$6 trillion for the period 2023-2030.
Urgent and systemic change is required to deliver
funding at such a scale. It requires recognition and
willingness by all countries to transform policies,
regulations, and the financial system. In Asia and the
Pacific this change has proceeded at too slow a pace.
Policymakers still need to implement credible NDC
financing plans, with corresponding resource
mobilization strategies to achieve sequenced NDC
targets that are progressively ambitious (and to adopt
more ambitious NDC targets in the future). Regulators
must act decisively to manage the risks that climate
change and biodiversity threats pose to the financial
system, while at the same time decisively shifting
capital towards green objectives consistent with their
NDCs.
In the private sector, banks and businesses need to
adopt net zero commitments and implement credible
transition pathways. As they do so, and the supply of
net-zero aligned financing increases, the demand side
for this capital also needs to increase. For this, projects,
particularly in the energy transition and new green
technologies, are needed at sufficient scale and quality
to meet a range of investor needs. These projects need
to be built through new financing partnership
approaches. In this vein, multilateral development banks
and development financial institutions will play a key
role in providing catalytic capital with the right terms
related to concessionality and risk-sharing. As they do
so, local banks and investors in Asia-Pacific must
decide increasingly to finance the net-zero transition,
particularly in providing local currency financing, which
is essential in today’s difficult macroeconomic
environment. Sustainable finance (and transition
finance) frameworks, roadmaps, disclosure frameworks
and taxonomies increase the integrity and clarity of
financing sustainable activities, through the use of
appropriate standards. Achieving increased regional
alignment, convergence and interoperability in these
standards will be highly desirable, which can reduce
cross-border compliance costs and create an efficient
and level playing field.
This report discusses challenges, opportunities, and
recommendations for policymakers, regulators, and
private finance in the Asia-Pacific region to bridge the
gap in sustainable finance. It outlines two tracks of
sustainable finance; Track 1 refers to use-of-proceeds or
objective/outcome driven finance; and Track 2 refers to
sustainably managed finance that manages
environment, social, governance, and increasingly
climate, risks in its deployment. The aim of this report is
to spur a robust and informed debate amongst member
States, establish consensus on key measures to move
towards increased sustainable finance, and bring
greater clarity regarding the benefits and consequences
of various policy, regulatory and private finance choices.
What can governments do?
Policymakers have an important role to play in building
sustainable finance markets and driving down risk and
perceptions of risk. When commitments and priorities in
climate action and sustainable finance are
communicated clearly to markets, long-term
investments can be accurately priced and undertaken
with investor confidence. Policymakers are also
responsible for budget allocations in terms of incentives
or tariffs that affect the returns in fossil fuel dependent
sectors, and in thus shifting the financing of the energy
mix of sectors. Their actions have vast implications on
various sectors of the economy that need to finance the
shift to new and cleaner energy sources, reduce the
carbon intensity of their output, track their emissions,
and plan their transition to net-zero emissions.
Governments also have a role in shifting capital towards
green objectives. There has been a promising increase
by governments in the region in issuing sovereign green,
social, sustainable and other bonds, labelled GSS+, that
raise capital for specifically GSS+ uses. The global
market for GSS+ bonds has grown to more than $3.8
trillion outstanding by the end of 20221, and annual
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issuances in Asia and the Pacific increased from 5billionin2015to206 billion in 2022. Although
corporate issuances dominate this market, sovereigns
and jurisdictions are increasingly tapping into it, with
Hong Kong, China; Indonesia; Malaysia; New Zealand;
Philippines; Singapore; and Thailand issuing between 1billionand2.5 billion each in 2022.
Governments in the region also have a role in accessing
multilateral climate funds (MCFs), such as the
Adaptation Fund, the Global Environment Fund, or the
Green Climate Fund. While the money available from
MCFs will not be sufficient to close the financing gap,
MCFs remain a critical source and channel for
developed countries to meet their Paris Agreement
obligations to developing countries. In 2021, for
instance, according to the OECD2, funds from MCFs
provided more than $1.2 billion to Asia-Pacific
countries. This source of sustainable finance is
attractive because a large portion is available as grants
— about 50 per cent in 2021, compared to 29 per cent of
financing from bilateral donors and 3 per cent of
financing from multilateral development banks.
Moving forward, the most immediate step for
policymakers to take is to ensure that Nationally
Determined Contributions are supported by concrete,
targeted, and sequenced national financing strategies.
Climate mitigation and adaptation activities need to be
mapped out with expected sources of domestic public
finance, international financial assistance, and private
finance. Governments must accelerate the difficult work
of translating national net zero commitments into net-
zero commitments by financial institutions and
businesses. In doing so, policymakers should ensure
clarity, reliability, predictability and stability, thereby
setting trusted signals to markets and investors who
must make the long-term investments that underpin the
net zero transition. Sustainable finance frameworks
(such as roadmaps and taxonomies) can then further
embed and clarify financing parameters to support the
NDC financing strategies.
Finally, new climate finance partnerships are needed at
scale to tackle the challenge. Policymakers can also
drive sustainable finance at scale through engaging in
multi-dimensional partnerships with donor countries and
private financial institutions such as the recent Just
Energy Transition Partnerships (JETPs) launched by
Indonesia and Viet Nam in 2022. These JETPs
coordinate national commitments to peaking emissions,
phasing out coal, improving regulations and designing
effective pipelines of bankable projects — all initiatives
which provide a strong basis to mobilize even more
private and public finance. While not every country in the
region can and should replicate the JETP model, the
engagement between policymakers and financial
providers (whether public or private) from the planning
and inception stages of energy transitions are mutually
beneficial and serve to focus efforts, concentrate minds,
and bridge the financing gap.
What can regulators do?
Regulators can increasingly ensure coherence and
coordination across other regulators as well as
policymakers. Regulators have an important role in
preserving stability of the financial system, managing
risks, and increasingly, shifting capital towards climate-
related investments. To effectively tackle the scale of
the sustainable finance challenge, financial regulators
need to work increasingly closely with other regulators,
such as environmental protection agencies,
departments of industries that regulate the fiduciary
duties of directors and trustees of fund and investment
managers, competition and consumer regulators
guarding against potential greenwashing of products
and services, energy regulators and regulators related to
the introduction of new green technologies. Such an
integration of climate-related and increasingly nature-
related risks into regulation also calls for substantial
investment into building the right skills and capacities
across the financial system.
Effective regulation requires clear, consistent, and
comparable data. A major challenge to implementing
regulatory approaches that would account for climate-
related and nature-related financial risks is the lack of
available quality data. Data challenges reported by
supervisory authorities include the lack of granular,
consistent, and comparable data reporting standards for
counterparties and for financial institutions. The data
required includes: the identification of sectors or
economic activities that are vulnerable to physical,
transition and liability risks; financial institutions’
exposures to such sectors or economic activities; the
geographical location of financial institutions’
exposures most prone to physical risk; and reports on
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carbon-related metrics, including Scope 1, 2, and 3
greenhouse gas emissions, by financial institutions and
their counterparties. The International Sustainability
Standards Board’s (ISSB) inaugural standards for
sustainability-related disclosures, issued in June 2023,
is expected to establish a common global baseline for
corporate sustainability disclosures. However,
regulators in countries where institutions are not yet
required to adopt ISSB standards will still face data
challenges around the standards, costs, and verification
aspects of the required data.
In addition to playing a supervisory role to manage
finance sustainably (what this report refers to as Track 2
of the two types of sustainable finance), regulators can
also decisively shift capital into low-carbon investments
(Track 1 of the two types of sustainable finance). Their
work in sustainable finance roadmaps, sustainable
finance taxonomies, and GSS+ bond and loan
frameworks create clarity, boost integrity, and signal to
investors the credibility of intentions to undertake a
sustainable finance trajectory. Emerging transition
finance taxonomies have the potential to also credibly
direct the market towards supporting the transition from
brown to green activities and incentivize the reduction of
emissions. Regulators can thus steadily encourage
financial institutions and corporations to credibly
transition through the implementation of voluntary and
mandatory sustainable finance requirements.
The adoption of sustainable finance roadmaps is a
promising first step, but their mostly voluntary nature
may not accelerate urgent and widespread change. Net
zero commitments, or any obligation to the net zero
transition, are currently not mandatory across most of
Asia and the Pacific. Coal financing and fossil fuel
financing is still on the rise, powered by the increase in
energy demand across Asia and the Pacific.
Policymakers and regulators in the region must
therefore take urgent and decisive action as the report
outlines.
What can private finance do?
The Sixth Assessment Report of the Intergovernmental
Panel on Climate Change (IPCC) 2023 highlights that
there is sufficient global capital and liquidity to close
the global investment gap. In Asia and the Pacific,
trillions of dollars of capital are held predominantly in
the bank lending market, and trillions are also held in
capital markets. This private finance will now have to
step up to the challenge. Regulators have an important
role, as discussed, in incentivising this private finance to
shift towards green objectives, and in creating an
efficient and level playing field. The universe of private
finance in Asia and the Pacific includes banks who lend
to businesses in the real economy; capital market
issuers of equity and debt securities; asset owners
(pension funds, sovereign wealth funds, foundations,
endowments, trusts, family offices); and asset
managers (mutual fund managers, investment advisors,
stockbrokers). Development financial institutions such
as multilateral development banks (MDBs), bilateral
development financial institutions, and national
development banks play an increasingly critical and
catalytic role in shifting risk, promoting standards,
mobilising private finance and building capacity.
Historically, private finance has operated under
traditional norms of fiduciary duty, which is now
changing. The architecture governing both the duties of
directors of companies as well as companies’ climate-
related and sustainability disclosures, which are mostly
voluntary in Asia and the Pacific now, is being
transformed. Financial institutions and companies will
increasingly be required to comply with a strengthening
mesh of sustainability requirements if they wish to
continue operating in regulated markets. As they do so,
and they increasingly commit to net-zero aligned
operations, these Asia-Pacific private finance actors will
have to increase the scale of their investing operations
in net-zero aligned activities. This will infuse much
needed local currency into the net zero transition in the
region, if suitable projects and activities are present at
scale.
On the supply side, much more needs to be done
differently in terms of building green projects that are
ready to meet the needs of a range of investors.
Common transaction templates in new sectors and
countries can be developed and shared by investors,
creating a common transaction lexicon in uncharted
territories. Investors also need to participate in pre-
investment project-building, at earlier stages, despite the
resource costs such efforts may entail, in order to bring
first-mover projects in challenging sectors and locations
to fruition, and then to replicate such projects. Private
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viii
financial institutions in Asia and the Pacific need to
engage in learning how to invest in what may seem to be
riskier projects, and how to build and assess capital
structures that involve blended finance and a multiplicity
of standards. For such green project pipelines to
genuinely meet the needs and standards of multiple
investors at scale, new partnership approaches are
needed that move away from a deal-by-deal basis to a
platform basis. This is a different way of doing
business, and part of the transformation that is needed
across the system.
Ten principles of action to bridge Asia-Pacific's
sustainable finance gap
This report puts forward a ten-point action plan to
accelerate sustainable finance in Asia and the Pacific.
These ten actions summarize in-depth
recommendations found in each chapter for
governments, regulators and private finance. These ten
actions below are grouped into actions to be taken by
governments, regulators, and private finance.
Governments and regulators
1. New climate finance partnerships are developed
through which governments, regulators, MDBs, and
private finance commit to action around specific
goals and contribute specific tasks in line with this
shared goal. Just Energy Transition Partnerships,
which are led and owned by countries, provide a
useful model for the region, especially if execution
can be accelerated.
2.
Effective NDC financing strategies are developed,
led by authorities with clear mandates, which signal
credible transition pathways with interim targets
and clear resource mobilization plans. This will
provide a clear and vital signal to investors,
businesses, and project developers that
governments are committed to change. This signal
of reliability, stability, and predictability is a core
part of costs around projects.
3. Policy coherence and capacities are developed
across key government ministries such as finance,
energy, transport, and environment, ultimately
reducing the costs of financing. Governments need
to invest in both the effort for such coordination
and the capacities for such coordination. This will
also allow governments to better work with MDBs,
DFIs, and development partners to obtain the
assistance they need in the timeframe they need it
in.
4. Decisive regulatory action takes place to shift
capital in Asia and the Pacific towards the net zero
transition. Asia and the Pacific is home to
significantly large pools of capital capable of
bridging the gap in sustainable finance. Regulators
need to adopt a more active role in shifting capital
towards climate action, recognizing that doing so
will strengthen financial stability in the system, as
well as create a level playing field for all. In doing
so, regulators will also need to move towards
consistent taxonomies and roadmaps across
countries, to create a level playing field.
5. Investment in the capacities of financial personnel
to assess climate risk, innovate green financial
instruments, and supervise the transition path of
the green economy is undertaken. International
groupings such as the Network for Central Banks
and Supervisors for Greening the Financial System
(NGFS) or the Sustainable Banking and Finance
Network (SBFN) can be effective to promote peer-
learning among members.
6. Investment in much-needed sectoral and project-
based financial data is undertaken. Common data
platforms that share valuable data on ESG, climate,
nature, contracts, clauses standards, targets, and
deals (where possible) will streamline investment,
assist benchmarking, strengthen credibility and
ensure higher replicability.
Private finance - Asia-Pacific banks, investors and
issuers.
7. Commitments to net zero pledges for 2050 with
credible transition pathways including 2030 goals
are made. The slowness of banks in Asia and the
Pacific to commit to net zero and transition their
lending and investing portfolios with interim 2030
science-based targets is a serious brake on driving
finance towards climate action in the region.
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8.
Local-currency financing of energy transition
projects as well as green technologies and other
net-zero investments is increased. Local-currency
financing is critical to accelerate the scale and pace
of private finance because it can fund projects that
do not have to reach a higher rate of return just to
cover exchange rate risk as well as provide other
benefits. Increased net-zero commitments by
private finance in Asia and the Pacific (number 7
above) combined with a focus on investing in the
energy transition in their local currency will leverage
and bring forward the needed investment at scale.
9. Concessional financing and risk-sharing by
multilateral development banks, bilateral
development financial institutions, and public
development banks is expanded and accelerated.
This will de-risk otherwise sound projects and
ultimately leverage significant private capital. A 1:5
ratio, like ADB’s goal, can be one benchmark to
ensure that concessional funds truly leverage
private finance and go towards well-structured
projects. This will also guarantee well-designed
projects in which concessional finance truly
catalyzes and mobilizes greater private finance. In
doing so, however, it is critical to ensure the project
is both high impact to support the net-zero-
transition and commercially attractive.
10. Investment of time and effort with partners in
project preparation is increased in more challenging
markets, whether it is in the LDCs, SIDS, or in new
green technologies. Setting up a modality in which
project developers and financial institutions
regularly meet and co-create green projects in a
progressive and iterative manner can accelerate the
preparation of effective pipelines of bankable green
projects at scale. While large projects have lower
transaction costs, investing in project preparation
for smaller-ticket projects will ensure a long-term
pipeline of large projects. Ultimately good project
preparation brings down the risk of projects when
implemented.
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ACKNOWLEDGMENTS
Since its inception in 2015, the ESCAP biennial series on financing for development has published research on a range of
critical issues on financing for development from the regional perspective of Asia and the Pacific. This research
contributes to regional and national dialogues on strategies for the implementation of selected aspects of financing for
development as advanced by the Addis Ababa Action Agenda.
The 5th edition of the series was prepared by a core team at ESCAP led by Suba Sivakumaran (Chief, Financing for
Development Section) and comprising of Chiara Amato, Pierre Horna, Alberto Isgut and Latipat Mikled from the Financing
for Development Section of the Macroeconomic Policy and Financing for Development Division as well as external
consultant Michael Coates.
Hamza Ali Malik, Director of the Macroeconomic Policy and Financing for Development Division, has provided overall
leadership and shared valuable comments and suggestions at various stages of preparation of this publication.
A technical review was conducted by Patrick Martin and Deanna Morris, also from the Financing for Development Section
of the Macroeconomic Policy and Financing for Development Division. Michael Williamson and Michael David Waldron
from the Energy Division of ESCAP provided technical inputs on financing the energy transition. Heather Lynne Taylor-
Strauss from the Trade, Investment and Innovation Division provided inputs on foreign direct investment.
Significant research assistance was provided by the following ESCAP consultants, interns and UN volunteers: Maria d’
Amato, Zeinab Elbeltagy, Riley Green, Sophie Hunter, Nilaphy Phommachanh and Haoyue Tan.
The preparation of the report benefitted from extensive discussions and consultations with a broad range of stakeholders.
Two review discussions were held: at the ESCAP Roundtable on The Next Frontier for Sustainable Finance at the
Singapore FinTech Festival on 4 November 2022 and during the ESCAP Expert Group Meeting on Public Debt and
Sustainable Financing that took place on 28 November – 2 December 2022 in Bangkok, Thailand. Additional feedback was
provided through a series of consultations with experts and practitioners, including representatives of government
agencies, regulators, investors, banks, private organizations, think-tanks, and academia listed below. We would also like to
thank a number of stakeholders for their inputs who wished to remain anonymous.
Name
Organization
Title
Abhishek Kaul
IBM
Associate Partner, Sustainability & Analytics
Aigul Kussaliyeva
Astana International Financial Centre - Green
Finance Centre
Director of Sustainable Development of AIFC
Authority
Allinnettes Adigue
Global Reporting Initiative
Head GRI ASEAN Regional Hub
Aziz Durrani
ASEAN+3 Macroeconomic Research Office
Capacity Development Expert
Chea Serey
National Bank of Cambodia
Director General
Darian McBain
Outsourced Chief Sustainability Officer Asia
CEO
Erik Grigoryan
Environment Group
Founder and CEO
Eugene Wong
Sustainable Finance Institute Asia
CEO
Ines Marques
Green Hydrogen Organization
Director of the Green Hydrogen Development
Plan
Jaclyn Dove
Standard Chartered Bank
Head of Sustainable Finance Strategic
Initiatives
Kelvin Lester K. Lee
Securities and Exchange Commission,
Philippines
Commissioner
Kelvin Tan
HSBC
Managing Director, Head of Sustainable
Finance & Investments, ASEAN
Kosintr Puongsophol
Asian Development Bank
Financial Sector Specialist
Kristina Anguelova
WWF Sustainable Finance Institute Asia
Head of Asia Sustainable Finance
Lise Pretorius
Matter
Head of Sustainability
Liz Curmi
Citi Global Insights
Head of Energy transition and Climate finance
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xi
Name
Organization
Title
Lyn Javier
Bangko Sentral ng Pilipinas
Assistant Governor, Policy and Specialized
Supervision Sub-Sector
Maria Perdomo
UNCDF
Regional Coordinator, Asia and the Pacific
Michael Salvatico
S&P Global Sustainable1
Head of Asia, Pacific, Middle East & Africa ESG
Solutions
Miranda Carr
MSCI
Global Head of Applied ESG & Climate
Research
Nasir Zubairi
Luxembourg House of Financial Technology
CEO
Nicholas Gandolfo
Sustainalytics Corporate Solutions, Singapore,
Sustainalytics
Vice President
Nikita Bajracharya
Dolma Advisors
Senior Investment Manager
Paul Dickinson
CDP - Disclosure Insight Action
Founder Chair
Piyawan Khemthongpradit
Bank of Thailand
Assistant Director, Financial Institutions
Strategy Department
Ricco Zhang
International Capital Market Association
Senior Director, Asia Pacific
Robert Willem van Zwieten
Route17
Founding Partner
Satoru Yamadera
Asian Development Bank
Advisor
Steve Cochrane
Moody’s Analytics
Chief APAC Economist
Thammachart
Thammaprateep
Bank of Thailand
Senior Analyst, Financial Institutions Strategy
Department
TMJYP Fernando
Central Bank of Sri Lanka
Senior Deputy Governor
Ulrich Volz
SOAS University of London
Director, Centre for Sustainable Finance &
Professor of Economics
Youraden Seng
National Bank of Cambodia
Director, Banking Supervision Department II
Yuki Yasui
Asia-Pacific Network of the Glasgow Financial
Alliance for Net Zero
Director
Bank of America
Patchara Arunsuwannakorn and Pranee Samchaiwattana of the Financing for Development Section in the Macroeconomic
Policy and Financing for Development division provided valuable administrative and logistical assistance throughout the
project. Communication strategies, typesetting and layout for this report was led by Veerawin Su, also of the Financing for
Development Section in the Macroeconomic Policy and Financing for Development Division.
The manuscript was edited by Dana MacLean.
Graphic design and typesetting services were provided by Dilucidar.
This report is available online here: https://hdl.handle.net/20.500.12870/6224
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EXPLANATORY NOTES
▪ The United Nations Economic and Social Commission of Asia and the Pacific (ESCAP) is one of the five regional
commissions of the United Nations Secretariat and promotes cooperation among its 53 member States and nine
associate members in pursuit of solutions to sustainable development challenges. The Economic and Social
Commission for Asia and the Pacific (ESCAP) is the most inclusive intergovernmental platform in the Asia-Pacific
region.
▪ The ESCAP secretariat supports inclusive, resilient, and sustainable development in the region by generating action-
oriented knowledge, by providing technical assistance and capacity-building services in support of national
development objectives, regional agreements, and the implementation of the 2030 Agenda for Sustainable
Development, and in supporting and facilitating member states in inter-governmental coordination, resolutions, and
commitments.
▪ For all enquiries to the Financing for Development Section, Macroeconomic Policy and Financing for Development
Division, please send queries to: escap-mpdd@un.org
Groupings of countries and territories/areas referred to are listed alphabetically as follows:
▪ ESCAP region: Afghanistan; American Samoa; Armenia; Australia; Azerbaijan; Bangladesh; Bhutan; Brunei
Darussalam; Cambodia; China; Cook Islands; Democratic People’s Republic of Korea; Fiji; France; French Polynesia;
Georgia; Guam; Hong Kong, China; India; Indonesia; Iran (Islamic Republic of); Japan; Kazakhstan; Kiribati;
Kyrgyzstan; Lao People’s Democratic Republic; Macao, China; Malaysia; Maldives; Marshall Islands; Micronesia
(Federated States of); Mongolia; Myanmar; Nauru; Nepal; Netherlands (Kingdom of the); New Caledonia; New
Zealand; Niue; Northern Mariana Islands; Pakistan; Palau; Papua New Guinea; the Philippines; the Republic of Korea;
the Russian Federation; Samoa; Singapore; Solomon Islands; Sri Lanka; Tajikistan; Thailand; Timor-Leste; Tonga;
Türkiye; Turkmenistan; Tuvalu; United Kingdom of Great Britain and Northern Ireland; United States of America;
Uzbekistan; Vanuatu; and Viet Nam.
▪ Least developed countries: Afghanistan, Bangladesh, Bhutan, Cambodia, Kiribati, Lao People’s Democratic Republic,
Myanmar, Nepal, Solomon Islands, Timor-Leste, Tuvalu. Samoa and Vanuatu were part of the least developed
countries prior to their graduation in 2014 and 2020, respectively.
▪ Landlocked developing countries: Afghanistan, Armenia, Azerbaijan, Bhutan, Kazakhstan, Kyrgyzstan, Lao People’s
Democratic Republic, Mongolia, Nepal, Tajikistan, Turkmenistan, and Uzbekistan.
▪ Small island developing States: American Samoa, Cook Islands, Fiji, French Polynesia, Guam, Kiribati, Maldives,
Marshall Islands, Micronesia (Federated States of), Nauru, New Caledonia, Niue, Northern Mariana Islands, Palau,
Papua New Guinea, Samoa, Solomon Islands, Timor Leste, Tonga, Tuvalu, and Vanuatu.
▪ East and North-East Asia: China; Democratic People’s Republic of Korea; Hong Kong, China; Japan; Macao, China;
Mongolia; and the Republic of Korea.
▪ North and Central Asia: Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, the Russian Federation, Tajikistan,
Turkmenistan, and Uzbekistan.
▪ The Pacific: American Samoa, Australia, Cook Islands, Fiji, French Polynesia, Guam, Kiribati, Marshall Islands,
Micronesia (Federated States of), Nauru, New Caledonia, New Zealand, Niue, Northern Mariana Islands, Palau, Papua
New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu.
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▪ South and South-West Asia: Afghanistan, Bangladesh, Bhutan, India, Iran (Islamic Republic of), Maldives, Nepal,
Pakistan, Sri Lanka, and Türkiye.
▪ South-East Asia: Brunei Darussalam, Cambodia, Indonesia, Lao People’s Democratic Republic, Malaysia, Myanmar,
the Philippines, Singapore, Thailand, Timor-Leste, and Viet Nam.
Owing to the limited availability of data, selected small island developing States are excluded from the analysis.
This publication and the material herein are provided “as is”. All reasonable precautions have been taken by ESCAP to
verify the reliability of the material in this publication. However, neither ESCAP nor any of its staff, consultants, data or
other third-party content providers provides a warranty of any kind, either expressed or implied, and they accept no
responsibility or liability for any consequence of use of the publication or material herein.
References to dollars ($) are to United States dollars, unless otherwise stated.
The term “billion” signifies a thousand million. The term “trillion” signifies a million million.
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ABBREVIATIONS AND ACRONYMS
ADB. . . . Asian Development Bank
GBP. . . .
Green Bond Principles
AIFC . . .
Astana International Financial Centre
GCF . . . . Green Climate Fund
AIIB. . . .
Asian Infrastructure Investment Bank
GDP . . . . Gross Domestic Product
APAC. . .
Asia-Pacific
GEF. . . .
Global Environment Facility
ASEAN. . . Association of Southeast Asian Nations
GFANZ . . . Glasgow Financial Alliance for Net Zero
AUM. . . . Assets Under Management
GFSG. . . . G20 Green Finance Study Group
BCBS. . . . Basel Committee on Banking Supervision
GGGI. . . . Global Green Growth Institute
BII. . . .
British International Investment
GH2. . . .
Green Hydrogen Organisation
BIS. . . .
Bank of International Settlements
GHGs. . . . Greenhouse Gas Emissions
BoE. . . .
Bank of England
GISD. . . . Global Investors for Sustainable Development Alliance
BOJ. . . .
Bank of Japan
GPIF. . . . Government Pension Investment Fund of Japan
BOT. . . .
Bank of Thailand
GRI. . . .
Global Reporting Initiative
BSP. . . .
Bangko Sentral ng Pilipinas
GSF. . . .
Green and Sustainable Finance Grant Scheme
BSTDB. . . Black Sea Trade and Development Bank
GSLS. . . . Green and Sustainability-Linked Loan Grant Scheme
CAF. . . .
Capital Adequacy Frameworks
GSS+. . . . Green, Social, Sustainability and Other Labeled
CBD. . . . Convention of Biological Diversity
HKD. . . .
Hong Kong Dollar
CBI. . . .
Climate Bonds Initiative
HKMA. . .
Hong Kong Monetary Authority
CBIT. . . . Capacity-building Initiative for Transparency
HTA. . . .
Hard to Abate
CCLI. . . . Commonwealth Climate and Law Initiative
ICMA. . . . International Capital Market Association
CEB. . . .
Council of Europe Development Bank
IEA. . . .
International Energy Agency
CEO. . . .
Chief Executive Officer
IFC. . . .
International Finance Corporation
CEPR. . . . Center for Economic Policy Research
IF-CAP. . . Innovative Finance Facility for Climate in Asia and the
Pacific
CGI. . . .
Climate Governance Initiative
IFRS. . . .
International Financing Reporting Standards
CGIF. . . . Credit Guarantee and Investment Facility
IISD. . . .
International Institute for Sustainable Development
CGT . . . . Common Ground Taxonomy of European Union and
China
IMF. . . .
International Monetary Fund
COP. . . . Conference of the Parties
INFFs. . . . Integrated National Financing Frameworks
DFC. . . .
The United States International Development
Finance Corporation
IPCC . . . . Intergovernmental Panel on Climate Change
DFIs. . . . Development Financial Institutions
IPG. . . .
International Partners Group
EBRD. . . . European Bank for Reconstruction and Development IPOs. . . . Initial Public Offerings
EIB. . . .
European Investment Bank
IRENA. . . . International Renewable Energy Agency
ESCAP. . . United Nations Economic and Social Commission
for Asia and the Pacific
IsDB. . . . Islamic Development Bank
ESG. . . .
Environmental, Social, and Governance
ISSB. . . . International Sustainability Standards Board
ESMA. . . European Securities and Markets Authority
ITAP. . . . Independent Technical Advisory Panel
ESRM. . .
Environmental and Social Risk Management
ITMOs. . .
Internationally Transferred Mitigation Outcomes
ETS . . . . Emissions Trading Systems
JETPs. . . . Just Energy Transition Partnerships
EUR. . . .
Euro
KPIs. . . . Key Performance Indicators
FDI. . . .
Foreign Direct Investment
LDCs. . . . Least Developed Countries
FIs. . . .
Financial Institutions
LDCF. . . . Least Developed Countries Fund
FMO . . . . Dutch Entrepreneurial Development Bank
LHoFT . . . Luxembourg House of Financial Technology
FSB . . . . Financial Stability Board
MAS. . . . Monetary Authority of Singapore
G20. . . .
Group of Twenty
MCFs. . . . Multilateral Climate Funds
GBF . . . . Global Biodiversity Framework
MDBs. . . . Multilateral Development Banks
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MRV. . . . Monitoring, Reporting, and Verification
SGX. . . .
Singapore Exchange
MSCI. . . . Morgan Stanley Capital International
SIDS. . . . Small Island Developing States
MSMEs . . .
Micro, Small and Medium Enterprises
SIFEM. . . . Swiss Investment Fund for Emerging Markets
NDBs. . . . National Development Banks
SLBs. . . . Sustainability-linked Bonds
NDCs. . . . Nationally Determined Contributions
SLLs. . . . Sustainability-linked Loans
NGFS . . . . Network for Greening the Financial System
SMEs. . . . Small and Medium Enterprises
NGO. . . . Nongovernmental Organization
SPTs. . . . Sustainability Performance Targets
Norfund. . . Norwegian Investment Fund
SSE. . . .
Sustainable Stock Exchange
NPIF. . . . Northern Powerhouse Investment Fund
SUSREG. . . WWF's Sustainable Financial Regulations and Central
Bank Activities
NZBA. . . . Net-Zero Banking Alliance
TCFD. . . . Task Force on Climate-Related Financial Disclosures
ODA. . . . Official Development Assistance
tCO2. . . . Tons of carbon dioxide
OECD. . . . Organisation for Economic Co-operation and
Development
TNFD. . . . Taskforce on Nature-Related Financial Disclosures
OECD DAC. OECD Development Assistance Committee
UNCDF. . . United Nations Capital Development Fund
OJK. . . .
Otoritas Jasa Keuangan (Financial Services
Authority of Indonesia)
UNCTAD. .
United Nations Conference on Trade and Development
PCT. . . .
Preferred Creditor Treatment
UNDP. . . . United Nations Development Programme
PEPs. . . . Politically Exposed Persons
UNEP. . . .
United Nations Environment Programme
PV. . . .
Photovoltaic
UNEP FI. . . United Nations Environment Programme Finance
Initiative
SBFN. . . . Sustainable Banking and Finance Network
UNFCCC. . . United Nations Framework Convention on Climate
Change
SBV. . . .
State Bank of Viet Nam
UNICEF. . .
United Nations Children’s Fund
SDGs. . . . Sustainable Development Goals
USD. . . . United States Dollar
SERC. . . . Securities and Exchange Regulator of Cambodia
WBG. . . . World Bank Group
SGD. . . . Singapore Dollar
WWF. . . . World Wildlife Fund
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CONTENTS
FOREWORD
IV
EXECUTIVE SUMMARY
V
ACKNOWLEDGMENTS
X
EXPLANATORY NOTES
XII
ABBREVIATIONS AND ACRONYMS
XIV
1. INTRODUCTION
2
A.
Progress in the Asia-Pacific region towards the Sustainable Development Goals
3
B.
What is sustainable finance?
10
C.
Concluding remarks: How can countries raise sufficient sustainable finance?
18
2. WHAT CAN GOVERNMENTS DO?
21
A.
Introduction
21
B.
Trends and opportunities
25
C.
Challenges
40
D.
Recommendations
43
3. WHAT CAN REGULATORS DO?
50
A.
Introduction
50
B.
What is the role of financial regulators in sustainable finance?
50
C.
Trends and opportunities
51
D.
Challenges
65
E.
Recommendations
66
F.
Conclusion
68
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4. WHAT CAN PRIVATE FINANCE DO?
70
A.
Introduction
70
B.
Trends and opportunities
72
C.
Challenges
85
D.
Recommendations
88
5. TEN PRINCIPLES OF ACTION TO BRIDGE THE SUSTAINABLE FINANCE GAP
IN ASIA AND THE PACIFIC
92
REFERENCES
94
ANNEXES
99
Annex A: Climate financing needs in Asia and the Pacific
99
Annex B: Credit ratings
100
Annex C: Access to UNFCCC Financing
102
Annex D: Carbon pricing initiatives in Asia and the Pacific
103
Annex E: List of stakeholders
104
ENDNOTES
106
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FIGURES AND TABLES
Figure 1.1: Progress in achieving the SDGs in Asia and the Pacific as of 2022.
................................................ 4
Figure 1.2: Progress in achieving the 2030 SDGs targets in Asia and the Pacific by subregion and goal
as of 2022. ................................................................................................................................................... 5
Figure 1.3: Status of carbon neutrality commitments of ESCAP members, 2022. ............................................. 6
Figure 1.4: Asia-Pacific scenarios for GHG emissions. ................................................................................... 7
Figure 1.5: Global climate finance flows in 2017-2020 by sector. .................................................................... 8
Figure 1.6: Inflation rate in Asia and the Pacific and the upper bound of inflation target, 2021-2022.
................ 9
Figure 1.7: Interest rates in Asia-Pacific economies follow monetary tightening in selected economies. .......... 9
Figure 1.8: 10-year sovereign bond yield in selected economies in Asia and the Pacific, as of end of
2022. ......................................................................................................................................................... 10
Figure 1.9: The two tracks of sustainable finance: use-of-proceeds-based and sustainably-managed
finance.
...................................................................................................................................................... 13
Figure 1.10: The sustainable finance ecosystem. ......................................................................................... 15
Figure 1.11: Sustainable finance stakeholder mapping. ................................................................................ 16
Figure 2.1: Strong correlation between IMF Financial Development Index and GDP per capita. ....................... 21
Figure 2.2: Status of IMF financial market and financial institutions index components, 2020. ....................... 22
Figure 2.3: Thematic and performance-based bonds mapping. ..................................................................... 26
Figure 2.4: GSS+ bond issuance value in Asia and the Pacific, 2015-2022 (billions of United States
dollars). ..................................................................................................................................................... 26
Figure 2.5: Cumulative GSS+ sovereign, corporate and public bond issuance in Asia and the Pacific by
country, 2015-2022 (billions of United States dollars).
.................................................................................. 27
Figure 2.6: Cumulative GSS+ bond issuance value of public sector in Asia and the Pacific by country
and issuer type since 2015, as of end of 2019 and 2022 (billions of United States dollars). ........................... 28
Figure 2.7: Cumulative GSS+ bond issuance value in Asia and the Pacific by currency and issuer type,
2015-2019 and 2015-2022. ......................................................................................................................... 30
Figure 2.8: Cumulative GSS+ bond issuance in Asia and the Pacific by currency (per cent), 2015-2022.
.......... 31
Figure 2.9: Carbon pricing initiatives at national and sub-national level in Asia and the Pacific....................... 32
Figure 2.10: Climate finance to Asia and the Pacific over time and by financing instrument. .......................... 39
Figure 2.11: Access to GEF and GCF climate finance in Asia and the Pacific. ................................................ 46
Figure 3.1: Transmission channels from climate risks to financial risks. ....................................................... 52
Figure 3.2: Alternative scenarios and impacts of financial risks due to climate-related risks. ......................... 53
Figure 3.3: Scope 1 emissions of the top 100 issuers by market. .................................................................. 54
Figure 3.4: Implementation of the TCFD recommendations and use of climate-related disclosures. ............... 55
Figure 3.5: Number of organizations in Asia and the Pacific that have declared support for TCFD
recommendations.
...................................................................................................................................... 56
Figure 3.7: Green and sustainable finance taxonomy development in Asia and the Pacific. ............................ 62
Figure 3.8: Timeline of taxonomy development. ........................................................................................... 64
Figure 4.1: Bank lending to private sector as % of GDP. ................................................................................ 73
Figure 4.2: GSS+ loans in Asia and the Pacific, 2017–2022 (billions of United States dollars). ....................... 74
Figure 4.3: GSS+ loans in Asia and the Pacific by country, 2017–2022 (billions of United States
dollars). ..................................................................................................................................................... 74
Figure 4.4: GSS+ bonds and loans of corporate issuances in Asia and the Pacific, 2021–2022 (billions
of United States dollars). ............................................................................................................................ 75
Figure 4.5: Debt levels of emerging market and developing economy companies operating in fossil fuel
industries. .................................................................................................................................................. 76
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Figure 4.6: Market capitalization of Asia-Pacific stock exchanges by country, 2019-2023. ............................. 76
Figure 4.7: Total equity capital raised in Asia and the Pacific, 2019-2022. ..................................................... 77
Figure 4.8: FDI inflows into climate mitigation and adaptation versus fossil fuels in Asia and the
Pacific, 2016-2022 (millions of United States dollars). ................................................................................. 78
Figure 4.9: FDI inflows into climate mitigation projects in Asia and the Pacific, 2016-2022 (millions of
United States dollars). ................................................................................................................................ 78
Figure 4.10: Top nine MDBs and DFIs in Asia and the Pacific by climate-related development finance.
........... 80
Figure 4.11: MDBs climate-related development finance in Asia and the Pacific by adaptation and
mitigation, 2020 (millions of United States dollars) ...................................................................................... 81
Figure 4.12: MDBs and DFIs climate-related development finance in ESCAP members by sector,
financial instrument, and concessionality type. ............................................................................................ 82
Figure 4.13: Total amount of mobilized private finance by MDBs across regions, 2020. ................................. 83
Table 1.1: Examples of sustainable finance definitions. ............................................................................... 11
Table 1.2: Range of potential approaches to accounting for climate finance flows. ....................................... 17
Table 2.1: First time GSS+ bond issuers in 2021–2022. ................................................................................ 29
Table 2.2. Opportunities and challenges of debt swaps for the involved parties. ........................................... 35
Table 2.3: Climate-related development finance committed by developed countries to Asia-Pacific
countries through various channels in 2021 (in millions of United States dollars). ......................................... 37
Table 2.4: GSS+ bond issuance and sovereign/jurisdiction credit ratings. ..................................................... 42
Table 3.1: The TNFD revised draft nature-related disclosure recommendations. ............................................ 57
Table 3.2: Implemented national sustainable finance roadmaps. .................................................................. 60
Table A.1: Financing needs for mitigation and adaptation in Asia and the Pacific from nationally
determined contributions (millions of United States dollars).
........................................................................ 99
Table B.1: Credit ratings of ESCAP members and rated dates. .....................................................................
100
Table B.2: Investment VS non-investment grade.
.........................................................................................
101
Table C.1: ESCAP members and associate members that have not accessed UNFCCC climate finance
mechanisms.
.............................................................................................................................................
102
Table D.1: Status and progress of carbon pricing initiatives at national and sub-national level in Asia
and the Pacific. .........................................................................................................................................
103
Table E.1: Singapore FinTech Festival expert roundtable discussants. .........................................................
104
Table E.2: Stakeholders consulted for the key informant interviews. ............................................................
105
Table E.3: List of speakers at ESCAP Expert Group Meeting on Public Debt and Sustainable Financing
in Asia and the Pacific. ..............................................................................................................................
105
Box 2.1: LDCs and SIDS and carbon offset markets.
..................................................................................... 34
Box 3.1: Cambodia and ASEAN sustainable finance roadmaps. .................................................................... 60
Box 3.2: Thailand sustainable finance initiatives. ......................................................................................... 60
Box 3.3: ESCAP’s work on green bond frameworks.
...................................................................................... 61
Box 3.4: Cambodian Sustainable Bond Accelerator. ..................................................................................... 63
Box 4.1: Foreign direct investment into climate mitigation and adaptation .................................................... 78
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1. INTRODUCTION
The global financing gap to reach net zero emissions by
2050 is substantial. For example, the Sharm-el-Sheikh
Implementation Plan of the COP 27 highlights that
approximately 4trillionperyearneedstobeinvestedinrenewableenergyaloneuntil2030toreachnetzeroemissionsby2050.3Inaddition,theglobaltransformationtoalow−carboneconomyisexpectedtorequireinvestmentofatleastbetween4 and 6trillionannually.4Developingcountriesneedtoputupanestimated5.8-5.9 trillion5 in the pre-2030 period to
meet their Nationally Determined Contributions (NDCs).
To adapt to climate change, according to the
Intergovernmental Panel on Climate Change (IPCC),
developing countries require 127billionperyearby2030and295 billion per year by 2050. But the
disparities are stark; funds for adaptation only reached
49 billion in 2019/20, accounting for about 6 per cent of
tracked climate finance.6 At the same time, the IPCC
found that public and private financial flows for fossil
fuels are greater than those directed toward climate
mitigation and adaptation.7
Climate change under a high emissions scenario could
impose Gross Domestic Product (GDP) losses of 24 per
cent in the whole of developing Asia, 35 per cent in
India, 30 per cent in South-East Asia, and 24 per cent in
the rest of South Asia by 2100.8 According to ESCAP,9
the region faces increasing frequency and severity of
storms, flooding, heat waves, and droughts due to
climate change. Of the 10 countries most affected by
these disasters globally, six are in Asia and the Pacific,
where climate-related impacts have disrupted food
systems, undermined economies and damaged
societies.10 Across the region, the average economic
losses resulting from disaster-related and other natural
hazards in Asia and the Pacific costs an estimated 780billionperyear.Thisisforecasttoincreaseto1.1
trillion in a moderate climate-change scenario and $1.4
trillion in a worst-case scenario.11 On the other hand,
economic losses as a percentage of GDP have risen
faster in Asia and the Pacific than at the global level.12
Natural resource–based sectors, such as agriculture
and fisheries, that are directly affected by climate,
account for around one-third of total employment in the
region.13 Beyond threatening the livelihoods of Asia’s
poor, climate change may also put at risk regional and
global food security. For these reasons, climate action
is at the heart of 2030 Agenda for Sustainable
Development for the region.
Asia-Pacific economies urgently need to step up action
to tackle the climate challenge. The Asia-Pacific region
is home to five of the 10 largest emitters in the world
and accounts for almost half of the world’s greenhouse
gas emissions. It is also one of the most vulnerable
regions to climate change. Economic growth in the
region has relied heavily on emission-intensive
activities, with the emission intensity of GDP estimated
to be 41 per cent higher than the rest of the world.14
Additionally, there is a climate ambition gap,15 with Asia-
Pacific regional NDCs falling short of the required
climate ambition to effectively reduce greenhouse gas
emissions in support of the 1.5ºC global warming
pathway.
The Sixth Assessment Report of the IPCC 2023
highlights that there is sufficient global capital and
liquidity to close the global investment gap.16 However,
there are barriers to deploy capital for climate action,
both within and outside the financial sector and in the
context of increased economic vulnerabilities and
indebtedness facing developing countries.17 Reducing
the obstacles to scale up financial flows requires clear
signalling and government support, including stronger
alignment from public finances to lower the real and
perceived regulatory cost, and market barriers and risks
while improving the risk-return profile of investments. At
the same time, depending on national contexts, financial
actors — including investors, financial intermediaries,
central banks, and financial regulators — can address
the systemic under-pricing of climate-related risks and
reduce sectoral and regional mismatches between
available capital and investment needs.18 These insights
are echoed in our analysis, consultations, and interviews
and are further elaborated in this report.
In addition to financing climate action, a separate
stream of public and private finance is required for
biodiversity and nature objectives. Countries will have to
further align both climate and nature financing
approaches with their commitments to the landmark
Kunming-Montreal Global Biodiversity Framework (GBF),
adopted by 188 countries19 to halt and reverse nature
loss, as well as the Paris Agreement. The Kunming-
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Montreal GBF includes four overarching goals and
twenty-three accompanying targets to be achieved by
2030, together with four long-term goals to achieve the
2050 Vision for Biodiversity. To achieve these
biodiversity objectives, it aims to mobilize $200 billion
per year globally by 2030 to implement national
biodiversity strategies. Additionally, a target to increase
financial flows from developed countries to developing
countries to at least 20billionperyearby2025and30 billion per year by 2030, has also been set.
Furthermore, deforestation driven by land‑use change
and agriculture contributes around 11 per cent of annual
global greenhouse gas emissions, according to the
IPCC, reducing the effectiveness of existing carbon
sinks. As such, it has been suggested that the global
economy will not be able to reach net zero by 2050
without ending deforestation by 2025.20
The polycrisis brings further complexity to the choices
that need to be made to increase sustainable finance.
The term polycrisis, defined as the simultaneous
occurrence of related global adversities with
compounding effects,21 aptly describes the current set
of interlocking challenges that countries face. Rising
inflation, high public debt levels and increased debt
servicing burdens, combined with projections of
moderate economic growth across the globe, places
limits on fiscal manoeuvrability. Meanwhile, the food
and energy crisis spurred by the war in Ukraine has had
wide-ranging detrimental global impacts. The need to
ensure that the world limits global warming to between
1.5 ºC and 2ºC above pre-industrial levels, while also
addressing rising poverty and inequality, has increased
the importance of making clear and sustainable
financing choices.
Delivering sufficient sustainable finance to achieve
climate and biodiversity goals will require a
transformation of the financial system. It will also
require engagement with governments, central banks,
securities and exchange commissions, ministries of
environment, energy and transport, commercial banks,
institutional investors, and other private finance actors
— to name just a few. In this moment of interconnected
crises, there is heightened recognition and willingness
among all actors to systemically transform policy,
regulation, and finance. If chaos breeds opportunity,
then this is an opportunity for systemic transformation
that should not be missed.
In this report, we discuss the choices and implications
that policymakers, regulators, and private finance
institutions in Asia and the Pacific face. The decisions
and investments made today will have long-term
consequences for the region. In this biennial report, the
fifth within ESCAP’s Financing for Development series,
we examine the trends, challenges, and opportunities for
policymakers, regulators, and private finance (banks,
issuers, and investors) in Asia and the Pacific to
mobilize and deploy sustainable finance, particularly for
climate action. We then put forward ten principles for
action for our member states to chart the way forward.
Our focus in this report is to help policymakers,
regulators and private finance actors understand the
implications of choices that need to be made to bridge
the financing gap in the region. The report aims to spur
a robust and informed debate amongst member States,
drive consensus on key measures to move the region
towards sustainability and bring greater clarity to the
short- and long-term benefits and consequences of
these policy and financing choices.
A.
Progress in the Asia-
Pacific region towards
the Sustainable
Development Goals
The region is falling behind on
achieving the Sustainable
Development Goals
As of 2022, the region is not on track to achieve any of the
SDGs, as seen in Figure 1.1. While the region has
progressed relatively more in Goals 7 (Affordable and
clean energy) and 9 (Industry, innovation, and
infrastructure) and 10 (Reduced Inequalities) since
2015, it has regressed significantly in Goal 13 (Climate
action) – a major focus of sustainable finance. This is
the case for all five subregions of ESCAP. On the other
end of the spectrum, although no SDG is on track in any
subregion, progress on Goals 1 (No poverty), 3 (Good
health and well-being), and 9 (Industry, innovation and
infrastructure) was higher than 50 per cent of being on
track in at least three of the five subregions.
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Figure 1.1: Progress in achieving the SDGs in Asia and the Pacific as of 2022.
Source: ESCAP Statistical Database.22
Among the five subregions, the largest challenges are
faced by the Pacific subregion, where six out of the 17
SDGs show regression in 2022 compared to 2015.
Across subregions, as seen in Figure 1.2 below, the top
performer economies are in the East and North-East
Asia and South-East Asia subregions, particularly on
SDG 1 (No poverty) and SDG 15 (Life on Land) in East
and North-East Asia and SDG 11 (Sustainable cities and
communities) and SDG 10 (Reduced inequalities) in
South-East Asia. Unfortunately, for all SDGs across
subregions in the table, SDG progress as of 2022 is less
than half of its 2030 target.
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Figure 1.2: Progress in achieving the 2030 SDGs targets in Asia and the Pacific by subregion and goal as of 2022.
Source: ESCAP Statistical Database.23
With regards to estimates of the financial needs of
developing countries to implement the Sustainable
Development Goals (SDGs), there is wide variation. This
indicates both different methodologies as well as a lack
of data. In 2014, the United Nations Conference on
Trade and Development (UNCTAD) estimated the
annual financial gap at 2.5trillionglobally,butafterthepandemicthisestimatesurgedto4.3 trillion per year.24
A similar figure was cited at a recent meeting between
global business leaders that are members of the Global
Investors for Sustainable Development (GISD)
Alliance and the Secretary General of the United Nations
to discuss solutions to bridge the SDG financing gap.25
For Asia and the Pacific, ESCAP estimated in 2019 an
average annual financing gap to achieve the SDGs of
$1.5 trillion per year — equivalent to 5 per cent of the
aggregate GDP of the region’s developing countries.26
With regards to Asia and the Pacific, there is substantial
heterogeneity across countries and subregions. For
instance, the annual gap estimated by ESCAP in 2019
was as high as 16 per cent of the GDP for the region’s
least developed countries, and 10 per cent for the South
and South-West subregion.27 More recently, the
International Monetary Fund estimated the SDG
financing gap of Asia-Pacific emerging market
economies and low-income developing countries,
respectively, as 5.4 per cent and 10.6 per cent of the
GDP.28 While such estimates vary, all of them show that
the SDG financing gap is substantive.
The lack of progress on climate
action in Asia and the Pacific is
alarming
Carbon neutrality commitments are still being translated
into policy and regulatory changes in the region. Figure
1.3 below shows the policy and legislative status of the
existing carbon neutrality commitments of Asia-Pacific
member states as of December 2022. Bhutan is the only
country to have achieved carbon-neutrality in the region
and is the world’s first carbon-negative country.
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Figure 1.3: Status of carbon neutrality commitments of ESCAP members, 2022.
Source: ESCAP based on ESCAP, UNEP, and UNICEF (2022).
Most countries have not yet assessed and reported the
financial needs to meet their Nationally Determined
Contributions (NDCs). At the time of writing, of 51 Asia-
Pacific countries that are party to the UNFCCC, only 17
reported that information in their latest NDCs, and only 7
have a breakdown of financial needs for adaptation and
mitigation. This points to a significant need in the region
to develop effective NDC financing strategies to meet
clear financial needs.
Furthermore, the latest NDCs at both the global and
regional levels have been assessed as not being
ambitious enough to contain global warming to between
1.5°C and 2°C. The Sixth Assessment report of the
IPCC29 shows that emissions of greenhouse gases from
human activities are responsible for approximately
1.1°C of warming since 1850-1900 and estimated that
the average global temperature will reach or exceed
1.5°C of warming in the next 20 years. A recent analysis
using global data finds that reaching a temperature rise
of between 1.5°C and 2°C goal would require cuts in
global greenhouse gas emissions (GHG) by 2030 of
between 25 and 50 per cent compared to 2019.
However, current country pledges in NDCs would cut
only 11 per cent, if fully implemented.30 This is also
referred to for the Asia-Pacific region in Figure 1.4
below. Similarly, in Asia and the Pacific, GHG emissions
are expected to decline by only 7.6 per cent between
2020 and 2030, which falls significantly short of the 45
per cent reduction required by the 1.5°C pathway for the
region, as shown in Figure 1.4.31
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Figure 1.4: Asia-Pacific scenarios for GHG emissions.
Source: ESCAP, based on ESCAP, UNEP and UNICEF (2022).
Note: The provided scenarios, which are developed on the data in the NDCs include: (i) Unconditional NDCs (the level of GHG emission
reduction a country can achieve on its own); (ii) conditional NDCs (the level of GHG emission reductions a country can achieve subject to
some conditions, e.g. support from international financing, capacity building, existence of favourable condition, carbon market, etc.) (iii)
NDC + net zero pledges (the level of GHG emission reductions based on NDCs, and current net-zero pledges) (iv) 45 per cent reductions (a
45-per cent GHG emission reduction from 2010 level is required to keep the world within the 1.5C temperature rise.
Estimates of financing requirements range higher and
are frequently being revised upwards the more the
action is delayed. The Report of the Independent High-
Level Expert Group on Climate Finance states that
emerging markets and developing countries (excluding
China) will need to spend approximately $1 trillion per
year by 2025 (4.1 per cent of GDP compared with 2.2 per
cent in 2019) and around $2.4 trillion per year by 2030
(6.5 per cent of GDP) on three investment and spending
priorities:32 (i) the transformation of the energy system,
(ii) responding to the growing vulnerability of developing
countries to climate change; and (iii) investing in
sustainable agriculture and restoring the damage human
activity has done to natural capital and biodiversity in
terms of degraded land, deforestation, and damage to
water supplies and the oceans.
Financing gaps for climate mitigation, adaptation, and
transition face different challenges. According to
UNFCCC,33 as seen in Figure 1.5 below, global climate
finance flows were 12 per cent higher in 2019–2020
than in 2017–2018, reaching an annual average of $803
billion, with the trend being driven by an increasing
number of mitigation actions in buildings and
infrastructure and in sustainable transport, as well as by
growth in adaptation finance. While mitigation finance
constituted the largest share of climate-specific
financial support through bilateral, regional, and other
channels, at 57 per cent, the share of adaptation finance
continues to be small. However, adaptation finance
from the private sector is difficult to keep track of
because governments do not maintain a centralized
system that can account for private funds.34
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Figure 1.5: Global climate finance flows in 2017-2020 by sector.
Source: ESCAP based on UNFCCC (2022a)
Finance for adaptation needs to rise dramatically.
According to the World Resources Institute, quoting the
IPCC, developing countries alone will need 127billionperyearby2030,and295 billion per year by 2050, to
adapt to climate change.
In addition to the climate finance
gap, there is a large biodiversity
financing gap.
According to the Kunming-Montreal Global Biodiversity
Framework (GBF), 700billionperyearwillbeneededtoclosethebiodiversityfinancegap.Toprogressivelyclosethisgap,Target19oftheGBFaimstomobilize200 billion per year by 2030 globally from all sources,
including by increasing financial flows from developed
countries to developing countries to at least 20billionperyearby2025and30 billion per year by 2030, to
implement national biodiversity strategies. Beyond the
need to meet agreed-upon biodiversity financing targets,
it is vital to recognize the strong reliance of economies
on nature, particularly in low and lower-middle-income
countries. According to the World Bank,35 low and lower-
middle-income countries stand to lose the most in
relative terms if ecosystem services collapse, severely
hampering prospects to grow out of poverty. For
example, South Asia would suffer a 6.5 per cent
contraction of real GDP in the case of a severe
disruption to the natural environment and healthy
ecosystems by 2030.36
The macroeconomic environment
in Asia and the Pacific has become
challenging in recent years.
The ability of governments to spend public finances on
climate action is becoming increasingly constrained due
to unfavourable economic conditions, which is
worsening the financing gap. As the figures below show,
rising inflation accompanied by rising interest rates, and
rising risk premiums on sovereign bonds, suggest that
the cost of borrowing is rising. For private sustainable
finance, the key consideration is that with more costly
capital, projects, and investment opportunities will have
to provide greater, and substantially higher, hurdle rates
(i.e. the minimum acceptable rate of return) to
investors. This will have serious implications for the
volume, quality, terms, and tenors of sustainable finance
available to close the gap.
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Figure 1.6: Inflation rate in Asia and the Pacific and the upper bound of inflation target, 2021-2022.
Source: ESCAP based on CEIC, accessed on 15 February 2023
Figure 1.7: Interest rates in Asia-Pacific economies follow monetary tightening in selected economies.
Source: ESCAP based on CEIC, accessed on 15 February 2023.
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Figure 1.8: 10-year sovereign bond yield in selected economies in Asia and the Pacific, as of end of 2022.
Source: ESCAP based on World Government Bonds, accessed on 1 March 2023.
Note: The 10-year sovereign bond yield is at the end of the period.
In conclusion, the need to redirect more finance towards
climate mitigation and adaptation goals in the region as
well as nature and biodiversity goals is critical. Although
raising public and private liquidity is challenging in the
current macroeconomic environment, significant
measures can be taken to increase and accelerate
sustainable finance by removing policy, regulatory, and
institutional barriers to climate action. In the next
section, we explore definitions surrounding sustainable,
green and climate finance, which are relevant for
policymakers and regulators in the region as they
continue to engage in transforming financial systems.
B.
What is sustainable
finance?
Sustainable finance encompasses a wide set of
definitions, with binding and non-binding implications. It
has an evolving lexicon. Definitions are important
because they define not only the volume of sustainable
finance available, but also its integrity. Definitions also
guide future choices about the allocation of capital. We
list below in Table 1.1 the most used definitions and
their sources, so that policymakers can understand the
nuances in differences between definitions. The
implications of the definitions of climate finance are
further discussed below.
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Table 1.1: Examples of sustainable finance definitions.
Body
Definition
European Union (Regulation
EU 2019/2088)
The definition of ‘sustainable investment’ in Regulation EU 2019/2088 includes
investments in economic activities that (i) contribute to an environmental objective and
(ii) do not significantly harm any environmental or social objective. The regulation covers
six predominantly environmental objectives: climate change mitigation, climate change
adaptation, the sustainable use and protection of water and marine resources, the
transition to a circular economy, pollution prevention and control, and the protection and
restoration of biodiversity and ecosystems.37
G20 Sustainable Finance
Roadmap
The G20 Sustainable Finance Roadmap released in October 2021 encourages jurisdictions
that intend to develop their own approaches to align finance and sustainability to refer to
a set of voluntary principles. These include:
Principle 1: Ensure material positive contributions to sustainability goals and focus on
outcomes;
Principle 2: Avoid negative contribution to other sustainability goals (i.e. do no significant
harm to any sustainability goal requirements)
Principle 3: Be dynamic in adjustments reflecting changes in policies, technologies, and
state of the transition
Principle 4: Reflect good governance and transparency;
Principle 5: Be science-based for environmental goals and science- or evidence-based for
other sustainability issues; and
Principle 6: Address transition considerations.
The International Capital
Market Association (ICMA)
Sustainable finance incorporates climate, green, and social finance while also adding
wider considerations concerning the longer-term economic sustainability of the
organizations being funded, as well as the role and stability of the overall financial system
in which they operate. ICMA’s definition is based on market usage and draws on the G20
and European Union references, according to ICMA.38
International Finance
Corporation’s Sustainable
Banking and Finance
Network 39
Sustainable finance refers to policies, regulations, and practices by regulators,
supervisors, industry associations, and financial institutions (FIs) to
(i) reduce and manage environmental, social, and governance (ESG) risks resulting from
and affecting financial sector activities, including the risks of climate change; and
(ii) encourage the flow of capital to assets, projects, sectors, and businesses that have
environmental and social benefits.
A balance of definitions that both incorporate rigour and
act as an incentivizing and inclusive force is necessary.
By no means are these definitions exhaustive or
mutually exclusive. While the broadness of sustainable
finance definitions has also contributed at times to
confusion, or to claims that some sustainable finance is
less ‘sustainable’ than purported (conveying a false
impression, or ‘greenwashing’), broad definitions of
sustainable finance allow at this stage more
stakeholders to participate and classify their activities
as sustainable. As exemplified by the European Union
Taxonomy Regulation, the definitions of sustainable
finance and their subsequent use in regulation can be
progressively strengthened over time. And while the
term is well-understood and well-embedded in finance,
regulations, and policy in more mature markets, it is
nevertheless also true that wide swaths of stakeholders
still need to be convinced of the value of sustainable
finance activities.
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Definitions are important to guide regulators and
policymakers. Evolving sustainable, green and transition
taxonomies in certain countries in Asia and the Pacific
further try and clarify to the financial sector how
financing of activities can be considered green,
sustainable, or transitioning from brown to green. It is
thus important for policymakers, who are considering
voluntary and mandatory approaches in sustainable
finance, to understand the differences in definitions, so
that they can guide the financing of sustainable, green
or transition activities in the real economy. With regards
to the definition of climate finance, we discuss this
further below.
The two tracks of sustainable
finance
Sustainable finance can be categorized by two tracks.
Both foster sustainable economic, social, and
environmental development, but there are two different
routes towards fostering that impact.
Track 1 refers to the financing of sustainable activities.
Track 1, as shown in Figure 1.9 below, refers to use-of-
proceeds defined sustainable finance, in which the
proceeds go towards clearly demarcated, pre-defined,
sustainable, green, or climate-oriented uses, activities,
objectives, or outcomes. With regards to green finance,
for example, the G20 Green Finance Study Group
describes it as “the financing of investments that
provide environmental benefits in the broader context of
environmentally sustainable development.”40 Again,
there is no single universal agreed-upon definition.
Climate finance, as defined by UNFCCC,41 refers to local,
national, or transnational financing – drawn from public,
private and alternative sources of financing – that seeks
to support mitigation and adaptation actions that will
address climate change. This definition is objective-
based, and it falls within Track 1 of sustainable finance.
Track 2 refers to sustainably-managed finance. The
second track is not about where the investment goes or
which activities are financed but, rather, how
sustainability or climate or green-related risks materially
impact the financial performance of the investment and
how those risks should be managed. For example, when
environmental, social and governance (ESG) risks are
analysed with respect to how they would affect the
financial returns of the investment, the resulting
investments are often labelled as ESG investments.
Here, greening finance refers to the mainstreaming of
environment and climate risk management in the
financial sector. For example, the purpose of the
Network for Central Banks and Supervisors for Greening
the Financial System (NGFS), launched at the Paris One
Planet Summit in 2017, is to enhance the role of the
financial system in managing risks and capital for green
and low carbon investments in the broader context of
environmentally sustainable development. While green
finance falls within Track 1, greening finance falls within
Track 2 of sustainable finance. We refer to this track as
sustainably-managed finance.
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Figure 1.9: The two tracks of sustainable finance: use-of-proceeds-based and sustainably-managed finance.
Source: ESCAP
ESG standards in risk management
do not necessarily mean high ESG
impact.
ESG-related investment risks have come under
increasing scrutiny by investors in recent years, and
these risks also include non-financial considerations
which can affect a company’s financial performance,
reputation, and long-term sustainability. ESG investing,
or ESG finance, has come to the fore of public
consciousness worldwide as sustainable social and
environmental practices have become a strategic
imperative for businesses. Much of the critique on ESG
in the global narrative has been due to its lack of
standardization for compliance and the risks of so-
called greenwashing.42 It is therefore important to
understand what constitutes ESG and what does not.
The assessment of ESG risks is important for both the
banking sector and capital markets. There is a fast-
emerging and increasingly well-established regulatory
risk management framework that incorporates
environmental and social risk considerations into
banking and fund management. Typically known as
Environmental and Social Risk Management (ESRM), the
framework has been widely adopted by nearly all central
banks in the Asia-Pacific region, though the specifics
vary across countries. ESRM frameworks measure how
risks will affect the banking sector and thus managed,
but importantly, they are not designed to evaluate social
or environmental impact — i.e. the institution’s activities
on the environment or its communities.
Corporate governance risks (the G) on the other hand
are determined separately, and usually carry a different
weight than the ‘E’ and the ‘S’. Corporate governance
risks around shareholder and board practices, politically
exposed persons (PEPS) on boards and their
involvement in decision-making, as well as complicated
family ownership structures within businesses are also
assessed by financial institutions that employ ESG risk
management practices. ESG risk management
frameworks for different sectors and products apply
different weights and analytical approaches to the E, S
and G components of ESG risks. Strengthening E, S
and/or G standards are the subject of continued difficult
political conversations between financial institutions,
businesses, and policymakers.
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ESG risk assessments in capital markets use the
principle of whether ESG risks are material to the
financial performance of the company’s stock or the
fund’s performance. Morgan Stanley Capital
International (MSCI), one of the leading providers of ESG
ratings to corporates and funds, defines ESG investing
in capital markets as the consideration of
environmental, social and governance factors, alongside
financial factors in the investment decision-making
process. This is further echoed by Morningstar
Sustainalytics, another leading ESG rating provider and
industry standard setter. Sustainalytics’ ESG risk ratings
measure a company’s exposure to industry-specific
material ESG risks and evaluate how well the company
is managing those risks. Their multi-dimensional way of
measuring ESG risk combines the concepts of
management and exposure to arrive at an absolute
assessment of ESG risk.
MSCI’s ESG ratings are designed for one purpose: to
measure a company’s resilience to financially material
environmental, societal and governance risks.43 ESG
risks are therefore evaluated in the assessment of a
company to understand how such ESG risks may impact
current and future financial performance – not
sustainability performance. MSCI notes that “Our ESG
ratings provide a window into one facet of risk to
financial performance. They are not a general measure
of corporate ‘goodness,’ a barometer on any single issue
or a synonym for sustainable investing... They are not
climate ratings.”44 To add further clarity, MSCI considers
three methods of ESG investing: a) ESG integration, b)
impact investing, and c) values-based investing. Of
these three methods, the first is by far the most
frequently adopted method of ESG investing in markets
today. As an extreme example, a fossil fuel investing
fund can still be labelled as an ESG fund if it considers
and actively manages ESG risks as it invests in fossil
fuels.
Furthermore, the UN’s Principles for Responsible
Investing notes that there is “no single definitive list of
ESG issues”.45 This has led a to plethora of different
standards, due diligence processes, analytical methods,
and measurement methods around ESG assessment by
companies, banks, investors, funds, and markets across
the world. Movements are underway to centralize
standards, as through the inaugural standards in June
2023 of the International Financing Reporting Standards
(IFRS) Foundation’s International Sustainability
Standards Board (ISSB), which recommends a
comprehensive global baseline of sustainability-related
disclosures.
Use or outcome-based sustainable finance (Track 1) is
mutually strengthened by sustainably managed finance
(Track 2), and both are critical to a resilient financial
system. These two aspects of sustainable finance are of
course not mutually exclusive; use-based sustainable
finance can have, and frequently does have, strong ESG
risk management and safeguards. Some ESG-rated
investing will also be directed to sustainable uses even
if that is not explicitly measured yet. Importantly both
are critical to the robust functioning and stability of the
financial system. The ability to manage risks, including
climate-related risks, leads to the stable provision of
sustainable finance and strengthens the transition to a
low-carbon economy.
Who are the key constituents of the
sustainable finance ecosystem?
The sustainable finance ecosystem captures a nexus of
national commitments, public and private sector
incentives and standards, and financing relationships
between policymakers, regulators, and private finance
stakeholders. Sustainable financial markets are made
up of a large ecosystem of actors, as shown below in
Figure 1.10 (adapted from the International Finance
Corporation). However, the activities financed by this
ecosystem are contained within the real economy, or
within sectors such as power, transportation, trucking,
agriculture, forestry, manufacturing etc. Therefore,
financing sustainable activities follows, or lags behind,
developments in the real economy. Net-zero pledges by
financial institutions can drive financing towards net-
zero related activities, but only if the projects and
activities by corporations and households themselves
qualify as net-zero related activities.
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The frontier where the actual work will be done to
accelerate sustainable finance is thus within the real
economy. In particular, it will take place within the
businesses that adapt their choices, make meaningful
net-zero commitments, and measure and disclose
sustainability impacts. A serious pivot is required
immediately if the 2015 Paris Agreement commitments
— in which 196 countries pledged to limit global average
temperature increase to well below 2°C above pre-
industrial levels and make efforts to halt the
temperature increase to 1.5°C above pre-industrial
levels46 — is to be met. Whilst we limit our discussion in
this sustainable finance report to policymakers,
regulators, and private finance, it is no exaggeration to
say that the scope and scale of the change required in
the real economy in the Asia-Pacific region is breath-
taking, exacerbated by the urgency of the time frame in
which it must do so.
The sustainable finance ecosystem has many
stakeholders. While Figure 1.10 shows the traditional
financial sector’s role in sustainable finance, Figure 1.11
below depicts the universe of private finance actors that
are instrumental for determining whether private finance
is sustainable and how it can be deployed to more
sustainable uses. This universe represents a set of
stakeholders and countries that need to mobilize in a
systematic and coherent fashion (through setting
coordinated policy and regulatory actions). For example,
incorporating sustainable or green elements into the
compliance and disclosure burden; the tax regime; and
the fees from advisory, verifiers, and auditors that asset
owners bear, can change the flow of capital in this
sustainable finance ecosystem.
Figure 1.10: The sustainable finance ecosystem.
Source: ESCAP adapted from the International Finance Corporation
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Figure 1.11: Sustainable finance stakeholder mapping.
Source: ESCAP
An evolving definition of climate
finance
The UNFCCC definition of climate finance includes
binding commitments for developed countries with
implications for recipient developing countries. The
United Nations Framework Convention on Climate
Change (UNFCCC) refers to climate finance as local,
national, or transnational financing —drawn from public,
private and alternative sources of financing — that
seeks to support mitigation and adaptation actions that
will address climate change.47 The definition of climate
finance has acquired scrutiny due to the implications for
the COP15 pledges made by developed countries in
200948 to mobilize 100billionperyearby2020anduntil2025tosupportclimateactionindevelopingcountries.49Whilethisgoalhasyettobemet(83.3
billion was mobilized in 2020 – the last available
estimate at the time of writing), the work of the Standing
Committee on Finance of the UNFCCC indicates that this
is an area of continued debate, stating, “there are
varying understandings of what climate finance
encompasses, including which sectors and activities are
covered, the range of financial instruments available
and which tracking and reporting processes apply, as
well as different perspectives of what definitions of
climate finance should include and the detail with which
associated concepts should be defined.”50
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There are at least nine key variables relevant to any
definition of climate finance. The Standing Committee
on Finance’s report shows nine components necessary
to operationalize a given definition of climate finance
for reporting purposes, as shown in Table 1.2 below.
The complexity described here can seem daunting, but it
adds valuable clarity to policymakers, regulators, and
private finance actors from developing countries (to
whom these commitments have been made). Climate
finance is objective-based and falls within Track 1 of the
two tracks discussed earlier.
Table 1.2: Range of potential approaches to accounting for climate finance flows.
Factors
Range of approaches
Geographic scope International flows only
Domestic flows only
Global flows
Recipient
Public sector
Private sector
NGOs and civil society
Objective
Programmed or budgeted
climate objectives
Addresses climate as one of
multiple objectives
No stated climate goals but
possible co-benefits
Causality
Direct finance
Finance mobilized as
co-finance
Finance mobilized
through support for
project preparation or
technical assistance
Finance mobilized
through support for
enabling environments
Instruments
Grants
Concessional
loans
Non-
concessional
loans
First loss/
patient
equity
Equity
Guarantees
Insurance
Total or
incremental cost
Total cost of a project or action
Incremental cost of a climate project or action
compared to the baseline case
Point of
measurement
Commitments: Counting finance when the
commitment is made, irrespective of when the
finance will be disbursed (e.g. over several
subsequent years of a project)
Disbursements: Counting disbursed and received
finance
Cost of
expenditure
Nominal value: The face value of a loan
Subsidy cost: The cost of providing the loan
measured by discounted cash flows
Gross/net flows
Gross flows: The amount spent or committed
over a given year
Net flows: The amount spent accounting for
repayments over time (e.g. loans)
Source: UNFCCC (2022c).
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Does more sustainable finance
translate into progress towards the
Sustainable Development Goals?
There is currently no overall Sustainable Development
Goal or sub-target that measures the flow of sustainable
finance. In addition, financing the SDGs does not always
directly correlate with improved SDG indicators for
several reasons. For example, use-based sustainable
finance directed towards the provision of
environmentally sustainable renewable energy would
affect Goal 7,51 which can be measured by the
proportion of the population that relies mainly on clean
fuels and technology (indicator 7.1.2); the share of
renewable energy out of total energy consumption
(indicator 7.2.1); and/or how much money is flowing to
countries for clean energy research (7.a.1).52 However,
the corresponding results are not always visible for
many reasons. Firstly, reporting use-based proceeds
within most of the currently accepted sustainable
finance frameworks does not include reporting on SDG
impacts. Secondly, national statistics agencies and
bodies do not have the resources to measure all 17-
interlinked goals and 231 indicators. Thirdly,
improvement in SDGs may take considerable time and
may be affected by other trends occurring in parallel,
making it difficult to isolate the impact of sustainable
finance alone. This was noted earlier in the Roadmap for
Financing the 2030 Agenda for Sustainable
Development, which pointed out that misaligned
incentives and regulations, limited awareness, and
difficulties in identifying, measuring, and reporting on
sustainable investments impede private investment53 in
the SDGs at scale.54 The lack of hard evidence to justify
sustainable finance in terms of the SDGs need to be
counterbalanced by greater awareness of how
sustainable financing works. This lack of reporting
ability is thus an important hurdle to overcome, so as to
better drive national conversations and choices towards
financing for development as well as to advocate more
clearly for increases in climate finance.
C.
Concluding remarks: How
can countries raise
sufficient sustainable
finance?
The sums are staggering, whichever estimate of the
financing gap is used. Yet while the gap to finance the
SDGs will continue to be substantial, the discrepancy
between need and availability of funds for financing
climate action to achieve the 1.5-2°C target looms larger
and larger. There is no single silver bullet to mobilize the
finance needed in the short time frame needed. Instead,
only concerted and targeted action by all stakeholders
will transform the region’s pathway. As the Sharm-el-
Sheikh action plan noted, delivering such funding will
require a transformation of the financial systems and its
structures and processes, engaging governments,
central banks, commercial banks, institutional investors,
and other financial actors.
How can countries increase the volume of sustainable
finance in the time frame needed? The central question
for this report, therefore, is “How can countries in Asia
and the Pacific, especially developing countries
including the Least Developed Countries (LDCs) and the
Small Island Developing States (SIDS) increase the
quantity and quality of sustainable finance available in
the time frame needed?” We focus particularly on the
environmental aspects of sustainable finance, already
heavily weighted in most sustainable finance definitions,
and in international and regional regulatory and policy
norms and processes. This includes a focus on green
and climate finance. We also further note that LDCs and
SIDS have contributed disproportionately little to GHGs
but are significantly impacted by regional and global
emissions. Their ecosystems are also particularly prone
to and affected by the collapse of biodiversity; however,
they do hold a disproportionate amount of high
biodiversity assets.
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The challenges are greater for LDCs and SIDS. LDCs and
SIDS face a set of interconnected challenges in scaling
sustainable finance. LDCs and SIDS are generally far
more exposed to the impact of climate change related
extreme weather events due to their reliance on
subsistence agriculture in the former, and their exposure
to sea-level changes in the latter. LDCs and SIDS are
also highly exposed to the negative implications of
growing global macroeconomic uncertainties. Finally,
the limitations of government revenue means that public
finance is naturally constrained in implementing the
adaptation changes required to protect the livelihoods
and lives of their vulnerable populations. LDCs and SIDS
also face difficulties obtaining the data and building the
capacities needed to track and accelerate sustainable
finance.
We thus propose action by three sets of stakeholders
who are the subject of this report: policymakers;
regulators; and private finance. We analyse trends,
challenges, and opportunities faced by these three main
stakeholders and aim to answer the following policy
questions:
▪ What can government policymakers do?
▪ What can regulators do?
▪ What can private finance do?
The goal of this report is to contribute to a better-
informed debate that can guide timely choices amongst
our member states. Our focus is to outline the choices
that stakeholders face, as well as discussing the
evidence, data, and current debates around such
choices. We hope that this will better inform much-
needed actions, and spur accelerated action.
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2. WHAT CAN
GOVERNMENTS DO?
A.
Introduction
In this chapter we examine the trends, challenges, and
opportunities that policymakers within governments
face in unlocking further sustainable finance, and
particularly climate finance, from public and private
stakeholders. We then propose recommendations for
policymakers which are aggregated in our final chapter
into our ten point action plan for the region.
There is a strong link between financial sector
development and GDP growth. According to the World
Bank, “countries with better-developed financial systems
tend to grow faster over long periods of time, and a
large body of evidence suggests that this effect is
causal: financial development is not simply an outcome
of economic growth; it contributes to this growth.”55
However, there is substantial debate over the extent to
which the financial sector contributes to growth, which
types of financial systems are most beneficial to
growth, and even whether all growth in the financial
sector is beneficial to society.56 What is clear is that a
positive correlation exists between GDP per capita and
the International Monetary Fund’s (IMF) financial
development index, as seen in Figure 2.1 below.
Nevertheless, it is important to note that the growth of
sustainable finance markets depends on the depth,
integrity, and liquidity of countries’ financial systems.
Figure 2.1: Strong correlation between IMF Financial Development Index and GDP per capita.
Source: ESCAP based on IMF, Financial Development Index Database, accessed on 8 February 2023; World Bank, accessed on 8 February
2023.
Note: The IMF Financial Development Index is an aggregate measure that summarizes how developed financial institutions and financial
markets are in terms of their depth, access, and efficiency. There is significant correlation between the Financial Institutions index and
GDP per capita (corr = 0.73, p <0.001) and between the Financial Market index and GDP per capita (corr = 0.62, p <0.001).57 Both GDP per
capita values and IMF Financial Market Index and Financial Institution Index values are from 2020. Countries lacking sufficient
information on Financial Market Index components were excluded from the analysis due to missing data. The figure shows countries in
Asia and the Pacific based on ESCAP groupings at sub-regional level.
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Figure 2.2 below shows the relative state of financial
market development in the region. Interestingly, one
may intuitively expect countries with more financially
developed systems to be further along in adopting
sustainable finance taxonomies or regulation and
experiencing higher sustainable finance flows. For
example, Cambodia and Viet Nam, which have
seemingly less developed financial systems, have
nevertheless issued maiden green bonds using green or
sustainable finance taxonomies. This suggests that
countries can leapfrog traditional timelines of financial
system maturation in developing sustainable finance
systems. Such sustainable finance flows often include
new types of investors for developing countries;
investors who specifically seek sustainable/green
impact investments even in the face of high sovereign or
currency risk. For issuers, such diversification in
investors expands the depth of the market.
Figure 2.2: Status of IMF financial market and financial institutions index components, 2020.
Source: ESCAP based on IMF, Financial Development Index Database, accessed on 8 February 2023.
Note: The IMF Financial Market Index measures how developed financial markets are in terms of their depth, access, and efficiency.
Countries/jurisdictions highlighted in green represent countries/jurisdictions that have issued a green bond. Countries lacking sufficient
information on Financial Market Index components were excluded from the analysis due to missing data. In case of insufficient
information on financial markets’ depth, access and efficiency, only available information on the other components is shown in the figure.
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To grow, sustainable finance markets need depth,
access, efficiency, and stability. According to the Center
for Economic Policy Research (CEPR), in traditional
financial markets, ‘depth’ means that financial
institutions and financial markets are of a sufficient
size. ‘Access’ reflects the degree to which economic
agents use financial services. ‘Efficiency’ means that
financial institutions can successfully intermediate
financial resources and facilitate transactions. Finally,
‘stability’ refers to low market volatility and low
institutional fragility.58 These elements are also
necessary for an increase in sustainable finance flows.
LDCs and SIDS face particular challenges in financial
sector development, which affects their ability to attract
private finance. Many LDCs and SIDS in the Asia-Pacific
region continue to face challenging fiscal situations,
which are exacerbated by low levels of tax revenue and
domestic savings, disruptions in the tourism sector for
SIDS, low productivity, and volatile GDP growth. Many
LDCs and SIDS also frequently struggle to expand
capital markets and deepen financial sectors, especially
with regards to attracting private and/or foreign capital.
For example, of all the private finance mobilized globally
between 2012 and 2018, LDCs received only 6 per
cent,59 — approximately US 13.4bnbetween2012and2018.Themajorityflowedtouppermiddleincomecountries,whichreceived41percent,or84 bn.
Meanwhile, lower middle income countries were the
recipients of 33 per cent, or $68 bn. Given the low share
of LDCs in global GDP, this may seem to be a
substantial amount; however, in light of the discrepancy
between sustainable finances and what is required, a
significant increase in private investment is vital. With
10 out of the 12 LDCs in Asia and the Pacific en route to
graduation, official development assistance will need
replacement with alternative sources of public and
private finance, particularly to support the Sustainable
Development Goals.
“Data limitations for adaptation projects, high transaction
costs, and small project sizes make it difficult for SIDS to
attract investments and compete for or access climate
resilience financing. The climate and development finance
systems need to adequately take into account SIDS unique
needs and vulnerabilities, whilst ensuring a more consistent,
long-term focused, and systematic way to attract climate
finance working alongside national stakeholders” – Peseta
Noumea Simi, Chief Executive Officer, Ministry of Foreign
Affairs and Trade of Samoa
What is the role of policymakers in
supporting sustainable finance?
The financing of sustainable development, including the
financing of climate action, requires strong leadership
and commitment to implement the Nationally
Determined Contributions (NDCs) in time. The Paris
Agreement, now ratified by 193 countries, requests each
country to outline and communicate their post-2020
climate actions, known as their NDCs. These NDCs form
the basis for countries to achieve the objectives of the
Paris Agreement, and contain information on targets,
policies and measures to reduce national emissions and
adapt to the impacts of climate change. In Asia and the
Pacific, countries have started to implement the NDCs
domestically by (i) mainstreaming climate activities into
national development plans, policies, strategies and
roadmaps; (ii) creating an institutional framework; (iii)
mobilizing resources; and (iv) elaborating transparency
measures to monitor and evaluate climate action.
However, as outlined earlier, the state of climate
ambition in Asia and the Pacific (as manifested in the
NDC commitments collectively) is insufficient to meet
the global goal of limiting temperature rise to 1.5
degrees Celsius.
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Importantly, even where (insufficiently ambitious) NDCs
are in place, NDC financing plans lack progress. A 2020
assessment by ESCAP suggests that 26 countries in the
region, well more than half, have not taken any steps to
integrate NDC actions in national budgetary processes;
29 countries have no relevant policy frameworks for
aligning private sector actions with NDCs; and 22
countries do not have frameworks for aligning lending
with NDCs.60 While this is improving, concerted and
systematic efforts to devise and implement
comprehensive financing strategies for the NDCs are
not advancing fast enough.
Nevertheless, progress has been made in certain areas.
The issuance of green, social, and sustainable bonds
continues apace. Climate budget tagging — the practice
of identifying, measuring, and monitoring climate
relevant expenditures — is slowly increasing. More
countries are exploring the viability of debt-for-climate
or debt-for-nature swaps, especially in situations of
potential debt distress. Several countries are developing
and implementing integrated national financing
frameworks (INFFs), which could strengthen planning
processes and drive sustainable financing. These are
promising trends. But to avoid fragmentation, they
should be accompanied by a national vision that is
central, overarching, and integrated to finance both the
NDCs and the SDGs together.
Policymakers have an important role to play in signalling
credible intentions and presenting national climate
action priorities to markets. Such intentions and
national priorities are closely watched by markets, who
use them to price long-term investments. Emissions-
reducing investments — whether it is phasing out of coal
or the adoption of new technologies in carbon capture,
utilization and storage — require upfront, lump sum
payments of significant amounts to finance capital
expenditure in equipment, factories, renewable energy
installations, and technologies. Meanwhile returns are
collected over a long-term basis, and often in the later
years of the project. Policy signals thus need to act to
reduce both the actual risks and the perceptions of risks
associated with such long-horizon, upfront investments.
For public and private sustainable finance to flow
towards the NDCs, contradictions in the enabling
environment of sustainable finance need to be resolved.
Firstly, it is important to recognize the scale of the
transformation currently underway in sustainable
finance. Regulations, taxonomies, standards, and
markets are in flux, alongside countries’ evolving NDC
implementation plans. Policymakers are responsible for
budget allocations in terms of incentives or tariffs that
affect the returns in, for example, coal versus green
hydrogen offtake, and in shifting economic structures
away from using traditional energy sources to cleaner
energy sources. This has vast implications for real
economy industries, which have to adapt to new and
cleaner energy sources, reduce the carbon intensity of
their output, track their emissions, and plan for
transition. In turn, this affects those who finance such
industries and companies, whether it is public or private
finance. Therefore, when regulation and policy are
constantly evolving, investment returns are difficult to
forecast with predictability or stability and affect go-no-
go financing decisions with deleterious effects on long-
term investment projects. Coherence across policies
and sectors along with an enabling environment is thus
critical to accelerate sustainable finance.
“The enabling environment signals an incoherence in policies:
for example, with a subsidized coal industry on one part and a
different picture for the renewable energy market, which lacks
competitiveness as a result of the returns emerging due to
challenges on the regulatory front.” – Anonymous
Sustainable finance roadmaps are one tool that
governments can use to signal their priorities to
markets. In many cases, though such roadmaps are
announced by governments and their ministries of
finance, the design and implementation of such
roadmaps are led by regulators. These roadmaps can
chart a path for the development of a sustainable
finance market, often by creating priorities and timelines
for the development of key enabling tools such as (i)
sustainable or green taxonomies; (ii) green, social, and
sustainable bond frameworks; (iii) corporate
sustainability reporting; (iv) climate disclosures; (v) and
net-zero transition reporting; and other similar
requirements. However, while sustainable finance
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roadmaps lay out the planned trajectory of a sustainable
finance market, policymakers still need to grapple with
how underlying sectors in the real economy (which is
financed by sustainable finance) can be guided to
transition in time.
Furthermore, it is important to distinguish between the
standards and ambition of sustainable finance
roadmaps in developed countries versus least
developed countries. LDCs, SIDS and other countries
with special situations should be able to attract enough
capital required for climate action and the SDGs. The
danger is that by imposing strict ESG standards on risk
management (Track 2), or on use of proceeds (Track 1),
capital ends up being diverted away from more
challenging markets that already face high sovereign
risk and deter investors. The ASEAN taxonomy for
example is a multi-tiered framework that takes into
account differences amongst its member states.
Policymakers also have a role in advocating for and
mobilizing committed climate finance from developed
countries. In 2009 at COP15, developed countries
committed to a goal of jointly mobilizing $100 billion a
year by 2020 to address the needs of developing
countries in the context of meaningful mitigation
actions. This funding would come from public and
private, bilateral, and multilateral sources, including
grants as well as concessional and non-concessional
debt. In 2016, parties to the Paris Agreement decided
that they shall “set a new collective quantified goal from
a floor of $100 billion per year, taking into account the
needs and priorities of developing countries before
2025”.61 In 2021, at COP26 in Glasgow, parties decided
to initiate deliberations to establish a new collective
quantified goal that are to be concluded in 2024, and are
to include inter alia, quantity, quality, scope and access
features as well as sources of funding.62 In spite of
strong commitments, funding has fallen short of the
goal of $100 billion annually ($83.3 billion was
mobilized in 2020, according to the latest data available
at the time of writing). Nevertheless, on the demand
side, developing countries can continue strengthening
their ability to seek access to these funds through
concrete financing plans and strategies.
B. Trends and opportunities
This section discusses recent trends among
governments and policymakers across Asia and the
Pacific which are strengthening the depth, access,
efficiency, and stability of sustainable finance markets.
These trends, which are largely positive, point to
increasing policy momentum across the region and are
a positive harbinger of further sustainable finance at an
imperative scale and pace. We discuss, in particular: the
growth of green, social, sustainability and other labeled
(GSS+) bonds; the role of carbon pricing; potential of
debt for climate swaps; trends in accessing multilateral
climate funds; and the potential offered by the Just
Energy Transition Partnerships (JETPs).
Sovereign green, social,
sustainability and other labeled
(GSS+) issuance
Many countries in the region are increasingly issuing
sovereign bonds that finance climate action and
sustainable development. Green, social, sustainability,
sustainability-linked bonds, and transition bonds,
together referred to as GSS+ bonds or thematic bonds,
fall within Track 1 of sustainable finance, whereby their
proceeds are explicitly directed to fund green, social, or
sustainable activities, as seen in Figure 2.3 below. While
green, social and sustainability bonds follow a strict
use-of-proceeds criteria, sustainability-linked bonds
(SLBs) are used by issuers who commit explicitly to
future improvements in the sustainability outcomes of
their entity within a predefined timeline, and the
proceeds of SLBs are intended to be used for general
purposes.63 SLBs therefore offer the issuer greater
flexibility in terms of proceeds, while still setting
specific targets for sustainable outcomes in a
predefined timeline. Transition bonds are an emerging
asset class whereby the issuer can either commit to use
of proceeds terms directed to climate or just-transition
purposes, or issue general purpose bonds aligned to
sustainability linked bond principles.64 On the London
Stock Exchange, for example, transition bond issuers
must publish a transition framework in line with ICMA’s
Climate Transition Finance Handbook, engage in
climate-related financial disclosures, commit to net-zero
targets and commit to report annually on its transition
performance.
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Figure 2.3: Thematic and performance-based bonds mapping.
Source: ESCAP
Figure 2.4 below shows the steep growth in GSS+ bonds
in Asia and the Pacific from 2015 to 2022 and the
promising growth of new asset classes. Globally, the
market for GSS+ bonds (corporate and sovereign) has
grown to around $3.8 trillion as of the end of 2022
(excluding transition bonds).65 These new asset classes
provide flexibility by issuers to meet different climate
objectives and enable the issuer to obtain further
unrestricted funding. While green bonds continue to
dominate both corporate and sovereign bond issuances,
sustainability bonds and more recent instruments, such
as sustainability-linked and transition bonds, are making
progress. The growth of these debt instruments, despite
global turmoil in debt markets, is a proof of their
resilience. Additionally, maiden issuances continued to
grow and by the end of 2022, 43 sovereigns from five
continents brought out debut GSS issues.66 Of these,
green bonds dominate the market with social bonds,
sustainability bonds, and sustainability-linked bonds
following.
Figure 2.4: GSS+ bond issuance value in Asia and the Pacific, 2015-2022 (billions of United States dollars).
Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
Note: The data labels show the total GSS+ bond issuance for the following countries and jurisdictions: Armenia, Australia, Bangladesh,
China, Fiji, Georgia, Hong Kong, China; India, Indonesia, Japan, Kazakhstan, Malaysia, New Zealand, Pakistan, Philippines, Republic of
Korea, Russian Federation, Singapore, Thailand, Türkiye, Uzbekistan, Viet Nam. It shows annual issuances and includes sovereign,
financial and non-financial corporate and other public sector issuances.
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Figure 2.5: Cumulative GSS+ sovereign, corporate and public bond issuance in Asia and the Pacific by country, 2015-2022
(billions of United States dollars).
Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
Note: Figure shows cumulative values across countries for the period 2015-2022. It includes sovereign, corporate, and other public sector
issuances.
In Asia and the Pacific, China, Japan and the Republic of
Korea have issued 78 per cent of the GSS+ bonds
between 2015 and 2022. Among developing countries,
India, Singapore, Indonesia, Philippines, and Thailand
have issued GSS+ bonds for over 65billioninthelastsevenyears,asseeninFigure2.5.Globally,accordingtoClimateBondsInitiative,2022sawGSS+issuanceholdits5percentshareoftheglobalbondmarketdespiteanoveralldeclineinGSS+volumeto863.4 billion from
more than 1trillionin2021.67Ofthese,greenbondissuancecomprisedjustoverhalfofthelabelledbondissuancein2022(487.1 billion), followed by
sustainability bonds (166.4billion),socialbonds(130.2 billion), SLBs (76.3billion),andtransitionbonds(3.5 billion).
Sovereigns lag behind corporate issuers of GSS+ but
their share is growing, sending important signals to the
market. Sovereign GSS+ issuance is still about 5 per
cent of the total debt issuance globally, while corporates
are globally issuing 8 per cent of their issuance in GSS+
instruments. Similarly, international financial institutions
are raising more than 30 per cent of their total bond
issues via green instruments.68 Sovereign green
issuances catalyze domestic market development and
send important signals to markets about the direction
and commitment of policymakers to climate and
sustainability goals. In Asia and the Pacific, the growth
in sovereign and other public issuance by countries in
the region has been substantial between 2019 and 2022,
as seen in Figure 2.6 below.
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Figure 2.6: Cumulative GSS+ bond issuance value of public sector in Asia and the Pacific by country and issuer type since
2015, as of end of 2019 and 2022 (billions of United States dollars).
Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
Note: Other public sector includes development banks, municipal government, and public enterprises.
Countries with less developed financial systems have
also moved ahead to mobilize sustainable finance
markets. Despite the challenges associated with
emerging regulation for new GSS+ markets, increased
premiums due to lower sovereign credit ratings, and a
nascent base of issuers and investors in GSS+ bonds,
there have been promising maiden issuances in Asia-
Pacific countries over the past two years — a trend that
signals growth and continued strength of sustainable
finance markets across the region.
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Table 2.1: First time GSS+ bond issuers in 2021–2022.
Country
Bond label
Issuer type
Issuance year
Issuance value
(million US dollars)
Bangladesh
Green
Green
Public sector
Corporate
2021
2021
11.58
17.16
Pakistan
Green
Public sector
2021
500
Uzbekistan
Sustainability
Sustainability
Sovereign
Sovereign
2021
2021
233.82
635
Viet Nam
Green
Sustainability
Corporate
Corporate
2021
2021
200
425
Source: Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
Note: No GSS+ sovereign bonds were issued by ESCAP members for the first time in 2022. It is expected more ESCAP members will issue
a GSS+ bond for the first time in 2023, including Mongolia and Cambodia.
There is also promising local-currency issuance of GSS+
bonds, signalling uptake of GSS+ bonds by local
investors. This not only increases the depth of the GSS
markets but importantly signals that investment appetite
is no longer driven solely by international investors.
Ensuring the participation of local investors in
sustainable finance markets is essential to achieving a
country’s climate objectives. As seen in Figure 2.7
below, there has been significant local currency
issuances of GSS bonds by both corporate and public
actors. This signals that domestic investors are
understanding and purchasing these securities and
signifies the promise of depth and access in these
markets.
Importantly, it also means projects financed by such
green bonds do not need to add a premium to overcome
hard-currency financing costs, which are aggravated by
the depreciation of local currencies against the United
States dollar. This unlocks larger volumes of
sustainable finance that can meet environmental
objectives at a higher and faster scale. Finally, as seen
in Figure 2.8 below, there has been substantial issuance
in many local currencies in Asia-Pacific countries that
do not necessarily have an investment-grade rating. This
also shows that investors have an appetite for what may
be perceived as more risky local currency financing, in
the GSS+ asset class. Interestingly, some of these GSS+
bonds are also being used as long-term financing
instruments (with maturities beyond five years), which is
essential as a potential tool to finance capital
expenditure-heavy, upfront investments in climate
action.
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Figure 2.7: Cumulative GSS+ bond issuance value in Asia and the Pacific by currency and issuer type, 2015-2019 and
2015-2022.
Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
Note: 1) Other public sector includes development banks, municipal government, and public enterprises. Corporate refers to both financial
and non-financial corporations.
2) Note that the issuance values of Chinese yuan, Japanese yen, and Korean won are among the top issuance currencies in Asia and the
Pacific during 2015-2022. However, these were mostly domestically issued in local currencies. Ninety-nine per cent of issuance in Chinese
yuan were in China, 99 per cent of issuance in Japanese yen were in Japan, and 100 per cent of issuance in Korean won were in the
Republic of Korea.
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Figure 2.8: Cumulative GSS+ bond issuance in Asia and the Pacific by currency (per cent), 2015-2022.
Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
The emergence of sustainability-linked bonds (SLBs)
could allow the financing of projects with direct impact
in cutting GHG emissions. While green bonds are
directed to financing green projects under green bond
criteria, they are usually not linked to financing the
reduction of emissions. SLBs are instruments with pre-
defined sustainability performance targets that the
issuer commits to meet by a given date (the "penalty
event date"). If the targets are not met, the issuer is
typically subject to a penalty, a mechanism that is
absent in the case of conventional green bonds. SLBs
can be linked directly to reduced greenhouse gas
emissions through the contractual choice of the
Sustainability Performance Target (SPTs). Data for the
first half of 2022 shows that 58 per cent of SLB
issuances were tied to greenhouse gas emissions – and
28 per cent of these covered scope 1, 2, and 3
emissions.69
Furthermore, mainstream green bonds tend to be
concentrated in green infrastructure (buildings and
transport) and renewable energy but SLBs are issued
across a more diverse range of sectors. Alongside the
financial services and utilities sectors, which are
responsible for a combined total of 30 per cent of all
SLB issuance in 2021 and H1 2022, the industrials,
materials, and consumer sectors have a sizeable share
of the market, with a combined total of almost 50 per
cent of all SLB issuance, suggesting that companies in a
wider range of sectors are using the instrument to help
finance their net zero or low-carbon transitions.70
Trends show that sovereign issuances tend to raise
overall sustainable bond standards. According to the
Bank of International Settlements (BIS), the inaugural
issue of sovereign green bonds tends to tighten
standards for overall green issuance in that country.
After such an issue, not only does the annual number of
corporate issues tend to increase across jurisdictions,
but so does the percentage of corporate issuance with
second-party opinions. This tendency is apparent in both
advanced and emerging market economies.71 This
further enhances the integrity of the markets and allows
investors to trust and trade. According to BIS, while all
sovereign issuers have solicited a seal of approval from
an external reviewer, in contrast, as many as one-fifth of
corporate green bonds globally are self-labelled as
green by the issuer without any external review.72
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Sovereign sustainable finance instruments can
potentially finance other SDG objectives as well,
including gender equality. While the sustainable finance
market keeps expanding, investors’ requests for more
inclusive and innovative financial instruments that
address social issues are also growing. These include
financial products which include women’s leadership,
employment or incorporation into investment strategy
and analysis. Social bonds, Sustainable Development
Goal bonds,73 gender bonds, sustainability bonds, and
sustainability-linked bonds can help direct capital to
reduce the financial and economic inequalities between
women and men. Such instruments can enable capital to
flow to fund social projects targeting specific
populations. However, green or sustainability-linked
bonds which include a gender or diversity dimension
remain scarce.
Governments are increasingly
active in carbon markets
In addition to fostering the development of the GSS+
bond markets in the region, carbon markets should be
seriously considered by governments for climate action.
Voluntary carbon markets remain predominantly global
in nature, but in the region, China, Thailand, Japan, the
Republic of Korea, Singapore, Australia and New
Zealand have also developed emissions trading
schemes or carbon credit markets, as can be seen in
Figure 2.9 below and Annex D. New carbon markets in
Asia and the Pacific are also expected to go live in 2023,
when Indonesia will launch the first phase of mandatory
carbon trading for coal power plants.74
Figure 2.9: Carbon pricing initiatives at national and sub-national level in Asia and the Pacific.
Source: ESCAP based on World Bank Carbon Pricing Dashboard75 and UNCTAD Sustainable finance regulations platform.76
Note: Carbon pricing initiatives are considered "scheduled for implementation" once they have been formally adopted through legislation
and have an official, planned start date. Carbon pricing initiatives are considered “under consideration” if the government has announced
its intention to work towards the implementation of a carbon pricing initiative and this has been formally confirmed by official government
sources.77 ETS refers to cap-and-trade systems, but also baseline-and-credit systems.78
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Governments can allocate carbon pricing revenues to
critical social and environmental policies to support
sustainable development. The World Bank estimates
that $84 billion in carbon pricing revenues was raised by
governments in 2021, yet carbon pricing still only
accounts for less than 5 per cent of global emissions.
ESCAP’s Economic and Social Survey 2020 highlights
that phasing out fossil fuels and introducing carbon
pricing could open up significant fiscal space for
countries in the region. For example, at a carbon price of
$70, the survey estimates that several countries in the
region could increase revenues by over 2 per cent of
GDP by 2030. In sum, if the revenue raised from carbon
taxes is collected effectively and then partially
channelled back into the economy to compensate low-
income groups for the impact on energy and
transportation costs, it can potentially increase the level
of economic activity and reduce inequality and poverty,
while simultaneously progressing towards emissions
targets and reducing air pollution.
Several countries in the Asia-Pacific region have already
adopted different forms of carbon pricing. This includes
China (the largest carbon market in the world), Japan,
Republic of Korea, Australia, Singapore, New Zealand,
and Kazakhstan. In addition, several others are currently
considering carbon pricing policies, including Thailand,
Malaysia, Brunei Darussalam and Indonesia. (However,
Indonesia recently announced it would delay the
introduction of its carbon tax due to the impact of high
energy prices). Furthermore, nascent discussions are
underway to link compatible ETSs with each other to
reduce costs, increase liquidity, and harmonize carbon
pricing across jurisdictions. According to the World
Bank,79 73 different carbon pricing instruments globally
have been implemented as of the end of 2022 with a
share of global GHG emissions covered around 23 per
cent. Record high revenues from emission trading
schemes and carbon taxes approached 100billion.Whilebothissuancesandretirementsofcarboncreditsfellcomparedto2021,voluntarydemandfromcompaniesremainstheprimarydriverofmarketactivity.However,thecarbonpriceremainswellbelowwhatisneededtodrivecarbonneutrality.AccordingtotheWorldBank,asofApril1,2023,lessthan5percentofglobalgreenhousegas(GHG)emissionsarecoveredbyadirectcarbonpriceatorabovetherange(40-80permetrictonofcarbondioxide)recommendedby203080(in2023),withmostofthesehigh−priceinstrumentslocatedinEurope.81AnotherestimateofwhataneffectivecarbonpricerangeshouldbealsocamefromtheNetworkofCentralBanksandSupervisorsforGreeningtheFinancialSystem(NGFS)whichreleaseditsupdatedscenariosforcentralbanksandsupervisorsinSeptember2022.NGFSmodellingsuggeststhatcarbonpricesneedtobearound50 by 2030 in 2010
terms (or 69in2023terms)andsubsequentlyaround200 (or $276 in 2023 terms) by 2050 to achieve a
below-2°C outcome.82 The majority of current carbon
prices remain far below this range, and such prices are
commanded in high income countries, mainly in Europe
and the United States.
Most countries have now included emission reductions
targets in their NDCs. Carbon offsets are an integral part
of the UNFCCC Paris Agreement, including the rules to
establish pathways for their use. A carbon offset is
equal to one metric tonne of carbon dioxide (or
equivalent GHG) that has either been removed from the
atmosphere or prevented from being released into the
atmosphere. Critically for carbon offsets to serve their
purpose of incentivizing abatement and encouraging
countries to meet their international climate change
obligations, they must have environmental integrity.
Carbon offsets are created by certified activities that
create and measure the number of tonnes of removals
or reductions in GHGs from the atmosphere. Only
additional removals or reductions in GHGs that happen
because of the activities, and that would not have
happened otherwise, can be counted and made into
carbon credits.
Article 6 allows parties to the UNFCCC to use
international trading in carbon offsets, referred to as
internationally transferred mitigation outcomes (ITMOs)
to help achieve their emissions reduction targets. ITMOs
enable countries to buy and sell carbon offsets from
each other to meet their obligations under the Paris
Agreement. Importantly, this creates opportunities for
developing countries to sell carbon offsets to developed
countries.
Carbon markets are being explored by governments to
accomplish their NDCs, while corporations are taking
the initiative by establishing their own reduction targets
and utilizing offsets to achieve them. Consequently, the
demand for carbon offsets is increasing, with both
mandatory compliance and voluntary markets becoming
more widespread. It is hoped that Article 6 will provide a
framework for integrating compliance and voluntary
markets in the future.
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Box 2.1: LDCs and SIDS and carbon offset markets.
Carbon offset markets are increasingly valuable to enable companies and governments to meet their emission reduction
targets by purchasing carbon offsets. Carbon offsets are generated by projects that reduce or remove GHG emissions.
Article 6 of the Paris Agreement encourages countries to use cooperative approaches that enable them to use carbon
offsets to help achieve their emissions targets. These projects can include nature-based solutions, such as projects to
reduce deforestation. Forests absorb carbon dioxide from the atmosphere — thus acting as natural sinks for GHG
emissions — although they release GHGs when cleared or degraded. Reducing deforestation can, therefore, significantly
enhance efforts to mitigate climate change.
Blue carbon ecosystems, such as mangrove forests and seagrass meadows, also act as carbon sinks and contain more
sequestered carbon per square meter than almost any other ecosystem. Importantly, projects must be certified according
to agreed methodologies and have in place appropriate monitoring, reporting, and verification (MRV) protocols to
guarantee that they create actual measurable reductions in GHGs, which increases compliance costs. However, if
structured appropriately, a project designed to conserve a forest or blue carbon ecosystems can generate carbon offsets
that can be sold, earning valuable income for local communities and governments that can contribute to broader
sustainable development priorities. Regional partners — including Australia, Fiji, Papua New Guinea, among others — are
working together to develop high-integrity carbon offset schemes in the Indo-Pacific region. The rich stock of biodiverse
green and blue ecosystems within the Asia-Pacific region, particularly in LDCs and SIDS, means that carbon offsets
generated from these types of projects have the potential to play a critical role in generating much-needed sources of
climate finance for LDCs and SIDS in the region.
Debt for nature and debt for
climate swaps
In the current context of high, and increasing, public
debt levels amid a narrowing fiscal space in developing
countries, the availability of public finance for climate
action projects is curtailed. Debt for nature or debt for
climate swaps represent a promising solution.
Policymakers are increasingly exploring this tool.
A debt swap is an agreement between a creditor and a
debtor by which the former cancels a portion of the
latter's foreign debt in exchange for a commitment to
invest in a specific environmental project. Debt for
nature swaps have a precedent in the debt for nature
swaps first implemented in the context of the global
debt crisis of the 1980s. Debt for nature swaps invested
mainly in conservation projects, and they are flexible
instruments that can be funded through a variety of
sources in addition to donor countries. These may
include grants from philanthropical organizations, as in
the Seychelles debt swap of 2015 — when nearly $22
million of debt was forgiven in exchange for greater
ocean protection — or an issuance of a blue bond
backed by political risk insurance by the US International
Development Finance Corporation (DFC), as in the Belize
debt-for-nature swap of 2021, through which
approximately $107 million was dedicated to
conservation projects amid debt restructuring.
A debt for climate swap is a type of debt swap that
cancels foreign debt in exchange for a commitment to
redirect savings in debt services towards climate-
friendly objectives. Bilateral official creditors that are
Annex II parties to the United Nations Framework
Convention on Climate Change can make their funding
of debt for climate count as part of the developed
countries’ commitment to provide $100 billion per year
in climate finance to developing countries.83 According
to the IMF, “under bilateral debt swaps, previously
committed debt service to official bilateral creditors is
redirected to the financing of mutually agreed projects
in areas such as nature conservation and climate.84
Tripartite swaps involve buybacks of privately held debt
financed by donors and/or new lenders, usually
intermediated by an international nongovernmental
organization (NGO), conditional on nature- or climate-
related policy actions and/or investments. In the most
common type of operation the NGO lends the funds to
the debtor country at below-market interest rates, on
condition that (1) the debtor uses the funds to buyback
commercial debt at a discount, and (2) a portion of the
resulting debt relief (the difference between the cost of
the retired commercial debt and the new debt to the
NGO) is used to fund climate-related actions or
investments.”85
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Debt swaps are not the same as unilateral debt
forgiveness. They are mutually beneficial agreements
through which both the debtor and its creditors gain.
Debtors benefit by reducing their debt burden and
opening fiscal space for dedicated investments in
climate projects. They also benefit by reducing pressure
on the exchange rate, as their new obligations to invest
in climate projects are in domestic currency. With
regards to creditors, private bondholders can benefit
from a buyback agreement at a price that exceed the
market price, and bilateral official creditors can make
their funding of a debt for climate swap deal count as
part of the $100 billion commitment, as mentioned
earlier. Table 2.2 provides a broader description of
costs and benefits of debt swaps which policymakers
can use to assess the suitability of these instruments.86
Table 2.2. Opportunities and challenges of debt swaps for the involved parties.
Advantages and positive outcomes
for the debtor country
Advantages and positive outcomes for
the creditor country
Shortfalls and challenges
▪ Through debt relief and conversion,
the overall debt burden on the debtor
country is lowered and the strain on
the national budget is reduced.
▪ Since counterpart payments into
environmental projects are generally
made in local currency, debtor
governments save scarce hard
currency which they can then use to
build foreign exchange reserves.
▪ Debt swaps have the potential to
improve the overall macroeconomic
situation of an indebted and
developing country through alleviating
its public debt burden in the medium
term and creating fiscal space in the
short term.
▪ Debt relief can strengthen economic
stability, improve the credit rating of a
debtor, and attract new investments.
▪ Environmental projects benefit from
freed finance that would have
otherwise gone towards the creditor’s
budget, often bringing economic and
social benefits at a local level.
▪ Grants to environmental projects or
local NGOs are typically distributed via
a trust fund which is set up according
to the original repayment schedule.
This long-term regular funding
facilitates investments in climate
finance.
▪ From a financial perspective, creditor
countries’ remaining debt claims
increase in value through such swaps,
and creditors can recover either full or
at least a larger part of their debt. Debt
swaps are particularly beneficial if parts
of the debt have been already written
off, but full repayment remains unlikely.
▪ Creditors must mobilize less additional
finance to meet their international
climate commitments and, at the same
time, can register the instrument as the
provision of Official Development
Assistance (ODA). Since the nominal
value of non-concessional debt can be
registered as ODA, many creditor
countries have used this instrument to
boost their ODA numbers.
▪ Further, creditor countries can raise
their environmental credentials by
mobilizing co-financing through
international funding institutions. A debt
swap that is carefully designed can
guarantee an adequate use of funds and
carry a greater weight than a single
donation.
▪ Debt for climate swaps can help
developed countries reach their COP26
target to mobilize at least $100 billion
annually by 2023 while providing
developing countries with additional
resources to mitigate and adapt to
climate change.
▪ If the write-off rate is low or even zero, no
extra-budgetary room is provided, which
leaves the overall macroeconomic
situation unaffected.
▪ If the debt swap volume is small, the
positive impact on the debtor’s economic
situation is negligible or might even be
outweighed by the costs incurred when
negotiating a swap and setting up a trust
fund.
▪ Debtor countries must have sufficient
funds to put into trust funds, and there
exists a risk of inflation if debtor
governments print money to pay the
agreed amount in local currency. This
risk does not apply to countries that do
not have a national currency.
▪ Debt swaps carry the threat of crowding
out other forms of finance that are
potentially more effective. Debt swaps
should be additional to the already
delivered ODA and not substitute other
channels of new aid.
▪ Climate-relevant debt swaps have to
compete with other sectors (health,
education, infrastructure) for a limited
amount of eligible debt.
▪ Countries will need to negotiate with
creditors specifying the conditions of the
swap, reduced debt, selection of projects,
implementation and monitoring,
additional financial sources, connections
with the SDGs and the Paris Agreement.
Source: ESCAP
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Accessing multilateral climate
funds and development finance
In addition to GSS+ bonds, carbon pricing, and debt for
climate or debt for nature swaps to finance, accessing
multilateral climate funds and/or development finance
is another source of sustainable finance for
policymakers.
Multilateral climate funds (MCFs) are a significant
source of sustainable finance for developing countries
but may be insufficient to meet their financing gaps.
Multilateral climate funds were established through
international agreements with a mandate to provide
finance for the transition to a green, inclusive, and
climate resilient economy in developing countries. The
visions and missions of the MCFs are partially shared
and mutually reinforcing in their support to developing
countries to implement the United Nations Framework
Convention on Climate Change and the Paris
Agreement. They are to be accessed by developing
countries for mitigation, adaptation or transition funding
and use a variety of financing methods. They form a
significant channel for the $100 billion per year
promised by developed countries to developing
countries. The main MCFs and their purposes are:
▪ Finance for adaptation in developing countries:
The mission of the Adaptation Fund is to
accelerate the quality of adaptation action in
developing countries by financing concrete
adaptation actions, innovation and multi-level
learning that engage, empower, and benefit the
most vulnerable communities through inclusive
and country-driven processes.
▪ Finance to adopt new green technologies in
developing countries: The Climate Investment
Fund’s mission is to mobilize its Multilateral
Development Bank partners, governments, the
private sector and local communities, to test and
pioneer new technologies, create markets, and
catalyze transformational change toward a more
prosperous, equitable climate economy.
▪ Finance to meet climate goals by developing
countries: The Global Environment Facility’s
(GEF’s) mission is to safeguard the global
environment by helping developing countries meet
their commitments to multiple environmental
conventions and by creating and enhancing
partnerships at national, regional, and global
scales based on the principle of sectoral
integration and systemic approaches to project
and program financing.
▪ Finance for LDCs to meet national adaptation
programmes of action. The GEF operates the Least
Developed Countries Fund (LDCF).
▪ Finance to adopt low-emission development
strategies by developing countries. The Green
Climate Fund’s (GCF’s) vision is to promote the
paradigm shift towards low-emission and climate
resilient development pathways in the context of
sustainable development.
In Asia and the Pacific, $5.3 billion was mobilized by the
multilateral climate funds between 2018 and 2021,
based on OECD development finance statistics.87 This is
still a small proportion of overall climate finance flows,
and of the climate finance gaps, and many developing
countries in the region face challenges in applying for
and meeting the requirements of financing from these
funds. Table 2.3 below presents data on access to
sustainable finance in Asia and the Pacific in 2021 from
three main sources: multilateral climate funds,
multilateral development banks, and bilateral donors.
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Table 2.3: Climate-related development finance committed by developed countries to Asia-Pacific countries through
various channels in 2021 (in millions of United States dollars).
Multilateral climate funds
Multilateral development banks
Bilateral donors
Grants
Loans
Grants
Loans
Grants
Loans
South and South-West Asia
189
182
111
9,366
1,222
7,096
Afghanistan
3
103
173
Bangladesh
0
1
906
188
2,181
Bhutan
12
1
23
35
India
21
64
2
3,272
255
4,043
Iran (Islamic Republic of)
0
20
Maldives
26
0
40
13
14
Nepal
27
1
67
133
Pakistan
1
15
1
1,993
191
77
Sri Lanka
1
1
482
31
27
Türkiye
2
2,583
113
742
Subregional funding
95
103
1
71
11
North and Central Asia
77
12
151
1,742
274
593
Armenia
4
128
18
76
Azerbaijan
0
40
16
Georgia
10
233
63
177
Kazakhstan
0
0
401
7
Kyrgyzstan
12
6
38
57
20
Tajikistan
9
7
113
59
48
Turkmenistan
29
1
3
Uzbekistan
12
0
823
15
338
Subregional funding
0
84
1
South-East Asia
157
53
5
2,905
1,057
1,966
Cambodia
7
61
104
340
Indonesia
51
0
1,303
298
821
Lao People’s Democratic Republic
6
28
83
Malaysia
4
19
Myanmar
0
95
Philippines
5
1,304
96
352
Thailand
23
11
14
Timor-Leste
42
0
37
99
Viet Nam
7
18
2
160
165
428
Subregional funding
13
35
3
0
83
25
East and North-East Asia
89
375
8
1,953
105
72
China
30
2
1,899
48
71
Democratic People’s Republic of
Korea
0
1
Mongolia
52
130
1
54
48
Subregional funding
7
245
5
0
8
1
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Multilateral climate funds
Multilateral development banks
Bilateral donors
Grants
Loans
Grants
Loans
Grants
Loans
The Pacific
97
178
157
908
Fiji
0
1
49
60
Kiribati
11
47
Marshall Islands
6
18
16
Micronesia (Federated States of)
22
40
10
Nauru
6
Niue
5
3
Palau
0
1
8
Papua New Guinea
26
84
305
Samoa
0
42
Solomon Islands
6
3
1
124
Tonga
9
62
27
Tuvalu
6
18
6
Vanuatu
3
29
23
85
Subregional funding
2
6
167
Totals
613
623
461
16,124
3,788
9,758
Regional funding
4
9
0
221
32
Source: ESCAP based on OECD, Climate Change: OECD DAC External Development Finance Statistics.88
Notes: The table shows climate-related development finance in current United States dollars committed by bilateral and multilateral
sources in 2021. Flows from bilateral donors are provided directly to an aid recipient country. A bilateral donor’s contribution is
considered multilateral if it is pooled with other contributions and disbursed by multilateral development banks or multilateral climate
funds. The data in the table covers 96.3 per cent of the climate finance flows to the region in 2021. For simplicity, flows from private
philanthropies and flows in the form of equity and mezzanine financing instruments from all sources, which contribute the remaining 3.7
per cent of the total, are not shown in the table. Regional and subregional funding is funding to the region or a specific subregion that
does not identify the recipient countries.
In total, Asia and the Pacific received 183.7billioninclimatefinancebetween2016and2021fromallsuchsources.Thetwomainsourcesweremultilateraldevelopmentbanks(88.3 billion) and bilateral donors
(86.8billion),followedbymultilateralclimatefunds(7.5 billion). In addition, private philanthropies
contributed 1.1billionduringthisperiod.AscanbeseeninFigure10,PanelA,climatefinanceincreasedfrom24.2 billion in 2016 to 38.2billionin2020,butitfellto32.6 billion in 2021. The 5.6billiondropinclimatefinancebetween2020and2021wasduetobilateraldonors,whodecreasedtheirflowstotheregionby6.2 billion, while multilateral climate funds and
multilateral development banks increased their
financing slightly. A possible explanation of the drop in
Official Development Assistance (ODA) channelled to
climate finance in 2021 could be the increase in global
ODA allocations towards COVID-19 related activities,
from 12billionin2020to21.9 billion in 2021.89
The increase in climate finance between 2016 and 2021
has been largest for adaptation finance, 101 per cent
from 6.2billionin2016to12.5 billion in 2021.
Finance for mitigation increased by 11 per cent, from
16.7billionin2016to18.5 billion in 2021. As
percentage of total climate finance from such sources,
adaptation increased from 25.6 per cent in 2016 to 38.2
per cent in 2021 (Figure 2.10, Panel A).
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Much of the financing has been debt creating, which is a
concern when countries are already experiencing
increased indebtedness. With regards to financing
instruments, 82.8 per cent of the flows during 2016-
2021 consisted of debt finance, 15.6 per cent consisted
of grants, and 1.6 per cent consisted of other
instruments such as equity and mezzanine financing.90
The share of debt is higher for mitigation projects (90
per cent) and lowest for projects where there is an
overlap of mitigation and adaptation (37 per cent). (See
Figure 2.10, Panel B).
Over 70 per cent of the climate finance received by the
region between 2016 and 2021 was concentrated in four
sectors: Transport & Storage (29.6 per cent of total
climate finance flows in 2016-2021), Energy (22.7 per
cent), Water Supply & Sanitation (9.9 per cent), and
Agriculture, Forestry, Fishing (8.9 per cent). Within the
transport sector, rail transport was the main subsector
(18 per cent of total climate finance flows in 2016-
2021), followed by road transport (6 per cent), and
Transport policy and administrative management (3.7
per cent). Within energy, the main subsectors were
Electric power transmission and distribution (5 per
cent), Energy policy and administrative management (4
per cent), Energy generation, renewable sources -
multiple technologies (3 per cent), Hydro-electric power
plants (2.5 per cent), Solar energy for centralized grids
(1.9 per cent), and Energy conservation and demand-
side efficiency (1.3 per cent).
Figure 2.10: Climate finance to Asia and the Pacific over time and by financing instrument.
Source: ESCAP based on data from OECD91.
Note: The figures show total climate finance measured in current United States dollars committed by developed countries from
multilateral climate funds, MDBs, and bilateral sources.
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Achieving climate goals requires developing countries to
go beyond reliance on promised funding from developed
countries. It is encouraging that publicly sourced
climate finance to Asia-Pacific developing countries is
on the rise. However, even if these flows continue
growing at an annual rate of 12 per cent, as they did
between 2016 and 2020, the amounts will not suffice to
cover the large financial gaps faced by countries in the
region for the transition to a low carbon economy, nor
will the funds be enough to meet the investment
required for the energy transition.
The Just Energy Transition
Partnerships
The Just Energy Transition Partnerships (JETPs)
present a promising model of partnership between
policymakers, regulators, donors, and private investors
for the region. While it is not feasible for every country
in the region to participate in a JETP, policymakers can
nonetheless take away several key lessons from the
initiative.
The Indonesia Just Energy Transition Partnership
(JETP) was launched in November 2022. Following the
South Africa model, this is a country platform of
coordinated policies, regulatory improvements,
(anticipated) project pipelines, and financing
commitments that together aim to mobilize 20billionfrom2023to2028toaccelerateajustenergytransition.TenbillionUSdollarsofpublicmoneywillbecontributedbytheInternationalPartnersGroup(IPG)members(France,Germany,theUnitedKingdom,theUnitedStatesofAmerica,andtheEuropeanUnion),andatleast10 billion of private finance will be mobilized
and facilitated by the Glasgow Financial Alliance for Net
Zero (GFANZ) Working Group.
The Viet Nam Just Energy Transition Partnership
launched in December 2022 will rally an initial $15.5
billion of public and private finance over the next three
to five years to support Viet Nam’s green transition.
Initial contributions to Viet Nam’s JETP include $7.75
billion in pledges from the IPG together with the Asian
Development Bank and the International Finance
Corporation. This is supported by a commitment to work
to mobilize and facilitate a matching $7.75 billion in
private investment from an initial set of private financial
institutions coordinated by the Glasgow Financial
Alliance for Net Zero (GFANZ), including: the Bank of
America, Citibank, Deutsche Bank, HSBC, Macquarie
Group, Mizuho Financial Group, MUFG, Prudential PLC,
Shinhan Financial Group, SMBC Group, and Standard
Chartered.
The Indonesia and Viet Nam JETPs provide a model to
the rest of the region to focus their financing strategies.
Their JETPs coordinate national commitments to
peaking emissions, phasing out coal, improving
regulations and ensuring bankable projects for private
finance as well as public finance. In turn, this
commitment and coherence at the national level has
attracted private finance commitments in addition to
donor finance. For the rest of the region’s developing
countries, the model suggests that pragmatically
focusing on coherence and change within a specific
sector can yield results. Strong policy and regulatory
commitment in a specific sector and area signals to
investors that pricing risks around regulatory and policy
uncertainty will likely subside, reducing the cost of
financing (or the “uncertainty premium”).
C. Challenges
This section discusses some of the challenges faced by
governments, particularly in developing countries, to
strengthen the depth, access, efficiency, and stability of
sustainable financial markets; and to bridge the gap by
mobilizing enough sustainable finance to meet national
goals.
The lack of policy coherence by policymakers affects
the amount of sustainable finance flows to countries
and the integrity (standards) of these flows. A lack of
coordinated policymaking between goals, trade-offs,
activities and resources between ministries,
departments, and agencies responsible for designing
and implementing climate-related mandates and
financial sector mandates adversely affects transaction
costs and reduces efficiency. It also negatively drives
risk perceptions about the reliability, predictability, and
stability of the policy and regulatory regime.
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Coherence between policy commitments and
independent regulatory approaches is also essential.
Scaling up green and climate finance involves
transforming not only green and climate finance policies
but also other areas of business and investment
policies, especially with regards to the real economy.
The policy environment exerts a strong influence over
investment decisions, and if the legal and regulatory
system is unclear, contradictory, or creates unintended
barriers, a country is less likely to attract the necessary
climate finance. One example is a country with an
ambitious emission reduction target, but legal and
regulatory frameworks that provide preferential
treatment for fossil fuels. Policymakers thus need to
balance numerous competing policy choices and
regulatory arrangements in many different sectors and
levels of government.
Expertise, skills, and resources are required by
policymakers to access multilateral climate fund
funding. The GCF project approval time, for instance, for
LDCs is often long. In the time span between November
2015 and July 2021, the median time for processing an
application was of 619 days or 21 months. Because
submissions are made quarterly in accordance with the
GCF project submission schedule, this could represent
up to six or seven rounds of reviews of the funding
proposal at the GCF Secretariat and/or from an
Independent Technical Advisory Panel (ITAP). The
shortest approval time for LDC projects was 113 days
(about four months) and the longest was 1,727 days or
58 months. Adaptation projects bore the longest
average time — 22 months compared to 20 months for
mitigation and cross-cutting projects.92
“Public sector of SIDS like Samoa inherently face major human
and technical capacity constraints throughout the project cycle,
from project origination to implementation. The complexity of
the climate finance landscape and the lack of harmonization
among the requirements of multilateral climate funds and
donors further exacerbate this challenge. Improved capabilities,
more predictable and long-term financing can be key to the
development of pipeline projects for potential investments and
access to funding opportunities for SIDS.” – Peseta Noumea
Simi, Chief Executive Officer, Ministry of Foreign Affairs and
Trade of Samoa
The cost of sustainable finance is affected by countries’
sovereign credit ratings. Sovereign credit ratings are
usually a combination of domestic economic risk, public
finance risk, external economic risk, financial stability
risk and environmental, and social and governance risk.
We see this in Table 2.4 below, which shows that
investment-grade sovereign ratings are correlated with
much larger volumes of GSS+ bond issuance. Such
bonds enjoy a cheaper cost of financing for green
projects and can be issued in larger volumes, given the
lower debt servicing costs. However, sustainable
finance instruments can still be issued successfully
without investment-grade ratings. As Table 2.4 also
shows, countries with non-investment grade sovereign
ratings have also successfully issued GSS+ bonds. The
volumes are still low, but they signal that there exists
appetite for such instruments.
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Table 2.4: GSS+ bond issuance and sovereign/jurisdiction credit ratings.
Country / Economy
GSS+ bond issuance, 2015-2022
(Millions of United States dollar)
Sovereign/Jurisdiction
Corporate
Sovereign/Jurisdiction
and corporate
Year of first issuance between
2015-2022 and type
Investment grade
China
280,759
280,759
2015 (Green)
Japan
94,536
94,536
2015 (Green)
Republic of Korea
1,315
71,959
73,274
2016 (Green)
Hong Kong, China
9,817
15,349
25,166
2015 (Green)
Australia
22,163
22,163
2015 (Green)
India
22,144
22,144
2015 (Green)
Singapore
1,737
8,778
10,516
2017 (Green)
Philippines
4,309
6,146
10,455
2016 (Green)
Indonesia
6,468
3,892
10,361
2018 (Green)
Thailand
3,382
6,169
9,552
2018 (Sustainability)
Malaysia
2,269
2,805
5,074
2017 (Green)
New Zealand
1,828
2,234
4,062
2016 (Green)
Non-investment grade
Uzbekistan
869
869
2021 (Sustainability)
Georgia
830
830
2020 (Green)
Türkiye
700
700
2016 (Sustainability)
Viet Nam
625
625
2021 (Green)
Armenia
64
64
2020 (Green)
Fiji
54
54
2017 (Green)
Bangladesh
17
17
2021 (Green)
Kazakhstan
0.4
0.4
2020 (Green)
Pakistan93
-
2021 (Green)
Non-rated
Russian Federation
117
117
2018 (Green)
Total
32,050
539,289
Number of issuances
45
2,212
Source: ESCAP based on Environmental Finance Data, accessed on 4 April 2023 and Trading Economics, accessed on 26 February 2023.
Note: Corporate refers to both financial and non-financial corporations. Issuances by government agencies and municipality are not
included.
Despite an increasing demand for green projects, the
paucity of bankable projects in national pipelines is a
serious issue. For governments, building a pipeline of
projects that meet the bankability needs of the relevant
investors in terms of climate finance is often a
challenging process. Outreach to the relevant investors
is also challenging. From a returns perspective, green
projects (particularly in adaptation) may involve high
upfront costs and a longer term for payouts. Pricing may
be better in non-green asset classes, though that may
not always be the case. However, risks in the interim
period between costs being paid upfront and returns
materializing later are still challenging to financiers.
These include risks at the country level, sector level,
borrower/project developer level, and increasingly,
related to external shocks. Untested regulatory
environments and green business models can also
create liabilities for first movers. In this instance, the
global discussion on reform within multilateral
development banks can help boost financing for riskier
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projects. But building climate finance or green pipelines
is nonetheless a whole-of-government process due to
the need to coordinate standards, sectors, and MDB and
investor outreach.
D. Recommendations
Based on the thorough discussion of trends,
opportunities, and challenges presented above, this
section puts forward a series of recommendations for
governments and policymakers. While they are not
exhaustive, they nevertheless present the most critical
areas for policymakers to begin as soon as possible. In
addition, these recommendations (which are set out in
detail here) have been aggregated into our final set of
ten principles of action for the region to bridge the
sustainable finance gap in Asia and the Pacific, set
forward in the final chapter.
▪ Develop effective and coherent NDC financing
strategies with interim 2030 and 2040 targets, and
clear resource mobilization plans. Efforts should
be spearheaded by authorities with clear
mandates. This would clearly signal to investors,
businesses, and project developers that
governments are committed to change. While most
governments have submitted NDCs, many of them
do not include financial needs – ideally broken
down by industry, sector, use, and area. Such
needs should ideally be identified in the form of a
national level NDC financing strategy which maps
climate mitigation and adaptation projects or
programs with expected/planned sources of
government finance, international financial
assistance, and private finance. Large ballpark
financial figures are currently included in some
NDC action plans, but without a clear methodology
that depicts how such figures were arrived at, it is
difficult for countries to begin mobilizing the
finance necessary from the best sources. What is
needed are defined investment priorities,
concomitant policy and regulatory improvements
related to those priorities, investor, DFI and MDB
outreach plans, including to potential international
donors, and a list of properly vetted projects that
are matched to possible financing sources. This
coherent and cohesive process itself requires
government investment in building capacity, data,
and systems.
The process would similarly include an
evaluation of regulatory and policy barriers to
enabling private sector investment in
adaptation.94 For example, in China (the largest
green bond market in the world), such a regime
is implemented with a focus on inter-ministerial,
central-local and international collaborations,
centralized policymaking, and the alignment of
green goals with performance assessments of
local officials.95 Interestingly, evidence reviewing
current financing strategies suggests that “it is
not clear that a strategy that includes detailed
costing of adaptation actions is more effective
than a high-level strategy that builds awareness
and high-level political buy-in.”96
Consequently, any financing strategy should be
broader than merely seeking resources from
developed countries. Improvements to the
enabling environment encourage increased
private sector investment. The political economy
of sustainable financing within a country should
also be considered, especially regarding
domestic investors and businesses. Finally, the
preparation of the strategy should involve private
finance from the beginning, even though this
compounds multi-stakeholder coordination
challenges. Such involvement is key for the lead
ministry in charge of NDC planning to translate
the country’s needs and opportunities into a
national priority list of feasible investments.
"When Armenia presented its NDCs, it was followed by a
concrete implementation plan that highlighted potential sources
for financing the NDCs and an annual financial plan, particularly
focusing on energy sector projects." - Erik Grigoryan, former
Minister of Environment, Armenia.
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▪ Encourage the financial sector and the private
sector to proactively plan for the net zero
transition, ahead of 2030 or 2050. This will also
increase local currency financing for the net zero
transition. As part of the above, the whole-of-
society transformation that needs to be
accelerated can kick off with governments
requiring the financial and private sectors to begin
disclosing their transition planning strategies.
Governments also need to call on the financial
industry (and therefore their underlying borrowers
the private sector) to set strategies and targets
that progressively align financial portfolios with
the NDCs. Of relevance to governments and other
public sector stakeholders is to ensure that any
legislation passed (particularly as it pertains to
corporate transparency and disclosure) is
supportive of emerging international sustainability
standards. As part of this approach, governments
should also encourage the use of central net zero
data platforms to overcome critical data gaps,
such as Singapore is doing through the
forthcoming Project Greenprint.97 Project
Greenprint is a blockchain-enabled, trusted,
common platform to manage and access ESG data
and to meet disclosure requirements locally and
internationally. It promotes data consistency and
clarity in disclosures and enables comparability of
data.
▪ Consider subsidizing the costs of measurement
and disclosures in green or sustainable finance, to
whatever extent possible, as part of the transition.
For example, the Monetary Authority of
Singapore’s sustainable bond grant scheme
offsets up to SGD 100,000 (approximately
$73,890) of additional expenses for external
reviews of eligible green, social, sustainability and
sustainability-linked bonds and promotes the
adoption of internationally accepted standards.
This has led to an increase in green issuance in
Singapore both by sovereigns and corporates.
Various, relatively small, incentives like these have
been used in Thailand, Indonesia, and China in
different forms such as discounts on pricing,
grants, tax breaks, tax credits, and other
incentives. While this may not be appropriate for
every economy, nevertheless their availability may
be useful to launch new markets and reduce first-
mover disadvantages.
▪ Ensure development of a pipeline of bankable
projects. The pipeline of projects needs to fit the
volumes, scales, and risk-return profiles that
interest multilateral climate funds, multilateral
development banks, development financial
institutions, and private investors. Solving this is a
complex issue and must include bringing relevant
investors onboard for advice at early stages,
despite the increased coordination costs faced by
investors. Private investors could in fact benefit by
not having to engage in the high transaction costs
related to identifying, developing, and financing
low-carbon bankable projects. Missing policy or
regulation in new sectors — such as renewable
energy or green technologies — further hinders the
development of such projects, where again,
governments can play a key role to develop them.
Additionally, governments may need proper
emissions-based assessments, disaster impact
assessments and nature-based assessments to be
able to prioritize projects. This activity also
requires significant capacity building within
ministries around the identification of such
projects. For example, the OECD’s review of green
infrastructure project pipelines98 highlights six
essential factors to attract investment to projects
in the pipelines. We underscore three of them for
all-sector green project pipelines:
Ensuring authority and ownership of the green
bankable project pipeline by ministries,
departments, or agencies with adequate ability to
co-ordinate public and private actors, signal
investment needs, translate national climate
commitments into prioritizing green projects, and
capable of outreach to multilateral climate funds
and private finance actors.
Ensuring that the right priorities are translated
through the pipeline is critical to build project
pipeline at the scale and rates far beyond current
volumes. Such priorities are not only about which
projects will reduce emissions the fastest but
should also reflect an understanding of the
commercial risks, potential returns, requirement
of heavy upfront capital expenditure and contract
enforcement risks.
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Ensuring transparency in how project pipelines
have been identified and using clear data and
criteria to specify why projects have entered the
pipelines. According to the Organisation for
Economic Co-operation and Development
(OECD),99 improved transparency equips
investors with information to justify subsequent
commitments and positions in pipelines, and to
develop exit strategies.
▪ Expand the role of national development banks, as
limited public capital must be deployed in a
manner that increasingly catalyzes private finance.
National Development Banks are a key element of
financial infrastructure in many emerging markets.
The Addis Ababa Action Agenda emphasizes the
fundamental role that well-functioning national and
regional development banks can play in financing
sustainable development. National banks play a
countercyclical role, especially during crises. The
Addis Agenda specifically calls on national and
regional development banks to expand their
contributions to areas important for sustainable
development. It also urges relevant international
public and private actors to support such banks in
developing countries. They are particularly
effective at accessing concessional financial flows
(either through directed lending or private
placement of bonds) from MDBs and bilateral DFIs
and intermediating them into the real economy,
either directly or as an apex lender. “Greening” an
existing national DFI or creating a new specialist
entity is a vital underpinning of continued access
to concessional finance. MDBs and bilateral DFIs
increasingly expect credit to be directed towards
sustainable economic development, and for
borrowers to demonstrate this through enhanced
ESG reporting and disclosure.
▪ Advocate for MDBs and bilateral development
financial institutions to increase local currency
lending. The global macroeconomic stability
concerns have again highlighted the profound
problems caused by the predominance of hard
currency lending by MDBs and bilateral
development finance institutions (DFIs). National
DFIs that previously borrowed cheaply in hard
currency are now struggling to manage these
dollar or euro liabilities against a loan book
dominated by local currency assets. The same
challenge affects the interface with MDBs and
DFIs looking to finance the commercial banking
sectors directly. The appetite for hard currency
lending during periods of currency depreciations in
the region has changed. As the global discussion
underway is tilting towards, MDBs and bilateral
DFIs need to explore new modalities for helping
borrowers absorb these exchange rate risks.
▪ Invest resources to build the necessary skills,
capacities, and data collection systems to bridge
the sustainable finance gap. For example, given
the substantial new commitments by donors100 to
multilateral climate funds, eligible governments of
developing countries should invest in improving
their capabilities to access the funds, particularly
when the transaction costs are worth the benefits
of the projects. Many countries also have
considerable room to improve their access to the
UNFCCC Financial Mechanism in the form of the
Green Climate Fund (GCF) and the Global
Environment Facility (GEF). Development of a
robust pipeline of project opportunities at a
national level is a critical success factor, as is the
accreditation of entities (particularly financial
institutions) that will curate projects and apply for
funding through the UNFCCC Financial
Mechanism. Figure 11 shows where countries have
already successfully applied to the GEF and GCF,
and where countries have been less successful or
not yet been successful, representing a set of
countries that would benefit from further
resources to strengthen capacities.
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Figure 2.11: Access to GEF and GCF climate finance in Asia and the Pacific.
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Source: ESCAP based on the World Bank Data, GCF Open Data and GEF Projects Database.101,102
Note: The figure shows the sum of GEF and GCF total financing at country level and excludes regional programmes. Total GCF financing
amount is calculated as the sum of Readiness Grants Financing and Funded Activities Financing. GEF financing corresponds to the sum of
project financing approved at country level. It includes grants and other types of financing under the following instruments - CBIT Trust
Fund, GEF Trust Fund, LDC Fund, Multi Trust Fund, NPIF, and the Special Climate Change Fund. Per capita financing is calculated based on
2021 population data.
▪ New climate finance partnerships, inspired by the
JETP model, should be considered. These
partnerships can bring together commitments to
transform the real economy by policymakers,
regulatory reform, donor capital, and private
finance. For example, in the energy sector, long-
term commitments to financing energy transitions
rely on the presence of comprehensive national
planning strategies that include energy efficiency,
electrification of end uses, clean power, and clean
fuels. Such integrated energy strategies are
lacking in many Asia-Pacific countries, but the
JETPs move decisively towards such integration.
Several cross-cutting barriers also inhibit clean
energy project development. These include lack of
carbon pricing and inefficient fossil fuel subsidies,
which can tilt the economic playing field against
clean energy. Inadequate regulatory frameworks,
including onerous permitting and licensing
processes, can exacerbate risks in early-stage
clean energy project development, for which
funding is particularly constrained. Again, these
barriers to climate action are anticipated to be
overcome to some extent by the JETPs.
▪ Adopt a conducive taxation regime towards the
net-zero-transition, and further align policy
coherence. Perhaps the most important role that
governments can play is to incentivize sustainable
economic development. Ultimately, financial
institutions will direct credit on the balance of risk
versus reward. Governments can reduce the risks
of enterprises adopting sustainable business and
operating models by creating fiscal incentives that
support extra financial headroom for financing.
This approach can be controversial with fiscal
planners that are rightly wary of undermining
public finances. Implementing well-aligned tax
incentives or deterrents can enable investors to
achieve their threshold of investment (referred to
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as the “hurdle rate” or the minimum rate of return
on a project or investment required by an investor)
— thus enabling more private finance.
▪ A combination of policy and regulatory
improvement and investor participation from the
inception of projects is what is needed in any
sector, not just the energy transition, to overcome
the current mismatch between the demand and
supply of private finance for the net zero
transition. For example, anecdotally, some private
investors in energy transition projects worldwide
find that they have been brought on too late and
are expected to co-finance projects that have been
pre-designed in too restrictive a fashion. In some
cases, the best returns within the project have
already been dedicated towards one investor
(often an MDB), leaving other private investors
with less attractive returns within their share of the
project and reducing the volume of financing
available. If private investors are brought onboard
at inception together with other investors to
communicate their preferences on risk, return,
tenors, corporate governance, ESG standards,
climate and social impact, domestic and
international regulatory compliance, legal clauses,
dispute resolution and other aspects of the
transaction; then truly investment-ready pipelines
can be built faster and better.
Conclusion
While there is no one-size-fits all policy for governments
in Asia and the Pacific, all countries face the challenge
of bridging the sustainable finance gap. Regional
cooperation on data, cross-border challenges, and
aligning investment norms through common taxonomies
or common regulatory approaches can work to level the
playing field between countries and reduce arbitraging
opportunities. Importantly, regional cooperation allows
less developed countries to learn from the lessons of
other policymakers and share best practices relevant to
the region’s unique context.
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3. WHAT CAN
REGULATORS DO?
A. Introduction
A well-functioning sustainable financial system has
depth, efficiency, access, and stability. A rich diversity
of instruments is available to meet the demands of
investors amid a fast-flowing current of exchange. As a
Bank of Thailand regulator notes, “An efficient financial
market is one with proper depth and breadth. That is, on
the supply side there is a wide range of financial
instruments, offering choices of issuers, credit risks,
etc. to satisfy all classes of asset demand. On the
demand side, there has to be sizable investment
demand from various types of investors, with different
risk-return appetites. Also, a good diversity among
issuers and investors usually brings about a good mix of
market views, leading to an active exchange of financial
assets. A highly liquid financial market as such is able
to accommodate large and varied issuance of financial
instruments with minimum price effect. Here, financial
instruments can be quickly exchanged at reasonable
cost. [An] efficient clearing and settlement system is a
key supporting factor that helps lower transaction
cost.”103
Sustainable finance requires the participation of far
more regulatory bodies than just the financial
regulators. To date, much of the fast-changing
regulatory advances seen regionally and globally have
been driven by central banks and securities and
exchange commissions. While this report concentrates
on the role of financial regulators, sustainable or green
finance demands significant coordination and
coherence with other regulators. For example,
environmental protection agencies issue the permits
that allow investments to go ahead. Departments of
industries regulate the fiduciary duties of directors of
companies,104 especially in a context where litigation
that challenges companies’ contribution to climate
change is increasingly common. Competition and
consumer protection regulators are also involved,
through implementing guardrails against the potential
greenwashing of products and services. Real economy
regulators, such as energy regulators with science-
based targets involving emissions reductions, or
national electricity boards that make offtake
agreements with set prices in renewable energy,
similarly play a profound role in financing the energy
transition. New green technologies, such as green
hydrogen, may also involve regulators for carbon
trading, the greenhouse gas quota system, or to enforce
other compliance requirements around the carbon-
intensity of production of steel, fertilizer, and heavy
transportation. While financial regulators’ decisions
undoubtedly influence investment in sustainable
finance, and are at the heart of the regulatory debate,
they are unquestionably not the “only game in town”
when it comes to sustainable finance.
B. What is the role of
financial regulators in
sustainable finance?
There is currently significant debate about the extent
and substance of the role of financial regulators. On the
one hand there has been accelerating momentum to
develop sustainable finance taxonomies; on the other
hand, varied definitions, and degrees of implementation
throughout the region creates the risk of arbitraging
opportunities and disadvantaging actors with less
capacity. Consistency remains a work in progress.
Nevertheless, to varying degrees across the region,
regulators have adopted either piecemeal or in full the
following regulatory roles related to sustainable finance
(both Track 1 and Track 2):
▪ Ensuring that financial stability, which is affected
by climate change and biodiversity loss, is
maintained in the system through macroprudential
policies105
▪ Ensuring adequate microprudential supervision106
for the safety and soundness of financial
institutions and ensuring that capital by financial
institutions is sustainably managed
▪ Shifting capital towards low-carbon investments
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▪ Aligning national sustainable finance regulation
with international norms and standards
▪ Supporting policy priorities as articulated by
member States in the Paris Agreement and related
commitments
▪ Confirming that sufficient information and
capacities for the above are available throughout
the financial system
In the following section, the report discusses trends and
opportunities in regulatory roles, noting that this is an
extremely dynamic field and by time of publication the
landscape will have evolved significantly.
C. Trends and opportunities
Integrating climate-related
financial risks into macroprudential
stability assessments remains
challenging.
It is now widely accepted that physical risks and
transition risks undermine the stability of the financial
system. Physical risks refer to the risks arising from
weather-related events (rising sea levels, floods, heat)
which affect financial portfolios and can be jarring for
financial stability. Transition risks occur when
economies move towards a less polluting, greener
economy. Such transitions could mean that some
sectors of the economy face big shifts in asset values or
higher costs of doing business.107
The “tragedy of the horizon” poses significant additional
challenges to maintaining financial stability. Mark
Carney, former governor of the Bank of England and
Chairman of the Financial Stability Board, coined the
term “tragedy of the horizon” to refer to the decade-long
forecast used by central banks to manage monetary
policy and financial stability. However, the catastrophic
impacts of climate change will be felt beyond the
traditional horizons of most actors, with actions
undertaken today resulting in less costly adjustment.108
As Mark Carney noted, the risks to financial stability will
be minimised if the transition begins early and follows a
predictable path, thereby helping the market anticipate
the transition to a 2 degree world.109
In addition, physical and transition risks are prone to
being experienced as “green swans”. According to the
Bank of International Settlements, a ‘green swan’ is a
climate black swan, named after Nassim Nicholas
Taleb’s popular concept for events with major effects
that come as a surprise and are recognised only in
hindsight. The physical and transition risks of climate
change are characterized by deep uncertainty and
nonlinearity, so their chances of occurring are not
reflected in past data. These unknown unknowns make
traditional approaches to risk management largely
irrelevant.110 This is an indication of the challenges that
lie ahead — not only for central banks — but for the
entire financial system to assess and incorporate
climate-related risks into operations.
Climate risks translate into credit, market, underwriting,
operational, and liquidity risks. Figure 3.1 shows the
types and complexity of physical and transition risks,
the latter of which are particularly difficult to forecast.
Along with transmission channels, sources of variability,
and five types of threats – to credit systems, the market,
underwriting, operations, and liquidity — traditional
methods of financial risk management are at a loss in a
climate stress context. This profoundly affects the
traditional methods of managing macro and
microprudential risks in the region. It is therefore
equally, if not more, important that individual banks and
businesses acting in the financial system mainstream
the diagnosis, assessment, and planning into their
portfolios and operations. This will in turn help central
banks perform their supervisory duties well and to
conduct stress-tests under accurate parameters.
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Figure 3.1: Transmission channels from climate risks to financial risks.
Source: NGFS (2021a).
Assessing risk channels, given their complexities,
continues to be extremely challenging. According to
recent research published at the Journal of Financial
Regulation, difficulties in stress testing are exacerbated
by their long-time horizon (generally 30 years) and
radical uncertainty about possible climate pathways and
their probability distribution. Their unprecedented and
potentially catastrophic consequences mean that well-
established risk management tools in the financial
industry, such as Value-at-Risk models and stress tests,
cannot readily be used. Exploratory scenario-based
impact assessments must be used instead. In addition,
if climate-related risks materialize, they would affect the
economy and the financial system as a whole and may
be amplified by the pro-cyclical behaviour of market
participants; the self-reinforcing reductions in bank
lending and insurance provision; the bank-sovereign
nexus;111 the feedback loops with the real economy; and
network and cross-border effects.112
In addition, the ability to perform appropriate climate-
based stress testing by regulators is contingent on the
data quality and capabilities of regulators. The Network
for Greening the Financial System has made significant
advances to develop climate-based scenarios for
regulators which, due to the challenges and costs of
creating such scenarios, are beyond most individual
institutions. The first iteration of NGFS scenarios was
released in 2020. In Asia and the Pacific, four central
banks as of November 2022 concluded a first exercise
in stress-testing based on the three NGFS scenarios
known as the “hothouse” scenario, the “disorderly
transition” scenario, and the “orderly transition”
scenario, as shown in Figure 3.2. These scenarios imply
significant per cent changes in GDP from physical and
transition risks as seen in Panel 2 of Figure 3.2. For
example, the delayed transition scenario implies a close
to 5 per cent reduction in GDP globally by 2050 due to
the manifestation of both physical and transition risks.
While regulators in the region are increasingly
conducting climate stress-testing, gaps in data and
abilities remains a major hurdle. The four regulators who
have already conducted NGFS stress testing at time of
writing include: the Monetary Authority of Singapore,
People’s Bank of China, Japan Financial Services
Agency/Bank of Japan, and Bangko Sentral ng Pilipinas.
The Reserve Bank of India, Bank Indonesia, Bank of
Korea, Bank Negara Malaysia, and the National Bank of
Georgia are five additional central banks that are in the
midst of conducting the scenario exercise or planning to
do so.113 According to the NGFS, in light of challenges
posed by data gaps and methodological uncertainties,
no members as of yet have envisaged calibrating
prudential policies, such as capital requirements, on the
basis of their exercise.114
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Figure 3.2: Alternative scenarios and impacts of
financial risks due to climate-related risks.
Source: NGFS (2021a)
Ensuring financial stability also
hinges upon climate and nature-
related disclosures and data from
individual financial institutions.
Supervisory authorities report the lack of granular and
sectoral counterparty-level emissions data, as well as a
dearth of consistent and comparable data reporting
standards for counterparties and financial institutions,
as a major challenge.115 This is echoed by the Financial
Stability Board,116 which reports that “the lack of
sufficiently consistent, comparable, granular and
reliable climate data reported by financial institutions is
one main challenge for authorities in the development of
supervisory and regulatory approaches to climate-
related risks. Areas where data contribute to identifying
exposures and understanding the impacts from climate-
related risks include: sufficiently granular data on
sectors or economic activities that are sensitive,
vulnerable or exposed to physical, transition and liability
risks; financial institutions’ exposures to such sectors or
economic activities; geographical location of financial
institutions’ exposures most prone to physical risk; and
financial institutions’ and their counterparties’ reporting
of carbon-related metrics, including Scope 1, 2, and 3
Greenhouse Gas (GHG) emissions.”117 Figure 3.3 below
is an analysis118 of more than 2,000 companies on 22
stock exchanges in G20 countries, and shows the top
100 Scope 1 emissions data. Such data allows capital
markets regulators to work with issuers to take well-
calibrated and orderly actions towards the net-zero
transition.
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Figure 3.3: Scope 1 emissions of the top 100 issuers by market.
Source: Miller, and others (2021).
Note: the figure shows the analysis of the scope 1 emissions of the top 100 issuers by market capitalization listed on each of the 22
exchanges in G20 countries.
As outlined by the Bank of England in 2015, and is worth
being reminded of, data is required to be consistent,
comparable, reliable, clear and efficient. This means
that data should be consistent in scope and objective
across the relevant industries and sectors.
Comparable means it should allow investors to assess
peers and aggregate risks. Reliable means that it should
ensure that users can trust the data. Clear means that it
should be presented in a way that makes complex
information understandable. Efficient means that it
should minimize costs and burdens while maximizing
benefits. Convergence in standards across jurisdictions
ensures comparability regarding the quality and scope
of data.
This is not yet the case. Standards and frameworks are
rapidly fluctuating and improving for the better, but it
remains widely acknowledged that current sustainable
finance data disclosure frameworks do not (yet) meet
these objectives — impeding uptake and application.
Furthermore, the availability of quality data is critical to
set appropriate science-based targets and benchmarks
for future pathways of corporates, financial institutions,
and sectors. However, there are reasons to be optimistic
about the state of data for the sake of sustainable
finance. The International Sustainability Standards
Board (ISSB) plans to streamline sustainability
disclosures through its 2023 standard-setting work; the
EU’s Sustainable Financial Disclosure Regulation will
apply to all EU capital investing in the region; and the
upcoming United States Securities and Exchange
disclosure requirements will modernize reporting
structures. We hope that sustainability and green
disclosures will increasingly become consistent, clear,
and comparable.
In the meantime, voluntary international climate-related
disclosures to support regulators with the right
information is increasing by leaps and bounds.
According to the Taskforce on Climate Related Financial
Disclosures (TCFD),119 in its fifth annual TCFD status
report in December 2022, a survey of asset owners and
managers found that more than 60 per cent of managers
and 75 per cent of owners report climate-related
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information to their clients and beneficiaries. Nearly 50
per cent of asset managers and 75 per cent of asset
owners120 disclosed information aligned with at least
five of the 11 recommended disclosures. In addition,
participation in climate-related data disclosures through
financial filings or annual reports (including integrated
reports) surged from less than half of companies (45
per cent) in 2017 to more than 70 per cent of companies
in 2021.121 This clear hike in disclosures is reflected
below in Figure 3.4.
Figure 3.4: Implementation of the TCFD
recommendations and use of climate-related
disclosures.
Source: FSB (2022b).
Asia and the Pacific is the second leading region for
climate-related financial disclosures, after Europe.
According to TCFD, more than 4,227 organizations have
become supporters of the TCFD recommendations as of
February 2023, a number which has steadily risen since
the recommendations were first published in 2017.
Supporters include upwards of 1,500 financial
institutions, responsible for 217trillioninassets.TCFDsupportersnowspan99countriesandnearlyallsectorsoftheeconomy,withacombinedmarketcapitalizationofmorethan26 trillion.122 Asia-Pacific organizations
account for 46 per cent of this number (1,956) – of
which 792 organizations became supporters between
2022 and February 2023 (40 per cent of the total for the
Asia-Pacific region). Figure 5 below shows the
distribution of sectors and countries where companies
are following TCFD disclosure requirements. Of these,
all regions have significantly broadened their levels of
disclosure over the past three years. While the number
of companies (1,956) is still a tiny proportion of all the
large companies in Asia and the Pacific,123 growing
adoption of the practice of disclosures is nonetheless a
positive trend that needs to be encouraged further.
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Figure 3.5: Number of organizations in Asia and the Pacific that have declared support for TCFD recommendations.
Source: TCFD124.
Note: The list of TCFD supporters includes organizations that have publicly declared support for the TCFD and its recommendations,
demonstrating that they are taking action to build a more resilient financial system through climate-related disclosure. TFCD supporters
include private companies, industry associations, banks, credit rating agencies, central banks, stock exchanges, government agencies,
and other types of organizations.
Finally, while climate-related disclosures are gaining
momentum, nature-related disclosures have yet to
become mainstream. The Taskforce on Nature-Related
Disclosures has published a draft framework125 to bring
clarity and methodological guidance to assessments of
nature-related dependencies, impacts, risks, and
opportunities. Like climate-related disclosures, such
disclosures should be in line with country commitments
within the Kunming-Montreal Global Biodiversity
Framework. As an indication for regulators and private
finance in the region, Table 3.1 below shows the
preliminary scope and possible extent of the
recommended nature-related disclosures.
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Table 3.1: The TNFD revised draft nature-related disclosure recommendations.
Source: TNFD (2022).
TNFD nature-related disclosure recommendations
Governance
Strategy
Risk & impact management
Metrics & target
Disclose the
organization’s governance
around nature-related
dependencies, impacts,
risks and opportunities.
Disclose the actual and
potential impacts of
nature-related risks and
opportunities on
businesses, strategy, and
financial planning where
such information is
material.
Disclose how the
organization identifies,
assesses, and manages
nature-related dependencies,
impacts, risks, and
opportunities.
Disclose the metrics and
targets used to assess and
manage relevant nature-
related dependencies,
impacts, risks, and
opportunities where such
information is material
Recommended disclosures
A. Describe the board’s
oversight of nature-related
dependencies, impacts,
risks, and opportunities.
A. Describe the nature-
related dependencies,
impacts, risks, and
opportunities the
organization has identified
over the short, medium,
and long term.
A. Describe the
organization’s processes for
identifying and assessing
nature-related dependencies,
impacts, risks, and
opportunities.
A. Disclose the metrics
used by the organization to
assess and manage nature-
related risks, and
opportunities in line with its
strategy and risk
management process.
B. Describe the
management’s role in
assessing and managing
nature-related
dependencies, impacts,
risks, and opportunities.
B. Describe the impact of
nature-related risks, and
opportunities on the
organization’s businesses,
strategy, and financial
planning.
B. Describe the
organization’s processes for
managing nature-related
dependencies, impacts, risks,
and opportunities.
B. Disclose the metrics
used by the organization to
assess and manage direct,
upstream and, if
appropriate, downstream
dependencies and impacts
on nature.
C. Describe the resilience
of the organization’s
strategy, taking into
consideration different
scenarios.
C. Describe how processes
for identifying, assessing,
and managing nature-related
risks are integrated into the
organization’s overall risk
management.
C. Describe the targets
used by the organization to
manage nature-related
dependencies, impacts,
risks, opportunities and
performance against
targets.
D. Describe the
organization’s integrations
with low integrity
ecosystems, high
importance ecosystems
and areas of water stress.
D. Describe the
organization’s approach to
locate the sources of inputs
used to create value that may
generate nature-related
dependencies, impacts, risks,
and opportunities.
D. Describe how targets on
nature and climate are
aligned and contribute to
each other, and any other
trade offs.
E. Describe how
stakeholders, including right-
holders, are engaged by the
organizations in their
assessment and response to
nature-related dependencies,
impacts, risks, and
opportunities.
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Trends in microprudential
supervision of financial institutions
Regulators have developed environmental and social
risk management (ESRM) guidelines for financial
institutions in the region. Many central banks in Asia
and the Pacific, notably in Bangladesh, Nepal, and
Philippines, have taken active steps to develop and roll
out ESRM guidelines for banking sectors and individual
financial institutions. Unlike the voluntary nature of
most roadmaps and taxonomies, ESRM guidelines —
which incorporate policies into institutional banking
processes and procedures — are mandatory. ESRM
strategies are risk management focused, and as such
they do not incorporate science-based targets or focus
on emissions reductions.
In addition to standard ESRM guidelines, there are
increasing calls for financial institutions to formulate
and disclose net-zero transition plans to regulators. The
Taskforce on Climate Related Financial Disclosures
recommended the introduction of climate transition
plans in 2021, which have been further reinforced by the
efforts of the G20 and the Glasgow Financial Alliance for
Net Zero.126 Such transition plans, set forward by both
financial institutions as well as real economy
businesses, differ by jurisdiction. The latest NGFS
stocktake of financial institutions’ transition plans127
relates that there are a range of approaches and
priorities put forth in transition plans. While some
economies have focused on emissions reduction, others
have prioritized sustainable development, enhancing
resilience to climate change, or developing the economy
while keeping emissions low, consistent with
international agreements. This, in turn, changes the
context for expectations of different jurisdictions.
Microprudential authorities will also assess financial
institutions’ safety and soundness during the transition
to a low-emission economy in different ways depending
on the prospects outlined in the plan.
Net zero and biodiversity transition plans are
increasingly called for. The World Wildlife Fund
(WWF)128 further urges central banks, financial
institutions, and actors such as insurers to adopt
credible transition plans, set out clear and actionable
steps to achieve science-based climate and nature
targets, and enable an economy-wide transition towards
sustainability. Transition plans must provide necessary
clarity and guidance to financial market actors and have
clear quantifiable, legally binding climate and
biodiversity goals for 2025, 2030, and 2050. The plans
should include all central banking, financial regulation,
and supervision activities. The WWF asks stakeholders
to ensure that monetary policies and financial regulatory
instruments better reflect the economic cost and
financial risk of “always environmentally harmful”
economic activities, companies, and sectors as these
assets represent the highest financial risks. Financial
institutions lending to companies involved in
environmentally harmful activities should face far higher
capital requirements to account for the long-term risks
involved.
How regulators are supporting
government priorities and shifting
capital to low carbon investments
Regulators play a key role in translating policy
commitments into systematic actions. Every country has
a set of policy commitments and legislation, and they
are sometimes subject to internationally binding
financial regulations or norms. All these provide the
parameters for the national development of sustainable
finance and can be summarized through one or a
combination of the following: sustainable finance
roadmaps, sustainable finance taxonomies, green bond
frameworks, sustainable stock exchanges and/or other
sustainable finance initiatives. These sustainable
finance regulatory approaches for the most part specify
how capital can be deployed towards environmental
objectives and are different from the ESRM and climate
or nature-related risk assessment approaches discussed
above. It is important to note that although roadmaps,
taxonomies, and other sustainable financing
frameworks are usually not binding, they are
nonetheless critical tools to guide the development of
the sustainable finance ecosystem and signal the future
intentions of regulators.
Financial authorities are increasingly producing
sustainable finance roadmaps presenting the pathway
to achieve government targets. For example, in 2014,
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Indonesia’s Financial Services Authority (OJK) produced
a Sustainable Finance Roadmap as a comprehensive
plan for promoting sustainable finance. The roadmap
covered both the medium-term (2015–2019) and the
longer term (2015–2024) plan for the financial services
industry.129 The aim of the roadmap was to promote
sustainable development through key governmental,
industry, and international institutions. Given the
ongoing high demand for energy to support Indonesian
development, the sustainable finance roadmap (led by
the financial regulator) promotes energy conservation,
as well as the funding of new and renewable energy
sources. Other focus areas include agriculture,
processing industries, general infrastructure, and
measures to assist micro-, small- and medium-sized
enterprises. Since July 2017, OJK mandates banks to
develop sustainable finance action plans for sustainable
financing and to issue sustainability reports, as well as
to report their green financing exposures.130
Many countries globally are developing Sustainable
Finance Roadmaps to guide this process. These
roadmaps vary in depth and approach but are typically
understood as something more tangible than pure
strategy — without striving for the detail of an
implementation plan. Most aim to describe a suite of
sequenced tasks and activities, and assign stakeholder
responsibilities, in a way that improves communication
and cooperation between actors. Often the task of
developing a roadmap is spearheaded by regulators, due
to their convening power and thorough appreciation of
their respective franchises – whether banking, capital
markets, or insurance. The list of existing roadmaps in
the region can be seen in Table 3.1 below.
The type and purpose of each country’s sustainable
finance roadmap is different. For example, the Bangko
Sentral ng Pilipinas (BSP)’ Sustainable Finance
Roadmap131 was prepared to a) outline the goals to
support the current initiatives and policies to create a
supportive environment for the widespread adoption of
sustainable finance in the Philippines, b) determine
priority areas and acknowledge the basis for
improvements relating to sustainable finance, c) provide
strategic direction and recommendations to accelerate
sustainable finance and d) provide investment and
policy signals to support the transition to a sustainable
economy. Through this Roadmap, the BSP
communicates its expectations that banks should
disclose their sustainability strategy objectives, risk
appetite, and risk management system in annual
reports. In Singapore, the recent Finance for Net Zero
Action plan announced by the Monetary Authority of
Singapore covers four strategic outcomes around 1)
data, definitions and disclosures, 2) a climate resilient
financial sector (including climate-scenario analysis), 3)
credible transition plans (supporting the adoption of
science-based transition plans by FIs) and 4) green and
transition solutions and markets (including an
expansion of grant schemes totalling SGD15 million, or
more than $11 million, over the next five years till 2028)
to include transition bonds as well as incentives to
encourage the early adoption of entity-level
sustainability disclosures.132
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Table 3.2: Implemented national sustainable finance roadmaps.
Country
Sustainable finance roadmap
Date of issuance
Azerbaijan
Sustainable Finance Roadmap 2023-2026
2023
China
China’s Guidelines for Establishing the Green Financial System
2016
Georgia
Roadmap for Sustainable Finance in Georgia
2019
Indonesia
Sustainable Finance Roadmap Phase II (2021 - 2025)
2014 (Phase I), 2021 (Phase II)
Mongolia
National Sustainable Finance Roadmap
2018 (1st version), 2022 (2nd version)
Philippines
The Philippine Sustainable Finance Roadmap
2021
Singapore
Finance for Net Zero Action Plan
2023
Thailand
Sustainable Finance Initiatives for Thailand
2021
Sri Lanka
Roadmap for Sustainable Finance in Sri Lanka
2019
Source: ESCAP based on IFC and SBFN (2023).
Note: Australia and New Zealand have non-government-led sustainable finance roadmaps.
Box 3.1: Cambodia and ASEAN sustainable finance
roadmaps.
ESCAP is supporting the National Bank of Cambodia in
its development of a Sustainable Finance roadmap to
advance Cambodia's green and social finance agenda.
The roadmap aims to enable Cambodia to deliver on its
climate and sustainable development goals, enhance
Cambodia's financial sector's competitiveness and
resilience, coordinate activities between different
stakeholders, and analyze possible synergies and
tradeoffs in the current financial ecosystem.
In addition, in coordination with partners the Global
Green Growth Institute (GGGI) and the ASEAN
Secretariat, ESCAP is supporting the development of
the ASEAN Green Map, a regional approach focused on
green and climate-related financing aligned with the
ASEAN Secretariat's vision to mobilize finance for the
SDGs in the region. The roadmap will draw together
stakeholder views, international best practices, and
lessons learned. It will identify the challenges
policymakers and market participants face and provide
clear measures to help overcome existing barriers and
assist with concrete steps to enhance green finance,
particularly in ASEAN’s LDC member states.
Furthermore, it will discuss the available opportunities
to mobilize finance to support the environmental
transformation needed in ASEAN to meet the SDGs by
2030.
Box 3.2: Thailand sustainable finance initiatives.
Recognizing the crucial role sustainable economic growth
plays in bringing about better living standards and
inclusive economic development for all, in 2015 Thailand
adopted the United Nations’ 2030 Agenda for Sustainable
Development (consisting of the 17 Sustainable
Development Goals), and, in 2016, committed to the Paris
Agreement to advance its Greenhouse Gas Emissions
reduction by 20 to 25 per cent from the business-as-usual
level by 2030.
The Three Regulators Steering Committee (Bank of
Thailand, the Securities and Exchange Commission, the
Office of the Insurance Commission, and the Ministry of
Finance) is a non-statutory body that provides a regular
platform for the three key financial regulators to discuss
policy issues. Recognizing the importance of the finance
sector to sustainable development, the Three Regulators
Steering Committee formed the Sustainable Finance
Working Group.
On 18 August 2021, the Working Group on Sustainable
Finance jointly published Sustainable Finance Initiatives
for Thailand (known as the Initiatives), with one of their
key work plans being the focus on setting the direction
and framework to drive sustainable finance across the
financial sector.
Source: WG-SF, GBRW Consulting and IFC (2021).
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Green and sustainable finance taxonomies in the region
further help direct investment towards national green
priorities. According to ICMA, a green taxonomy is a
classification system to identify activities or
investments that will move a country towards meeting
specific targets related to priority environmental
objectives. The taxonomy aims to help financial actors
determine which investments can be labelled as green
or sustainable for their jurisdictions. According to the
World Bank,133 taxonomies assist regulators to green the
financial system by a) supporting regulatory
interventions on the taxonomy to encourage banks to
lend to eligible green companies, b) facilitating new
climate or sustainability-related reporting and disclosure
guidelines for financial market actors or enhancing
existing ones, c) measuring financial flows toward
sustainable development priorities at the asset,
portfolio, institutional, and national levels and d)
avoiding reputational risk by preventing “green-
washing”.
Green bond frameworks can be part of taxonomies or
exist separately. In the case of green bond frameworks,
ICMA’s Green Bond Principles (GBP) can be considered
a global standard for issuers. The ASEAN Green Bond
standards are, for example, closely aligned with the
Green Bond Principles. Developing a green bond
framework is a crucial step to prepare for the release of
a green bond by all issuers, including sovereign and
corporate. The framework reveals to investors the
critical elements of any thematic bond issuance. The
core components of the framework include: the
rationale and strategy; use of proceeds, including
eligible project categories and exclusions; evaluation
and selection processes; processes for management of
proceeds; reporting; external reviews; and amendments
to the framework. The framework helps to ensure that
bonds adhere to international best practices and
incorporate high-level oversight to ensure transparency
and accountability. While in general green bond
frameworks should match national green taxonomies,
they can be developed by both sovereign and corporate
issuers without a national taxonomy.
Sustainable finance taxonomies allow regulators to
guide markets based on national priorities. They provide
information to investors to understand whether an
economic activity is sustainable (usually and mostly
meaning environmentally sustainable) and to navigate
the transition to a clear environmental objective. Some
taxonomies have an overarching objective around
climate change mitigation, others on low-emissions
development strategies. In the Russian Federation, for
example, the green finance taxonomy covers both green
and transition activities. It is compatible with recognized
international taxonomies and reflects criteria for
sustainable projects. For transition projects, it includes
projects in hard-to-abate industries substantially
contributing to the Russian Federation’s net zero target.
Across Asia and the Pacific, many countries have
adopted their own individual taxonomies of sustainable
finance. Activities, assets and/or project categories,
such as what the finance is used for, are ranked by
contribution to environmental objectives. For example,
activities could be labelled green, amber, or red, based
on contribution to the environmental objectives of the
taxonomy.
Box 3.3: ESCAP’s work on green bond frameworks
ESCAP is currently supporting three member
countries (Sri Lanka, Cambodia, and Bhutan), to
develop green and sustainability bond frameworks
and build institutional capacity on thematic bond
issuance. In Sri Lanka, collaboration with the Ministry
of Finance and Sri Lanka’s Sustainable Development
Council facilitated the development of a sovereign
green bond framework that was subsequently
approved by Cabinet in May 2023. ESCAP and GGGI
will provide continued support for a second-party
opinion of Sri Lanka’s Green Bond Framework. In
addition, ESCAP is collaborating with Cambodia’s
Ministry of Economy and Finance and GGGI to
contribute to the Sovereign Thematic Bond Issuance
section of Cambodia’s Comprehensive Policy
Framework on the Development of Government
Securities 2023 – 2028 and a subsequent Sustainable
Finance Framework for future thematic bond
issuance. In Bhutan, ESCAP and the Ministry of
Finance of Bhutan conducted a workshop with key
stakeholders at the end of 2022 to create shared
understanding of the best practices and principles of
sovereign thematic bond issuance, which will guide
the future development of Bhutan's Sustainable
Finance Framework, which ESCAP is supporting.
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Figure 3.7: Green and sustainable finance taxonomy development in Asia and the Pacific.
Source: ESCAP
Emerging transition finance taxonomies are charting the
path for financing activities that reduce emissions and
move brown activities towards green activities.
Sustainable finance taxonomies so far have mainly been
green taxonomies that do not, for example, permit the
financing of coal or fossil fuels. However, there is now
increased global recognition that it is essential to
finance transition in hard-to-abate sectors, such as the
phase out of coal or the transition of brown to green
activities as in the transportation sector. The recently
released second version of the ASEAN Taxonomy
includes not only green activities but charts a path for
phasing out brown assets.134 It is a further example of
how taxonomies iterate and evolve as living
classification systems and expand to incorporate
transition objectives as well. According to Sustainable
Fitch, the localized approach of the ASEAN taxonomy to
incorporate the coal phase out as a supported activity (a
world first in taxonomies) is expected to promote more
regional ESG-labelled debt issuances and back the
funding needs for a scalable energy transition.135 The
Indonesian presidency of the G20 in 2022 led to the
formation of a framework on transition finance136 which
guides financial institutions and real economy firms to
identify and understand what constitutes a transition
activity or investment opportunity and reduce the
identification barriers, costs, and transition-washing
risk.
In addition to roadmaps, taxonomies, and green bond
frameworks, some central banks also utilize directed
lending policies towards green objectives. According to
a survey of central banks in the region by the Asian
Development Bank Institute,137 22 per cent (or four) of
18 central bank respondents stated that their institution
currently has a strategic investment mandate or
approach to scale up private investment in low-carbon
sectors. The research cites that to boost green finance
in Bangladesh, banks were instructed to provide
financial assistance to green projects, with a minimum
of 5 per cent of their total loan disbursement or
investment. In addition, banks and financial institutions
were mandated to set up a climate risk fund. As much
as 10 per cent of banks’ and financial institutions’
corporate social responsibility budget must be allocated
to the climate risk fund. Funding can be undertaken
either via the provision of grants or through financing at
lower interest rates. Starting from December 2016,
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banks and financial institutions were instructed to
establish sustainable finance units.138 Similarly, in Viet
Nam, in accordance with the National Green Growth
Strategy and the National Action Plan on Green Growth
between 2014 and 2020, the State Bank of Vietnam
(SBV) has been assigned to lead institutional
improvement and capacity building in the banking sector
for green growth.139 In 2015, the SBV issued Directive
No. 3 to promote green credit growth and incorporate
ESRM into lending operations. Decision No. 1552 is an
action plan for the banking sector to contribute to the
National Green Growth Strategy to 2020.140
Regulators are putting forth green incentives for issuers
and borrowers. The Monetary Authority of Singapore
(MAS) launched the Green and Sustainability-Linked
Loan Grant Scheme (GSLS), to support corporates in
obtaining green and sustainable financing by defraying
up to SGD100,000 ($75,000) of the expenses of
engaging independent service providers to validate the
green and sustainability credentials of the loan. (This
has now been expanded to cover the period from 2023
to 2028 under MAS’ Finance for Net Zero Action Plan).
The Hong Kong Monetary Authority (HKMA) launched
the Green and Sustainable Finance Grant Scheme (GSF)
in its 2021-22 budget to provide subsidies for eligible
bond issuers and loan borrowers to cover their expenses
on bond issuance up to HKD2.5 million (320,000)andexternalreviewservicesuptoHKD800,000(100,000).
To support net-zero goals, the Bank of Japan (BOJ)
introduced a new fund-provisioning measure in 2021
providing funds for investments or loans made by
financial institutions that contribute to addressing
climate change at a zero-interest rate.
Box 3.4: Cambodian Sustainable Bond Accelerator.
While bond issuers in developing markets generally face considerable barriers to issuance, issuers of thematic bonds
(green, social, and sustainability bonds) are further constrained due to the limited awareness and capacities on the side
of issuers as well as high issuance costs. In March 2023, ESCAP, the Global Green Growth Institute, and the Securities
and Exchange Regulator of Cambodia (SERC), in collaboration with the Credit Guarantee and Investment Facility (CGIF)
and GuarantCo, launched the Cambodia Sustainable Bond Accelerator to provide technical assistance and support to
prospective private sector issuers.
Three private-sector bond issuers have been selected and will be provided with support, including developing bond
frameworks, meeting best practices, facilitating post-issuance reporting, and providing co-financing options to decrease
bond issuance costs and investment support. As H.E. Sou Socheat, Director General of the Securities and Exchange
Regulator of Cambodia (SERC), noted, "This is a crucial step towards growing Cambodia's capital market and achieving
our goal of encouraging the use of green, sustainability, and sustainability-linked bonds to aid private sector growth and
sustainable development in Cambodia." Through this support, ESCAP and its partners will be supporting the early stages
of green and sustainable bond issuance in Cambodia.
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There is growing momentum and consensus to
mainstream green regulation in the region. The
International Sustainability Standards Board global
baseline disclosure standards, released in June 2023,
will take a further step towards taxonomy unification
and allow for comparability and interoperability between
taxonomies across the region. Between the EU’s
Sustainable Financial Disclosure Regulation, which will
apply to all EU capital investing in the region, the
upcoming United States Securities and Exchange
disclosure requirements, and the strengthening
Environmental and Social Risk Management
frameworks, there is now a remarkably fast-growing
consensus regarding the need for green regulation in the
region. The pressure on policymakers, regulators, and
private finance to mainstream sustainable/green
principles into regular investing, credit decisions,
operations, risk management, and reporting is mounting.
We believe this means sustainable finance taxonomies
will only iterate to become even more clearer and
convergent, especially on environmentally-focused and
science-based definitions. This is important to reduce
high transaction costs, arbitraging opportunities and to
create an efficient and level playing field. In addition,
convergence towards common frameworks is essential
to reduce global emissions. Otherwise, one investor
divesting from brown activities may be replaced by
another investor who does not need to follow similar
guidance in their region, thus not reducing overall global
emissions.
Figure 3.8: Timeline of taxonomy development.
Source: ESCAP adapted from Gondjian and Merle (2021).
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D. Challenges
This section discusses some of the key challenges that
regulators face, as revealed in the discussion of the
trends and opportunities that they face.
Clear, consistent, comparable, reliable, and efficient
data is lacking. One of the key elements required for a
thriving sustainable finance regulatory framework is
data. From the perspective of scaling sustainable
finance, the reporting frameworks for most financial
institutions in the Asia-Pacific region do not capture
flows of sustainable finance. Most reporting to
regulators is rooted in prudential monitoring and
focused on specific sector, product, or risk exposures.
There is little transparency on the ultimate purposes of
funding and how it may either directly or indirectly affect
sustainable development goals. From the viewpoint of
making finance sustainable, few regulators in the Asia-
Pacific region have the complex mix of data required
from financial institutions, government, supranational
agencies, and scientific bodies to effectively model
climate risks. Nor do many have the complex models
required to measure and monitor climate risk within
their portfolios, or the expertise to build or adapt
existing models for use. While the forthcoming
disclosure requirements will apply to companies that fall
within those jurisdictions, for the multitude of FIs and
corporates in Asia and the Pacific to which global
disclosure requirements may not apply, data will
continue to be a challenge.
The costs of collecting, cleaning, verifying, and
publishing data continue to be disproportionately high
for smaller firms and financial institutions. Analyzing
and collating data from both financial institutions and
real economy clients can be expensive, especially where
substantial changes in business and operating models
are called for. Regulators are already reporting concerns
from financial institutions and their industry
associations about the potential cost of implementing
measures to support sustainable finance. They argue
that many customers, particularly SME bank borrowers,
are ill-placed to provide the required data, and the
additional compliance costs will result in reduced
access to finance. There is already a perception
amongst bank subsidiaries with parents in more highly
regulated jurisdictions that the reporting obligations of
the parent may cause them to be uncompetitive.
Establishing a “level playing field” both within a
jurisdiction (and regionally) is important to avoid the
dangers of regulatory arbitrage. While new technologies
and artificial intelligence will naturally reduce the costs
of analysis and monitoring, nevertheless data collection
is an activity that needs to be embedded at all levels of
an organization and requires investment.
Better alignment of taxonomies across countries is
needed to level the playing field. As reported by
Refinitiv,141 a global provider of green finance data, there
are multiple ongoing conversations about taxonomies
around the world. The implications for financial market
participants are significant because most organizations
are global in nature and operate across boundaries.
Having to comply with multiple “definitions” can be
costly, risky, and may not deliver the transparency and
reduced risk of greenwashing objectives underpinning
the regulatory developments. Investors also report142
that for companies operating across multiple Asian
jurisdictions, this multiplicity presents a difficult and
expensive compliance and reporting challenge,
particularly when businesses are already straining under
the weight of increasing anti-financial-crime compliance
burdens (as well as a shortage of expertise to manage
these burdens).
Coordination and coherence between policymakers,
standard-setters and regulators continues to be
essential. In this chapter we have focused mainly on
financial sector regulators, but there are a wide range of
other intermediary actors such as industry associations
(both financial sector and real economy); international
and national standard setting bodies; government
agencies; academic and training institutions; and
scientific and research agencies, amongst others, that
are relevant to sustainable finance products. Tight
coordination between these players is essential for the
effective and timely rendition of government sustainable
finance ambitions into the business and operating
models of financial institutions.
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“We need to convince all our stakeholders about their
engagement and move beyond individual roles and individual
mandates, because at the end of the day this is going to help all
of us to accomplish all of our mandates if we concentrate
properly” T M J Y P Fernando, Deputy Governor, Central Bank of
Sri Lanka.
Only a few regulators have committed to mandatory
green regulation, preferring to rely on voluntary
approaches. For example, banks in Hong Kong, China,
are expected to start making disclosures in line with
guidelines from the international Task Force on Climate-
related Financial Disclosures from mid-2023 and this
will become mandatory in 2025. In December 2021, the
Singapore Exchange (SGX) mandated climate and board
diversity disclosures.
While climate stress testing is underway, regulators are
not currently incorporating nature-related concerns into
their frameworks. The World Wildlife Fund’s 2022
Sustainable Regulation Annual Report evaluates
progress on sustainable financial regulations and
central bank activities in 44 jurisdictions representing
over 88 per cent of the global GDP and has put forward
an ambitious series of recommendations on nature-
based macroprudential supervision. Recommendation
3143 states that central banks should consider climate
and nature as a single twin crisis and ensure their
monetary policy implementation does not contribute to
either climate change or nature loss. The WWF further
proposes that central banks and supervisors should
further develop a risk-based classification framework
for sectors and assets exposed to biodiversity loss,
which may enhance the data required for stress-testing
and scenario analyses and reallocate capital flows from
biodiversity-negative to -positive projects.144 Lastly,
supervisors should mandate financial institutions to
report their management of nature-related risk and
opportunity based on the Taskforce on Nature-related
Financial Disclosures (TNFD) framework.145 According
to the WWF's Sustainable Regulations and Central Bank
Activities (SUSREG) Tracker, only about 20 per cent of
the jurisdictions have nature-related issues listed among
a list of general considerations, the remaining 80 per
cent lacking any supervisory consideration. Only one
Asia-Pacific jurisdiction has clearly requested banks to
consider deforestation issues in decision-making.146
Capacity constraints will continue to disadvantage
lesser developed economies. Regulators and
policymakers together will need to conduct proper
environmental impact assessments, map their
biodiversity and carbon sink assets, estimate and
protect against climate-related losses in their portfolios,
institute locally-appropriate safeguards in the financial
system, shift their economy to low emissions pathways
carefully, and ensure that a just transition is maintained.
Therefore, without the appropriate skills and capacity at
the level of financial regulators, the danger is that
inappropriate, long-term investments are made which
lock in countries to unsustainable and economically
disadvantageous pathways. Furthermore, differences in
standards between LDCs, SIDS, and other countries in
the region could mean that there are less sustainable
financial flows to those who most need it, as the stricter
ESG policies of major financial institutions toss these
economies into the “too hard” basket. This applies not
only to commercial financiers, but also to MDBs and
bilateral DFIs who tend to make bigger deals in bigger
economies.
Integrity matters. According to the United Nations
Environment Programme’s Finance Initiative (UNEP-FI),
in the absence of a universally accepted definition of
what is green and sustainable, it is important that
effective frameworks, taxonomy standards, and
regulations set the foundation for global best practices
and an equal playing field. In this regard, Asia-Pacific
regulators can play a role in encouraging the growth of a
robust ecosystem for third party verification/ assurance
and impact assessment. Strengthening the green
credentials of businesses and projects can further
assuage greenwashing concerns.
E. Recommendations
This section outlines recommendations for the region’s
regulators, in line with the trends, opportunities and
challenges discussed. In addition, these
recommendations (which are set out in detail here) have
been aggregated into our final set of ten principles of
action for the region to bridge the sustainable finance
gap in Asia and the Pacific, set forward in the final
chapter.
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Effort should be undertaken to facilitate interoperability
between taxonomies. As discussed, the growth of
individual taxonomies implies that autonomy is
maintained at the country level and that locally
appropriate pathways are embedded in such
taxonomies. However, the downsides of varied
taxonomies across the region are significant.
Compliance costs are higher, risks are multiplied,
arbitraging opportunities may be created and an
efficient and level playing field is not created. One large
institutional investor in the region has outlined three
areas to steer Asia-Pacific taxonomies147 to
convergence: a) adopt a principles-based approach to
provide flexibility when tailoring taxonomies in different
regions and economies; b) align taxonomies with widely-
adopted global or international standards, such as the
Common Ground Taxonomy (CGT) between the
European Union and China; and c) actively collaborate
amongst regulators, policymakers, and stakeholders to
develop transparent, relevant, comparable, and
interoperable standards and guidance.
Roadmaps, taxonomies, and sustainable finance
frameworks put forth by regulators should be aligned
with policymakers’ commitments, especially the NDCs.
One example is Thailand. In December 2022, the Bank of
Thailand and Thailand's Securities and Exchange
Commission issued a consultation on their pilot
sustainable finance taxonomy, which includes
objectives largely drawn from the EU taxonomy and a
traffic light system to categorize activities. This
followed the November 2022 announcement of
Thailand’s second updated nationally determined
contribution, which showed a more ambitious target to
reduce its greenhouse gas emissions by 30‑40 per cent
from the projected business-as-usual level by 2030. The
Thai government also announced a revised version of its
Long-Term Low Greenhouse Gas Emissions
Development Strategy, which proposed accelerated
efforts to combat greenhouse emissions.
Regulators should ensure fair and predictable
enforcement of current green finance requirements, for
example around ESRM management. A complaint often
heard in emerging markets is that while the ESRM
guidance by the central bank exists on paper,
enforcement is not always fairly implemented, allowing
financial institutions who are not actively penalized or
deterred to charge more competitive pricing. Ensuring
that fair enforcement is a key priority, and that there are
no exceptions (and thus ensuring adequate staff and
supervision to ensure comprehensive fair enforcement)
is therefore essential to create a level playing field.
Strengthening monitoring, reporting, and verification
capacity in markets. One of the most vexing challenges
faced by many emerging markets is the absence of ESG
Monitoring, Reporting, and Verification (MRV) capacity
and other ESG data vendors or ratings agencies. Organic
development is inhibited without a critical mass of
corporate customers or project sponsors, and the
demand from the latter is curtailed by the lack of a
competitive and competent local market. Furthermore,
financial sector industry associations and training
bodies should also take care to ensure that both the
theory and practice of sustainable finance is embedded
in academic curricula and professional qualifications for
financial services professionals.
More supervisors from the region should join peer-
learning based international alliances. International
peer-learning is of great importance when embarking on
the uncharted journey of scaling up sustainable finance.
Financial regulators are increasingly sharing knowledge,
developing common approaches, and attempting to
understand the landscape both within and outside their
own country through membership in key peer-based
international organizations. These include the Network
for Central Banks and Supervisors for Greening the
Financial System, which consists of 121 regulatory
authorities and 19 observers; the Sustainable Banking
and Finance Network housed at the International
Financial Corporation, consisting of financial sector
regulators, central banks, ministries of finance,
ministries of environment and industry associations; and
the Alliance for Financial Inclusion. The regulatory and
policy enabling environment surrounding climate finance
is evolving by leaps and bounds in developed countries,
and this rising tide will inexorably arrive at less
developed countries. The advantage that less developed
countries have in this regard is that they can leapfrog
the learning journey by learning from developed
countries, and take advantage of existing training, new
regulatory technology, and political economy lessons
learned on how to cascade regulations that avoid vested
interests.
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Mandatory verification and audit could accelerate
compliance in the region. This remains a topic of
debate, and only a few jurisdictions in the region for
example China, Hong Kong, China, and Singapore (to
name a few) have moved towards mandatory
regulations in green finance. Nevertheless, given the
urgency of meeting the 1.5C goal, and in terms of
pushing the real economy faster towards the net zero
transition, mandatory requirement of, and/or verification
of climate-related disclosures can be a powerful stick
while also unleashing green investment and green jobs
as a significant growth opportunity. This was also
echoed by banking leaders as part of UNEP-FI’s
Leadership Council meeting. While Council members
welcomed the ISSB’s draft sustainability standards,
although voluntary, they said sustainability reporting
should be treated like financial accounting and allow for
auditing. They also recognized that a harmonized
approach should recognize country and sector
differences and allow time to set and comply with
national sustainability disclosure rules.148
For LDCs and SIDS, regulators should continue to
prioritize standard financial sector development. While it
was beyond the scope of this report to discuss the
importance of deepening and expanding traditional
financial sectors, it is important to appreciate that
sustainable finance is still just finance, and most of the
barriers that impede access to finance that currently
prevail, will equally apply to sustainable finance flows.
Regulators in LDCs and SIDs should continue to pay
attention to mainstreaming financial sector
development including the following standard themes:
▪
Deepening formal savings and investments:
Increasing domestic savings and the role of
investment to capitalize the formal financial
sector remains vital.
▪
Improving financial inclusion: Boosting access to
finance for adaptation to climate change and
local mitigation efforts such as off-grid
renewables etc.
▪
Developing access to finance for sustainable
enterprise: Overcoming gaps in financing for
small and medium enterprises (SMEs)
(particularly larger ones seeking to expand fixed
assets and transform value chains) remains a
major challenge in many Asia-Pacific markets.
▪
Growing capital markets: Countries accumulating
long-term pools of domestic capital should
improve market and legal infrastructure to match
savings and investments with longer-term
financing for financial institutions and corporates.
F. Conclusion
This is a time of great change and forward momentum
for financial regulators in Asia and the Pacific. Like
policymakers, regional cooperation is of the utmost
importance to ensure interoperability between regulatory
frameworks, convergence towards widely accepted
norms around investment aligned with climate goals and
equalizing the playing field. To establish a level playing
field, however, special attention must be paid to the
least developed countries and small island developing
states. These countries should not be disadvantaged by
the imposition of standards and norms that
disproportionately redirect capital elsewhere. This is not
an easy task, but regional cooperation can do much to
reduce fragmentation and present a unified approach.
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4. WHAT CAN PRIVATE
FINANCE DO?
A. Introduction
The role of private finance to meet global climate goals
and the sustainable development goals has never been
more important than right now. This comes at a time
when expansionary fiscal support by governments are
constrained by difficult macroeconomic conditions.
Furthermore the staggering size of the amounts to be
financed in order to meet these goals means that private
finance must be crowded in at substantial scale and
pace. While the actions of policymakers and regulators
are critical in creating enabling conditions for private
finance to invest at greater scale and pace, the call for
private finance actors to expand their activities and
deepen pre-investment activities is increasing.
The universe of private finance in Asia and the Pacific is
vast and growing, with each actor bearing distinct
incentives and challenges. The universe includes banks
who lend to businesses and entrepreneurs in the real
economy; capital market issuers of equity and debt
securities, usually businesses and financial institutions;
asset owners such as pension funds, sovereign wealth
funds, foundations, endowments, trusts, and family
offices; and asset managers, such as mutual fund
managers, investment advisors, and stockbrokers. For
the purposes of this report, we also include development
financial institutions, such as multilateral development
banks like the Asian Development Bank and the World
Bank Group’s International Finance Corporation; bilateral
development financial institutions, such as the Dutch
Entrepreneurial Development Bank (FMO), the United
States Development Finance Corporation (DFC), British
International Investment (BII), the Norwegian Investment
Fund (Norfund), and the Swiss Investment Fund for
Emerging Markets (SIFEM); as well as some national
development banks (NDBs).
Private finance has historically operated under a
traditional fiduciary mandate to provide risk-managed
growth and returns (as well as other specific mandates)
in good faith to stakeholders. It does this through
financing specific projects or entities in various sectors
of the economy, such as industry, services, energy,
agriculture, transportation etc. In recent years, other
mandates such as specific environmental, climate and
social impact objectives (Track 1) or environment, social
and governance (ESG) risk management mandates
(Track 2) have been added, over and beyond what may
be regulatorily required in the investor’s jurisdiction.
These include environmental, climate and social impact
mandates related to the use of proceeds or objectives
(Track 1) or environment, social and governance (ESG)
risk management mandates (Track 2).
Today, the nature of fiduciary duty is changing around
the world. Historically private finance has operated
under managing appropriate risk-return ratios as part of
their oversight and duty of care related fiduciary duties
and climate risk was seen as a non-fiduciary issue.
Directors and trustees around the world are now re-
evaluating their roles to include climate risk as a
standard financial risk, especially as such risks now
have become increasingly foreseeable and thus can be
legitimately considered to be part of their oversight and
duty of care responsibilities. In a correlated trend,
climate litigation has also risen globally.149
The financial risk-return profile is naturally driven by the
regulatory framework in place, which is rapidly evolving.
Often, two regulatory frameworks related to sustainable
finance are in play simultaneously. The country where
the underlying projects, activities, and sectors are
located has its own mandatory or voluntary sustainable
finance (ESG and/or climate) standards; the second
sustainable framework is in the country where the asset
owner or manager is based. It is important to note that
the risk-return profile is also heavily influenced by the
perceptions of risk related to the destination country,
manifested in that country’s exchange rate as well as its
sovereign credit rating.
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Many asset owners, especially pension funds and
insurance funds, are prohibited by their mandate from
investing in non-investment-grade projects or entities,
due to their responsibility to provide a “safe pair of
hands” for clients. Deposit-regulated financial
institutions, MDBs, DFIs, and other banks are required to
comply with regulation on risk-weighted capital
adequacy ratios, meaning they must reserve a certain
amount of capital to protect against their risk-weighted
lending. Reserving capital also means that they are
unable to lend out that reserved capital and obtain
interest revenue, affecting the profit of the institution.
Put simply, lending to riskier activities means less profit
not only due to the inherent risk of activities going into
default, but also because of the need to set aside more
reserves; and the implication that this ‘idle capital’ will
produce less interest revenue.150 In addition, many asset
owners and managers have pension funds or mutual
funds that are dollar, euro, yen, or yuan denominated.
When they invest in other countries, they take on the
exchange rate risk, which substantially influences the
risk-return profile of investments, even though it does
not change the underlying real risk-return profiles of the
activities themselves.
This means that riskier projects, entities, and countries
(such as the Least Developed Countries) cannot qualify
under traditional norms as a destination for many funds.
It also means that these riskier projects, entities, and
activities located in such countries — which if funded,
might make substantial contributions to emissions
reductions or to the SDGs — unfortunately entail
extremely high capital costs for financing. Therefore,
only projects or entities that can cover the capital costs
and/or investors who either do not have to comply with
capital reserve requirements or have high risk tolerance
can invest in such projects.
In practice, this means that for private finance to flow
naturally to such “riskier” projects, they must generate
very high returns. For example, projects in new green
technologies, novel nature-based finance, or renewable
energy in LDCs, who face such parameters may have to
generate much more profit than less-risky projects
(located for example in countries with higher credit
ratings, or in established sectors where risks can be
clearly mitigated), just to cover the higher capital costs
of financing. This naturally drastically reduces the pool
of investment-ready project (under traditional norms of
investment-readiness).
For such projects where the potential to achieve
environmental impact is high, and the underlying project
is sound, concessional and risk-sharing finance as well
as local currency financing is essential. Concessional
finance is below market-rate finance and takes on many
forms, ranging from loans and grants to technical
assistance or guarantees. The degree of concessionality
is also highly heterogeneous. Financing from MDBs,
DFIs, NDBs, overseas development assistance (ODA)
and other grant or concessional capital can be used to
“de-risk” these projects, drive up their “grade” and
safety, and attract more and cheaper commercial
financing that can be layered on top of the capital
stack.151 It also exemplifies why local-currency financing
into such projects is of critical importance if the scale
and pace of private finance is to be accelerated because
local-currency financing can fund projects that do not
have to reach a higher rate of return simply to cover
exchange rate risk.
This places a focus on how enough ‘bankable’ projects,
activities and entities can be built, to investor-
specifications, in a regulatorily compliant manner, to
meet climate goals, at speed. Different investors in the
capital stack have different requirements. Therefore, it
is fundamental that a pipeline of projects, activities, and
entities with adequate risk-return-mandate profiles are
generated at scale and pace to enable Asia and the
Pacific to its meet climate and SDG goals. The scale of
this challenge should not be underestimated, nor the
requirements of project preparatory work (and costs)
required to substantively build viable project pipelines.
This also requires a new way of building projects –
especially in sectors and areas, such as in renewables
or in new decarbonization technologies, where
regulation has not yet emerged and, therefore, costs are
particularly prohibitive, and where new industries and
decarbonisation technologies risk upsetting long-
entrenched balances of power and interests that may
exist. This new way necessitates deeper participation by
investors in the pre-investment stage of pipeline
building.
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It is time for shareholders, boards, and personnel to
enact accelerated change. While many private finance
institutions are already working to accelerate change,
now it is time for shareholders, boards, and personnel to
accelerate their response to the challenge. Considerable
wealth has been created over the last two decades in
financial markets, along with rising inequalities and
huge adverse climate impacts. It is now time for
substantial change. Hitherto, in pricing projects,
activities and entities and in realizing returns, private
finance has long enjoyed not being required to
incorporate the environmental (or social) externalities of
these costs, whilst also enjoying low costs of capital
due to low inflation. Many shareholders and boards are
indeed rising to this challenge with voluntary
stewardship codes and net-zero commitments. Yet
given the mounting consequences of inaction, more
needs to be done at urgent scale and pace to turn such
commitments into reality.
This chapter focuses on how to unlock more finance for
climate action. While the extent of change required in all
asset classes and instruments, owners and managers,
jurisdictions and geographies across Asia and the
Pacific is beyond the scope of this report, we discuss a
few key issues which are critical to unlocking further
private finance to meet climate goals. These include: the
building of bankable projects in renewable energy and
new decarbonization technologies, such as green
hydrogen, both of which have a direct link to reducing
emissions and meeting the 1.5-2C goal; the role of
green instruments such as green bonds, debt for
climate/nature swaps and green loans in financing; the
role of MDBs in unlocking further financing, and the role
of local currency financing in bringing down risks,
lowering transaction costs and in financing such
development.
B. Trends and opportunities
The Asia-Pacific region is predominantly a loan market,
which continues to be at the frontier of the transition to
net zero in the region. While some capital markets in the
Asia-Pacific region are extremely deep and liquid,
trading cutting-edge structured financial products, the
predominant financial instrument used for investment
purposes in Asia and the Pacific is still the standard
loan product from banks to corporates. There is also a
correlation between the size of bank lending to private
sector, and the level of financial development in the
country, as seen in Figure 1 below. While figures on total
bank lending in the region are varied, one estimate152 of
the top 50 largest banks in Asia alone places their total
asset size as of April 2023 at more than $56.5 trillion.
Naturally this includes all financial products, but it is still
a clear indication of the depth of funds that can
potentially be mobilized towards climate action.
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Figure 4.1: Bank lending to private sector as % of GDP.
Source: ESCAP based on World Bank, World Development Indicators and IMF, Financial Market Development Index Database.153
Note: Values on bank lending to private sector are from 2018 and 2020, while IMF Financial Market Index values are from 2020. Countries
lacking available data on Financial Market Index were excluded from the analysis.
Banks are slowly moving from a Track 2 approach,
where all lending was sustainably managed, to also
increasingly direct lending towards green, sustainable
and sustainability-linked uses and outcomes.
Sustainable loans, based on sustainable loan principles,
are generally structured in the same way as standard
loans, except that the loan proceeds are tracked and
allocated to eligible sustainability objectives.
Sustainable loans also require transparency about how
the sustainable projects are selected and how the funds
are allocated. There are consumer or smallholder
agricultural products that are easier to package as part
of a sustainable loan portfolio like:
▪ Consumer loans for clean cooking, household
solar, energy efficient home improvement, low
emissions vehicles, etc.
▪ Buyer credit or supplier pre-financing for value
chains, particularly for sustainable agricultural
value chain inputs, such as:
Environmentally friendly fertilizer, herbicides, or
pesticides
Climate and disease resistant crop varieties and
more productive livestock husbandry
Irrigation equipment
Farm enterprise solar or biogas installations
Increasing use of sustainability-linked loans allow for
more flexibility, if structured and verified well.
Sustainability-linked loans involve setting "sustainability
performance targets" for borrowers (e.g. internal targets
such as reducing greenhouse gas emissions; improving
energy efficiency; reducing pollution; increasing
biodiversity; reforestation; conducting external
assessments or achieving a sustainability certification
or rating). If targets are met, the borrower is rewarded
with reduced loan interest rates, or penalized with higher
interest rates if key performance indicators (KPIs) are
not met. Unlike green loans, the proceeds of
sustainability-linked loans (SLLs) do not need to be
allocated exclusively to green projects; rather, they
incentivize borrowers to improve their overall
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sustainability profile or targets. These can be technically
more difficult to design and structure, but are also more
amenable for jurisdictions, sectors, or customers in the
early stages of the adoption of sustainability standards.
SLLs may be more suitable for SMEs as well. SLLs open
the sustainable loan market to companies in a wider
variety of sectors and to smaller companies which are
unable to overcome entry barriers to green loans or
issuing a green bond. SMEs are a likely candidate for
SLLs since they may be unable to commit the entire
proceeds of a loan to specific green projects. They are
also much more amenable to a full suite of flexible
credit products because the incentive can be placed
around the “relationship” rather than a strict “use of
proceeds” which tends to require a fixed term capital
investment loan.
Within loan markets, green, sustainable, and
sustainability-linked lending is on the rise but is still
small. As seen in Figure 4.2 below, sustainability-linked
lending is particularly growing, reflecting its increasing
versatility to finance entities rather than projects or
activities; therefore, allowing more “unrestricted”
funding. Sustainability-linked lending can also ensure a
direct tie to sustainability outcomes and objectives,
depending on the KPIs used. In Asia and the Pacific,
banks are still at the frontline in the transition to net
zero, and clearer and more effective regulation can drive
banks to embark or accelerate the transition to net zero
in the region.
Figure 4.2: GSS+ loans in Asia and the Pacific, 2017–
2022 (billions of United States dollars).
Source: ESCAP based on Environmental Finance data154
Note: 1) The data labels show total sustainable loan value.
2) Based on voluntary disclosure, green and
sustainability-linked loan data are recorded if they are aligned
with the Green Loan Principles and the Sustainable-linked Loan
Principles provided by the Loan Markets Association.155
Figure 4.3: GSS+ loans in Asia and the Pacific by country, 2017–2022 (billions of United States dollars).
Source: ESCAP based on Environmental Finance data.156
Note: Based on voluntary disclosure, green and sustainability-linked loan data are recorded if they are aligned with the Green Loan
Principles and the Sustainable-linked Loan Principles provided by the Loan Markets Association.157
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In terms of corporate GSS+ bond issuances and lending,
the top-two categories in 2022 were green bonds ($95
billion) and SLLs ($72 billion). Corporate bond
issuances increased in 2022 compared to 2021 for
social and transition bonds, but decreased for green,
sustainability, and sustainability-linked bonds, as shown
in Figure 4.4 below. In terms of corporate borrowing of
GSS+ loans, sustainability-linked loans and social loans
made remarkable progress during that period.
On the other hand, lending to fossil fuels and coal in the
region is still on the rise. As can be seen from recent
research from the IMF,158 in Figure 4.5 below, the debt
levels (including corporate bonds and corporate loans)
of companies in the coal value chain, as well as in oil
and gas, in Asia and the Pacific continue to surge, and
are larger compared to other geographies in the globe.
Asia and the Pacific is also home to a significant
number of asset owners, with a very high volume of
assets under management. Recent research shows that
the world’s top 100 asset owners’ assets under
management (AUM) totalled $25.7 trillion at the end of
2021, growing 9.4 per cent from the previous year.159 Of
these, Asia and the Pacific accounts for 36.1 per cent of
total AUM, making it the largest region in the study.160
The Government Pension Investment Fund (GPIF) of
Japan remains the largest asset owner in the world, with
an AUM of 1.7trillionasofend2021,andtheChinaInvestmentCorporationwasthethirdlargestassetownerintheworld(AUMof1.2 trillion).161 Additionally,
the top 20 asset owners of this top 100 made up 55 per
cent of total AUM (i.e. more than $12 trillion),
representing a small group of private finance
stakeholders (mainly pension funds and sovereign
wealth funds) that can take forward the transition to net
zero for trillions of dollars of assets.162 Such asset
owners need to convert their net zero commitments into
faster action, including transition plans with targets for
2030 and 2040.
Stock exchanges in the region continue to be a
significant source of capital but market capitalization
has been relatively stable. Listed equity capital across
the region’s major stock markets continues to be a
major source of private finance, with the potential to be
turned towards climate action in a faster manner. Figure
4.6 below lists the market capitalization of the region’s
major stock exchanges by year and shows the relative
values of total equity capital raised in the last four years
across the region. China, Japan, and Hong Kong, China,
remain the most popular destinations for capital raised,
with the highest volumes of market capitalization.
Figure 4.4: GSS+ bonds and loans of corporate issuances in Asia and the Pacific, 2021–2022 (billions of United States
dollars).
Source: ESCAP based on Environmental Finance data163
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Figure 4.5: Debt levels of emerging market and developing economy companies operating in fossil fuel industries.
Source: IMF (2022).
Figure 4.6: Market capitalization of Asia-Pacific stock exchanges by country, 2019-2023.
Source: World Federation of Exchanges.164
Note: Market Capitalization values show the monthly average as of the 1st January of each year. In case of data gaps in the World
Federation of Exchanges database, data from the annual report of stock exchanges was used.
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Figure 4.7: Total equity capital raised in Asia and the Pacific, 2019-2022.
Source: World Federation of Exchanges and World Bank, national accounts data.165
Note: Total capital raised corresponds to the sum of monthly values from 1st January 2019 to 31st December 2022. It is calculated as the
sum of capital raised through Initial Public Offerings (IPOs) and capital raised by already listed companies. It includes both newly issued
shares and already issued shares.
Asian banks and private finance are still considerably
slow to make net zero commitments. At the time of
writing, there were 131 banks globally that have made
net zero commitments to align their lending and
investment portfolios with net zero emissions by 2050,
as part of the UN-convened Net Zero Banking Alliance
(NZBA) — the industry alliance for banks under the
Glasgow Financial Alliance for Net Zero. Signatory
banks also commit to setting and publicly disclosing
2030 targets within 18 months of joining the NZBA. Out
of the 131 banks who have made net zero commitments,
33 members were from ESCAP’s Asia-Pacific region.
Twenty-three banks were based in Australia, New
Zealand, the Republic of Korea, and Japan. Of the
remaining 10 banks, three were from Bangladesh, two
from Malaysia, four from Türkiye, and one from the
Russian Federation.166
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Box 4.1: Foreign direct investment into climate
mitigation and adaptation
Foreign direct investment (FDI) has an important role to
play in limiting climate change and filling in climate
finance gaps globally. Yet despite ample opportunities
for FDI to contribute to addressing climate change in
Asia and the Pacific, greenfield investment, or
investment in new productive activity, FDI flows to
climate mitigation and adaptation have been declining
over the past several years. Meanwhile both the value
and volume of climate mitigation projects are
significantly larger than climate adaptation projects. For
example, since 2016 there have been 1,218 climate
mitigation projects worth $247 billion, compared to 83
climate adaptation projects worth $2.7 billion (Figure 8).
In 2022 there was a pronounced loss of momentum in
climate mitigation FDI, which was accompanied by
growing investment in fossil fuels in the region.
Figure 4.8: FDI inflows into climate mitigation and
adaptation versus fossil fuels in Asia and the Pacific,
2016-2022 (millions of United States dollars).
Source: ESCAP calculations based on fDi Markets (2023).167
The lion’s share of FDI in climate mitigation in Asia and
the Pacific has gone into renewable energy and other
energy efficiency projects (Figure 9). In terms of project
numbers, since 2016 there have been 667 projects
related to renewable energy, 518 in energy efficiency,
and a meager 83 on low carbon transport.
Figure 4.9: FDI inflows into climate mitigation projects in
Asia and the Pacific, 2016-2022 (millions of United
States dollars).
Source: ESCAP calculations based on fDi Markets (2023).168
The value and volume of climate adaptation projects has
been low in the region, and largely focused on
introducing clean technologies to foreign operations.
For instance, in 2021 Teijin Polyester of Japan invested
$17.2 million and created 44 jobs in its Thai subsidiary
to convert domestically-produced plastic bottles into
recycled polyester chips to produce high-quality
polyester filament. The facility is expected to produce
7,000 tonnes of recycled polyester chips annually by
2025. Some recent examples from 2022 include an
investment of $27 million by Covestro (Germany) into
China to set up a dedicated line of polycarbonate
mechanical recycling, and another investment by
Covestro (Germany) in Thailand to repurpose and
convert its existing compounding plant to a recycling
facility. Notably, no least developing countries or small
island developing countries – arguably two sets of
countries urgently in need of climate FDI – have
received climate FDI since 2011.
The low and uneven distribution of FDI to developing
countries in the region underscores the urgent need to
bring FDI into conversations about unlocking climate
finance for developing countries. FDI is an important
type of private sector investment with immense
potential to help developing countries fill climate
finance gaps; however, it has until now been left out of
the discussions at forums on climate finance.
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There is an urgent need to support developing countries,
especially least developing and small island developing
countries, and their investment promotion agencies
responsible for attracting and facilitating climate-related
FDI. Most importantly, these agencies need support to
identify the climate projects that would give their
countries a competitive advantage to attract and target
investors; generate leads; repackage and repurpose
brownfield investment sites into green projects; and
pitch investment opportunities to foreign investors.
Investment promotion agencies should consider
incorporating tailored indicators to assess, evaluate and
measure the climate relevant characteristics of
investments. UN ESCAP has developed sustainable FDI
indicators that would enable investment promotion
agencies to do precisely this.169 On a policy advocacy
level, they also need to build their capacity to articulate
to relevant ministries the need for better incentives for
climate FDI and to phase out fossil fuel subsidies and
incentives. UN ESCAP, through its assistance and
capacity building programme of FDI for sustainable
development, is supporting investment promotion
agencies in the region in each of these areas.170 More
information on this work can be found here:
www.unescap.org/our-work/trade-investment-
innovation/business-investment.
Trends in multilateral development
bank (MDB) and development
financial institution (DFI) lending
In addition to their role as investors, MDBs can play an
even more important role in unlocking sustainable
finance through encouraging and supporting policy
change and mobilizing additional private finance for
global and regional goals alongside their own
investments. While multilateral development banks are
considered public actors, in practice they operate in a
fashion like other private financial institutions, following
risk-return-mandate profiles instituted by their boards.
However, in addition to their global, regional, and in-
country role as investors, they are uniquely placed to
carry out investing for global public goods, and to
mobilize private finance for this purpose while assisting
and supporting policy changes to enable the
achievement of goals.
In 2021, MDBs delivered $82 billion in climate finance
and simultaneously mobilized an additional $41 billion
in private finance.171 The additional mobilization of
private finance usually is arrived at through MDBs taking
an anchor investor role in a (sometimes pioneering)
project that then signals to other investors that the
investment is ‘bankable’. This is not always because the
MDB has instituted a first-loss or partial credit
guarantee; sometimes it is simply a signal that an
adequate amount of due diligence and vetting of the
project and project sponsor’s financials, governance,
and ESG risks has been passed. MDBs and bilateral DFIs
can also support private credit institutions by investing
equity (increasing shareholder’s funds) in the financial
institution to allow them to expand their lending
portfolio; and/or buying bonds issued by the financial
institutions (usually in some sort of private placement);
and/or extending credit.
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Initiatives to support private FIs by MDBs and DFIs entail
a cost of capital that is attractive to the FI and/or with
terms and conditions that would be difficult to obtain
from commercial sources. Before engaging in debt or
equity investment, however, MDBs and DFIs will typically
work with FI partners by providing wholesale loans
typically on concessional terms. Increasingly these
funding lines need to be linked to ESG standards in
finance (Track 2, sustainably managed finance) by
which the recipient undertakes to build a portfolio of
lending that assesses ESG risks associated with that
lending. Figures 4.10 and 4.11 show the development
finance commitments to mitigation and adaptation in
Asia and the Pacific by the top nine MDBs and DFIs in
2020. On an aggregate level within the region defined by
the membership of ESCAP, in Figure 4.11 below, we see
that 64 per cent of MDB funds were committed to
mitigation-related finance, with the rest directed to
adaptation finance. The majority was committed by the
World Bank Group (including equity, grants, and loans).
Figure 4.10: Top nine MDBs and DFIs in Asia and the Pacific by climate-related development finance.
Source: ESCAP based on OECD, Climate Change: OECD DAC External Development Climate Finance Statistics.172
Note: Total climate-related development finance corresponds to the sum of MDBs and DFIs grants, loans, and equity in Asia and the
Pacific. Both concessional and non-concessional activities are included. Guarantees are excluded as they are categorized as non-flow
operations. The figure includes total amounts committed by MDBs and DFIs and includes regional investments.173
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Figure 4.11: MDBs climate-related development finance in Asia and the Pacific by adaptation and mitigation, 2020
(millions of United States dollars)
Source: ESCAP based on OECD, Climate Change: OECD DAC External Development Climate Finance Statistics.174
Note: The figure shows the share of Adaptation and Mitigation related finance in MDB lending to Asia and the Pacific. Both concessional
and non-concessional activities are included. Guarantees are excluded as they are categorized as non-flow operations. Values show the
total amount of committed climate-related development finance and correspond to the sum of debt, grants, and equity.175 The analysis
examined 8 MDBs in the region – World Bank Group (WBG), Asian Development Bank (ADB), European Bank for Reconstruction and
Development (EBRD), Asian Infrastructure Investment Bank (AIIB), European Investment Bank (EIB), Islamic Development Bank (IsDB),
Black Sea Trade & Development Bank (BSTDB), Council of Europe Development Bank (CEB).
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Most of the investment was in debt and was not
concessional. As seen in Figure 4.12 below, energy was
the single biggest destination for MDB/ DFI investment
funds in the region (followed by transport and storage).
Over 90 per cent of the instrument used was debt, and
only 30 per cent of the financing was concessional by
MDBs and DFIs.
Figure 4.12: MDBs and DFIs climate-related development finance in ESCAP members by sector, financial instrument, and
concessionality type.
Source: ESCAP based on OECD, Climate Change: OECD DAC External Development Climate Finance Statistics.176
Note: The figure includes total committed amounts by MDBs and DFIs and covers regional investments.
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MDB and DFI finance does leverage private finance, but
has the potential to leverage even more private finance.
According to Figure 4.13 below and the methodology
used by OECD, $2 billion in private finance was
mobilized by MDBs in Asia and the Pacific in 2020.
Estimates of how much private capital is leveraged by
MDBs vary widely. For example, the G20’s Independent
Review of Multilateral Development Banks’ Capital
Adequacy Frameworks cites that in 2020 the MDBs
covered by their review directly mobilised only 14 cents
for every dollar of own-account investments, mostly
through their private sector arms.177 This is still too
small. In 2023, the Independent Expert Group
commissioned by the Indian G20 Presidency issued a
report saying that MDBs only mobilise 0.6 dollars in
private capital for each dollar they lend on their own
account and that they should aim to at least double this
target.178 The Independent Expert Group further states
that they ‘envisage a doubling of concessional and non-
debt creating finance in the system as a whole, with
priority given to support for low-income countries.
Additional concessional finance should also support
vulnerable countries and incentivize projects with global
public good benefits. We further envisage a tripling of
non-concessional official finance by 2030, compared to
2019 pre-pandemic base year levels.179
Figure 4.13: Total amount of mobilized private finance by MDBs across regions, 2020.
Source: OECD Statistics, Mobilisation.180
Note: The term “mobilized climate finance” measures the amounts activated in the private sector by MDBs. It covers five instruments
(guarantees, syndicated loans, shares in collective investment vehicles, credit lines, and direct investments in companies) and is collected
based on instrument-specific methodologies, which measure the amounts mobilized from the private sector by official development
finance interventions. Total amount of private climate-related finance is calculated based on the OECD methodology in line with Rio
Markers. This differs from the methodology adopted by the Joint MDB report, which relies on the data and methodology of the MDB
Taskforce on Private Investment Mobilization for tracking the private share of climate co-finance. The methodology of the Joint MDB
report relies on a broader coverage of data disclosed on mobilized private climate finance; it covers more instruments and includes social
infrastructure (hospitals, schools, etc.), which are excluded from the OECD dataset.
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The call on MDBs to increase the concessionality of
their financing and expand risk-taking has intensified
but actual reform is still slowly emerging. While MDBs
recognized the need to increase concessional finance
and scale up private sector mobilization, among other
priorities at COP27, the methods remain a source of
much debate. The reforms under discussion at the
World Bank Group — with forthcoming announcements
following completed reviews and discussions at the
Spring and Autumn 2023 meetings — may mark a
historic moment and change in the MDB landscape.
Such momentous change has not been seen since the
Bretton-Woods negotiations in 1944, which led to the
formation of the IMF and the World Bank Group (WBG).
In this context, the development committee has asked
the WBG Management to identify gaps in WBG’s current
institutional and operational framework and deliver a
work program by the end of the year, for consideration
by the Executive Board (which oversees the routine day
to day matters at the WBG).181
According to the Development Committee, “This work
program should be aimed at strengthening the WBG’s
role and capacity to continue to be responsive to the
evolving needs of all client countries. This should
include designing pertinent financial reforms to
responsibly make the most efficient use of the WBG’s
balance sheets and generate new resources and
contribute to strengthening coordination and
collaboration across the broader international financial
architecture, as well as incentivizing country demand,
and addressing any operational obstacles to the WBG’s
effective response.”182
The Board of Governors additionally requested WBG
Management to explore the recommendations of the
Independent Review of MDB Capital Adequacy
Frameworks (CAF),183 commissioned by the G20, to
make the most efficient use of the Group’s balance
sheets to increase lending capacity, while preserving
long-term financial sustainability, robust credit ratings
(i.e. AAA ratings), and preferred creditor status. The
appeal for historic transformation has far-reaching
implications for how MDBs operate on the ground; how
operations, policy reforms and lending operations will be
sourced, built, made bankable, and financed; and how
private finance will be herded in.
The reforms under discussion at the World Bank Group
will have implications for other MDBs. The World Bank
Group, which is the largest provider of climate finance,
has been asked by its shareholders in the Development
Committee, known as the Boards of Governors of the
Bank and the International Monetary Fund, to “among
other things, support the following:
i)
the development of countries’ long-term
strategies for investing in climate action;
ii)
the preparation, screening, and structuring
of reforms and projects for bankable,
climate-resilient investments that mobilize
private capital and foster a business
environment aligned with low carbon and
resilient development;
iii)
increased concessional and blended
finance for adaptation and mitigation; and
iv)
bold investment in high-quality,
sustainable infrastructure that enables a
just energy transition.”184
ADB’s newly announced Innovative Finance Facility for
Climate in Asia and the Pacific (IF-CAP) could further
expand climate finance in the region. ADB’s stated
intention to be the climate bank for Asia and the Pacific
was further cemented in 2023 with IF-CAP’s
announcement to provide grants and guarantees for
parts of ADB’s sovereign loan portfolio. The ADB’s
proposed model of “1in,5 out”, the initial ambition of
3billioninguaranteescouldcreateupto15 billion in
new loans for much-needed climate projects across Asia
and the Pacific. According to ADB, a leveraged
guarantee mechanism for climate finance has never
before been adopted by a multilateral development
bank.185
It is worth highlighting that MDBs occupy a unique
position in the global financial architecture. Their capital
adequacy frameworks are not subject to prudential
supervision and governance (unlike commercial banks
governed by the Basel Framework), but by the distinct
makeup of each MDB’s board. MDBs also have Preferred
Creditor Treatment (PCT), meaning that “sovereign
borrowers will continue to repay MDBs even if they go
into default or delay payment to other creditors. In
addition, MDBs typically do not reschedule, restructure
or write off sovereign loans.”186 Most uniquely to MDBs,
and the subject of much debate, is the matter of how to
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treat MDB’s unique callable capital. The assessment of
capital adequacy frameworks for individual MDBs
considers each one’s exclusive callable capital.
Ultimately, “shareholders define MDB objectives, supply
share capital and define the limits of risk that they are
willing to tolerate”.187 For example, the Independent
Expert Group of the 2023 G20 has said ‘in order to
respond to today’s challenges, MDBs need to reframe
their mission, raise their level of ambition and financing,
and change the way they work internally, with each other
and with other public and private development
partners’.188 Importantly, they ‘recommend that the G20
link the sustainable lending levels of the MDB system in
2030 to the financial support needed by developing
countries to invest to achieve these goals. This would
establish, for the first time, a clear link between
mandates and financing for the MDBs as a system. We
further recommend that the G20 review the adequacy of
such lending levels every three years in line with the
recommendations of the report of the G20 panel on
capital adequacy frameworks.189 It is therefore up to
shareholders to redefine how MDBs will play their part in
the global financial architecture.
C. Challenges
This section of the report addresses the challenges
confronting Asia and the Pacific to amplify privately
sourced finance for climate action and sustainable
development.
Asian banks are considerably slow in in making net zero
commitments and need to urgently commit to credible
net zero transition pathways. The state of net zero
commitments by Asian banks is a code red situation.
Asian banks are still considerably slow to pledge net
zero commitments by 2050. When they make 2050
commitments, it is necessary that they also outline
credible transition pathways by setting 2030 targets (as
is required for example by the industry-led, UN
convened, Net Zero Banking alliance which forms the
industry partnership for banks party to the Glasgow
Financial Alliance to Net Zero). Without setting the
appropriate 2030 targets, 2050 targets will not be
met.190 More than 90 per cent of the 500 largest banks
in Asia (with a combined 71.8trillionintotalassets,37.4 trillion in net loans, 49.7trillionincustomerdeposits,and425 billion in net profit in 2021)191 have
not yet made credible net zero commitments by 2050
with intermediate targets by 2030. Under such
circumstances, change is unlikely to happen fast
enough. It is possible for financing towards net zero to
happen in the absence of a net zero commitment; but as
discussed earlier, the picture emerging from Asia and
the Pacific is that coal financing is on the rise,
emissions are on the rise, and net-zero action is
insufficiently financed.
This also means a significant lack of local currency
financing for the net zero transition. The lack of net zero
commitments from Asia-Pacific also translates into a
lack of local currency financing for the net zero
transition. This is further corroborated anecdotally by
international banks and investors, who bemoan the
significant dearth of local banks investing in the energy
transition, the managed phase out of coal, and in new
green technologies in the region. The lack of mandatory
regulation to shift banks towards concrete
commitments, despite national commitments to the
Paris Agreement, may be an additional reason why
Asian banks are slow. Importantly, local banks bring
investment in local currency, removing the need for the
hurdle rate for investments to compensate for the
exchange rate risk. Without the credible participation of
Asian banks in the transition to net zero, adequate
finance cannot be mobilized to meet the 1.5C goal. To
the extent that finance can drive action and incentives
for the real economy to transition, the lack of progress
by Asian banks also acts as a brake on the transition of
the real economy.
Asia’s growing energy demand requires significant
private finance, but challenges abound in financing the
just energy transition. Coal power generation is the
largest source of carbon dioxide emissions globally.
According to the Glasgow Financial Alliance for Net
Zero, if existing coal power assets continue to operate
as planned, they alone will generate enough emissions
to exhaust two-thirds of the remaining carbon budget
associated with limiting warming to 1.5C. The
International Energy Agency predicts that more than 70
per cent of growth in global electricity demand will come
from Southeast Asia, India, and China over the next
three years.192 In addition, the average age of coal fired
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power plants in these regions is about 15 years,
compared to average ages in Europe and America of
more than 30 years.193 This means it will be more
expensive to phase out coal, and it is estimated that
there are about 5,000 coal fired power plants operating
in Asia and the Pacific.194 Financing is thus required to
acquire coal assets for early phaseout. While most net-
zero committed banks have a no-coal financing policy
(or at least a no-new-coal financing policy), what is
essential for the managed phase out of coal in an
orderly and just manner is to invest in the phaseout of
coal. This will mean investing in new coal in the short
term, and seeing emissions rise in the financing
portfolio in the short term. ADB’s energy transition
mechanism, as well as the Just Energy Transition
Partnerships, also further support the early retirement of
coal in the region. At a side event to the ECOSOC Forum
on Financing for Development organized by ESCAP in
2023, it was further noted that the cost of early
retirement of coal-based power plants varies across
plants and depends on when they will be retired. The
case of a specific power plant in Asia-Pacific was
mentioned which would cost 625milliontoretirein2025,314 million to retire in 2030, and 127milliontoretirein2035asanexampleofvaryingandsizeabledecommissioningcosts.Variousoptionstofinancethisdecommissioningwerediscussedincludingpolicychangesandinnovativefinancingmechanisms,includingcarboncreditsandacceleratinginvestmentsinrenewablesaswellasoptionstotransitionoftheplantsintorenewables,suchaswindorsolarorhydrogen.Suchanapproach,ifitcouldmaintaintherevenuesofthepowerplantanditslevelsofemployment,wouldalsominimizesocialdisruption.Thecostsofinvestinginrenewableenergyhavesignificantlydeclinedandglobalinvestmentinrenewableenergyhassoaredin2022toarecordhighof495 billion globally. However, this still represents less
than one-third of the average investment needed each
year between 2023 and 2030, according to the 1.5°C
scenario predicted by the International Renewable
Energy Agency (IRENA). Investments are also not on
track to achieve the goals set by the 2030 Agenda for
Sustainable Development.195 Renewable power
investment has risen rapidly in Asia-Pacific countries to
more than 335billionin2022,andaccountsforaround55percentoftheglobaltotal.Still,exceptforChinaandIndia,theregioncompriseslessthan20percentofglobalinvestment.Privatefinanceisthemajorsourceoffundingforfinancingcleanenergyinvestmentandlong−termdebtisthepreferredinstrument,butbankabilityissuespersist.Between2013and2020,privatesourcesaccountedfor75percentofglobalrenewableenergyinvestment,thoughsometechnologieswithlongleadtimes,suchashydropowerandgeothermal,reliedmoreoncapitalfromstate−ownedenterprisesandpublicfinancialinstitutions.Financinghasshiftedtowardsbalancesheetstructures,atmorethan60percentin2020,thoughprojectfinancetransactionsremainprevalent.Whileutility−scalerenewablepowerinvestmentsareoftenhighlyleveraged,debthasplayedagreaterroleinonshorewindthansolarphotovoltaics(PV).Bankabilityissuesoftenarisefrominsufficientpricingandremunerationframeworks;lackofstandardizationaroundcommoncontingency,riskmitigation,disputeresolutionandothercontractualclauses;andperceivedcashflowrisks.Availabilityofgridinfrastructureandlandaswellasequityshortfallsforearly−stageprojectdevelopmentremainpersistentbarriersinmanymarkets.Large−scaleprivatefinancingisalsorequiredfornewgreentechnologiessuchasgreenhydrogentobedeployedinhard−to−abatesectors.196Greenhydrogenisproducedbyelectrolysis,whichisessentiallytheprocessofsplittingwatermoleculesintohydrogenandoxygen,bypassingelectricitythroughwater.Iftheelectricityforelectrolysisisgeneratedthroughrenewableenergysources,theproductionprocessdoesnotresultinacarbonby−product,anditisthereforeanideal(clean)formofhydrogenproductionfromanemissionsreductionperspective.197Thecontinuingdropinthecostofgreenhydrogentechnologiesandthevolatilityoffossilfuelpricesthereforemakesgreenhydrogenanattractivesolutionforenergysecurityandstoragecapacity,198butlargeupfrontfinancingrequirements,andchallengesintheenablingpolicyandregulatoryframeworksstillneedtobeovercome.Globally,governmentshavecommittedmorethan37
billion in public funding to hydrogen development, while
the private sector has announced investments of around
$300 billion. Nearly 40 per cent of the global demand for
hydrogen is generated from the Asia-Pacific region and,
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within Asia and the Pacific most of the demand comes
from China, which accounts for 26 per cent of global
demand. Global competition to win business for the
green hydrogen sector is increasing in an environment
of high interest rates. The massive subsidies offered to
green hydrogen under the US Inflation Reduction Act and
the EU’s contracts for difference scheme via its new
Hydrogen Bank seek to attract domestic green hydrogen
investment. However, it is unlikely that emerging
markets and developing economies have either the cash
to match these subsidies nor the credit ratings to
borrow competitively.
For both new renewable energy project investments and
new green technologies, particularly in more challenging
markets in Asia and the Pacific, building bankable
pipelines is fraught with challenges. While there are
substantially large pools of debt and equity available
regionwide in local currencies, there is a discrepancy
between available capital, ready projects, and the
execution of transactions. The absence of standardized
transaction templates to easily replicate requirements,
risk contingency clauses, and dispute resolution
mechanisms, remains a challenge. In addition, poor
connectivity between investors and projects leads to
poor visibility about what bankability means to different
investors. Therefore, it is likely that misunderstandings
about how to structure projects and engage with
multiple investors arise. High transaction costs for
adding guarantees, first-loss-tranches, and the blend of
concessional capital with commercial capital also
prohibit the rapid scale and replicability of projects.
Projects thus tend to be executed on a deal-by-deal
basis, with most deals taking anywhere between one
and two years to execute.
Private finance, whether local investors in local currency
or international investors in hard currency, need to
spend more effort in assessing and pricing risk
appropriately. Too often perceptions drive risk pricing in
countries where benchmarks on risk-return-mandates do
not exist. Investors without boots-on-the-ground and the
ability to conduct sustained due diligence prefer not to
engage with new countries where they have never done
a transaction before. This exacerbates the problem of
capital not flowing to where it is most needed (and
where in fact returns could be made). Large, capital
expenditure heavy projects with upfront payments and
returns spread over a long tail require long-term
financing solutions, preferably in local currency. But if
Asia-Pacific investors do not engage with trying to
understand how to finance new sectors and projects
without existing benchmarks and locally tailored lending
methodologies, there will continue to be a significant
bottleneck in financing.
Small-ticket projects are increasingly overlooked in the
urgent search for scale, but they also need to be
nurtured. For a full pipeline of energy transition projects
to materialize at large scale and high pace, underlying
pipelines of smaller energy transition projects at smaller
ticket sizes are often required. This is typical for
investments in general – angel investment offers a
proving ground for companies with strong ideas or
concepts. As their concepts reach the early stages of
becoming proven, companies can raise larger ticket
Series A and B venture capital. Upon proving themselves
more and growing even further, larger-ticket private
equity funds invest based on the belief that they can
grow these companies all the way to an initial public
offering and listing on a stock exchange where retail
investors can buy a share. Similar principles apply here.
Insufficient project preparation funds exist to ensure
projects meet the risk-return-mandate requirements of
different investors. Project preparation significantly
lessens the risks inherent to projects, particularly when
done in partnership with investors. Proper feasibility
studies conducted in line with a model of a transaction
template (which outlines what risks investors are willing
to take and what contingencies they may need) will
significantly lower the risks in projects. Third party
verification of such studies, as well as support to
investors (particularly local investors who may not have
experience in such investments) through technical
assistance in the sector or project also constitutes a
strong part of effective project preparation. In the
region, small ticket-size projects by businesses face
high transaction costs to get off the ground. In some
cases, they are simply not eligible for large grant
facilities like the Green Climate Fund or the Global
Environment Facility. Neither are they eligible for the
technical assistance grants delivered by multilateral
development banks which are mostly given alongside a
specific prospective investment by the MDB. In some
cases, even when they are eligible for these large
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facilities, applications require significant skills which
they lack. More inclusive and wide-reaching project
preparation funds, while requiring more funds and
possibly generating some failures in terms of
investment, may on a net basis however generate
significantly more bankable projects.
Since financing ultimately drives investment by the real
economy, two‑thirds of the largest listed businesses still
lack a net zero pledge.199 Only 8 per cent of companies
in Asia and the Pacific have set a net zero goal by 2021,
according to CDP, a climate disclosure nonprofit.200 Of
the one third of largest listed businesses that have
made a net zero pledge, only a portion have committed
to an independent voluntary initiative. Most
privately‑listed businesses and state‑owned enterprises
have no net zero target at all.201 Even with 2050 net zero
commitments, the challenge is that emissions need to
peak (in two years’ time) by 2025 globally, and
emissions need to be cut by nearly half by 2030,202 in
order to limit the temperature rise to 1.5C.203 Therefore
companies that have set a 2050 net zero goal need to
still commit to credible transition pathways with 2030
goals and other interim goals.
The absence of data that would enable transaction
benchmarks to be built remains a major challenge,
including in biodiversity finance. Investor-grade data on
risks, dependencies, and impact on science-based
targets, is needed. This would allow pricing benchmarks,
as well as other reference points for appropriate
covenants, impact standards, and outcomes to be
placed. For biodiversity finance, complex biodiversity
measurements — such as revenue related to carbon,
biodiversity net gain, and other new indicators for
traditional investors — create a challenge for
investment.
D. Recommendations
In this section, we outline the key recommendations for
private finance emerging from the discussion on trends,
opportunities, and challenges. In addition, these
recommendations (which are set out in detail here) have
been aggregated into our final set of ten principles of
action for the region to bridge the sustainable finance
gap in Asia and the Pacific, set forward in the final
chapter.
Instead of being on track to reduce emissions by 45 per
cent by 2030, emissions are set to increase by close to
11 per cent.204 Instead of delaying the efforts to
transition closer to 2050 or 2060, making the costs to
transition even greater, private finance needs to act now
to proactively plan for the transition to net zero. If
private finance adopts an active role and becomes the
vanguard of change, actions will cascade down to
businesses, corporates, and households who use private
finance for their activities, thereby spurring widespread
change in the timeframe needed. The groundbreaking
report by the High Level Expert Group on the Net Zero
Emissions Commitments of Non-State Entities, tasked
by the United Nations Secretary General and chaired by
the Honourable Catherine McKenna, put forth a series of
recommendations on net zero pledges for actors
including private finance. We refer to the following
relevant recommendations on credible transition
pathways for such actors including private finance
below:205
▪ A net zero pledge must contain stepping-stone
targets for every five years and set out concrete
ways to reach net zero in line with the
Intergovernmental Panel on Climate Change or
International Energy Agency net zero greenhouse
gas emissions modelled pathways that limit
warming to 1.5°C with no or limited overshoot.
Implementation needs to begin immediately, and
not delay action to the last minute, reflecting the
fact that global emissions must decline by at least
50 per cent by 2030. The plans must disclose how
capital expenditure plans, research and
development plans, and investments are aligned
with all targets (e.g. capital expenditure‑alignment
with a regional or national taxonomy) and split
between new and legacy or stranded assets. Net
zero plans must detail the third‑party verification
approach and ensure audited accuracy.
▪ On coal for power generation, net zero targets and
transition plans of all financial institutions must
include an immediate end of: (i) lending, (ii)
underwriting, and (iii) investments in any company
planning new coal infrastructure, power plants, and
mines.
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▪ Private finance should focus on renewable energy:
Financial institutions should create investment
products aligned with net zero emissions by 2050
and facilitate increased investment in renewable
energy.
▪ Private finance should also focus on financing
biodiversity: Businesses should invest in the
protection and restoration of ecosystems beyond
the emission reductions in their own operations
and supply chains to achieve global net zero. This
is important considering the systemic financial
risks associated with the loss of biodiversity and
the exacerbated climate impacts associated with
the loss of natural carbon sinks. Businesses,
especially financial institutions, should anticipate
the final guidance of the Taskforce on
Nature‑related Financial Disclosures by factoring
in nature risks and dependency to all elements of
their net zero transition plans.
Private finance, including MDBs and DFIs, need to
engage in partnerships now, not just transactions.
Solving the highly complex problem of financing climate
action at scale and pace requires moving beyond short-
term, transaction-oriented thinking and deploy strategic
thinking about how to generate many deals within a
country in the relevant sectors. This requires private
finance to partner with policymakers and regulators and
drive new climate finance partnerships. It also requires
investors with experience in financing the net zero
transition to build the capacity of regulators and
investors in-country who may not have such experience.
The Just Energy Transition Partnerships present one
model of ambitious partnerships. The caveat is that time
is of the essence and partnerships need to be built and
executed urgently.
Multilateral banks and development finance institutions
need to rethink their approaches to concessional
lending and their abilities to take on more risk. In doing
so, they will have to work closely with financial
institutions and businesses to build projects that are
well-structured, leverage more private financing than
before (thus ensuring shared returns to all investors, not
just one), mitigate risk through good preparation, design,
and execution, and genuinely require concessional or
grant tranches. These projects should also be aligned
with countries’ national and sectoral transition pathways
and MDBs and DFIs are a powerful partner in
conversations with countries on developing such
credible transition pathways.
Project pipeline building requires significantly reformed
approaches if scale is to be achieved. The classic model
of investors either building their own pipelines
confidentially or waiting for fully packaged bankable
projects to be referred to them will no longer work in
certain sectors relevant to the transition, such as often
in energy transition or in new technologies. The scale of
investment required, and the tight timeframe in which to
achieve such a scale, is too high and requires significant
pre-investment partnerships. Foreign investors and local
investors need to work together in the early stages of
project building, and to collaborate to blend local and
hard currency as well as grants and concessional
finance from multiple sources. While this report has
focused on concessional finance from MDBs and DFIs,
we note that there is also substantial concessional and
grant finance available from foundations. The newly
announced Energy Transition Accelerator by Rockefeller
Foundation and the Bezos Foundation206 aim to bring
substantial philanthropic capital to incentivize new
private-sector climate finance for mitigation and
adaptation that augments — not substitutes for — other
sources of public, private, multilateral, and philanthropic
finance and companies’ continued investments in deep
emissions reductions within their own value chains.
Finally, to ensure that project preparation funds are
optimally employed to ensure the creation of genuinely
investment-ready projects, investors should advise
project preparation fund implementation, even if in a
light-touch manner. This will avoid the unfortunate, but
common, occurrence of existing project pipelines for
investment which fail to receive financing as a range of
investors do not consider them investment-ready and
investors have not been engaged from the inception of
project development. By setting up a modality in which
project developer and financial institutions regularly
meet and co-create investment projects in a progressive
and iterative manner, supported by grant funds that
defray high-risks surrounding the project preparation,
higher-quality projects can be built.
Private finance also needs to invest in building the
capacity of staff and systems. For banks and investors
who are yet to make a net-zero pledge and transition
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their lending and investing operations, significant
investment in staff capacity and systems is required to
design, plan, and manage this transition urgently.
Investments by private finance are thus urgently
required. Private finance institutions can join peer-to-
peer learning networks. There are also international
principles that individual financial institutions of any
jurisdiction can apply to. The best known are those
developed by UNEP-FI encompassing the Principles of
Responsible Banking, the Principles of Responsible
Investment, and the Principles of Sustainable Insurance.
These self-organized peer-to-peer learning networks are
vital to share knowledge and raise standards.
Private finance should also encourage their real
economy borrowers and clients to implement the net
zero transition. Finance and the real economy are
intertwined, and neither can afford to lag behind the
other. Encouraging industry borrowers who seek finance
to adopt voluntary net zero standards relevant to their
sector, will help private finance. For many countries,
sectoral transition pathways will be needed, and these
will differ from other countries due to different starting
points and different goals. Finance and the real
economy businesses need to participate in those
sectoral transition pathways; both in design and in
implementation.
Conclusion
Private finance actors must redefine how they engage
with net zero, committing to net zero targets, as well as
a credible transition pathway, and driving action within
the real economy to the maximum possible extent. To
fulfill net zero targets and finance action, project
pipeline building must also be redefined to include
greater collaboration between a multitude of actors.
Commercial investors and development financial
institutions, such as MDBs and businesses/project
developers, need to work hand-in-hand with green
project developers at the pre-investment stage. Instead
of operating on a per deal basis, common approaches to
templating transactions can be adopted, creating a
replicable model for transactions in the net-zero arena,
and ensuring investments take place at scale and pace.
In Asia and the Pacific, local banks and investors need
to take their place at the forefront of investing in the net-
zero transition.
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5. TEN PRINCIPLES OF
ACTION TO BRIDGE
THE SUSTAINABLE
FINANCE GAP IN ASIA
AND THE PACIFIC
Climate change has been called “a wicked problem par
excellence”207 because it constitutes of a series of
interconnected problems that cannot be solved in
isolation. Financing climate action in time is thus also a
wicked problem par excellence. It requires policymakers
to collaborate with regulators and private finance to
drive action in the real economy. It calls for urgent
implementation, in a world in which we have already
experienced a 1.1C change, and in which if we continue
as normal, the carbon budget to stay within 1.5C will be
depleted in less than six years, according to the IPCC. It
has been said that the global battle for climate change
will be won or lost in Asia and the Pacific.208 If the Asia-
Pacific region is at the core of the problem, however, it
is also at the core of the solution.
In the previous chapters, we discussed at length the
trends, opportunities, challenges, and recommendations
for policymakers, regulators, and private finance related
to how sustainable finance can bridge the gap in the
region. Based on that analysis, we aggregate the
recommendations across the three actors into the
following ten-point principles of action, which we hope
constitutes an action plan for stakeholders in the region.
Governments and regulators
1. New climate finance partnerships are developed
through which governments, regulators, MDBs,
and private finance commit to action around
specific goals and contribute specific tasks in
line with this shared goal. Just Energy
Transition Partnerships, which are led and
owned by countries, provide a useful model for
the region, especially if execution can be
accelerated.
2. Effective NDC financing strategies are
developed, led by authorities with clear
mandates, which signal credible transition
pathways with interim targets and clear
resource mobilization plans. This will provide a
clear and vital signal to investors, businesses,
and project developers that governments are
committed to change. This signal of reliability,
stability, and predictability is a core part of
costs around projects.
3. Policy coherence and capacities are developed
across key government ministries such as
finance, energy, transport, and environment,
reducing the costs of financing. Governments
need to invest in both the effort for such
coordination and the capacities for such
coordination. This will also allow governments
to better work with MDBs, DFIs, and
development partners to obtain the assistance
they need in the timeframe they need it in.
4. Decisive regulatory action takes place to shift
capital in Asia and the Pacific towards the net
zero transition. Asia and the Pacific is home to
significantly large pools of capital capable of
bridging the gap in sustainable finance.
Regulators need to adopt a more active role in
shifting capital towards climate action,
recognizing that doing so will strengthen
financial stability in the system, as well as
create a level playing field for all. In doing so,
regulators will also need to move towards
consistent taxonomies and roadmaps across
countries, to create a level playing field.
5. Investment in the capacities of financial
personnel to assess climate risk, innovate green
financial instruments, and supervise the
transition path of the green economy is
undertaken. International groupings such as the
Network for Central Banks and Supervisors for
Greening the Financial System (NGFS) or the
Sustainable Banking and Finance Network
(SBFN) can be effective to promote peer-
learning among members.
6. Investment in much-needed sectoral and
project-based financial data is undertaken.
Common data platforms that share valuable
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93
data on ESG, climate, nature, contracts, clauses
standards, targets, and deals (where possible)
will streamline investment, assist
benchmarking, strengthen credibility and ensure
replicability and scale of green transactions and
deals.
Private Finance – Asia-Pacific banks, investors and
issuers
7. Commitments to net zero pledges for 2050 with
credible transition pathways including 2030
goals are made. The slowness of banks in Asia
and the Pacific to commit to net zero and
transition their lending and investing portfolios
with interim 2030 science-based targets is a
serious brake on driving finance towards
climate action in the region.
8. Local-currency financing of energy transition
projects as well as green technologies and other
net-zero investments is increased. Local-
currency financing is critical to accelerate the
scale and pace of private finance because it can
fund projects that do not have to reach a higher
rate of return just to cover exchange rate risk as
well as provide other benefits. Increased net-
zero commitments by private finance in Asia
and the Pacific (number 7 above) combined with
a focus on investing in the energy transition in
their local currency will leverage and bring
forward the needed investment at scale.
9. Concessional financing and risk-sharing by
multilateral development banks, bilateral
development financial institutions, and public
development banks is expanded and
accelerated. This will de-risk otherwise sound
projects and ultimately leverage significant
private capital. A 1:5 ratio, like ADB’s goal, can
be one benchmark to ensure that concessional
funds truly leverage private finance and go
towards well-structured projects. This will also
guarantee well-designed projects in which
concessional finance truly catalyzes and
mobilizes greater private finance. In doing so,
however, it is critical to ensure the project is
both high impact to support the net-zero-
transition and commercially attractive.
10. Investment of time and effort with partners in
green project preparation is increased in more
challenging markets, whether it is in the LDCs,
SIDS, or in new green technologies. Setting up a
modality in which project developers and
financial institutions regularly meet and co-
create investment projects in a progressive and
iterative manner can accelerate the preparation
of effective pipelines of bankable green projects
at scale. While large projects have lower
transaction costs, investing in project
preparation for smaller-ticket green projects will
ensure a long-term pipeline of large projects.
Ultimately good project preparation and
dedicated resources to that end will reduce the
risk of projects when implemented.
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ANNEXES
Annex A: Climate financing needs in Asia and the Pacific
Table A.1: Financing needs for mitigation and adaptation in Asia and the Pacific from nationally determined contributions
(millions of United States dollars).
Source: ESCAP based on data from IGES NDC Database.209
Note: Only parties to the UNFCCC that report financing needs are included in the table.210
Party to the UNFCCC
Financing needs (millions of United States dollars)
Submission dates
Mitigation
Adaptation
Total
Date of the last
submission
Initial/updated
submission
South and South-West Asia
Afghanistan
6,620
10,790
17,410
23/11/2016
1st update
India
834,000
206,000
1,040 000
26/08/2022
1st update
Iran (Islamic Republic of)
52,500
140,000
192,500
21/11/2015
Initial
Nepal
21,600
21,600
08/12/2020
2nd update
North and Central Asia
Georgia
2,000
2,000
05/05/2021
1st update
Kyrgyzstan
7,240
2,830
10,070
09/10/2021
1st update
Turkmenistan
10,500
10,500
21/10/2016
1st update
South-East Asia
Cambodia
5,800
2,000
7,800
31/12/2020
1st update
Lao People's Democratic
Republic
4,700
4,700
11/05/2021
1st update
The Pacific
Fiji
2,970
31/12/2020
1st update
Kiribati
80
21/09/2016
1st update
Niue
10
28/10/2016
1st update
Palau
10
10
22/04/2016
1st update
Solomon Islands
130
130
250
19/07/2021
1st update
Tuvalu
360
22/04/2016
1st update
Vanuatu
310
720
1,030
23/03/2021
1st update
East and North-East Asia
Mongolia
3,400
3,400
13/10/2020
1st update
Total
932,910
378,370
1,314,690
Count
10
10
17
Shares of mitigation/
adaptation (%)
71
29
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Annex B: Credit ratings
Table B.1: Credit ratings of ESCAP members and rated dates.
Sovereign/Jurisdiction
credit rating
S&P
Moody's
Fitch
Ratings
Date
Ratings
Date
Ratings
Date
Armenia
Non-investment grade
B+
12-Oct-21
Ba3
24-Mar-22
B+
10-Feb-23
Australia
Investment grade
AAA
6-Jun-21
Aaa
20-Oct-02
AAA
13-Oct-21
Azerbaijan
Non-investment grade
BB+
22-Jan-21
Ba1
5-Aug-22
BB+
21-Oct-22
Bangladesh
Non-investment grade
BB-
5-Apr-10
Ba3
9-Dec-22
BB-
29-Aug-14
Cambodia
Non-investment grade
B2
15-Nov-22
China
Investment grade
A+
21-Sep-17
A1
24-May-17
A+
5-Nov-07
Fiji
Investment grade
B+
22-Sep-21
B1
7-Oct-22
Georgia
Investment grade
BB
25-Feb-22
Ba2
28-Apr-22
BB
27-Jan-23
Hong Kong, China
Non-investment grade
AA+
22-Sep-17
Aa3
20-Jan-20
AA-
20-Apr-20
India
Non-investment grade
BBB-
26-Sep-14
Baa3
5-Oct-21
BBB-
10-Jun-22
Indonesia
Investment grade
BBB
27-Sep-22
Baa2
13-Apr-18
BBB
21-Dec-17
Japan
Investment grade
A+
9-Jun-20
A1
1-Dec-14
A
25-Mar-22
Kazakhstan
Investment grade
BBB-
2-Sep-22
Baa2
11-Aug-21
BBB
29-Apr-16
Kyrgyzstan
Non-investment grade
NR
23-Sep-16
B3
17-Oct-22
Lao People's
Democratic Republic
Non-investment grade
Caa3
14-Jun-22
Macao, China
Non-investment grade
Aa3
24-May-17
AA
15-Apr-21
Malaysia
Investment grade
A-
27-Jun-22
A3
11-Jan-16
BBB+
2-Dec-20
Maldives
Non-investment grade
Caa1
17-Aug-21
B-
13-Oct-22
Mongolia
Non-investment grade
B
9-Nov-18
B3
16-Mar-21
B
9-Jul-18
New Zealand
Investment grade
AA+
21-Feb-21
Aaa
20-Oct-02
AA+
9-Sep-22
Pakistan
Non-investment grade
CCC+
22-Dec-22
Caa1
6-Oct-22
CCC-
14-Feb-23
Papua New Guinea
Non-investment grade
B-
24-May-22
B2
10-Nov-22
Philippines
Investment grade
BBB+
30-Apr-19
Baa2
11-Dec-14
BBB
12-Jul-21
Russian Federation
Investment grade
NR
8-Apr-22
NR
31-Mar-22
NR
25-Mar-22
Singapore
NR
AAA
6-Mar-95
Aaa
14-Jun-02
AAA
14-May-03
Solomon Islands
Investment grade
Caa1
8-Oct-21
Republic of Korea
Non-investment grade
AA
8-Aug-16
Aa2
18-Dec-15
AA-
6-Sep-12
Sri Lanka
Non-investment grade
SD
25-Apr-22
Ca
18-Apr-22
RD
19-May-22
Tajikistan
Non-investment grade
B-
28-Aug-17
B3
17-Oct-22
Thailand
Investment grade
BBB+
13-Apr-20
Baa1
21-Apr-20
BBB+
17-Mar-20
Türkiye
Non-investment grade
B
30-Sep-22
B3
12-Aug-22
B
8-Jul-22
Turkmenistan
Non-investment grade
B+
10-Feb-23
Uzbekistan
Non-investment grade
BB-
4-Jun-21
Ba3
20-Jan-23
BB-
21-Dec-28
Viet Nam
Non-investment grade
BB+
26-May-22
Ba2
6-Sep-22
BB
1-Apr-21
Source: ESCAP based on Trading Economics.211
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Table B.2: Investment VS non-investment grade.
S&P
Moody's
Fitch
Description
AAA
Aaa
AAA
Prime
AA+
Aa1
AA+
High grade
AA
Aa2
AA
AA-
Aa3
AA-
A+
A1
A+
Upper medium grade
A
A2
A
A-
A3
A-
BBB+
Baa1
BBB+
Lower medium grade
BBB
Baa2
BBB
BBB-
Baa3
BBB-
BB+
Ba1
BB+
Non-investment grade
BB
Ba2
BB
Speculative
BB-
Ba3
BB-
B+
B1
B+
Highly speculative
B
B2
B
B-
B3
B-
CCC+
Caa1
CCC
Substantial risks
CCC
Caa2
Extremely speculative
CCC-
Caa3
In default with little prospect for recovery
CC
Ca
C
C
D
/
DDD
In default
/
DD
D
Source: ESCAP based on Trading Economics.212
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Annex C: Access to UNFCCC Financing
Table C.1: ESCAP members and associate members that have not accessed UNFCCC climate finance mechanisms.
UNFCCC
GCF
GEF
Adaptation Fund
American Samoa
American Samoa
American Samoa
Afghanistan
Australia
Australia
Australia
American Samoa
Hong Kong, China
Brunei Darussalam
Hong Kong, China
Australia
Macao, China
Hong Kong, China
Macao, China
Azerbaijan
French Polynesia
Macao, China
French Polynesia
Brunei Darussalam
Guam
French Polynesia
Guam
China
Japan
Guam
Japan
Hong Kong, China
New Caledonia
Japan
New Caledonia
Macao, China
New Zealand
New Caledonia
New Zealand
Democratic People's Republic
of Korea
Northern Mariana Islands
New Zealand
Northern Mariana Islands
French Polynesia
Northern Mariana Islands
Guam
Republic of Korea
Iran (Islamic Republic of)
Russian Federation
Japan
Singapore
Kazakhstan
Türkiye
Kiribati
Marshall Islands
Nauru
New Caledonia
New Zealand
Niue
Northern Mariana Islands
Palau
Philippines
Republic of Korea
Russian Federation
Singapore
Thailand
Timor-Leste
Tonga
Türkiye
Tuvalu
Vanuatu
Source: ESCAP based on GCF Open Data and GEF Projects Database.213
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Annex D: Carbon pricing initiatives in Asia and the Pacific
Table D.1: Status and progress of carbon pricing initiatives at national and sub-national level in Asia and the Pacific.
Jurisdiction covered (Country,
region, city)
Type of
jurisdiction
covered
Country of
subnational
jurisdiction
Name of initiative
ETS implemented/scheduled
Australia
National
-
Australia Carbon Credits Act (Carbon
Farming Initiative)
China
National
-
China national ETS (for power sector)
Kazakhstan
National
-
Kazakhstan ETS
Republic of Korea
National
-
Korea ETS
Beijing
Subnational
China
Beijing pilot ETS
Chongqing
Subnational
China
Chongqing pilot ETS
Fujian
Subnational
China
Fujian pilot ETS
Guangdong (except Shenzhen)
Subnational
China
Guangdong pilot ETS
Hubei
Subnational
China
Hubei pilot ETS
Saitama
Subnational
Japan
Saitama ETS
Sakhalin
Subnational
Russian
Federation
Sakhalin ETS
Shanghai
Subnational
China
Shanghai pilot ETS
Shenzhen
Subnational
China
Shenzhen pilot ETS
Tianjin
Subnational
China
Tianjin pilot ETS
Tokyo
Subnational
Japan
Tokyo CaT
ETS under consideration / in development
Malaysia
National
-
Malaysia ETS
Pakistan
National
-
Pakistan ETS
Russian Federation
National
-
Draft Bill on State regulation of emission and absorption
of GHG
Thailand
National
-
Thailand ETS
Türkiye
National
-
Türkiye ETS
Viet Nam
National
-
Viet Nam ETS
Shenyang
Subnational
China
Shenyang ETS
Carbon tax implemented/scheduled
Singapore
National
-
Singapore carbon tax
ETS implemented/scheduled & Carbon tax under consideration
New Zealand
National
-
New Zealand ETS & New Zealand carbon tax
ETS under consideration & Carbon tax implemented/scheduled
Indonesia
National
-
Indonesia ETS for the power sector & Indonesia carbon
tax
Japan
National
-
Japan ETS & Carbon Tax for Climate Change Mitigation
Source: World Bank Carbon Pricing Dashboard214 and UNCTAD Sustainable finance regulations platform.215
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Annex E: List of stakeholders
Table E.1: Singapore FinTech Festival expert roundtable discussants
Name
Organization
Title
Aziz Durrani
ASEAN+3 Macroeconomic Research Office (AMRO)
Capacity Development Expert
Darian McBain
Outsourced Chief Sustainability Officer Asia
Chief Executive Officer (CEO)
Kristina Anguelova
WWF - Sustainable Finance Institute Asia
Head of Asia Sustainable Finance
Nasir Zubairi
Luxembourg House of Financial Technology (LHoFT)
CEO
Nicholas Gandolfo
Sustainalytics Corporate Solutions, Singapore,
Sustainalytics
Vice President
Steve Cochrane
Moody’s Analytics
Chief APAC Economist
Miranda Carr
MSCI
Global Head of Applied ESG & Climate Research
Chea Serey
National Bank of Cambodia
Director General
Satoru Yamadera
Asian Development Bank
Advisor
Kelvin Tan
HSBC
Managing Director, Head of Sustainable
Finance & Investments, ASEAN
Abhishek Kaul
IBM
Associate Partner, Sustainability & Analytics
Lise Pretorius
Matter
Head of Sustainability
Maria Perdomo
UNCDF
Regional Coordinator, Asia and the Pacific
Eugene Wong
Sustainable Finance Institute Asia
CEO
Paul Dickinson
CDP - Disclosure Insight Action
Founder Chair
Jaclyn Dove
Standard Chartered Bank
Head of Sustainable Finance Strategic
Initiatives
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Table E.2: Stakeholders consulted for the key informant interviews.
Name
Organization
Title
Bank of America
Aziz Durrani
ASEAN+3 Macroeconomic Research Office (AMRO)
Capacity Development Expert
Erik Grigoryan
Environment Group
Founder and CEO
Eugene Wong
Sustainable Finance Institute Asia
CEO
Ines Marques
Green Hydrogen Organization
Director of the Green Hydrogen Development
Plan
Kelvin Lester K. Lee
Securities and Exchange Commission, Philippines
Commissioner
Michael Salvatico
S&P Global Sustainable1
Head of Asia, Pacific, Middle East & Africa ESG
Solutions
Miranda Carr
MSCI
Global Head of Applied ESG & Climate
Research
Piyawan Khemthongpradit
Bank of Thailand
Assistant Director,
Financial Institutions Strategy Department
Thammachart
Thammaprateep
Bank of Thailand
Senior Analyst, Financial Institutions Strategy
Department
Table E.3: List of speakers at ESCAP Expert Group Meeting on Public Debt and Sustainable Financing in Asia and the
Pacific.
Name
Organization
Title
Aigul Kussaliyeva
AIFC Green Finance Centre
Director of Sustainable Development of AIFC
Authority
Allinnettes Adigue
Global Reporting Initiative
Head GRI ASEAN Regional Hub
Liz Curmi
Citi Global Insights
Head of Energy transition and Climate finance
Lyn Javier
Central Bank of the Philippines
Assistant Governor, Policy and Specialized
Supervision Sub-Sector
Kosintr Puongsophol
Asian Development Bank
Financial Sector Specialist
Nikita Bajracharya
Dolma Advisors
Senior Investment Manager
Ricco Zhang
International Capital Market Association
Senior Director, Asia Pacific
Robert Willem van Zwieten
Route17
Founding Partner
TMJYP Fernando
Central Bank of Sri Lanka
Senior Deputy Governor
Youraden Seng
National Bank of Cambodia
Director, Banking Supervision Department II
Yuki Yasui
Asia-Pacific Network of the Glasgow Financial
Alliance for Net Zero
Director
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EXECUTIVE SUMMARY
ENDNOTES
1 World Bank Treasury (2023).
2 OECD (2021a).
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CH1. ENDNOTES
3 UNFCCC (2022d).
4 Ibid.
5 Ibid.
6 UNFCCC (2022b).
7 IPCC (2022a).
8 ADB (2023b).
9 ESCAP (2015).
10 ESCAP (2023)
11 ESCAP (2021).
12 ESCAP (2015).
13 ADB (2023b).
14 ADB (2023b).
15 ESCAP, UNEP and UNICEF (2022).
16 IPCC (2023)
17 Ibid.
18 Ibid.
19 CBD (2022).
20 United Nations (2022).
21 Torkington (2023).
22 Available at https://dataexplorer.unescap.org.
Accessed on 3 April 2023.
23 Available at https://dataexplorer.unescap.org.
Accessed on 3 April 2023.
24 UNCTAD (2014); OECD and UNDP (2012).
25 IISD (2022).
26 ESCAP (2019).
27 Ibid.
28 Vitor (2023).
29 IPCC (2021).
30 Black, and others (2022).
31 ESCAP, UNEP, and UNICEF (2022).
32 Songwe, Stern, and Bhattacharya (2022).
33 UNFCCC (2022a).
34 Larsen, Brandon, and Carter (2022).
35 Johnson, and others (2021).
36 Ibid.
37 The term investment and financing are often used
interchangeably, but they are not exactly the same.
Investment means allocating money to activities or
financial assets that will generate a future profit, while
financing means raising money to fund an investment.
38 ICMA (2020b).
39 The SBFN represents 63 institutions from 43
countries, accounting for over $42 trillion, or 86 per
cent, of the banking assets across emerging markets.
40 GFSG (2016).
41 UNFCCC (n.d.a).
42 There is no one uniform definition of greenwashing.
The European Securities and Markets Authority (ESMA)
have sought industry views on legally defining
greenwashing to be enshrined in law. A commonly
referred to analysis is regarding the seven sins of
greenwashing by TerraChoice (2010), The Cambridge
dictionary defines greenwashing as the practice of
making people believe that your company is doing more
to protect the environment than it really is.
43 MSCI (n.d.).
44 Ibid.
45 PRI (2018).
46 UNFCCC (n.d.d).
47 UNFCCC (n.d.a).
48 UNFCCC (n.d.b).
49 UNFCCC (n.d.c).
50 UNFCCC (2022c).
51 SDG Goal No. 7 is to ensure access to affordable,
reliable, sustainable, and modern energy for all. It has
five targets to be achieved by 2030, three of which are
outcome targets (universal access to modern energy,
increase global percentage of renewable energy, double
the improvement in energy efficiency) and two of which
are means of implementation targets (to promote
access to research, technology, and investments in
clean energy and to expand and upgrade energy
services for developing countries).
52 Indicator 7.1. 2 is the proportion of population with
primary reliance on clean fuels and technology, while
indicator 7.2.1 measures renewable energy share in the
total final energy consumption and indicator 7.a.1
measures international financial flows to developing
countries in support of clean energy research and
development and renewable energy production
(including in hybrid systems).
53 An exception is the SDG bonds, which are instruments
that clearly link the use of proceeds to the United
Nations Sustainable Development Goals (SDGs) through
a multiplicity of methods.
54 United Nations (2019).
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CH2. ENDNOTES
55 World Bank (2015).
56 See for instance, Zingales (2015).
57 The correlation is calculated through the Pearson
correlation coefficients to show the significance of the
correlation between GDP per capita and the IMF
Financial Development index components.
58 Krieger-Boden, Nunnenkamp and Görg (2016).
59 OECD and UNCDF (2020).
60 ESCAP, UNEP, and Greenwerk (2020).
61 UNFCCC (2016).
62 UNFCCC (2021).
63 ICMA (2020a)
64 London Stock Exchange (n.d.).
65 World Bank (2023).
66 CBI (2023).
67 CBI (2023).
68 Cheng, Ehlers , and Packer (2022).
69 Varez (2023).
70 Ahluwalia, and others (2022).
71 Cheng, Ehlers , and Packer (2022).
72 Ibid.
73 Mexico (2022, EUR 1.25 billion second issuance,
following the world’s first issuance of an SDG bond in
2020 by Mexico of EUR 735 million), Uzbekistan (2021,
$235 million SDG bond) and Benin (2021, EUR 500
million issuance) have issued SDG bonds, supported by
the United Nations Development Programme. SDG bond
proceeds feed into the federal budget and are
channelled into projects that support the Sustainable
Development Goals. Eligibility criteria and monitoring
standards are established by the United Nations
Development Programme.
74 Munthe (2023).
75 Available at
https://carbonpricingdashboard.worldbank.org/ ,
accessed on 1 March 2023
76 Available at https://gsfo.org/sustainable-finance-
regulations-platform, accessed on 29 March 2023.
77 Carbon pricing initiatives have been classified as
ETSs and carbon taxes according to how they operate
technically; local terminology may vary. Jurisdictions
that only mention carbon pricing in their NDCs are not
included.
78 Systems operating like a baseline-and-offsets
program, such as Australia Safeguard Mechanism, fall
outside the scope of the Carbon Pricing Dashboard.
79 World Bank (2023).
80 The High-Level Commission on Carbon Prices
concluded in 2017 that carbon prices needed to be at
the level of 40/metrictonsofcarbondioxide(tCO2)to80/tCO2 in 2020 and reach 50/tCO2to100/tCO2 by
2030 to be on track to keep temperatures below 2°C—
the upper end of the limit agreed upon in the Paris
Agreement (2017 USD). Adjusting for inflation allows a
more direct comparison with current carbon prices—
prices would need to reach 61to122 by 2030 (in
2023 USD).
81 World Bank Treasury (2023).
82 Ibid.
83 Isgut and Taloiburi (2022).
84 Chamon and others (2022).
85 Ibid.
86 ESCAP (2022).
87 OECD (2021a).
88 Available at www.oecd.org/dac/financing-
sustainable-development/development-finance-
topics/climate-change.htm, accessed on 2 April 2023
89 OECD (2021b; 2022).
90 Mezzanine financing is a layer of financing that fills
the gap between senior debt and equity in a company. It
can be structured either as preferred stock or as
unsecured debt, and it provides investors with an option
to convert to equity interest. Mezzanine financing is
usually used to fund growth prospects, such as
acquisitions and expansion of the business. (Corporate
Finance Institute, 2023)
91 Available at www.oecd.org/dac/financing-
sustainable-development/development-finance-
topics/climate-change.htm, accessed in July 2023.
92 Climate Analytics (2021).
93 Issued by a government agency.
94 Tall and others (2021).
95 Lin and Hong (2021).
96 Murphy (2022).
97 MAS (2021).
98 OECD (2018).
99 Ibid.
100 GCF (2023).
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101 Available at
https://data.worldbank.org/indicator/SP.POP.TOTL,
accessed on 29 March 2023.
102 Available at www.thegef.org/projects-
operations/database, accessed on 3 March 2023.
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CH3. ENDNOTES
103 BOT (n.d.).
104 For example, according to the Commonwealth
Climate and Law Initiative (CCLI) and Climate
Governance Initiative (CGI) (2021), “Climate-related
disclosure standards have significant consequences for
boards. Directors have obligations to approve or attest
to the accuracy and completeness of disclosures made
in financial filings. Directors on audit committees will
likewise have additional responsibilities to engage in
testing and overseeing the robustness of the climate
scenario assumptions underpinning key aspects of the
audit process.”
105 Macroprudential policies are financial policies that
aim to ensure the stability of the financial system as a
whole in order to prevent substantial disruptions in
credit and other vital financial services necessary for
stable economic growth. The stability of the financial
system is at greater risk when financial vulnerabilities
are high, such as when institutions and investors have
high leverage and are overly reliant on uninsured short-
term funding, and interconnections are complex and
opaque. High vulnerabilities increase the likelihood that
a firm’s failure or other negative shock will cause
distress at other financial institutions because of direct
exposures and through fire sales, contagion, or other
negative externalities arising from the initial shock.
Macroprudential policies aim to reduce the financial
system’s sensitivity to shocks by limiting the buildup of
financial vulnerabilities (Yilla and Liang, 2020).
106 Microprudential supervision refers to the supervisory
role performed by central banks to monitor financial
institutions to ensure the stability and soundness of
practices by individual banks.
107 BOE (2019).
108 Carney (2015).
109 Ibid.
110 Green swans, or “climate black swans”, present many
features of typical black swans. Climate-related risks
typically fit fat-tailed distributions: both physical and
transition risks are characterized by deep uncertainty
and nonlinearity, their chances of occurrence are not
reflected in past data, and the possibility of extreme
values cannot be ruled out. In this context, traditional
approaches to risk management consisting of
extrapolating historical data and on assumptions of
normal distributions are largely irrelevant to assess
future climate related risks (Bolton, and others, 2020).
111 The bank-sovereign nexus refers to the fact that
many banks hold domestic sovereign debt, especially in
emerging economies, which can amplify
macroprudential risk. IMF research shows that an
increase in sovereign credit risk can adversely affect
banks’ balance sheets and credit supply especially in
countries with less well-capitalized banking systems.
Sovereign distress can also impact banks indirectly
through the nonfinancial corporate sector by
constraining their funding and reducing their capital
expenditure. Notably, the effects on banks and
corporates are strongly nonlinear in the size of the
sovereign distress (Deghi, and others, 2022).
112 Demekas and Grippa (2022).
113 FSB and NGFS (2022).
114 NGFS (2021b).
115 NGFS (2021a).
116 FSB (2022a).
117 The Greenhouse Gas Protocol Corporate Standard
classifies a company’s GHG emissions into three
scopes. Scope 1 emissions are direct emissions from
owned or controlled sources. These are usually the
easiest to measure. Scope 2 emissions refer to the
indirect emissions from the generation of purchased
energy. Scope 3 emissions refer to all indirect
emissions (not included in Scope 2) that occur in the
value chain of the reporting company, including both
upstream and downstream emissions. The latter is
usually the hardest to measure and can account for
more than 70 per cent of the carbon footprint
(Greenhouse Gas Protocol, 2019).
118 Miller and others (2021).
119 The TCFD is part of the Financial Stability Board
(FSB) in the Bank of International Settlements (BIS).
120 Asset owners refer to organizations that represent
the holders of long-term retirement savings, insurance,
and other assets such as pension funds, endowments,
family offices. Asset managers refer to those that plan,
acquire, deploy, and dispose of clients’ assets.
121 FSB (2022b).
122 FSB (2022b).
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123 According to one estimate by Statista (2021), there
were estimated to be 206,296 large companies
operating in Asia with a further 79,992 in Europe, 39,792
in North America, 15,606 in Latin America, 6,002 in
Africa, and 3,834 in Australia. (Estimated number of
large companies (250+ employees) worldwide from
2000 to 2021.
124 TCFD, available at www.fsb-tcfd.org/supporters,
accessed on 8 February 2023.
125 TNFD (2022).
126 GFANZ defines a net-zero transition plan as follows:
A net-zero transition plan is a set of goals, actions, and
accountability mechanisms to align an organization’s
business activities with a pathway to net-zero GHG
emissions that delivers real-economy emissions
reduction in line with achieving global net zero. For
GFANZ members, a transition plan should be consistent
with achieving net zero by 2050, at the latest, in line with
commitments and global efforts to limit warming to
1.5C, above pre-industrial levels, with low or no
overshoot. Financial institutions’ net-zero commitments
should cover at least the Scope 1 and Scope 2
emissions associated with clients or portfolio
companies. They should also cover Scope 3 emissions
associated with clients or portfolio companies in
sectors that are significant climate change contributors
or where company Scope 3 emissions are material and
can be incorporated based on data availability (GFANZ,
2022).
127 NGFS (2023).
128 WWF (2022).
129 Durrani, Volz, and Rosmin (2020).
130 Ibid.
131 BSP (2022).
132 MAS (2023).
133 Hussain, Tlaiye, and Rolando Marcelo (2020).
134 ASEAN (2023).
135 Sustainable Fitch (2023).
136 G20 Sustainable Finance Working Group (2022).
137 Durrani, Volz, and Rosmin (2020).
138 Ibid.
139 Ibid.
140 Ibid.
141 Philipova (2022).
142 Regulation Asia (2022).
143 WWF (2022).
144 Ibid.
145 Ibid.
146 Ibid.
147 Jason Norman Lee, Managing Director for Legal &
Regulatory at Temasek International in Singapore,
quoted in Regulation Asia (2022).
148 UNEP FI (2022).
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CH4. ENDNOTES
149 In May 2021, the Court of the Hague delivered a
landmark decision, ordering Shell to reduce its global
CO2 emissions by 45 per cent by 2030 (Milieudefensie v
Shell plc). Similar claims were filed in Germany in 2021
against the car manufacturers BMW, Mercedes Benz,
and Volkswagen. In the US, ExxonMobil, its chairman,
CEO, and other directors have been subject to several
securities and financial regulation claims, relating to
alleged failures to disclose climate risks properly
(Ramirez v ExxonMobil) (Page and Butland, 2022).
In February 2023, activist group ClientEarth sought to
bring a derivative action against Shell's directors for
their alleged failure to effectively address the risks of
climate change. The case was ground-breaking as the
first-ever climate litigation attempting derivative action
to establish personal liability for a company's directors
who allegedly failed to address the threat of climate
change. While the High Court dismissed this case in
May 2023, it nevertheless accepted that ClientEarth had
established a prima facie case. "Shell faces material
and foreseeable risks as a result of climate change
which have or could have a material effect on it."
According to legal firm Dentons (2023), ‘this finding will
not be lost on others seeking to bring ESG claims.”
150 Most banking regulators follow the
recommendations of the Basel Committee on Banking
Supervision, which defines capital adequacy ratios using
risk-weighted assets in the denominator. With riskier
assets having a larger weight, they require larger
increases in capital reserves compared to less risky
assets.
151 The capital stack of a project or entity refers to the
mix of various forms of capital in the capital structure,
that is ordered by who has the rights and in what order
the capital owner gets paid in terms of both profits and
income as well as in event of default. Common capital
forms include senior debt (usually the first to get paid
out such as collateral-backed loans, commercial bank
loans), junior debt (a form of second-tier subordinated
debt such as mezzanine debt) and common equity.
Concessional funding can thus be blended with private
commercial finance and used at different levels of the
capital stack.
152 Yamaguchi and Taqi (2023).
153 Accessed on 8 February 2023.
154 Accessed on 4 April 2023.
155 For more information, see
https://efdata.org/pages/methodology.
156 Accessed on 4 April 2023
157 For more information, see
https://efdata.org/pages/methodology.
158 IMF (2022).
159 Thinking Ahead Institute (2022).
160 Ibid.
161 Ibid.
162 Ibid.
163 Accessed on 4 April 2023.
164 Accessed on 6 April 2023
165 Available at https://statistics.world-exchanges.org/
and
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD,
accessed on 6 April 2023
166 UNEP FI (n.d.).
167 See www.fdimarkets.com
168 Ibid.
169 See https://e-
learning.unescap.org/thematicarea/detail?id=43
170 More information on this work can be found here:
www.unescap.org/our-work/trade-investment-
innovation/business-investment.
171 EIB (2022).
172 Available at https://oe.cd/development-climate,
accessed on 17 February 2023.
173 This analysis examined 13 active MDBs and DFIs in
the region – World Bank Group (WBG), Asian
Development Bank (ADB), Kreditanstalt für
Wiederaufbau (KfW), European Bank for Reconstruction
and Development (EBRD), Asian Infrastructure
Investment Bank (AIIB), European Investment Bank
(EIB), Islamic Development Bank (IsDB), Black Sea Trade
& Development Bank, Proparco, Council of Europe
Development Bank (CEB), Export-Import Bank of Korea,
FinnFund, Austrian Development Bank. For more
information on the methodology, please consult:
www.oecd.org/dac/financing-sustainable-
development/development-finance-
data/METHODOLOGICAL_NOTE.pdf. We note that
Development Finance Corporation (USA), British
International Investment (BII), Nederlandse
Financierings-Maatschappij voor Ontwikkelingslanden
N.V. (FMO, the Netherlands) and others are not included
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113
here and would increase the figures if included.
174 Available at https://oe.cd/development-climate,
accessed on 17 February 2023.
175 More information on the methodology is available at:
www.oecd.org/dac/financing-sustainable-
development/development-finance-
data/METHODOLOGICAL_NOTE.pdf.
176 Available at https://oe.cd/development-climate,
accessed on 17 February 2023.
177 Boosting (2022).
178 G20 Independent Expert Group (2023).
179 Ibid.
180 Available at
https://stats.oecd.org/Index.aspx?DataSetCode=DV_DC
D_MOBILISATION, accessed on 28 February 2022.
181 In June 2023 at the President Macron’s Summit for A
New Global Financing Pact, the World Bank announced a
‘toolkit’ on financing for disaster-affected countries,
including a pause on debt repayments.
182 Arbeleche (2022).
183 Boosting (2022).
184 Arbeleche (2022).
185 ADB (2023a).
186 Boosting (2022).
187 Ibid.
188 G20 Independent Expert Group (2023).
189 Ibid.
190 As Ravi Menon, Managing Director of the Monetary
Authority of Singapore said, “2020 to 2030 is the critical
decade for climate action. Net zero commitments for
2050 are fine and good but a credible trajectory towards
that goal will be substantially determined by 2030. While
a growing number of countries and companies have set
net-zero targets, very few have credible plans to meet
them. The problem is that countries and companies
alike are pledging to hit targets in almost three decades'
time without committing to action for which they can be
held accountable in the short term. To achieve net-zero
by 2050, the necessary policies and the associated
investments must be made between now and 2030,”
(Menon, 2022).
191 The Asian Banker (2021).
192 IEA (2023).
193 IEA (2021).
194 GFANZ (2023).
195 IRENA and CPI (2023).
196 Hard to Abate (HTA) sectors are sectors in which it is
difficult to move away from fossil fuel energy uses and
in which it is hard to directly electrify using renewable
power. These include major industries that rely on fossil
fuels for high-temperature energy or for chemical
feedstocks and include steel, cement, iron, chemicals
and building materials which together are responsible
for approximately 30 per cent of the world’s annual CO2
emissions. Another HTA sector is heavy duty
transportation, such as trucking and shipping, which is
harder to electrify than passenger transport because it
would require enormous batteries that add to vehicle
weight and take a long time to charge. (Nault, 2022).
197 Andretich and others (2022).
198 Green Hydrogen Organisation (2022).
199 United Nations (2022).
200 CDP Disclosure Insight Action (2022).
201 United Nation (2022).
202 IPCC (2022a).
203 The IPCC report (IPCC, 2022a) additionally states
“tracked financial flows fall short of the levels needed to
achieve mitigation goals across all sectors and regions.
The challenge of closing gaps is largest in developing
countries as a whole. Scaling up mitigation financial
flows can be supported by clear policy choices and
signals from governments and the international
community (high confidence). Accelerated international
financial cooperation is a critical enabler of low-GHG
and just transitions and can address inequities in
access to finance and the costs of, and vulnerability to,
the impacts of climate change (high confidence). {15.2,
15.3, 15.4,15.5, 15.6}”
204 United Nations (n.d.).
205 United Nations (2022).
206 The Rockefeller Foundation (2023).
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CH5. ENDNOTES
207 Termeer, Dewulf and Breeman (2012).
208 ADB (n.d.).
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ANNEXES ENDNOTES
209 Available at www.iges.or.jp/en/pub/iges-indc-ndc-
database/en, accessed in October 2022.
210 For some countries the sum of mitigation and
adaptation financing needs does not add to the total as
total financing needs are based on different studies and
methodology. In some cases, only the country total
financing needs is available.
211 Accessed on 26 February 2023.
212 Ibid.
213 Available at www.thegef.org/projects-
operations/database, accessed on 3 March 2023.
214 Available at
https://carbonpricingdashboard.worldbank.org/,
accessed on 1 March 2023.
215 Available at https://gsfo.org/sustainable-finance-
regulations-platform, accessed on 29 March 2023.Original LaTeX notation
The shaded areas of the map indicate ESCAP members and associate members.*
The Economic and Social Commission for Asia and the Pacific (ESCAP) is the most inclusive intergovernmental platform in
the Asia-Pacific region. The Commission promotes cooperation among its 53 member States and 9 associate members in
pursuit of solutions to sustainable development challenges. ESCAP is one of the five regional commissions of the United
Nations.
The ESCAP secretariat supports inclusive, resilient, and sustainable development in the region by generating action-oriented
knowledge, and by providing technical assistance and capacity-building services in support of national development
objectives, regional agreements, and the implementation of the 2030 Agenda for Sustainable Development.
*The designations employed and the presentation of material on this map do not imply the expression of any opinion
whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or
area or of its authorities, or concerning the delimitation of its frontiers or boundaries.
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SUSTAINABLE FINANCE: BRIDGING THE GAP IN ASIA AND THE PACIFIC
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Sustainable Finance: Bridging the Gap in Asia and the Pacific
United Nations publication
Sales No.: 23.II.F.6
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iv
FOREWORD
In 2022, the Asia-Pacific region experienced unprecedented weather catastrophes such as heat
waves and droughts, typhoons, and floods that resulted in substantial human and economic
losses and eroded hard-won development gains. Evidence is mounting that the severity and
frequency of such catastrophes are increasing due to climate change, which is serving as a
“threat multiplier” for existing social, political, and economic challenges.
These challenges have been further exacerbated by the ongoing war in Ukraine which caused a
“polycrisis” related to food, energy, and finance, with cascading multifaceted effects on the
global economy already severely impacted by the COVID-19 pandemic. To effectively respond to
these crises – Covid, conflict and climate change – and to rebuild our economies in a manner consistent with the
ambitions of the 2030 Agenda for Sustainable Development and Paris Agreement on climate change, substantial financial
resources are needed. But it is also clear that, alarmingly, the gap between the resources required and those currently
available is substantial and growing. To close this gap, especially to address climate change, the participation and
commitment of all relevant stakeholders – governments, regulators, and private finance – is urgently needed.
The Asia-Pacific region is not on track to meet the SDGs by 2030 nor achieve climate ambitions, with current financial
requirements far exceeding available resources. Thus, inaction to raise sufficient additional financing, or to channel
available resources in support of SDGs and climate action, is not an option anymore. It is time for all stakeholders to
commit to accelerated change by committing to net zero emissions and transforming their financing priorities, processes,
and programs to meet the growing financing needs of the region.
This report focuses on sustainable finance, which, in a broader sense, refers to the financing of sustainable activities as
well as finance that is sustainably managed. In this vein, the report examines the trends, challenges, and opportunities
that policymakers, regulators, and private finance (banks, issuers, and investors) in Asia and the Pacific face to mobilize
and deploy sustainable finance, particularly for climate action. It then presents specific recommendations for
governments, regulators, and private finance – summarized in ten principles for action – to chart the way forward. We aim
to spur more robust and informed debate amongst our member States, drive consensus on key policy and regulatory
measures to move the region towards sustainability and bring greater clarity regarding the benefits and consequences of
enhancing sustainable finance in both the short and long term.
I am confident that policymakers, regulators, private sector representatives as well as researchers in the Asia-Pacific
region will benefit tremendously from our report. My team and I look forward to engaging with member States, partners,
and other key stakeholders to translate the ideas presented in this report into practical measures so that the pressing
financing gap can be closed.
Hamza Ali Malik
Director
Macroeconomic Policy and Financing for Development, ESCAP
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EXECUTIVE SUMMARY
The Asia-Pacific region is not on track to meet the SDGs
by 2030 nor achieve climate ambitions, with current
financial requirements far exceeding available
resources. The Sharm-el-Sheikh Implementation Plan,
agreed at the 27th Conference of the Parties of the
United Nations Framework Convention on Climate
Change (UNFCCC) in 2022 highlighted that the world will
need between $4 trillion and $6 trillion per year to
transition to a low-carbon economy. For developing
countries the financing gap to meet their Nationally
Determined Contributions (NDC) is estimated at close to
$6 trillion for the period 2023-2030.
Urgent and systemic change is required to deliver
funding at such a scale. It requires recognition and
willingness by all countries to transform policies,
regulations, and the financial system. In Asia and the
Pacific this change has proceeded at too slow a pace.
Policymakers still need to implement credible NDC
financing plans, with corresponding resource
mobilization strategies to achieve sequenced NDC
targets that are progressively ambitious (and to adopt
more ambitious NDC targets in the future). Regulators
must act decisively to manage the risks that climate
change and biodiversity threats pose to the financial
system, while at the same time decisively shifting
capital towards green objectives consistent with their
NDCs.
In the private sector, banks and businesses need to
adopt net zero commitments and implement credible
transition pathways. As they do so, and the supply of
net-zero aligned financing increases, the demand side
for this capital also needs to increase. For this, projects,
particularly in the energy transition and new green
technologies, are needed at sufficient scale and quality
to meet a range of investor needs. These projects need
to be built through new financing partnership
approaches. In this vein, multilateral development banks
and development financial institutions will play a key
role in providing catalytic capital with the right terms
related to concessionality and risk-sharing. As they do
so, local banks and investors in Asia-Pacific must
decide increasingly to finance the net-zero transition,
particularly in providing local currency financing, which
is essential in today’s difficult macroeconomic
environment. Sustainable finance (and transition
finance) frameworks, roadmaps, disclosure frameworks
and taxonomies increase the integrity and clarity of
financing sustainable activities, through the use of
appropriate standards. Achieving increased regional
alignment, convergence and interoperability in these
standards will be highly desirable, which can reduce
cross-border compliance costs and create an efficient
and level playing field.
This report discusses challenges, opportunities, and
recommendations for policymakers, regulators, and
private finance in the Asia-Pacific region to bridge the
gap in sustainable finance. It outlines two tracks of
sustainable finance; Track 1 refers to use-of-proceeds or
objective/outcome driven finance; and Track 2 refers to
sustainably managed finance that manages
environment, social, governance, and increasingly
climate, risks in its deployment. The aim of this report is
to spur a robust and informed debate amongst member
States, establish consensus on key measures to move
towards increased sustainable finance, and bring
greater clarity regarding the benefits and consequences
of various policy, regulatory and private finance choices.
What can governments do?
Policymakers have an important role to play in building
sustainable finance markets and driving down risk and
perceptions of risk. When commitments and priorities in
climate action and sustainable finance are
communicated clearly to markets, long-term
investments can be accurately priced and undertaken
with investor confidence. Policymakers are also
responsible for budget allocations in terms of incentives
or tariffs that affect the returns in fossil fuel dependent
sectors, and in thus shifting the financing of the energy
mix of sectors. Their actions have vast implications on
various sectors of the economy that need to finance the
shift to new and cleaner energy sources, reduce the
carbon intensity of their output, track their emissions,
and plan their transition to net-zero emissions.
Governments also have a role in shifting capital towards
green objectives. There has been a promising increase
by governments in the region in issuing sovereign green,
social, sustainable and other bonds, labelled GSS+, that
raise capital for specifically GSS+ uses. The global
market for GSS+ bonds has grown to more than $3.8
trillion outstanding by the end of 20221, and annual
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issuances in Asia and the Pacific increased from $5
billion in 2015 to $206 billion in 2022. Although
corporate issuances dominate this market, sovereigns
and jurisdictions are increasingly tapping into it, with
Hong Kong, China; Indonesia; Malaysia; New Zealand;
Philippines; Singapore; and Thailand issuing between $1
billion and $2.5 billion each in 2022.
Governments in the region also have a role in accessing
multilateral climate funds (MCFs), such as the
Adaptation Fund, the Global Environment Fund, or the
Green Climate Fund. While the money available from
MCFs will not be sufficient to close the financing gap,
MCFs remain a critical source and channel for
developed countries to meet their Paris Agreement
obligations to developing countries. In 2021, for
instance, according to the OECD2, funds from MCFs
provided more than $1.2 billion to Asia-Pacific
countries. This source of sustainable finance is
attractive because a large portion is available as grants
— about 50 per cent in 2021, compared to 29 per cent of
financing from bilateral donors and 3 per cent of
financing from multilateral development banks.
Moving forward, the most immediate step for
policymakers to take is to ensure that Nationally
Determined Contributions are supported by concrete,
targeted, and sequenced national financing strategies.
Climate mitigation and adaptation activities need to be
mapped out with expected sources of domestic public
finance, international financial assistance, and private
finance. Governments must accelerate the difficult work
of translating national net zero commitments into net-
zero commitments by financial institutions and
businesses. In doing so, policymakers should ensure
clarity, reliability, predictability and stability, thereby
setting trusted signals to markets and investors who
must make the long-term investments that underpin the
net zero transition. Sustainable finance frameworks
(such as roadmaps and taxonomies) can then further
embed and clarify financing parameters to support the
NDC financing strategies.
Finally, new climate finance partnerships are needed at
scale to tackle the challenge. Policymakers can also
drive sustainable finance at scale through engaging in
multi-dimensional partnerships with donor countries and
private financial institutions such as the recent Just
Energy Transition Partnerships (JETPs) launched by
Indonesia and Viet Nam in 2022. These JETPs
coordinate national commitments to peaking emissions,
phasing out coal, improving regulations and designing
effective pipelines of bankable projects — all initiatives
which provide a strong basis to mobilize even more
private and public finance. While not every country in the
region can and should replicate the JETP model, the
engagement between policymakers and financial
providers (whether public or private) from the planning
and inception stages of energy transitions are mutually
beneficial and serve to focus efforts, concentrate minds,
and bridge the financing gap.
What can regulators do?
Regulators can increasingly ensure coherence and
coordination across other regulators as well as
policymakers. Regulators have an important role in
preserving stability of the financial system, managing
risks, and increasingly, shifting capital towards climate-
related investments. To effectively tackle the scale of
the sustainable finance challenge, financial regulators
need to work increasingly closely with other regulators,
such as environmental protection agencies,
departments of industries that regulate the fiduciary
duties of directors and trustees of fund and investment
managers, competition and consumer regulators
guarding against potential greenwashing of products
and services, energy regulators and regulators related to
the introduction of new green technologies. Such an
integration of climate-related and increasingly nature-
related risks into regulation also calls for substantial
investment into building the right skills and capacities
across the financial system.
Effective regulation requires clear, consistent, and
comparable data. A major challenge to implementing
regulatory approaches that would account for climate-
related and nature-related financial risks is the lack of
available quality data. Data challenges reported by
supervisory authorities include the lack of granular,
consistent, and comparable data reporting standards for
counterparties and for financial institutions. The data
required includes: the identification of sectors or
economic activities that are vulnerable to physical,
transition and liability risks; financial institutions’
exposures to such sectors or economic activities; the
geographical location of financial institutions’
exposures most prone to physical risk; and reports on
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carbon-related metrics, including Scope 1, 2, and 3
greenhouse gas emissions, by financial institutions and
their counterparties. The International Sustainability
Standards Board’s (ISSB) inaugural standards for
sustainability-related disclosures, issued in June 2023,
is expected to establish a common global baseline for
corporate sustainability disclosures. However,
regulators in countries where institutions are not yet
required to adopt ISSB standards will still face data
challenges around the standards, costs, and verification
aspects of the required data.
In addition to playing a supervisory role to manage
finance sustainably (what this report refers to as Track 2
of the two types of sustainable finance), regulators can
also decisively shift capital into low-carbon investments
(Track 1 of the two types of sustainable finance). Their
work in sustainable finance roadmaps, sustainable
finance taxonomies, and GSS+ bond and loan
frameworks create clarity, boost integrity, and signal to
investors the credibility of intentions to undertake a
sustainable finance trajectory. Emerging transition
finance taxonomies have the potential to also credibly
direct the market towards supporting the transition from
brown to green activities and incentivize the reduction of
emissions. Regulators can thus steadily encourage
financial institutions and corporations to credibly
transition through the implementation of voluntary and
mandatory sustainable finance requirements.
The adoption of sustainable finance roadmaps is a
promising first step, but their mostly voluntary nature
may not accelerate urgent and widespread change. Net
zero commitments, or any obligation to the net zero
transition, are currently not mandatory across most of
Asia and the Pacific. Coal financing and fossil fuel
financing is still on the rise, powered by the increase in
energy demand across Asia and the Pacific.
Policymakers and regulators in the region must
therefore take urgent and decisive action as the report
outlines.
What can private finance do?
The Sixth Assessment Report of the Intergovernmental
Panel on Climate Change (IPCC) 2023 highlights that
there is sufficient global capital and liquidity to close
the global investment gap. In Asia and the Pacific,
trillions of dollars of capital are held predominantly in
the bank lending market, and trillions are also held in
capital markets. This private finance will now have to
step up to the challenge. Regulators have an important
role, as discussed, in incentivising this private finance to
shift towards green objectives, and in creating an
efficient and level playing field. The universe of private
finance in Asia and the Pacific includes banks who lend
to businesses in the real economy; capital market
issuers of equity and debt securities; asset owners
(pension funds, sovereign wealth funds, foundations,
endowments, trusts, family offices); and asset
managers (mutual fund managers, investment advisors,
stockbrokers). Development financial institutions such
as multilateral development banks (MDBs), bilateral
development financial institutions, and national
development banks play an increasingly critical and
catalytic role in shifting risk, promoting standards,
mobilising private finance and building capacity.
Historically, private finance has operated under
traditional norms of fiduciary duty, which is now
changing. The architecture governing both the duties of
directors of companies as well as companies’ climate-
related and sustainability disclosures, which are mostly
voluntary in Asia and the Pacific now, is being
transformed. Financial institutions and companies will
increasingly be required to comply with a strengthening
mesh of sustainability requirements if they wish to
continue operating in regulated markets. As they do so,
and they increasingly commit to net-zero aligned
operations, these Asia-Pacific private finance actors will
have to increase the scale of their investing operations
in net-zero aligned activities. This will infuse much
needed local currency into the net zero transition in the
region, if suitable projects and activities are present at
scale.
On the supply side, much more needs to be done
differently in terms of building green projects that are
ready to meet the needs of a range of investors.
Common transaction templates in new sectors and
countries can be developed and shared by investors,
creating a common transaction lexicon in uncharted
territories. Investors also need to participate in pre-
investment project-building, at earlier stages, despite the
resource costs such efforts may entail, in order to bring
first-mover projects in challenging sectors and locations
to fruition, and then to replicate such projects. Private
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financial institutions in Asia and the Pacific need to
engage in learning how to invest in what may seem to be
riskier projects, and how to build and assess capital
structures that involve blended finance and a multiplicity
of standards. For such green project pipelines to
genuinely meet the needs and standards of multiple
investors at scale, new partnership approaches are
needed that move away from a deal-by-deal basis to a
platform basis. This is a different way of doing
business, and part of the transformation that is needed
across the system.
Ten principles of action to bridge Asia-Pacific's
sustainable finance gap
This report puts forward a ten-point action plan to
accelerate sustainable finance in Asia and the Pacific.
These ten actions summarize in-depth
recommendations found in each chapter for
governments, regulators and private finance. These ten
actions below are grouped into actions to be taken by
governments, regulators, and private finance.
Governments and regulators
1. New climate finance partnerships are developed
through which governments, regulators, MDBs, and
private finance commit to action around specific
goals and contribute specific tasks in line with this
shared goal. Just Energy Transition Partnerships,
which are led and owned by countries, provide a
useful model for the region, especially if execution
can be accelerated.
2.
Effective NDC financing strategies are developed,
led by authorities with clear mandates, which signal
credible transition pathways with interim targets
and clear resource mobilization plans. This will
provide a clear and vital signal to investors,
businesses, and project developers that
governments are committed to change. This signal
of reliability, stability, and predictability is a core
part of costs around projects.
3. Policy coherence and capacities are developed
across key government ministries such as finance,
energy, transport, and environment, ultimately
reducing the costs of financing. Governments need
to invest in both the effort for such coordination
and the capacities for such coordination. This will
also allow governments to better work with MDBs,
DFIs, and development partners to obtain the
assistance they need in the timeframe they need it
in.
4. Decisive regulatory action takes place to shift
capital in Asia and the Pacific towards the net zero
transition. Asia and the Pacific is home to
significantly large pools of capital capable of
bridging the gap in sustainable finance. Regulators
need to adopt a more active role in shifting capital
towards climate action, recognizing that doing so
will strengthen financial stability in the system, as
well as create a level playing field for all. In doing
so, regulators will also need to move towards
consistent taxonomies and roadmaps across
countries, to create a level playing field.
5. Investment in the capacities of financial personnel
to assess climate risk, innovate green financial
instruments, and supervise the transition path of
the green economy is undertaken. International
groupings such as the Network for Central Banks
and Supervisors for Greening the Financial System
(NGFS) or the Sustainable Banking and Finance
Network (SBFN) can be effective to promote peer-
learning among members.
6. Investment in much-needed sectoral and project-
based financial data is undertaken. Common data
platforms that share valuable data on ESG, climate,
nature, contracts, clauses standards, targets, and
deals (where possible) will streamline investment,
assist benchmarking, strengthen credibility and
ensure higher replicability.
Private finance - Asia-Pacific banks, investors and
issuers.
7. Commitments to net zero pledges for 2050 with
credible transition pathways including 2030 goals
are made. The slowness of banks in Asia and the
Pacific to commit to net zero and transition their
lending and investing portfolios with interim 2030
science-based targets is a serious brake on driving
finance towards climate action in the region.
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8.
Local-currency financing of energy transition
projects as well as green technologies and other
net-zero investments is increased. Local-currency
financing is critical to accelerate the scale and pace
of private finance because it can fund projects that
do not have to reach a higher rate of return just to
cover exchange rate risk as well as provide other
benefits. Increased net-zero commitments by
private finance in Asia and the Pacific (number 7
above) combined with a focus on investing in the
energy transition in their local currency will leverage
and bring forward the needed investment at scale.
9. Concessional financing and risk-sharing by
multilateral development banks, bilateral
development financial institutions, and public
development banks is expanded and accelerated.
This will de-risk otherwise sound projects and
ultimately leverage significant private capital. A 1:5
ratio, like ADB’s goal, can be one benchmark to
ensure that concessional funds truly leverage
private finance and go towards well-structured
projects. This will also guarantee well-designed
projects in which concessional finance truly
catalyzes and mobilizes greater private finance. In
doing so, however, it is critical to ensure the project
is both high impact to support the net-zero-
transition and commercially attractive.
10. Investment of time and effort with partners in
project preparation is increased in more challenging
markets, whether it is in the LDCs, SIDS, or in new
green technologies. Setting up a modality in which
project developers and financial institutions
regularly meet and co-create green projects in a
progressive and iterative manner can accelerate the
preparation of effective pipelines of bankable green
projects at scale. While large projects have lower
transaction costs, investing in project preparation
for smaller-ticket projects will ensure a long-term
pipeline of large projects. Ultimately good project
preparation brings down the risk of projects when
implemented.
ESCAP FINANCING FOR DEVELOPMENT SERIES NO. 5
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x
ACKNOWLEDGMENTS
Since its inception in 2015, the ESCAP biennial series on financing for development has published research on a range of
critical issues on financing for development from the regional perspective of Asia and the Pacific. This research
contributes to regional and national dialogues on strategies for the implementation of selected aspects of financing for
development as advanced by the Addis Ababa Action Agenda.
The 5th edition of the series was prepared by a core team at ESCAP led by Suba Sivakumaran (Chief, Financing for
Development Section) and comprising of Chiara Amato, Pierre Horna, Alberto Isgut and Latipat Mikled from the Financing
for Development Section of the Macroeconomic Policy and Financing for Development Division as well as external
consultant Michael Coates.
Hamza Ali Malik, Director of the Macroeconomic Policy and Financing for Development Division, has provided overall
leadership and shared valuable comments and suggestions at various stages of preparation of this publication.
A technical review was conducted by Patrick Martin and Deanna Morris, also from the Financing for Development Section
of the Macroeconomic Policy and Financing for Development Division. Michael Williamson and Michael David Waldron
from the Energy Division of ESCAP provided technical inputs on financing the energy transition. Heather Lynne Taylor-
Strauss from the Trade, Investment and Innovation Division provided inputs on foreign direct investment.
Significant research assistance was provided by the following ESCAP consultants, interns and UN volunteers: Maria d’
Amato, Zeinab Elbeltagy, Riley Green, Sophie Hunter, Nilaphy Phommachanh and Haoyue Tan.
The preparation of the report benefitted from extensive discussions and consultations with a broad range of stakeholders.
Two review discussions were held: at the ESCAP Roundtable on The Next Frontier for Sustainable Finance at the
Singapore FinTech Festival on 4 November 2022 and during the ESCAP Expert Group Meeting on Public Debt and
Sustainable Financing that took place on 28 November – 2 December 2022 in Bangkok, Thailand. Additional feedback was
provided through a series of consultations with experts and practitioners, including representatives of government
agencies, regulators, investors, banks, private organizations, think-tanks, and academia listed below. We would also like to
thank a number of stakeholders for their inputs who wished to remain anonymous.
Name
Organization
Title
Abhishek Kaul
IBM
Associate Partner, Sustainability & Analytics
Aigul Kussaliyeva
Astana International Financial Centre - Green
Finance Centre
Director of Sustainable Development of AIFC
Authority
Allinnettes Adigue
Global Reporting Initiative
Head GRI ASEAN Regional Hub
Aziz Durrani
ASEAN+3 Macroeconomic Research Office
Capacity Development Expert
Chea Serey
National Bank of Cambodia
Director General
Darian McBain
Outsourced Chief Sustainability Officer Asia
CEO
Erik Grigoryan
Environment Group
Founder and CEO
Eugene Wong
Sustainable Finance Institute Asia
CEO
Ines Marques
Green Hydrogen Organization
Director of the Green Hydrogen Development
Plan
Jaclyn Dove
Standard Chartered Bank
Head of Sustainable Finance Strategic
Initiatives
Kelvin Lester K. Lee
Securities and Exchange Commission,
Philippines
Commissioner
Kelvin Tan
HSBC
Managing Director, Head of Sustainable
Finance & Investments, ASEAN
Kosintr Puongsophol
Asian Development Bank
Financial Sector Specialist
Kristina Anguelova
WWF Sustainable Finance Institute Asia
Head of Asia Sustainable Finance
Lise Pretorius
Matter
Head of Sustainability
Liz Curmi
Citi Global Insights
Head of Energy transition and Climate finance
ESCAP FINANCING FOR DEVELOPMENT SERIES NO. 5
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Name
Organization
Title
Lyn Javier
Bangko Sentral ng Pilipinas
Assistant Governor, Policy and Specialized
Supervision Sub-Sector
Maria Perdomo
UNCDF
Regional Coordinator, Asia and the Pacific
Michael Salvatico
S&P Global Sustainable1
Head of Asia, Pacific, Middle East & Africa ESG
Solutions
Miranda Carr
MSCI
Global Head of Applied ESG & Climate
Research
Nasir Zubairi
Luxembourg House of Financial Technology
CEO
Nicholas Gandolfo
Sustainalytics Corporate Solutions, Singapore,
Sustainalytics
Vice President
Nikita Bajracharya
Dolma Advisors
Senior Investment Manager
Paul Dickinson
CDP - Disclosure Insight Action
Founder Chair
Piyawan Khemthongpradit
Bank of Thailand
Assistant Director, Financial Institutions
Strategy Department
Ricco Zhang
International Capital Market Association
Senior Director, Asia Pacific
Robert Willem van Zwieten
Route17
Founding Partner
Satoru Yamadera
Asian Development Bank
Advisor
Steve Cochrane
Moody’s Analytics
Chief APAC Economist
Thammachart
Thammaprateep
Bank of Thailand
Senior Analyst, Financial Institutions Strategy
Department
TMJYP Fernando
Central Bank of Sri Lanka
Senior Deputy Governor
Ulrich Volz
SOAS University of London
Director, Centre for Sustainable Finance &
Professor of Economics
Youraden Seng
National Bank of Cambodia
Director, Banking Supervision Department II
Yuki Yasui
Asia-Pacific Network of the Glasgow Financial
Alliance for Net Zero
Director
Bank of America
Patchara Arunsuwannakorn and Pranee Samchaiwattana of the Financing for Development Section in the Macroeconomic
Policy and Financing for Development division provided valuable administrative and logistical assistance throughout the
project. Communication strategies, typesetting and layout for this report was led by Veerawin Su, also of the Financing for
Development Section in the Macroeconomic Policy and Financing for Development Division.
The manuscript was edited by Dana MacLean.
Graphic design and typesetting services were provided by Dilucidar.
This report is available online here: https://hdl.handle.net/20.500.12870/6224
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EXPLANATORY NOTES
▪ The United Nations Economic and Social Commission of Asia and the Pacific (ESCAP) is one of the five regional
commissions of the United Nations Secretariat and promotes cooperation among its 53 member States and nine
associate members in pursuit of solutions to sustainable development challenges. The Economic and Social
Commission for Asia and the Pacific (ESCAP) is the most inclusive intergovernmental platform in the Asia-Pacific
region.
▪ The ESCAP secretariat supports inclusive, resilient, and sustainable development in the region by generating action-
oriented knowledge, by providing technical assistance and capacity-building services in support of national
development objectives, regional agreements, and the implementation of the 2030 Agenda for Sustainable
Development, and in supporting and facilitating member states in inter-governmental coordination, resolutions, and
commitments.
▪ For all enquiries to the Financing for Development Section, Macroeconomic Policy and Financing for Development
Division, please send queries to: escap-mpdd@un.org
Groupings of countries and territories/areas referred to are listed alphabetically as follows:
▪ ESCAP region: Afghanistan; American Samoa; Armenia; Australia; Azerbaijan; Bangladesh; Bhutan; Brunei
Darussalam; Cambodia; China; Cook Islands; Democratic People’s Republic of Korea; Fiji; France; French Polynesia;
Georgia; Guam; Hong Kong, China; India; Indonesia; Iran (Islamic Republic of); Japan; Kazakhstan; Kiribati;
Kyrgyzstan; Lao People’s Democratic Republic; Macao, China; Malaysia; Maldives; Marshall Islands; Micronesia
(Federated States of); Mongolia; Myanmar; Nauru; Nepal; Netherlands (Kingdom of the); New Caledonia; New
Zealand; Niue; Northern Mariana Islands; Pakistan; Palau; Papua New Guinea; the Philippines; the Republic of Korea;
the Russian Federation; Samoa; Singapore; Solomon Islands; Sri Lanka; Tajikistan; Thailand; Timor-Leste; Tonga;
Türkiye; Turkmenistan; Tuvalu; United Kingdom of Great Britain and Northern Ireland; United States of America;
Uzbekistan; Vanuatu; and Viet Nam.
▪ Least developed countries: Afghanistan, Bangladesh, Bhutan, Cambodia, Kiribati, Lao People’s Democratic Republic,
Myanmar, Nepal, Solomon Islands, Timor-Leste, Tuvalu. Samoa and Vanuatu were part of the least developed
countries prior to their graduation in 2014 and 2020, respectively.
▪ Landlocked developing countries: Afghanistan, Armenia, Azerbaijan, Bhutan, Kazakhstan, Kyrgyzstan, Lao People’s
Democratic Republic, Mongolia, Nepal, Tajikistan, Turkmenistan, and Uzbekistan.
▪ Small island developing States: American Samoa, Cook Islands, Fiji, French Polynesia, Guam, Kiribati, Maldives,
Marshall Islands, Micronesia (Federated States of), Nauru, New Caledonia, Niue, Northern Mariana Islands, Palau,
Papua New Guinea, Samoa, Solomon Islands, Timor Leste, Tonga, Tuvalu, and Vanuatu.
▪ East and North-East Asia: China; Democratic People’s Republic of Korea; Hong Kong, China; Japan; Macao, China;
Mongolia; and the Republic of Korea.
▪ North and Central Asia: Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, the Russian Federation, Tajikistan,
Turkmenistan, and Uzbekistan.
▪ The Pacific: American Samoa, Australia, Cook Islands, Fiji, French Polynesia, Guam, Kiribati, Marshall Islands,
Micronesia (Federated States of), Nauru, New Caledonia, New Zealand, Niue, Northern Mariana Islands, Palau, Papua
New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu.
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▪ South and South-West Asia: Afghanistan, Bangladesh, Bhutan, India, Iran (Islamic Republic of), Maldives, Nepal,
Pakistan, Sri Lanka, and Türkiye.
▪ South-East Asia: Brunei Darussalam, Cambodia, Indonesia, Lao People’s Democratic Republic, Malaysia, Myanmar,
the Philippines, Singapore, Thailand, Timor-Leste, and Viet Nam.
Owing to the limited availability of data, selected small island developing States are excluded from the analysis.
This publication and the material herein are provided “as is”. All reasonable precautions have been taken by ESCAP to
verify the reliability of the material in this publication. However, neither ESCAP nor any of its staff, consultants, data or
other third-party content providers provides a warranty of any kind, either expressed or implied, and they accept no
responsibility or liability for any consequence of use of the publication or material herein.
References to dollars ($) are to United States dollars, unless otherwise stated.
The term “billion” signifies a thousand million. The term “trillion” signifies a million million.
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ABBREVIATIONS AND ACRONYMS
ADB. . . . Asian Development Bank
GBP. . . .
Green Bond Principles
AIFC . . .
Astana International Financial Centre
GCF . . . . Green Climate Fund
AIIB. . . .
Asian Infrastructure Investment Bank
GDP . . . . Gross Domestic Product
APAC. . .
Asia-Pacific
GEF. . . .
Global Environment Facility
ASEAN. . . Association of Southeast Asian Nations
GFANZ . . . Glasgow Financial Alliance for Net Zero
AUM. . . . Assets Under Management
GFSG. . . . G20 Green Finance Study Group
BCBS. . . . Basel Committee on Banking Supervision
GGGI. . . . Global Green Growth Institute
BII. . . .
British International Investment
GH2. . . .
Green Hydrogen Organisation
BIS. . . .
Bank of International Settlements
GHGs. . . . Greenhouse Gas Emissions
BoE. . . .
Bank of England
GISD. . . . Global Investors for Sustainable Development Alliance
BOJ. . . .
Bank of Japan
GPIF. . . . Government Pension Investment Fund of Japan
BOT. . . .
Bank of Thailand
GRI. . . .
Global Reporting Initiative
BSP. . . .
Bangko Sentral ng Pilipinas
GSF. . . .
Green and Sustainable Finance Grant Scheme
BSTDB. . . Black Sea Trade and Development Bank
GSLS. . . . Green and Sustainability-Linked Loan Grant Scheme
CAF. . . .
Capital Adequacy Frameworks
GSS+. . . . Green, Social, Sustainability and Other Labeled
CBD. . . . Convention of Biological Diversity
HKD. . . .
Hong Kong Dollar
CBI. . . .
Climate Bonds Initiative
HKMA. . .
Hong Kong Monetary Authority
CBIT. . . . Capacity-building Initiative for Transparency
HTA. . . .
Hard to Abate
CCLI. . . . Commonwealth Climate and Law Initiative
ICMA. . . . International Capital Market Association
CEB. . . .
Council of Europe Development Bank
IEA. . . .
International Energy Agency
CEO. . . .
Chief Executive Officer
IFC. . . .
International Finance Corporation
CEPR. . . . Center for Economic Policy Research
IF-CAP. . . Innovative Finance Facility for Climate in Asia and the
Pacific
CGI. . . .
Climate Governance Initiative
IFRS. . . .
International Financing Reporting Standards
CGIF. . . . Credit Guarantee and Investment Facility
IISD. . . .
International Institute for Sustainable Development
CGT . . . . Common Ground Taxonomy of European Union and
China
IMF. . . .
International Monetary Fund
COP. . . . Conference of the Parties
INFFs. . . . Integrated National Financing Frameworks
DFC. . . .
The United States International Development
Finance Corporation
IPCC . . . . Intergovernmental Panel on Climate Change
DFIs. . . . Development Financial Institutions
IPG. . . .
International Partners Group
EBRD. . . . European Bank for Reconstruction and Development IPOs. . . . Initial Public Offerings
EIB. . . .
European Investment Bank
IRENA. . . . International Renewable Energy Agency
ESCAP. . . United Nations Economic and Social Commission
for Asia and the Pacific
IsDB. . . . Islamic Development Bank
ESG. . . .
Environmental, Social, and Governance
ISSB. . . . International Sustainability Standards Board
ESMA. . . European Securities and Markets Authority
ITAP. . . . Independent Technical Advisory Panel
ESRM. . .
Environmental and Social Risk Management
ITMOs. . .
Internationally Transferred Mitigation Outcomes
ETS . . . . Emissions Trading Systems
JETPs. . . . Just Energy Transition Partnerships
EUR. . . .
Euro
KPIs. . . . Key Performance Indicators
FDI. . . .
Foreign Direct Investment
LDCs. . . . Least Developed Countries
FIs. . . .
Financial Institutions
LDCF. . . . Least Developed Countries Fund
FMO . . . . Dutch Entrepreneurial Development Bank
LHoFT . . . Luxembourg House of Financial Technology
FSB . . . . Financial Stability Board
MAS. . . . Monetary Authority of Singapore
G20. . . .
Group of Twenty
MCFs. . . . Multilateral Climate Funds
GBF . . . . Global Biodiversity Framework
MDBs. . . . Multilateral Development Banks
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MRV. . . . Monitoring, Reporting, and Verification
SGX. . . .
Singapore Exchange
MSCI. . . . Morgan Stanley Capital International
SIDS. . . . Small Island Developing States
MSMEs . . .
Micro, Small and Medium Enterprises
SIFEM. . . . Swiss Investment Fund for Emerging Markets
NDBs. . . . National Development Banks
SLBs. . . . Sustainability-linked Bonds
NDCs. . . . Nationally Determined Contributions
SLLs. . . . Sustainability-linked Loans
NGFS . . . . Network for Greening the Financial System
SMEs. . . . Small and Medium Enterprises
NGO. . . . Nongovernmental Organization
SPTs. . . . Sustainability Performance Targets
Norfund. . . Norwegian Investment Fund
SSE. . . .
Sustainable Stock Exchange
NPIF. . . . Northern Powerhouse Investment Fund
SUSREG. . . WWF's Sustainable Financial Regulations and Central
Bank Activities
NZBA. . . . Net-Zero Banking Alliance
TCFD. . . . Task Force on Climate-Related Financial Disclosures
ODA. . . . Official Development Assistance
tCO2. . . . Tons of carbon dioxide
OECD. . . . Organisation for Economic Co-operation and
Development
TNFD. . . . Taskforce on Nature-Related Financial Disclosures
OECD DAC. OECD Development Assistance Committee
UNCDF. . . United Nations Capital Development Fund
OJK. . . .
Otoritas Jasa Keuangan (Financial Services
Authority of Indonesia)
UNCTAD. .
United Nations Conference on Trade and Development
PCT. . . .
Preferred Creditor Treatment
UNDP. . . . United Nations Development Programme
PEPs. . . . Politically Exposed Persons
UNEP. . . .
United Nations Environment Programme
PV. . . .
Photovoltaic
UNEP FI. . . United Nations Environment Programme Finance
Initiative
SBFN. . . . Sustainable Banking and Finance Network
UNFCCC. . . United Nations Framework Convention on Climate
Change
SBV. . . .
State Bank of Viet Nam
UNICEF. . .
United Nations Children’s Fund
SDGs. . . . Sustainable Development Goals
USD. . . . United States Dollar
SERC. . . . Securities and Exchange Regulator of Cambodia
WBG. . . . World Bank Group
SGD. . . . Singapore Dollar
WWF. . . . World Wildlife Fund
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CONTENTS
FOREWORD
IV
EXECUTIVE SUMMARY
V
ACKNOWLEDGMENTS
X
EXPLANATORY NOTES
XII
ABBREVIATIONS AND ACRONYMS
XIV
1. INTRODUCTION
2
A.
Progress in the Asia-Pacific region towards the Sustainable Development Goals
3
B.
What is sustainable finance?
10
C.
Concluding remarks: How can countries raise sufficient sustainable finance?
18
2. WHAT CAN GOVERNMENTS DO?
21
A.
Introduction
21
B.
Trends and opportunities
25
C.
Challenges
40
D.
Recommendations
43
3. WHAT CAN REGULATORS DO?
50
A.
Introduction
50
B.
What is the role of financial regulators in sustainable finance?
50
C.
Trends and opportunities
51
D.
Challenges
65
E.
Recommendations
66
F.
Conclusion
68
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4. WHAT CAN PRIVATE FINANCE DO?
70
A.
Introduction
70
B.
Trends and opportunities
72
C.
Challenges
85
D.
Recommendations
88
5. TEN PRINCIPLES OF ACTION TO BRIDGE THE SUSTAINABLE FINANCE GAP
IN ASIA AND THE PACIFIC
92
REFERENCES
94
ANNEXES
99
Annex A: Climate financing needs in Asia and the Pacific
99
Annex B: Credit ratings
100
Annex C: Access to UNFCCC Financing
102
Annex D: Carbon pricing initiatives in Asia and the Pacific
103
Annex E: List of stakeholders
104
ENDNOTES
106
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FIGURES AND TABLES
Figure 1.1: Progress in achieving the SDGs in Asia and the Pacific as of 2022.
................................................ 4
Figure 1.2: Progress in achieving the 2030 SDGs targets in Asia and the Pacific by subregion and goal
as of 2022. ................................................................................................................................................... 5
Figure 1.3: Status of carbon neutrality commitments of ESCAP members, 2022. ............................................. 6
Figure 1.4: Asia-Pacific scenarios for GHG emissions. ................................................................................... 7
Figure 1.5: Global climate finance flows in 2017-2020 by sector. .................................................................... 8
Figure 1.6: Inflation rate in Asia and the Pacific and the upper bound of inflation target, 2021-2022.
................ 9
Figure 1.7: Interest rates in Asia-Pacific economies follow monetary tightening in selected economies. .......... 9
Figure 1.8: 10-year sovereign bond yield in selected economies in Asia and the Pacific, as of end of
2022. ......................................................................................................................................................... 10
Figure 1.9: The two tracks of sustainable finance: use-of-proceeds-based and sustainably-managed
finance.
...................................................................................................................................................... 13
Figure 1.10: The sustainable finance ecosystem. ......................................................................................... 15
Figure 1.11: Sustainable finance stakeholder mapping. ................................................................................ 16
Figure 2.1: Strong correlation between IMF Financial Development Index and GDP per capita. ....................... 21
Figure 2.2: Status of IMF financial market and financial institutions index components, 2020. ....................... 22
Figure 2.3: Thematic and performance-based bonds mapping. ..................................................................... 26
Figure 2.4: GSS+ bond issuance value in Asia and the Pacific, 2015-2022 (billions of United States
dollars). ..................................................................................................................................................... 26
Figure 2.5: Cumulative GSS+ sovereign, corporate and public bond issuance in Asia and the Pacific by
country, 2015-2022 (billions of United States dollars).
.................................................................................. 27
Figure 2.6: Cumulative GSS+ bond issuance value of public sector in Asia and the Pacific by country
and issuer type since 2015, as of end of 2019 and 2022 (billions of United States dollars). ........................... 28
Figure 2.7: Cumulative GSS+ bond issuance value in Asia and the Pacific by currency and issuer type,
2015-2019 and 2015-2022. ......................................................................................................................... 30
Figure 2.8: Cumulative GSS+ bond issuance in Asia and the Pacific by currency (per cent), 2015-2022.
.......... 31
Figure 2.9: Carbon pricing initiatives at national and sub-national level in Asia and the Pacific....................... 32
Figure 2.10: Climate finance to Asia and the Pacific over time and by financing instrument. .......................... 39
Figure 2.11: Access to GEF and GCF climate finance in Asia and the Pacific. ................................................ 46
Figure 3.1: Transmission channels from climate risks to financial risks. ....................................................... 52
Figure 3.2: Alternative scenarios and impacts of financial risks due to climate-related risks. ......................... 53
Figure 3.3: Scope 1 emissions of the top 100 issuers by market. .................................................................. 54
Figure 3.4: Implementation of the TCFD recommendations and use of climate-related disclosures. ............... 55
Figure 3.5: Number of organizations in Asia and the Pacific that have declared support for TCFD
recommendations.
...................................................................................................................................... 56
Figure 3.7: Green and sustainable finance taxonomy development in Asia and the Pacific. ............................ 62
Figure 3.8: Timeline of taxonomy development. ........................................................................................... 64
Figure 4.1: Bank lending to private sector as % of GDP. ................................................................................ 73
Figure 4.2: GSS+ loans in Asia and the Pacific, 2017–2022 (billions of United States dollars). ....................... 74
Figure 4.3: GSS+ loans in Asia and the Pacific by country, 2017–2022 (billions of United States
dollars). ..................................................................................................................................................... 74
Figure 4.4: GSS+ bonds and loans of corporate issuances in Asia and the Pacific, 2021–2022 (billions
of United States dollars). ............................................................................................................................ 75
Figure 4.5: Debt levels of emerging market and developing economy companies operating in fossil fuel
industries. .................................................................................................................................................. 76
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Figure 4.6: Market capitalization of Asia-Pacific stock exchanges by country, 2019-2023. ............................. 76
Figure 4.7: Total equity capital raised in Asia and the Pacific, 2019-2022. ..................................................... 77
Figure 4.8: FDI inflows into climate mitigation and adaptation versus fossil fuels in Asia and the
Pacific, 2016-2022 (millions of United States dollars). ................................................................................. 78
Figure 4.9: FDI inflows into climate mitigation projects in Asia and the Pacific, 2016-2022 (millions of
United States dollars). ................................................................................................................................ 78
Figure 4.10: Top nine MDBs and DFIs in Asia and the Pacific by climate-related development finance.
........... 80
Figure 4.11: MDBs climate-related development finance in Asia and the Pacific by adaptation and
mitigation, 2020 (millions of United States dollars) ...................................................................................... 81
Figure 4.12: MDBs and DFIs climate-related development finance in ESCAP members by sector,
financial instrument, and concessionality type. ............................................................................................ 82
Figure 4.13: Total amount of mobilized private finance by MDBs across regions, 2020. ................................. 83
Table 1.1: Examples of sustainable finance definitions. ............................................................................... 11
Table 1.2: Range of potential approaches to accounting for climate finance flows. ....................................... 17
Table 2.1: First time GSS+ bond issuers in 2021–2022. ................................................................................ 29
Table 2.2. Opportunities and challenges of debt swaps for the involved parties. ........................................... 35
Table 2.3: Climate-related development finance committed by developed countries to Asia-Pacific
countries through various channels in 2021 (in millions of United States dollars). ......................................... 37
Table 2.4: GSS+ bond issuance and sovereign/jurisdiction credit ratings. ..................................................... 42
Table 3.1: The TNFD revised draft nature-related disclosure recommendations. ............................................ 57
Table 3.2: Implemented national sustainable finance roadmaps. .................................................................. 60
Table A.1: Financing needs for mitigation and adaptation in Asia and the Pacific from nationally
determined contributions (millions of United States dollars).
........................................................................ 99
Table B.1: Credit ratings of ESCAP members and rated dates. .....................................................................
100
Table B.2: Investment VS non-investment grade.
.........................................................................................
101
Table C.1: ESCAP members and associate members that have not accessed UNFCCC climate finance
mechanisms.
.............................................................................................................................................
102
Table D.1: Status and progress of carbon pricing initiatives at national and sub-national level in Asia
and the Pacific. .........................................................................................................................................
103
Table E.1: Singapore FinTech Festival expert roundtable discussants. .........................................................
104
Table E.2: Stakeholders consulted for the key informant interviews. ............................................................
105
Table E.3: List of speakers at ESCAP Expert Group Meeting on Public Debt and Sustainable Financing
in Asia and the Pacific. ..............................................................................................................................
105
Box 2.1: LDCs and SIDS and carbon offset markets.
..................................................................................... 34
Box 3.1: Cambodia and ASEAN sustainable finance roadmaps. .................................................................... 60
Box 3.2: Thailand sustainable finance initiatives. ......................................................................................... 60
Box 3.3: ESCAP’s work on green bond frameworks.
...................................................................................... 61
Box 3.4: Cambodian Sustainable Bond Accelerator. ..................................................................................... 63
Box 4.1: Foreign direct investment into climate mitigation and adaptation .................................................... 78
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2
1. INTRODUCTION
The global financing gap to reach net zero emissions by
2050 is substantial. For example, the Sharm-el-Sheikh
Implementation Plan of the COP 27 highlights that
approximately $4 trillion per year needs to be invested in
renewable energy alone until 2030 to reach net zero
emissions by 2050.3 In addition, the global
transformation to a low-carbon economy is expected to
require investment of at least between $4 and $6 trillion
annually.4 Developing countries need to put up an
estimated $5.8-5.9 trillion5 in the pre-2030 period to
meet their Nationally Determined Contributions (NDCs).
To adapt to climate change, according to the
Intergovernmental Panel on Climate Change (IPCC),
developing countries require $127 billion per year by
2030 and $295 billion per year by 2050. But the
disparities are stark; funds for adaptation only reached
49 billion in 2019/20, accounting for about 6 per cent of
tracked climate finance.6 At the same time, the IPCC
found that public and private financial flows for fossil
fuels are greater than those directed toward climate
mitigation and adaptation.7
Climate change under a high emissions scenario could
impose Gross Domestic Product (GDP) losses of 24 per
cent in the whole of developing Asia, 35 per cent in
India, 30 per cent in South-East Asia, and 24 per cent in
the rest of South Asia by 2100.8 According to ESCAP,9
the region faces increasing frequency and severity of
storms, flooding, heat waves, and droughts due to
climate change. Of the 10 countries most affected by
these disasters globally, six are in Asia and the Pacific,
where climate-related impacts have disrupted food
systems, undermined economies and damaged
societies.10 Across the region, the average economic
losses resulting from disaster-related and other natural
hazards in Asia and the Pacific costs an estimated $780
billion per year. This is forecast to increase to $1.1
trillion in a moderate climate-change scenario and $1.4
trillion in a worst-case scenario.11 On the other hand,
economic losses as a percentage of GDP have risen
faster in Asia and the Pacific than at the global level.12
Natural resource–based sectors, such as agriculture
and fisheries, that are directly affected by climate,
account for around one-third of total employment in the
region.13 Beyond threatening the livelihoods of Asia’s
poor, climate change may also put at risk regional and
global food security. For these reasons, climate action
is at the heart of 2030 Agenda for Sustainable
Development for the region.
Asia-Pacific economies urgently need to step up action
to tackle the climate challenge. The Asia-Pacific region
is home to five of the 10 largest emitters in the world
and accounts for almost half of the world’s greenhouse
gas emissions. It is also one of the most vulnerable
regions to climate change. Economic growth in the
region has relied heavily on emission-intensive
activities, with the emission intensity of GDP estimated
to be 41 per cent higher than the rest of the world.14
Additionally, there is a climate ambition gap,15 with Asia-
Pacific regional NDCs falling short of the required
climate ambition to effectively reduce greenhouse gas
emissions in support of the 1.5ºC global warming
pathway.
The Sixth Assessment Report of the IPCC 2023
highlights that there is sufficient global capital and
liquidity to close the global investment gap.16 However,
there are barriers to deploy capital for climate action,
both within and outside the financial sector and in the
context of increased economic vulnerabilities and
indebtedness facing developing countries.17 Reducing
the obstacles to scale up financial flows requires clear
signalling and government support, including stronger
alignment from public finances to lower the real and
perceived regulatory cost, and market barriers and risks
while improving the risk-return profile of investments. At
the same time, depending on national contexts, financial
actors — including investors, financial intermediaries,
central banks, and financial regulators — can address
the systemic under-pricing of climate-related risks and
reduce sectoral and regional mismatches between
available capital and investment needs.18 These insights
are echoed in our analysis, consultations, and interviews
and are further elaborated in this report.
In addition to financing climate action, a separate
stream of public and private finance is required for
biodiversity and nature objectives. Countries will have to
further align both climate and nature financing
approaches with their commitments to the landmark
Kunming-Montreal Global Biodiversity Framework (GBF),
adopted by 188 countries19 to halt and reverse nature
loss, as well as the Paris Agreement. The Kunming-
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Montreal GBF includes four overarching goals and
twenty-three accompanying targets to be achieved by
2030, together with four long-term goals to achieve the
2050 Vision for Biodiversity. To achieve these
biodiversity objectives, it aims to mobilize $200 billion
per year globally by 2030 to implement national
biodiversity strategies. Additionally, a target to increase
financial flows from developed countries to developing
countries to at least $20 billion per year by 2025 and
$30 billion per year by 2030, has also been set.
Furthermore, deforestation driven by land‑use change
and agriculture contributes around 11 per cent of annual
global greenhouse gas emissions, according to the
IPCC, reducing the effectiveness of existing carbon
sinks. As such, it has been suggested that the global
economy will not be able to reach net zero by 2050
without ending deforestation by 2025.20
The polycrisis brings further complexity to the choices
that need to be made to increase sustainable finance.
The term polycrisis, defined as the simultaneous
occurrence of related global adversities with
compounding effects,21 aptly describes the current set
of interlocking challenges that countries face. Rising
inflation, high public debt levels and increased debt
servicing burdens, combined with projections of
moderate economic growth across the globe, places
limits on fiscal manoeuvrability. Meanwhile, the food
and energy crisis spurred by the war in Ukraine has had
wide-ranging detrimental global impacts. The need to
ensure that the world limits global warming to between
1.5 ºC and 2ºC above pre-industrial levels, while also
addressing rising poverty and inequality, has increased
the importance of making clear and sustainable
financing choices.
Delivering sufficient sustainable finance to achieve
climate and biodiversity goals will require a
transformation of the financial system. It will also
require engagement with governments, central banks,
securities and exchange commissions, ministries of
environment, energy and transport, commercial banks,
institutional investors, and other private finance actors
— to name just a few. In this moment of interconnected
crises, there is heightened recognition and willingness
among all actors to systemically transform policy,
regulation, and finance. If chaos breeds opportunity,
then this is an opportunity for systemic transformation
that should not be missed.
In this report, we discuss the choices and implications
that policymakers, regulators, and private finance
institutions in Asia and the Pacific face. The decisions
and investments made today will have long-term
consequences for the region. In this biennial report, the
fifth within ESCAP’s Financing for Development series,
we examine the trends, challenges, and opportunities for
policymakers, regulators, and private finance (banks,
issuers, and investors) in Asia and the Pacific to
mobilize and deploy sustainable finance, particularly for
climate action. We then put forward ten principles for
action for our member states to chart the way forward.
Our focus in this report is to help policymakers,
regulators and private finance actors understand the
implications of choices that need to be made to bridge
the financing gap in the region. The report aims to spur
a robust and informed debate amongst member States,
drive consensus on key measures to move the region
towards sustainability and bring greater clarity to the
short- and long-term benefits and consequences of
these policy and financing choices.
A.
Progress in the Asia-
Pacific region towards
the Sustainable
Development Goals
The region is falling behind on
achieving the Sustainable
Development Goals
As of 2022, the region is not on track to achieve any of the
SDGs, as seen in Figure 1.1. While the region has
progressed relatively more in Goals 7 (Affordable and
clean energy) and 9 (Industry, innovation, and
infrastructure) and 10 (Reduced Inequalities) since
2015, it has regressed significantly in Goal 13 (Climate
action) – a major focus of sustainable finance. This is
the case for all five subregions of ESCAP. On the other
end of the spectrum, although no SDG is on track in any
subregion, progress on Goals 1 (No poverty), 3 (Good
health and well-being), and 9 (Industry, innovation and
infrastructure) was higher than 50 per cent of being on
track in at least three of the five subregions.
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Figure 1.1: Progress in achieving the SDGs in Asia and the Pacific as of 2022.
Source: ESCAP Statistical Database.22
Among the five subregions, the largest challenges are
faced by the Pacific subregion, where six out of the 17
SDGs show regression in 2022 compared to 2015.
Across subregions, as seen in Figure 1.2 below, the top
performer economies are in the East and North-East
Asia and South-East Asia subregions, particularly on
SDG 1 (No poverty) and SDG 15 (Life on Land) in East
and North-East Asia and SDG 11 (Sustainable cities and
communities) and SDG 10 (Reduced inequalities) in
South-East Asia. Unfortunately, for all SDGs across
subregions in the table, SDG progress as of 2022 is less
than half of its 2030 target.
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Figure 1.2: Progress in achieving the 2030 SDGs targets in Asia and the Pacific by subregion and goal as of 2022.
Source: ESCAP Statistical Database.23
With regards to estimates of the financial needs of
developing countries to implement the Sustainable
Development Goals (SDGs), there is wide variation. This
indicates both different methodologies as well as a lack
of data. In 2014, the United Nations Conference on
Trade and Development (UNCTAD) estimated the
annual financial gap at $2.5 trillion globally, but after the
pandemic this estimate surged to $4.3 trillion per year.24
A similar figure was cited at a recent meeting between
global business leaders that are members of the Global
Investors for Sustainable Development (GISD)
Alliance and the Secretary General of the United Nations
to discuss solutions to bridge the SDG financing gap.25
For Asia and the Pacific, ESCAP estimated in 2019 an
average annual financing gap to achieve the SDGs of
$1.5 trillion per year — equivalent to 5 per cent of the
aggregate GDP of the region’s developing countries.26
With regards to Asia and the Pacific, there is substantial
heterogeneity across countries and subregions. For
instance, the annual gap estimated by ESCAP in 2019
was as high as 16 per cent of the GDP for the region’s
least developed countries, and 10 per cent for the South
and South-West subregion.27 More recently, the
International Monetary Fund estimated the SDG
financing gap of Asia-Pacific emerging market
economies and low-income developing countries,
respectively, as 5.4 per cent and 10.6 per cent of the
GDP.28 While such estimates vary, all of them show that
the SDG financing gap is substantive.
The lack of progress on climate
action in Asia and the Pacific is
alarming
Carbon neutrality commitments are still being translated
into policy and regulatory changes in the region. Figure
1.3 below shows the policy and legislative status of the
existing carbon neutrality commitments of Asia-Pacific
member states as of December 2022. Bhutan is the only
country to have achieved carbon-neutrality in the region
and is the world’s first carbon-negative country.
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Figure 1.3: Status of carbon neutrality commitments of ESCAP members, 2022.
Source: ESCAP based on ESCAP, UNEP, and UNICEF (2022).
Most countries have not yet assessed and reported the
financial needs to meet their Nationally Determined
Contributions (NDCs). At the time of writing, of 51 Asia-
Pacific countries that are party to the UNFCCC, only 17
reported that information in their latest NDCs, and only 7
have a breakdown of financial needs for adaptation and
mitigation. This points to a significant need in the region
to develop effective NDC financing strategies to meet
clear financial needs.
Furthermore, the latest NDCs at both the global and
regional levels have been assessed as not being
ambitious enough to contain global warming to between
1.5°C and 2°C. The Sixth Assessment report of the
IPCC29 shows that emissions of greenhouse gases from
human activities are responsible for approximately
1.1°C of warming since 1850-1900 and estimated that
the average global temperature will reach or exceed
1.5°C of warming in the next 20 years. A recent analysis
using global data finds that reaching a temperature rise
of between 1.5°C and 2°C goal would require cuts in
global greenhouse gas emissions (GHG) by 2030 of
between 25 and 50 per cent compared to 2019.
However, current country pledges in NDCs would cut
only 11 per cent, if fully implemented.30 This is also
referred to for the Asia-Pacific region in Figure 1.4
below. Similarly, in Asia and the Pacific, GHG emissions
are expected to decline by only 7.6 per cent between
2020 and 2030, which falls significantly short of the 45
per cent reduction required by the 1.5°C pathway for the
region, as shown in Figure 1.4.31
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Figure 1.4: Asia-Pacific scenarios for GHG emissions.
Source: ESCAP, based on ESCAP, UNEP and UNICEF (2022).
Note: The provided scenarios, which are developed on the data in the NDCs include: (i) Unconditional NDCs (the level of GHG emission
reduction a country can achieve on its own); (ii) conditional NDCs (the level of GHG emission reductions a country can achieve subject to
some conditions, e.g. support from international financing, capacity building, existence of favourable condition, carbon market, etc.) (iii)
NDC + net zero pledges (the level of GHG emission reductions based on NDCs, and current net-zero pledges) (iv) 45 per cent reductions (a
45-per cent GHG emission reduction from 2010 level is required to keep the world within the 1.5C temperature rise.
Estimates of financing requirements range higher and
are frequently being revised upwards the more the
action is delayed. The Report of the Independent High-
Level Expert Group on Climate Finance states that
emerging markets and developing countries (excluding
China) will need to spend approximately $1 trillion per
year by 2025 (4.1 per cent of GDP compared with 2.2 per
cent in 2019) and around $2.4 trillion per year by 2030
(6.5 per cent of GDP) on three investment and spending
priorities:32 (i) the transformation of the energy system,
(ii) responding to the growing vulnerability of developing
countries to climate change; and (iii) investing in
sustainable agriculture and restoring the damage human
activity has done to natural capital and biodiversity in
terms of degraded land, deforestation, and damage to
water supplies and the oceans.
Financing gaps for climate mitigation, adaptation, and
transition face different challenges. According to
UNFCCC,33 as seen in Figure 1.5 below, global climate
finance flows were 12 per cent higher in 2019–2020
than in 2017–2018, reaching an annual average of $803
billion, with the trend being driven by an increasing
number of mitigation actions in buildings and
infrastructure and in sustainable transport, as well as by
growth in adaptation finance. While mitigation finance
constituted the largest share of climate-specific
financial support through bilateral, regional, and other
channels, at 57 per cent, the share of adaptation finance
continues to be small. However, adaptation finance
from the private sector is difficult to keep track of
because governments do not maintain a centralized
system that can account for private funds.34
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Figure 1.5: Global climate finance flows in 2017-2020 by sector.
Source: ESCAP based on UNFCCC (2022a)
Finance for adaptation needs to rise dramatically.
According to the World Resources Institute, quoting the
IPCC, developing countries alone will need $127 billion
per year by 2030, and $295 billion per year by 2050, to
adapt to climate change.
In addition to the climate finance
gap, there is a large biodiversity
financing gap.
According to the Kunming-Montreal Global Biodiversity
Framework (GBF), $700 billion per year will be needed to
close the biodiversity finance gap. To progressively
close this gap, Target 19 of the GBF aims to mobilize
$200 billion per year by 2030 globally from all sources,
including by increasing financial flows from developed
countries to developing countries to at least $20 billion
per year by 2025 and $30 billion per year by 2030, to
implement national biodiversity strategies. Beyond the
need to meet agreed-upon biodiversity financing targets,
it is vital to recognize the strong reliance of economies
on nature, particularly in low and lower-middle-income
countries. According to the World Bank,35 low and lower-
middle-income countries stand to lose the most in
relative terms if ecosystem services collapse, severely
hampering prospects to grow out of poverty. For
example, South Asia would suffer a 6.5 per cent
contraction of real GDP in the case of a severe
disruption to the natural environment and healthy
ecosystems by 2030.36
The macroeconomic environment
in Asia and the Pacific has become
challenging in recent years.
The ability of governments to spend public finances on
climate action is becoming increasingly constrained due
to unfavourable economic conditions, which is
worsening the financing gap. As the figures below show,
rising inflation accompanied by rising interest rates, and
rising risk premiums on sovereign bonds, suggest that
the cost of borrowing is rising. For private sustainable
finance, the key consideration is that with more costly
capital, projects, and investment opportunities will have
to provide greater, and substantially higher, hurdle rates
(i.e. the minimum acceptable rate of return) to
investors. This will have serious implications for the
volume, quality, terms, and tenors of sustainable finance
available to close the gap.
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Figure 1.6: Inflation rate in Asia and the Pacific and the upper bound of inflation target, 2021-2022.
Source: ESCAP based on CEIC, accessed on 15 February 2023
Figure 1.7: Interest rates in Asia-Pacific economies follow monetary tightening in selected economies.
Source: ESCAP based on CEIC, accessed on 15 February 2023.
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Figure 1.8: 10-year sovereign bond yield in selected economies in Asia and the Pacific, as of end of 2022.
Source: ESCAP based on World Government Bonds, accessed on 1 March 2023.
Note: The 10-year sovereign bond yield is at the end of the period.
In conclusion, the need to redirect more finance towards
climate mitigation and adaptation goals in the region as
well as nature and biodiversity goals is critical. Although
raising public and private liquidity is challenging in the
current macroeconomic environment, significant
measures can be taken to increase and accelerate
sustainable finance by removing policy, regulatory, and
institutional barriers to climate action. In the next
section, we explore definitions surrounding sustainable,
green and climate finance, which are relevant for
policymakers and regulators in the region as they
continue to engage in transforming financial systems.
B.
What is sustainable
finance?
Sustainable finance encompasses a wide set of
definitions, with binding and non-binding implications. It
has an evolving lexicon. Definitions are important
because they define not only the volume of sustainable
finance available, but also its integrity. Definitions also
guide future choices about the allocation of capital. We
list below in Table 1.1 the most used definitions and
their sources, so that policymakers can understand the
nuances in differences between definitions. The
implications of the definitions of climate finance are
further discussed below.
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Table 1.1: Examples of sustainable finance definitions.
Body
Definition
European Union (Regulation
EU 2019/2088)
The definition of ‘sustainable investment’ in Regulation EU 2019/2088 includes
investments in economic activities that (i) contribute to an environmental objective and
(ii) do not significantly harm any environmental or social objective. The regulation covers
six predominantly environmental objectives: climate change mitigation, climate change
adaptation, the sustainable use and protection of water and marine resources, the
transition to a circular economy, pollution prevention and control, and the protection and
restoration of biodiversity and ecosystems.37
G20 Sustainable Finance
Roadmap
The G20 Sustainable Finance Roadmap released in October 2021 encourages jurisdictions
that intend to develop their own approaches to align finance and sustainability to refer to
a set of voluntary principles. These include:
Principle 1: Ensure material positive contributions to sustainability goals and focus on
outcomes;
Principle 2: Avoid negative contribution to other sustainability goals (i.e. do no significant
harm to any sustainability goal requirements)
Principle 3: Be dynamic in adjustments reflecting changes in policies, technologies, and
state of the transition
Principle 4: Reflect good governance and transparency;
Principle 5: Be science-based for environmental goals and science- or evidence-based for
other sustainability issues; and
Principle 6: Address transition considerations.
The International Capital
Market Association (ICMA)
Sustainable finance incorporates climate, green, and social finance while also adding
wider considerations concerning the longer-term economic sustainability of the
organizations being funded, as well as the role and stability of the overall financial system
in which they operate. ICMA’s definition is based on market usage and draws on the G20
and European Union references, according to ICMA.38
International Finance
Corporation’s Sustainable
Banking and Finance
Network 39
Sustainable finance refers to policies, regulations, and practices by regulators,
supervisors, industry associations, and financial institutions (FIs) to
(i) reduce and manage environmental, social, and governance (ESG) risks resulting from
and affecting financial sector activities, including the risks of climate change; and
(ii) encourage the flow of capital to assets, projects, sectors, and businesses that have
environmental and social benefits.
A balance of definitions that both incorporate rigour and
act as an incentivizing and inclusive force is necessary.
By no means are these definitions exhaustive or
mutually exclusive. While the broadness of sustainable
finance definitions has also contributed at times to
confusion, or to claims that some sustainable finance is
less ‘sustainable’ than purported (conveying a false
impression, or ‘greenwashing’), broad definitions of
sustainable finance allow at this stage more
stakeholders to participate and classify their activities
as sustainable. As exemplified by the European Union
Taxonomy Regulation, the definitions of sustainable
finance and their subsequent use in regulation can be
progressively strengthened over time. And while the
term is well-understood and well-embedded in finance,
regulations, and policy in more mature markets, it is
nevertheless also true that wide swaths of stakeholders
still need to be convinced of the value of sustainable
finance activities.
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Definitions are important to guide regulators and
policymakers. Evolving sustainable, green and transition
taxonomies in certain countries in Asia and the Pacific
further try and clarify to the financial sector how
financing of activities can be considered green,
sustainable, or transitioning from brown to green. It is
thus important for policymakers, who are considering
voluntary and mandatory approaches in sustainable
finance, to understand the differences in definitions, so
that they can guide the financing of sustainable, green
or transition activities in the real economy. With regards
to the definition of climate finance, we discuss this
further below.
The two tracks of sustainable
finance
Sustainable finance can be categorized by two tracks.
Both foster sustainable economic, social, and
environmental development, but there are two different
routes towards fostering that impact.
Track 1 refers to the financing of sustainable activities.
Track 1, as shown in Figure 1.9 below, refers to use-of-
proceeds defined sustainable finance, in which the
proceeds go towards clearly demarcated, pre-defined,
sustainable, green, or climate-oriented uses, activities,
objectives, or outcomes. With regards to green finance,
for example, the G20 Green Finance Study Group
describes it as “the financing of investments that
provide environmental benefits in the broader context of
environmentally sustainable development.”40 Again,
there is no single universal agreed-upon definition.
Climate finance, as defined by UNFCCC,41 refers to local,
national, or transnational financing – drawn from public,
private and alternative sources of financing – that seeks
to support mitigation and adaptation actions that will
address climate change. This definition is objective-
based, and it falls within Track 1 of sustainable finance.
Track 2 refers to sustainably-managed finance. The
second track is not about where the investment goes or
which activities are financed but, rather, how
sustainability or climate or green-related risks materially
impact the financial performance of the investment and
how those risks should be managed. For example, when
environmental, social and governance (ESG) risks are
analysed with respect to how they would affect the
financial returns of the investment, the resulting
investments are often labelled as ESG investments.
Here, greening finance refers to the mainstreaming of
environment and climate risk management in the
financial sector. For example, the purpose of the
Network for Central Banks and Supervisors for Greening
the Financial System (NGFS), launched at the Paris One
Planet Summit in 2017, is to enhance the role of the
financial system in managing risks and capital for green
and low carbon investments in the broader context of
environmentally sustainable development. While green
finance falls within Track 1, greening finance falls within
Track 2 of sustainable finance. We refer to this track as
sustainably-managed finance.
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Figure 1.9: The two tracks of sustainable finance: use-of-proceeds-based and sustainably-managed finance.
Source: ESCAP
ESG standards in risk management
do not necessarily mean high ESG
impact.
ESG-related investment risks have come under
increasing scrutiny by investors in recent years, and
these risks also include non-financial considerations
which can affect a company’s financial performance,
reputation, and long-term sustainability. ESG investing,
or ESG finance, has come to the fore of public
consciousness worldwide as sustainable social and
environmental practices have become a strategic
imperative for businesses. Much of the critique on ESG
in the global narrative has been due to its lack of
standardization for compliance and the risks of so-
called greenwashing.42 It is therefore important to
understand what constitutes ESG and what does not.
The assessment of ESG risks is important for both the
banking sector and capital markets. There is a fast-
emerging and increasingly well-established regulatory
risk management framework that incorporates
environmental and social risk considerations into
banking and fund management. Typically known as
Environmental and Social Risk Management (ESRM), the
framework has been widely adopted by nearly all central
banks in the Asia-Pacific region, though the specifics
vary across countries. ESRM frameworks measure how
risks will affect the banking sector and thus managed,
but importantly, they are not designed to evaluate social
or environmental impact — i.e. the institution’s activities
on the environment or its communities.
Corporate governance risks (the G) on the other hand
are determined separately, and usually carry a different
weight than the ‘E’ and the ‘S’. Corporate governance
risks around shareholder and board practices, politically
exposed persons (PEPS) on boards and their
involvement in decision-making, as well as complicated
family ownership structures within businesses are also
assessed by financial institutions that employ ESG risk
management practices. ESG risk management
frameworks for different sectors and products apply
different weights and analytical approaches to the E, S
and G components of ESG risks. Strengthening E, S
and/or G standards are the subject of continued difficult
political conversations between financial institutions,
businesses, and policymakers.
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ESG risk assessments in capital markets use the
principle of whether ESG risks are material to the
financial performance of the company’s stock or the
fund’s performance. Morgan Stanley Capital
International (MSCI), one of the leading providers of ESG
ratings to corporates and funds, defines ESG investing
in capital markets as the consideration of
environmental, social and governance factors, alongside
financial factors in the investment decision-making
process. This is further echoed by Morningstar
Sustainalytics, another leading ESG rating provider and
industry standard setter. Sustainalytics’ ESG risk ratings
measure a company’s exposure to industry-specific
material ESG risks and evaluate how well the company
is managing those risks. Their multi-dimensional way of
measuring ESG risk combines the concepts of
management and exposure to arrive at an absolute
assessment of ESG risk.
MSCI’s ESG ratings are designed for one purpose: to
measure a company’s resilience to financially material
environmental, societal and governance risks.43 ESG
risks are therefore evaluated in the assessment of a
company to understand how such ESG risks may impact
current and future financial performance – not
sustainability performance. MSCI notes that “Our ESG
ratings provide a window into one facet of risk to
financial performance. They are not a general measure
of corporate ‘goodness,’ a barometer on any single issue
or a synonym for sustainable investing... They are not
climate ratings.”44 To add further clarity, MSCI considers
three methods of ESG investing: a) ESG integration, b)
impact investing, and c) values-based investing. Of
these three methods, the first is by far the most
frequently adopted method of ESG investing in markets
today. As an extreme example, a fossil fuel investing
fund can still be labelled as an ESG fund if it considers
and actively manages ESG risks as it invests in fossil
fuels.
Furthermore, the UN’s Principles for Responsible
Investing notes that there is “no single definitive list of
ESG issues”.45 This has led a to plethora of different
standards, due diligence processes, analytical methods,
and measurement methods around ESG assessment by
companies, banks, investors, funds, and markets across
the world. Movements are underway to centralize
standards, as through the inaugural standards in June
2023 of the International Financing Reporting Standards
(IFRS) Foundation’s International Sustainability
Standards Board (ISSB), which recommends a
comprehensive global baseline of sustainability-related
disclosures.
Use or outcome-based sustainable finance (Track 1) is
mutually strengthened by sustainably managed finance
(Track 2), and both are critical to a resilient financial
system. These two aspects of sustainable finance are of
course not mutually exclusive; use-based sustainable
finance can have, and frequently does have, strong ESG
risk management and safeguards. Some ESG-rated
investing will also be directed to sustainable uses even
if that is not explicitly measured yet. Importantly both
are critical to the robust functioning and stability of the
financial system. The ability to manage risks, including
climate-related risks, leads to the stable provision of
sustainable finance and strengthens the transition to a
low-carbon economy.
Who are the key constituents of the
sustainable finance ecosystem?
The sustainable finance ecosystem captures a nexus of
national commitments, public and private sector
incentives and standards, and financing relationships
between policymakers, regulators, and private finance
stakeholders. Sustainable financial markets are made
up of a large ecosystem of actors, as shown below in
Figure 1.10 (adapted from the International Finance
Corporation). However, the activities financed by this
ecosystem are contained within the real economy, or
within sectors such as power, transportation, trucking,
agriculture, forestry, manufacturing etc. Therefore,
financing sustainable activities follows, or lags behind,
developments in the real economy. Net-zero pledges by
financial institutions can drive financing towards net-
zero related activities, but only if the projects and
activities by corporations and households themselves
qualify as net-zero related activities.
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The frontier where the actual work will be done to
accelerate sustainable finance is thus within the real
economy. In particular, it will take place within the
businesses that adapt their choices, make meaningful
net-zero commitments, and measure and disclose
sustainability impacts. A serious pivot is required
immediately if the 2015 Paris Agreement commitments
— in which 196 countries pledged to limit global average
temperature increase to well below 2°C above pre-
industrial levels and make efforts to halt the
temperature increase to 1.5°C above pre-industrial
levels46 — is to be met. Whilst we limit our discussion in
this sustainable finance report to policymakers,
regulators, and private finance, it is no exaggeration to
say that the scope and scale of the change required in
the real economy in the Asia-Pacific region is breath-
taking, exacerbated by the urgency of the time frame in
which it must do so.
The sustainable finance ecosystem has many
stakeholders. While Figure 1.10 shows the traditional
financial sector’s role in sustainable finance, Figure 1.11
below depicts the universe of private finance actors that
are instrumental for determining whether private finance
is sustainable and how it can be deployed to more
sustainable uses. This universe represents a set of
stakeholders and countries that need to mobilize in a
systematic and coherent fashion (through setting
coordinated policy and regulatory actions). For example,
incorporating sustainable or green elements into the
compliance and disclosure burden; the tax regime; and
the fees from advisory, verifiers, and auditors that asset
owners bear, can change the flow of capital in this
sustainable finance ecosystem.
Figure 1.10: The sustainable finance ecosystem.
Source: ESCAP adapted from the International Finance Corporation
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Figure 1.11: Sustainable finance stakeholder mapping.
Source: ESCAP
An evolving definition of climate
finance
The UNFCCC definition of climate finance includes
binding commitments for developed countries with
implications for recipient developing countries. The
United Nations Framework Convention on Climate
Change (UNFCCC) refers to climate finance as local,
national, or transnational financing —drawn from public,
private and alternative sources of financing — that
seeks to support mitigation and adaptation actions that
will address climate change.47 The definition of climate
finance has acquired scrutiny due to the implications for
the COP15 pledges made by developed countries in
200948 to mobilize $100 billion per year by 2020 and
until 2025 to support climate action in developing
countries.49 While this goal has yet to be met ($83.3
billion was mobilized in 2020 – the last available
estimate at the time of writing), the work of the Standing
Committee on Finance of the UNFCCC indicates that this
is an area of continued debate, stating, “there are
varying understandings of what climate finance
encompasses, including which sectors and activities are
covered, the range of financial instruments available
and which tracking and reporting processes apply, as
well as different perspectives of what definitions of
climate finance should include and the detail with which
associated concepts should be defined.”50
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There are at least nine key variables relevant to any
definition of climate finance. The Standing Committee
on Finance’s report shows nine components necessary
to operationalize a given definition of climate finance
for reporting purposes, as shown in Table 1.2 below.
The complexity described here can seem daunting, but it
adds valuable clarity to policymakers, regulators, and
private finance actors from developing countries (to
whom these commitments have been made). Climate
finance is objective-based and falls within Track 1 of the
two tracks discussed earlier.
Table 1.2: Range of potential approaches to accounting for climate finance flows.
Factors
Range of approaches
Geographic scope International flows only
Domestic flows only
Global flows
Recipient
Public sector
Private sector
NGOs and civil society
Objective
Programmed or budgeted
climate objectives
Addresses climate as one of
multiple objectives
No stated climate goals but
possible co-benefits
Causality
Direct finance
Finance mobilized as
co-finance
Finance mobilized
through support for
project preparation or
technical assistance
Finance mobilized
through support for
enabling environments
Instruments
Grants
Concessional
loans
Non-
concessional
loans
First loss/
patient
equity
Equity
Guarantees
Insurance
Total or
incremental cost
Total cost of a project or action
Incremental cost of a climate project or action
compared to the baseline case
Point of
measurement
Commitments: Counting finance when the
commitment is made, irrespective of when the
finance will be disbursed (e.g. over several
subsequent years of a project)
Disbursements: Counting disbursed and received
finance
Cost of
expenditure
Nominal value: The face value of a loan
Subsidy cost: The cost of providing the loan
measured by discounted cash flows
Gross/net flows
Gross flows: The amount spent or committed
over a given year
Net flows: The amount spent accounting for
repayments over time (e.g. loans)
Source: UNFCCC (2022c).
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Does more sustainable finance
translate into progress towards the
Sustainable Development Goals?
There is currently no overall Sustainable Development
Goal or sub-target that measures the flow of sustainable
finance. In addition, financing the SDGs does not always
directly correlate with improved SDG indicators for
several reasons. For example, use-based sustainable
finance directed towards the provision of
environmentally sustainable renewable energy would
affect Goal 7,51 which can be measured by the
proportion of the population that relies mainly on clean
fuels and technology (indicator 7.1.2); the share of
renewable energy out of total energy consumption
(indicator 7.2.1); and/or how much money is flowing to
countries for clean energy research (7.a.1).52 However,
the corresponding results are not always visible for
many reasons. Firstly, reporting use-based proceeds
within most of the currently accepted sustainable
finance frameworks does not include reporting on SDG
impacts. Secondly, national statistics agencies and
bodies do not have the resources to measure all 17-
interlinked goals and 231 indicators. Thirdly,
improvement in SDGs may take considerable time and
may be affected by other trends occurring in parallel,
making it difficult to isolate the impact of sustainable
finance alone. This was noted earlier in the Roadmap for
Financing the 2030 Agenda for Sustainable
Development, which pointed out that misaligned
incentives and regulations, limited awareness, and
difficulties in identifying, measuring, and reporting on
sustainable investments impede private investment53 in
the SDGs at scale.54 The lack of hard evidence to justify
sustainable finance in terms of the SDGs need to be
counterbalanced by greater awareness of how
sustainable financing works. This lack of reporting
ability is thus an important hurdle to overcome, so as to
better drive national conversations and choices towards
financing for development as well as to advocate more
clearly for increases in climate finance.
C.
Concluding remarks: How
can countries raise
sufficient sustainable
finance?
The sums are staggering, whichever estimate of the
financing gap is used. Yet while the gap to finance the
SDGs will continue to be substantial, the discrepancy
between need and availability of funds for financing
climate action to achieve the 1.5-2°C target looms larger
and larger. There is no single silver bullet to mobilize the
finance needed in the short time frame needed. Instead,
only concerted and targeted action by all stakeholders
will transform the region’s pathway. As the Sharm-el-
Sheikh action plan noted, delivering such funding will
require a transformation of the financial systems and its
structures and processes, engaging governments,
central banks, commercial banks, institutional investors,
and other financial actors.
How can countries increase the volume of sustainable
finance in the time frame needed? The central question
for this report, therefore, is “How can countries in Asia
and the Pacific, especially developing countries
including the Least Developed Countries (LDCs) and the
Small Island Developing States (SIDS) increase the
quantity and quality of sustainable finance available in
the time frame needed?” We focus particularly on the
environmental aspects of sustainable finance, already
heavily weighted in most sustainable finance definitions,
and in international and regional regulatory and policy
norms and processes. This includes a focus on green
and climate finance. We also further note that LDCs and
SIDS have contributed disproportionately little to GHGs
but are significantly impacted by regional and global
emissions. Their ecosystems are also particularly prone
to and affected by the collapse of biodiversity; however,
they do hold a disproportionate amount of high
biodiversity assets.
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The challenges are greater for LDCs and SIDS. LDCs and
SIDS face a set of interconnected challenges in scaling
sustainable finance. LDCs and SIDS are generally far
more exposed to the impact of climate change related
extreme weather events due to their reliance on
subsistence agriculture in the former, and their exposure
to sea-level changes in the latter. LDCs and SIDS are
also highly exposed to the negative implications of
growing global macroeconomic uncertainties. Finally,
the limitations of government revenue means that public
finance is naturally constrained in implementing the
adaptation changes required to protect the livelihoods
and lives of their vulnerable populations. LDCs and SIDS
also face difficulties obtaining the data and building the
capacities needed to track and accelerate sustainable
finance.
We thus propose action by three sets of stakeholders
who are the subject of this report: policymakers;
regulators; and private finance. We analyse trends,
challenges, and opportunities faced by these three main
stakeholders and aim to answer the following policy
questions:
▪ What can government policymakers do?
▪ What can regulators do?
▪ What can private finance do?
The goal of this report is to contribute to a better-
informed debate that can guide timely choices amongst
our member states. Our focus is to outline the choices
that stakeholders face, as well as discussing the
evidence, data, and current debates around such
choices. We hope that this will better inform much-
needed actions, and spur accelerated action.
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2. WHAT CAN
GOVERNMENTS DO?
A.
Introduction
In this chapter we examine the trends, challenges, and
opportunities that policymakers within governments
face in unlocking further sustainable finance, and
particularly climate finance, from public and private
stakeholders. We then propose recommendations for
policymakers which are aggregated in our final chapter
into our ten point action plan for the region.
There is a strong link between financial sector
development and GDP growth. According to the World
Bank, “countries with better-developed financial systems
tend to grow faster over long periods of time, and a
large body of evidence suggests that this effect is
causal: financial development is not simply an outcome
of economic growth; it contributes to this growth.”55
However, there is substantial debate over the extent to
which the financial sector contributes to growth, which
types of financial systems are most beneficial to
growth, and even whether all growth in the financial
sector is beneficial to society.56 What is clear is that a
positive correlation exists between GDP per capita and
the International Monetary Fund’s (IMF) financial
development index, as seen in Figure 2.1 below.
Nevertheless, it is important to note that the growth of
sustainable finance markets depends on the depth,
integrity, and liquidity of countries’ financial systems.
Figure 2.1: Strong correlation between IMF Financial Development Index and GDP per capita.
Source: ESCAP based on IMF, Financial Development Index Database, accessed on 8 February 2023; World Bank, accessed on 8 February
2023.
Note: The IMF Financial Development Index is an aggregate measure that summarizes how developed financial institutions and financial
markets are in terms of their depth, access, and efficiency. There is significant correlation between the Financial Institutions index and
GDP per capita (corr = 0.73, p <0.001) and between the Financial Market index and GDP per capita (corr = 0.62, p <0.001).57 Both GDP per
capita values and IMF Financial Market Index and Financial Institution Index values are from 2020. Countries lacking sufficient
information on Financial Market Index components were excluded from the analysis due to missing data. The figure shows countries in
Asia and the Pacific based on ESCAP groupings at sub-regional level.
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Figure 2.2 below shows the relative state of financial
market development in the region. Interestingly, one
may intuitively expect countries with more financially
developed systems to be further along in adopting
sustainable finance taxonomies or regulation and
experiencing higher sustainable finance flows. For
example, Cambodia and Viet Nam, which have
seemingly less developed financial systems, have
nevertheless issued maiden green bonds using green or
sustainable finance taxonomies. This suggests that
countries can leapfrog traditional timelines of financial
system maturation in developing sustainable finance
systems. Such sustainable finance flows often include
new types of investors for developing countries;
investors who specifically seek sustainable/green
impact investments even in the face of high sovereign or
currency risk. For issuers, such diversification in
investors expands the depth of the market.
Figure 2.2: Status of IMF financial market and financial institutions index components, 2020.
Source: ESCAP based on IMF, Financial Development Index Database, accessed on 8 February 2023.
Note: The IMF Financial Market Index measures how developed financial markets are in terms of their depth, access, and efficiency.
Countries/jurisdictions highlighted in green represent countries/jurisdictions that have issued a green bond. Countries lacking sufficient
information on Financial Market Index components were excluded from the analysis due to missing data. In case of insufficient
information on financial markets’ depth, access and efficiency, only available information on the other components is shown in the figure.
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To grow, sustainable finance markets need depth,
access, efficiency, and stability. According to the Center
for Economic Policy Research (CEPR), in traditional
financial markets, ‘depth’ means that financial
institutions and financial markets are of a sufficient
size. ‘Access’ reflects the degree to which economic
agents use financial services. ‘Efficiency’ means that
financial institutions can successfully intermediate
financial resources and facilitate transactions. Finally,
‘stability’ refers to low market volatility and low
institutional fragility.58 These elements are also
necessary for an increase in sustainable finance flows.
LDCs and SIDS face particular challenges in financial
sector development, which affects their ability to attract
private finance. Many LDCs and SIDS in the Asia-Pacific
region continue to face challenging fiscal situations,
which are exacerbated by low levels of tax revenue and
domestic savings, disruptions in the tourism sector for
SIDS, low productivity, and volatile GDP growth. Many
LDCs and SIDS also frequently struggle to expand
capital markets and deepen financial sectors, especially
with regards to attracting private and/or foreign capital.
For example, of all the private finance mobilized globally
between 2012 and 2018, LDCs received only 6 per
cent,59 — approximately US $13.4 bn between 2012 and
2018. The majority flowed to upper middle income
countries, which received 41 per cent, or $84 bn.
Meanwhile, lower middle income countries were the
recipients of 33 per cent, or $68 bn. Given the low share
of LDCs in global GDP, this may seem to be a
substantial amount; however, in light of the discrepancy
between sustainable finances and what is required, a
significant increase in private investment is vital. With
10 out of the 12 LDCs in Asia and the Pacific en route to
graduation, official development assistance will need
replacement with alternative sources of public and
private finance, particularly to support the Sustainable
Development Goals.
“Data limitations for adaptation projects, high transaction
costs, and small project sizes make it difficult for SIDS to
attract investments and compete for or access climate
resilience financing. The climate and development finance
systems need to adequately take into account SIDS unique
needs and vulnerabilities, whilst ensuring a more consistent,
long-term focused, and systematic way to attract climate
finance working alongside national stakeholders” – Peseta
Noumea Simi, Chief Executive Officer, Ministry of Foreign
Affairs and Trade of Samoa
What is the role of policymakers in
supporting sustainable finance?
The financing of sustainable development, including the
financing of climate action, requires strong leadership
and commitment to implement the Nationally
Determined Contributions (NDCs) in time. The Paris
Agreement, now ratified by 193 countries, requests each
country to outline and communicate their post-2020
climate actions, known as their NDCs. These NDCs form
the basis for countries to achieve the objectives of the
Paris Agreement, and contain information on targets,
policies and measures to reduce national emissions and
adapt to the impacts of climate change. In Asia and the
Pacific, countries have started to implement the NDCs
domestically by (i) mainstreaming climate activities into
national development plans, policies, strategies and
roadmaps; (ii) creating an institutional framework; (iii)
mobilizing resources; and (iv) elaborating transparency
measures to monitor and evaluate climate action.
However, as outlined earlier, the state of climate
ambition in Asia and the Pacific (as manifested in the
NDC commitments collectively) is insufficient to meet
the global goal of limiting temperature rise to 1.5
degrees Celsius.
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Importantly, even where (insufficiently ambitious) NDCs
are in place, NDC financing plans lack progress. A 2020
assessment by ESCAP suggests that 26 countries in the
region, well more than half, have not taken any steps to
integrate NDC actions in national budgetary processes;
29 countries have no relevant policy frameworks for
aligning private sector actions with NDCs; and 22
countries do not have frameworks for aligning lending
with NDCs.60 While this is improving, concerted and
systematic efforts to devise and implement
comprehensive financing strategies for the NDCs are
not advancing fast enough.
Nevertheless, progress has been made in certain areas.
The issuance of green, social, and sustainable bonds
continues apace. Climate budget tagging — the practice
of identifying, measuring, and monitoring climate
relevant expenditures — is slowly increasing. More
countries are exploring the viability of debt-for-climate
or debt-for-nature swaps, especially in situations of
potential debt distress. Several countries are developing
and implementing integrated national financing
frameworks (INFFs), which could strengthen planning
processes and drive sustainable financing. These are
promising trends. But to avoid fragmentation, they
should be accompanied by a national vision that is
central, overarching, and integrated to finance both the
NDCs and the SDGs together.
Policymakers have an important role to play in signalling
credible intentions and presenting national climate
action priorities to markets. Such intentions and
national priorities are closely watched by markets, who
use them to price long-term investments. Emissions-
reducing investments — whether it is phasing out of coal
or the adoption of new technologies in carbon capture,
utilization and storage — require upfront, lump sum
payments of significant amounts to finance capital
expenditure in equipment, factories, renewable energy
installations, and technologies. Meanwhile returns are
collected over a long-term basis, and often in the later
years of the project. Policy signals thus need to act to
reduce both the actual risks and the perceptions of risks
associated with such long-horizon, upfront investments.
For public and private sustainable finance to flow
towards the NDCs, contradictions in the enabling
environment of sustainable finance need to be resolved.
Firstly, it is important to recognize the scale of the
transformation currently underway in sustainable
finance. Regulations, taxonomies, standards, and
markets are in flux, alongside countries’ evolving NDC
implementation plans. Policymakers are responsible for
budget allocations in terms of incentives or tariffs that
affect the returns in, for example, coal versus green
hydrogen offtake, and in shifting economic structures
away from using traditional energy sources to cleaner
energy sources. This has vast implications for real
economy industries, which have to adapt to new and
cleaner energy sources, reduce the carbon intensity of
their output, track their emissions, and plan for
transition. In turn, this affects those who finance such
industries and companies, whether it is public or private
finance. Therefore, when regulation and policy are
constantly evolving, investment returns are difficult to
forecast with predictability or stability and affect go-no-
go financing decisions with deleterious effects on long-
term investment projects. Coherence across policies
and sectors along with an enabling environment is thus
critical to accelerate sustainable finance.
“The enabling environment signals an incoherence in policies:
for example, with a subsidized coal industry on one part and a
different picture for the renewable energy market, which lacks
competitiveness as a result of the returns emerging due to
challenges on the regulatory front.” – Anonymous
Sustainable finance roadmaps are one tool that
governments can use to signal their priorities to
markets. In many cases, though such roadmaps are
announced by governments and their ministries of
finance, the design and implementation of such
roadmaps are led by regulators. These roadmaps can
chart a path for the development of a sustainable
finance market, often by creating priorities and timelines
for the development of key enabling tools such as (i)
sustainable or green taxonomies; (ii) green, social, and
sustainable bond frameworks; (iii) corporate
sustainability reporting; (iv) climate disclosures; (v) and
net-zero transition reporting; and other similar
requirements. However, while sustainable finance
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roadmaps lay out the planned trajectory of a sustainable
finance market, policymakers still need to grapple with
how underlying sectors in the real economy (which is
financed by sustainable finance) can be guided to
transition in time.
Furthermore, it is important to distinguish between the
standards and ambition of sustainable finance
roadmaps in developed countries versus least
developed countries. LDCs, SIDS and other countries
with special situations should be able to attract enough
capital required for climate action and the SDGs. The
danger is that by imposing strict ESG standards on risk
management (Track 2), or on use of proceeds (Track 1),
capital ends up being diverted away from more
challenging markets that already face high sovereign
risk and deter investors. The ASEAN taxonomy for
example is a multi-tiered framework that takes into
account differences amongst its member states.
Policymakers also have a role in advocating for and
mobilizing committed climate finance from developed
countries. In 2009 at COP15, developed countries
committed to a goal of jointly mobilizing $100 billion a
year by 2020 to address the needs of developing
countries in the context of meaningful mitigation
actions. This funding would come from public and
private, bilateral, and multilateral sources, including
grants as well as concessional and non-concessional
debt. In 2016, parties to the Paris Agreement decided
that they shall “set a new collective quantified goal from
a floor of $100 billion per year, taking into account the
needs and priorities of developing countries before
2025”.61 In 2021, at COP26 in Glasgow, parties decided
to initiate deliberations to establish a new collective
quantified goal that are to be concluded in 2024, and are
to include inter alia, quantity, quality, scope and access
features as well as sources of funding.62 In spite of
strong commitments, funding has fallen short of the
goal of $100 billion annually ($83.3 billion was
mobilized in 2020, according to the latest data available
at the time of writing). Nevertheless, on the demand
side, developing countries can continue strengthening
their ability to seek access to these funds through
concrete financing plans and strategies.
B. Trends and opportunities
This section discusses recent trends among
governments and policymakers across Asia and the
Pacific which are strengthening the depth, access,
efficiency, and stability of sustainable finance markets.
These trends, which are largely positive, point to
increasing policy momentum across the region and are
a positive harbinger of further sustainable finance at an
imperative scale and pace. We discuss, in particular: the
growth of green, social, sustainability and other labeled
(GSS+) bonds; the role of carbon pricing; potential of
debt for climate swaps; trends in accessing multilateral
climate funds; and the potential offered by the Just
Energy Transition Partnerships (JETPs).
Sovereign green, social,
sustainability and other labeled
(GSS+) issuance
Many countries in the region are increasingly issuing
sovereign bonds that finance climate action and
sustainable development. Green, social, sustainability,
sustainability-linked bonds, and transition bonds,
together referred to as GSS+ bonds or thematic bonds,
fall within Track 1 of sustainable finance, whereby their
proceeds are explicitly directed to fund green, social, or
sustainable activities, as seen in Figure 2.3 below. While
green, social and sustainability bonds follow a strict
use-of-proceeds criteria, sustainability-linked bonds
(SLBs) are used by issuers who commit explicitly to
future improvements in the sustainability outcomes of
their entity within a predefined timeline, and the
proceeds of SLBs are intended to be used for general
purposes.63 SLBs therefore offer the issuer greater
flexibility in terms of proceeds, while still setting
specific targets for sustainable outcomes in a
predefined timeline. Transition bonds are an emerging
asset class whereby the issuer can either commit to use
of proceeds terms directed to climate or just-transition
purposes, or issue general purpose bonds aligned to
sustainability linked bond principles.64 On the London
Stock Exchange, for example, transition bond issuers
must publish a transition framework in line with ICMA’s
Climate Transition Finance Handbook, engage in
climate-related financial disclosures, commit to net-zero
targets and commit to report annually on its transition
performance.
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Figure 2.3: Thematic and performance-based bonds mapping.
Source: ESCAP
Figure 2.4 below shows the steep growth in GSS+ bonds
in Asia and the Pacific from 2015 to 2022 and the
promising growth of new asset classes. Globally, the
market for GSS+ bonds (corporate and sovereign) has
grown to around $3.8 trillion as of the end of 2022
(excluding transition bonds).65 These new asset classes
provide flexibility by issuers to meet different climate
objectives and enable the issuer to obtain further
unrestricted funding. While green bonds continue to
dominate both corporate and sovereign bond issuances,
sustainability bonds and more recent instruments, such
as sustainability-linked and transition bonds, are making
progress. The growth of these debt instruments, despite
global turmoil in debt markets, is a proof of their
resilience. Additionally, maiden issuances continued to
grow and by the end of 2022, 43 sovereigns from five
continents brought out debut GSS issues.66 Of these,
green bonds dominate the market with social bonds,
sustainability bonds, and sustainability-linked bonds
following.
Figure 2.4: GSS+ bond issuance value in Asia and the Pacific, 2015-2022 (billions of United States dollars).
Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
Note: The data labels show the total GSS+ bond issuance for the following countries and jurisdictions: Armenia, Australia, Bangladesh,
China, Fiji, Georgia, Hong Kong, China; India, Indonesia, Japan, Kazakhstan, Malaysia, New Zealand, Pakistan, Philippines, Republic of
Korea, Russian Federation, Singapore, Thailand, Türkiye, Uzbekistan, Viet Nam. It shows annual issuances and includes sovereign,
financial and non-financial corporate and other public sector issuances.
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Figure 2.5: Cumulative GSS+ sovereign, corporate and public bond issuance in Asia and the Pacific by country, 2015-2022
(billions of United States dollars).
Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
Note: Figure shows cumulative values across countries for the period 2015-2022. It includes sovereign, corporate, and other public sector
issuances.
In Asia and the Pacific, China, Japan and the Republic of
Korea have issued 78 per cent of the GSS+ bonds
between 2015 and 2022. Among developing countries,
India, Singapore, Indonesia, Philippines, and Thailand
have issued GSS+ bonds for over $65 billion in the last
seven years, as seen in Figure 2.5. Globally, according to
Climate Bonds Initiative, 2022 saw GSS+ issuance hold
its 5 per cent share of the global bond market despite an
overall decline in GSS+ volume to $863.4 billion from
more than $1 trillion in 2021.67 Of these, green bond
issuance comprised just over half of the labelled bond
issuance in 2022 ($487.1 billion), followed by
sustainability bonds ($166.4 billion), social bonds
($130.2 billion), SLBs ($76.3 billion), and transition
bonds ($3.5 billion).
Sovereigns lag behind corporate issuers of GSS+ but
their share is growing, sending important signals to the
market. Sovereign GSS+ issuance is still about 5 per
cent of the total debt issuance globally, while corporates
are globally issuing 8 per cent of their issuance in GSS+
instruments. Similarly, international financial institutions
are raising more than 30 per cent of their total bond
issues via green instruments.68 Sovereign green
issuances catalyze domestic market development and
send important signals to markets about the direction
and commitment of policymakers to climate and
sustainability goals. In Asia and the Pacific, the growth
in sovereign and other public issuance by countries in
the region has been substantial between 2019 and 2022,
as seen in Figure 2.6 below.
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Figure 2.6: Cumulative GSS+ bond issuance value of public sector in Asia and the Pacific by country and issuer type since
2015, as of end of 2019 and 2022 (billions of United States dollars).
Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
Note: Other public sector includes development banks, municipal government, and public enterprises.
Countries with less developed financial systems have
also moved ahead to mobilize sustainable finance
markets. Despite the challenges associated with
emerging regulation for new GSS+ markets, increased
premiums due to lower sovereign credit ratings, and a
nascent base of issuers and investors in GSS+ bonds,
there have been promising maiden issuances in Asia-
Pacific countries over the past two years — a trend that
signals growth and continued strength of sustainable
finance markets across the region.
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Table 2.1: First time GSS+ bond issuers in 2021–2022.
Country
Bond label
Issuer type
Issuance year
Issuance value
(million US dollars)
Bangladesh
Green
Green
Public sector
Corporate
2021
2021
11.58
17.16
Pakistan
Green
Public sector
2021
500
Uzbekistan
Sustainability
Sustainability
Sovereign
Sovereign
2021
2021
233.82
635
Viet Nam
Green
Sustainability
Corporate
Corporate
2021
2021
200
425
Source: Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
Note: No GSS+ sovereign bonds were issued by ESCAP members for the first time in 2022. It is expected more ESCAP members will issue
a GSS+ bond for the first time in 2023, including Mongolia and Cambodia.
There is also promising local-currency issuance of GSS+
bonds, signalling uptake of GSS+ bonds by local
investors. This not only increases the depth of the GSS
markets but importantly signals that investment appetite
is no longer driven solely by international investors.
Ensuring the participation of local investors in
sustainable finance markets is essential to achieving a
country’s climate objectives. As seen in Figure 2.7
below, there has been significant local currency
issuances of GSS bonds by both corporate and public
actors. This signals that domestic investors are
understanding and purchasing these securities and
signifies the promise of depth and access in these
markets.
Importantly, it also means projects financed by such
green bonds do not need to add a premium to overcome
hard-currency financing costs, which are aggravated by
the depreciation of local currencies against the United
States dollar. This unlocks larger volumes of
sustainable finance that can meet environmental
objectives at a higher and faster scale. Finally, as seen
in Figure 2.8 below, there has been substantial issuance
in many local currencies in Asia-Pacific countries that
do not necessarily have an investment-grade rating. This
also shows that investors have an appetite for what may
be perceived as more risky local currency financing, in
the GSS+ asset class. Interestingly, some of these GSS+
bonds are also being used as long-term financing
instruments (with maturities beyond five years), which is
essential as a potential tool to finance capital
expenditure-heavy, upfront investments in climate
action.
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Figure 2.7: Cumulative GSS+ bond issuance value in Asia and the Pacific by currency and issuer type, 2015-2019 and
2015-2022.
Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
Note: 1) Other public sector includes development banks, municipal government, and public enterprises. Corporate refers to both financial
and non-financial corporations.
2) Note that the issuance values of Chinese yuan, Japanese yen, and Korean won are among the top issuance currencies in Asia and the
Pacific during 2015-2022. However, these were mostly domestically issued in local currencies. Ninety-nine per cent of issuance in Chinese
yuan were in China, 99 per cent of issuance in Japanese yen were in Japan, and 100 per cent of issuance in Korean won were in the
Republic of Korea.
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Figure 2.8: Cumulative GSS+ bond issuance in Asia and the Pacific by currency (per cent), 2015-2022.
Source: ESCAP based on Environmental Finance data, accessed on 4 April 2023.
The emergence of sustainability-linked bonds (SLBs)
could allow the financing of projects with direct impact
in cutting GHG emissions. While green bonds are
directed to financing green projects under green bond
criteria, they are usually not linked to financing the
reduction of emissions. SLBs are instruments with pre-
defined sustainability performance targets that the
issuer commits to meet by a given date (the "penalty
event date"). If the targets are not met, the issuer is
typically subject to a penalty, a mechanism that is
absent in the case of conventional green bonds. SLBs
can be linked directly to reduced greenhouse gas
emissions through the contractual choice of the
Sustainability Performance Target (SPTs). Data for the
first half of 2022 shows that 58 per cent of SLB
issuances were tied to greenhouse gas emissions – and
28 per cent of these covered scope 1, 2, and 3
emissions.69
Furthermore, mainstream green bonds tend to be
concentrated in green infrastructure (buildings and
transport) and renewable energy but SLBs are issued
across a more diverse range of sectors. Alongside the
financial services and utilities sectors, which are
responsible for a combined total of 30 per cent of all
SLB issuance in 2021 and H1 2022, the industrials,
materials, and consumer sectors have a sizeable share
of the market, with a combined total of almost 50 per
cent of all SLB issuance, suggesting that companies in a
wider range of sectors are using the instrument to help
finance their net zero or low-carbon transitions.70
Trends show that sovereign issuances tend to raise
overall sustainable bond standards. According to the
Bank of International Settlements (BIS), the inaugural
issue of sovereign green bonds tends to tighten
standards for overall green issuance in that country.
After such an issue, not only does the annual number of
corporate issues tend to increase across jurisdictions,
but so does the percentage of corporate issuance with
second-party opinions. This tendency is apparent in both
advanced and emerging market economies.71 This
further enhances the integrity of the markets and allows
investors to trust and trade. According to BIS, while all
sovereign issuers have solicited a seal of approval from
an external reviewer, in contrast, as many as one-fifth of
corporate green bonds globally are self-labelled as
green by the issuer without any external review.72
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Sovereign sustainable finance instruments can
potentially finance other SDG objectives as well,
including gender equality. While the sustainable finance
market keeps expanding, investors’ requests for more
inclusive and innovative financial instruments that
address social issues are also growing. These include
financial products which include women’s leadership,
employment or incorporation into investment strategy
and analysis. Social bonds, Sustainable Development
Goal bonds,73 gender bonds, sustainability bonds, and
sustainability-linked bonds can help direct capital to
reduce the financial and economic inequalities between
women and men. Such instruments can enable capital to
flow to fund social projects targeting specific
populations. However, green or sustainability-linked
bonds which include a gender or diversity dimension
remain scarce.
Governments are increasingly
active in carbon markets
In addition to fostering the development of the GSS+
bond markets in the region, carbon markets should be
seriously considered by governments for climate action.
Voluntary carbon markets remain predominantly global
in nature, but in the region, China, Thailand, Japan, the
Republic of Korea, Singapore, Australia and New
Zealand have also developed emissions trading
schemes or carbon credit markets, as can be seen in
Figure 2.9 below and Annex D. New carbon markets in
Asia and the Pacific are also expected to go live in 2023,
when Indonesia will launch the first phase of mandatory
carbon trading for coal power plants.74
Figure 2.9: Carbon pricing initiatives at national and sub-national level in Asia and the Pacific.
Source: ESCAP based on World Bank Carbon Pricing Dashboard75 and UNCTAD Sustainable finance regulations platform.76
Note: Carbon pricing initiatives are considered "scheduled for implementation" once they have been formally adopted through legislation
and have an official, planned start date. Carbon pricing initiatives are considered “under consideration” if the government has announced
its intention to work towards the implementation of a carbon pricing initiative and this has been formally confirmed by official government
sources.77 ETS refers to cap-and-trade systems, but also baseline-and-credit systems.78
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Governments can allocate carbon pricing revenues to
critical social and environmental policies to support
sustainable development. The World Bank estimates
that $84 billion in carbon pricing revenues was raised by
governments in 2021, yet carbon pricing still only
accounts for less than 5 per cent of global emissions.
ESCAP’s Economic and Social Survey 2020 highlights
that phasing out fossil fuels and introducing carbon
pricing could open up significant fiscal space for
countries in the region. For example, at a carbon price of
$70, the survey estimates that several countries in the
region could increase revenues by over 2 per cent of
GDP by 2030. In sum, if the revenue raised from carbon
taxes is collected effectively and then partially
channelled back into the economy to compensate low-
income groups for the impact on energy and
transportation costs, it can potentially increase the level
of economic activity and reduce inequality and poverty,
while simultaneously progressing towards emissions
targets and reducing air pollution.
Several countries in the Asia-Pacific region have already
adopted different forms of carbon pricing. This includes
China (the largest carbon market in the world), Japan,
Republic of Korea, Australia, Singapore, New Zealand,
and Kazakhstan. In addition, several others are currently
considering carbon pricing policies, including Thailand,
Malaysia, Brunei Darussalam and Indonesia. (However,
Indonesia recently announced it would delay the
introduction of its carbon tax due to the impact of high
energy prices). Furthermore, nascent discussions are
underway to link compatible ETSs with each other to
reduce costs, increase liquidity, and harmonize carbon
pricing across jurisdictions. According to the World
Bank,79 73 different carbon pricing instruments globally
have been implemented as of the end of 2022 with a
share of global GHG emissions covered around 23 per
cent. Record high revenues from emission trading
schemes and carbon taxes approached $100 billion.
While both issuances and retirements of carbon credits
fell compared to 2021, voluntary demand from
companies remains the primary driver of market activity.
However, the carbon price remains well below what is
needed to drive carbon neutrality. According to the
World Bank, as of April 1, 2023, less than 5 per cent of
global greenhouse gas (GHG) emissions are covered by
a direct carbon price at or above the range ($40-$80 per
metric ton of carbon dioxide) recommended by 203080
(in 2023), with most of these high-price instruments
located in Europe.81 Another estimate of what an
effective carbon price range should be also came from
the Network of Central Banks and Supervisors for
Greening the Financial System (NGFS) which released
its updated scenarios for central banks and supervisors
in September 2022. NGFS modelling suggests that
carbon prices need to be around $50 by 2030 in 2010
terms (or $69 in 2023 terms) and subsequently around
$200 (or $276 in 2023 terms) by 2050 to achieve a
below-2°C outcome.82 The majority of current carbon
prices remain far below this range, and such prices are
commanded in high income countries, mainly in Europe
and the United States.
Most countries have now included emission reductions
targets in their NDCs. Carbon offsets are an integral part
of the UNFCCC Paris Agreement, including the rules to
establish pathways for their use. A carbon offset is
equal to one metric tonne of carbon dioxide (or
equivalent GHG) that has either been removed from the
atmosphere or prevented from being released into the
atmosphere. Critically for carbon offsets to serve their
purpose of incentivizing abatement and encouraging
countries to meet their international climate change
obligations, they must have environmental integrity.
Carbon offsets are created by certified activities that
create and measure the number of tonnes of removals
or reductions in GHGs from the atmosphere. Only
additional removals or reductions in GHGs that happen
because of the activities, and that would not have
happened otherwise, can be counted and made into
carbon credits.
Article 6 allows parties to the UNFCCC to use
international trading in carbon offsets, referred to as
internationally transferred mitigation outcomes (ITMOs)
to help achieve their emissions reduction targets. ITMOs
enable countries to buy and sell carbon offsets from
each other to meet their obligations under the Paris
Agreement. Importantly, this creates opportunities for
developing countries to sell carbon offsets to developed
countries.
Carbon markets are being explored by governments to
accomplish their NDCs, while corporations are taking
the initiative by establishing their own reduction targets
and utilizing offsets to achieve them. Consequently, the
demand for carbon offsets is increasing, with both
mandatory compliance and voluntary markets becoming
more widespread. It is hoped that Article 6 will provide a
framework for integrating compliance and voluntary
markets in the future.
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Box 2.1: LDCs and SIDS and carbon offset markets.
Carbon offset markets are increasingly valuable to enable companies and governments to meet their emission reduction
targets by purchasing carbon offsets. Carbon offsets are generated by projects that reduce or remove GHG emissions.
Article 6 of the Paris Agreement encourages countries to use cooperative approaches that enable them to use carbon
offsets to help achieve their emissions targets. These projects can include nature-based solutions, such as projects to
reduce deforestation. Forests absorb carbon dioxide from the atmosphere — thus acting as natural sinks for GHG
emissions — although they release GHGs when cleared or degraded. Reducing deforestation can, therefore, significantly
enhance efforts to mitigate climate change.
Blue carbon ecosystems, such as mangrove forests and seagrass meadows, also act as carbon sinks and contain more
sequestered carbon per square meter than almost any other ecosystem. Importantly, projects must be certified according
to agreed methodologies and have in place appropriate monitoring, reporting, and verification (MRV) protocols to
guarantee that they create actual measurable reductions in GHGs, which increases compliance costs. However, if
structured appropriately, a project designed to conserve a forest or blue carbon ecosystems can generate carbon offsets
that can be sold, earning valuable income for local communities and governments that can contribute to broader
sustainable development priorities. Regional partners — including Australia, Fiji, Papua New Guinea, among others — are
working together to develop high-integrity carbon offset schemes in the Indo-Pacific region. The rich stock of biodiverse
green and blue ecosystems within the Asia-Pacific region, particularly in LDCs and SIDS, means that carbon offsets
generated from these types of projects have the potential to play a critical role in generating much-needed sources of
climate finance for LDCs and SIDS in the region.
Debt for nature and debt for
climate swaps
In the current context of high, and increasing, public
debt levels amid a narrowing fiscal space in developing
countries, the availability of public finance for climate
action projects is curtailed. Debt for nature or debt for
climate swaps represent a promising solution.
Policymakers are increasingly exploring this tool.
A debt swap is an agreement between a creditor and a
debtor by which the former cancels a portion of the
latter's foreign debt in exchange for a commitment to
invest in a specific environmental project. Debt for
nature swaps have a precedent in the debt for nature
swaps first implemented in the context of the global
debt crisis of the 1980s. Debt for nature swaps invested
mainly in conservation projects, and they are flexible
instruments that can be funded through a variety of
sources in addition to donor countries. These may
include grants from philanthropical organizations, as in
the Seychelles debt swap of 2015 — when nearly $22
million of debt was forgiven in exchange for greater
ocean protection — or an issuance of a blue bond
backed by political risk insurance by the US International
Development Finance Corporation (DFC), as in the Belize
debt-for-nature swap of 2021, through which
approximately $107 million was dedicated to
conservation projects amid debt restructuring.
A debt for climate swap is a type of debt swap that
cancels foreign debt in exchange for a commitment to
redirect savings in debt services towards climate-
friendly objectives. Bilateral official creditors that are
Annex II parties to the United Nations Framework
Convention on Climate Change can make their funding
of debt for climate count as part of the developed
countries’ commitment to provide $100 billion per year
in climate finance to developing countries.83 According
to the IMF, “under bilateral debt swaps, previously
committed debt service to official bilateral creditors is
redirected to the financing of mutually agreed projects
in areas such as nature conservation and climate.84
Tripartite swaps involve buybacks of privately held debt
financed by donors and/or new lenders, usually
intermediated by an international nongovernmental
organization (NGO), conditional on nature- or climate-
related policy actions and/or investments. In the most
common type of operation the NGO lends the funds to
the debtor country at below-market interest rates, on
condition that (1) the debtor uses the funds to buyback
commercial debt at a discount, and (2) a portion of the
resulting debt relief (the difference between the cost of
the retired commercial debt and the new debt to the
NGO) is used to fund climate-related actions or
investments.”85
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Debt swaps are not the same as unilateral debt
forgiveness. They are mutually beneficial agreements
through which both the debtor and its creditors gain.
Debtors benefit by reducing their debt burden and
opening fiscal space for dedicated investments in
climate projects. They also benefit by reducing pressure
on the exchange rate, as their new obligations to invest
in climate projects are in domestic currency. With
regards to creditors, private bondholders can benefit
from a buyback agreement at a price that exceed the
market price, and bilateral official creditors can make
their funding of a debt for climate swap deal count as
part of the $100 billion commitment, as mentioned
earlier. Table 2.2 provides a broader description of
costs and benefits of debt swaps which policymakers
can use to assess the suitability of these instruments.86
Table 2.2. Opportunities and challenges of debt swaps for the involved parties.
Advantages and positive outcomes
for the debtor country
Advantages and positive outcomes for
the creditor country
Shortfalls and challenges
▪ Through debt relief and conversion,
the overall debt burden on the debtor
country is lowered and the strain on
the national budget is reduced.
▪ Since counterpart payments into
environmental projects are generally
made in local currency, debtor
governments save scarce hard
currency which they can then use to
build foreign exchange reserves.
▪ Debt swaps have the potential to
improve the overall macroeconomic
situation of an indebted and
developing country through alleviating
its public debt burden in the medium
term and creating fiscal space in the
short term.
▪ Debt relief can strengthen economic
stability, improve the credit rating of a
debtor, and attract new investments.
▪ Environmental projects benefit from
freed finance that would have
otherwise gone towards the creditor’s
budget, often bringing economic and
social benefits at a local level.
▪ Grants to environmental projects or
local NGOs are typically distributed via
a trust fund which is set up according
to the original repayment schedule.
This long-term regular funding
facilitates investments in climate
finance.
▪ From a financial perspective, creditor
countries’ remaining debt claims
increase in value through such swaps,
and creditors can recover either full or
at least a larger part of their debt. Debt
swaps are particularly beneficial if parts
of the debt have been already written
off, but full repayment remains unlikely.
▪ Creditors must mobilize less additional
finance to meet their international
climate commitments and, at the same
time, can register the instrument as the
provision of Official Development
Assistance (ODA). Since the nominal
value of non-concessional debt can be
registered as ODA, many creditor
countries have used this instrument to
boost their ODA numbers.
▪ Further, creditor countries can raise
their environmental credentials by
mobilizing co-financing through
international funding institutions. A debt
swap that is carefully designed can
guarantee an adequate use of funds and
carry a greater weight than a single
donation.
▪ Debt for climate swaps can help
developed countries reach their COP26
target to mobilize at least $100 billion
annually by 2023 while providing
developing countries with additional
resources to mitigate and adapt to
climate change.
▪ If the write-off rate is low or even zero, no
extra-budgetary room is provided, which
leaves the overall macroeconomic
situation unaffected.
▪ If the debt swap volume is small, the
positive impact on the debtor’s economic
situation is negligible or might even be
outweighed by the costs incurred when
negotiating a swap and setting up a trust
fund.
▪ Debtor countries must have sufficient
funds to put into trust funds, and there
exists a risk of inflation if debtor
governments print money to pay the
agreed amount in local currency. This
risk does not apply to countries that do
not have a national currency.
▪ Debt swaps carry the threat of crowding
out other forms of finance that are
potentially more effective. Debt swaps
should be additional to the already
delivered ODA and not substitute other
channels of new aid.
▪ Climate-relevant debt swaps have to
compete with other sectors (health,
education, infrastructure) for a limited
amount of eligible debt.
▪ Countries will need to negotiate with
creditors specifying the conditions of the
swap, reduced debt, selection of projects,
implementation and monitoring,
additional financial sources, connections
with the SDGs and the Paris Agreement.
Source: ESCAP
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Accessing multilateral climate
funds and development finance
In addition to GSS+ bonds, carbon pricing, and debt for
climate or debt for nature swaps to finance, accessing
multilateral climate funds and/or development finance
is another source of sustainable finance for
policymakers.
Multilateral climate funds (MCFs) are a significant
source of sustainable finance for developing countries
but may be insufficient to meet their financing gaps.
Multilateral climate funds were established through
international agreements with a mandate to provide
finance for the transition to a green, inclusive, and
climate resilient economy in developing countries. The
visions and missions of the MCFs are partially shared
and mutually reinforcing in their support to developing
countries to implement the United Nations Framework
Convention on Climate Change and the Paris
Agreement. They are to be accessed by developing
countries for mitigation, adaptation or transition funding
and use a variety of financing methods. They form a
significant channel for the $100 billion per year
promised by developed countries to developing
countries. The main MCFs and their purposes are:
▪ Finance for adaptation in developing countries:
The mission of the Adaptation Fund is to
accelerate the quality of adaptation action in
developing countries by financing concrete
adaptation actions, innovation and multi-level
learning that engage, empower, and benefit the
most vulnerable communities through inclusive
and country-driven processes.
▪ Finance to adopt new green technologies in
developing countries: The Climate Investment
Fund’s mission is to mobilize its Multilateral
Development Bank partners, governments, the
private sector and local communities, to test and
pioneer new technologies, create markets, and
catalyze transformational change toward a more
prosperous, equitable climate economy.
▪ Finance to meet climate goals by developing
countries: The Global Environment Facility’s
(GEF’s) mission is to safeguard the global
environment by helping developing countries meet
their commitments to multiple environmental
conventions and by creating and enhancing
partnerships at national, regional, and global
scales based on the principle of sectoral
integration and systemic approaches to project
and program financing.
▪ Finance for LDCs to meet national adaptation
programmes of action. The GEF operates the Least
Developed Countries Fund (LDCF).
▪ Finance to adopt low-emission development
strategies by developing countries. The Green
Climate Fund’s (GCF’s) vision is to promote the
paradigm shift towards low-emission and climate
resilient development pathways in the context of
sustainable development.
In Asia and the Pacific, $5.3 billion was mobilized by the
multilateral climate funds between 2018 and 2021,
based on OECD development finance statistics.87 This is
still a small proportion of overall climate finance flows,
and of the climate finance gaps, and many developing
countries in the region face challenges in applying for
and meeting the requirements of financing from these
funds. Table 2.3 below presents data on access to
sustainable finance in Asia and the Pacific in 2021 from
three main sources: multilateral climate funds,
multilateral development banks, and bilateral donors.
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Table 2.3: Climate-related development finance committed by developed countries to Asia-Pacific countries through
various channels in 2021 (in millions of United States dollars).
Multilateral climate funds
Multilateral development banks
Bilateral donors
Grants
Loans
Grants
Loans
Grants
Loans
South and South-West Asia
189
182
111
9,366
1,222
7,096
Afghanistan
3
103
173
Bangladesh
0
1
906
188
2,181
Bhutan
12
1
23
35
India
21
64
2
3,272
255
4,043
Iran (Islamic Republic of)
0
20
Maldives
26
0
40
13
14
Nepal
27
1
67
133
Pakistan
1
15
1
1,993
191
77
Sri Lanka
1
1
482
31
27
Türkiye
2
2,583
113
742
Subregional funding
95
103
1
71
11
North and Central Asia
77
12
151
1,742
274
593
Armenia
4
128
18
76
Azerbaijan
0
40
16
Georgia
10
233
63
177
Kazakhstan
0
0
401
7
Kyrgyzstan
12
6
38
57
20
Tajikistan
9
7
113
59
48
Turkmenistan
29
1
3
Uzbekistan
12
0
823
15
338
Subregional funding
0
84
1
South-East Asia
157
53
5
2,905
1,057
1,966
Cambodia
7
61
104
340
Indonesia
51
0
1,303
298
821
Lao People’s Democratic Republic
6
28
83
Malaysia
4
19
Myanmar
0
95
Philippines
5
1,304
96
352
Thailand
23
11
14
Timor-Leste
42
0
37
99
Viet Nam
7
18
2
160
165
428
Subregional funding
13
35
3
0
83
25
East and North-East Asia
89
375
8
1,953
105
72
China
30
2
1,899
48
71
Democratic People’s Republic of
Korea
0
1
Mongolia
52
130
1
54
48
Subregional funding
7
245
5
0
8
1
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Multilateral climate funds
Multilateral development banks
Bilateral donors
Grants
Loans
Grants
Loans
Grants
Loans
The Pacific
97
178
157
908
Fiji
0
1
49
60
Kiribati
11
47
Marshall Islands
6
18
16
Micronesia (Federated States of)
22
40
10
Nauru
6
Niue
5
3
Palau
0
1
8
Papua New Guinea
26
84
305
Samoa
0
42
Solomon Islands
6
3
1
124
Tonga
9
62
27
Tuvalu
6
18
6
Vanuatu
3
29
23
85
Subregional funding
2
6
167
Totals
613
623
461
16,124
3,788
9,758
Regional funding
4
9
0
221
32
Source: ESCAP based on OECD, Climate Change: OECD DAC External Development Finance Statistics.88
Notes: The table shows climate-related development finance in current United States dollars committed by bilateral and multilateral
sources in 2021. Flows from bilateral donors are provided directly to an aid recipient country. A bilateral donor’s contribution is
considered multilateral if it is pooled with other contributions and disbursed by multilateral development banks or multilateral climate
funds. The data in the table covers 96.3 per cent of the climate finance flows to the region in 2021. For simplicity, flows from private
philanthropies and flows in the form of equity and mezzanine financing instruments from all sources, which contribute the remaining 3.7
per cent of the total, are not shown in the table. Regional and subregional funding is funding to the region or a specific subregion that
does not identify the recipient countries.
In total, Asia and the Pacific received $183.7 billion in
climate finance between 2016 and 2021 from all such
sources. The two main sources were multilateral
development banks ($88.3 billion) and bilateral donors
($86.8 billion), followed by multilateral climate funds
($7.5 billion). In addition, private philanthropies
contributed $1.1 billion during this period. As can be
seen in Figure 10, Panel A, climate finance increased
from $24.2 billion in 2016 to $38.2 billion in 2020, but it
fell to $32.6 billion in 2021. The $5.6 billion drop in
climate finance between 2020 and 2021 was due to
bilateral donors, who decreased their flows to the region
by $6.2 billion, while multilateral climate funds and
multilateral development banks increased their
financing slightly. A possible explanation of the drop in
Official Development Assistance (ODA) channelled to
climate finance in 2021 could be the increase in global
ODA allocations towards COVID-19 related activities,
from $12 billion in 2020 to $21.9 billion in 2021.89
The increase in climate finance between 2016 and 2021
has been largest for adaptation finance, 101 per cent
from $6.2 billion in 2016 to $12.5 billion in 2021.
Finance for mitigation increased by 11 per cent, from
$16.7 billion in 2016 to $18.5 billion in 2021. As
percentage of total climate finance from such sources,
adaptation increased from 25.6 per cent in 2016 to 38.2
per cent in 2021 (Figure 2.10, Panel A).
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Much of the financing has been debt creating, which is a
concern when countries are already experiencing
increased indebtedness. With regards to financing
instruments, 82.8 per cent of the flows during 2016-
2021 consisted of debt finance, 15.6 per cent consisted
of grants, and 1.6 per cent consisted of other
instruments such as equity and mezzanine financing.90
The share of debt is higher for mitigation projects (90
per cent) and lowest for projects where there is an
overlap of mitigation and adaptation (37 per cent). (See
Figure 2.10, Panel B).
Over 70 per cent of the climate finance received by the
region between 2016 and 2021 was concentrated in four
sectors: Transport & Storage (29.6 per cent of total
climate finance flows in 2016-2021), Energy (22.7 per
cent), Water Supply & Sanitation (9.9 per cent), and
Agriculture, Forestry, Fishing (8.9 per cent). Within the
transport sector, rail transport was the main subsector
(18 per cent of total climate finance flows in 2016-
2021), followed by road transport (6 per cent), and
Transport policy and administrative management (3.7
per cent). Within energy, the main subsectors were
Electric power transmission and distribution (5 per
cent), Energy policy and administrative management (4
per cent), Energy generation, renewable sources -
multiple technologies (3 per cent), Hydro-electric power
plants (2.5 per cent), Solar energy for centralized grids
(1.9 per cent), and Energy conservation and demand-
side efficiency (1.3 per cent).
Figure 2.10: Climate finance to Asia and the Pacific over time and by financing instrument.
Source: ESCAP based on data from OECD91.
Note: The figures show total climate finance measured in current United States dollars committed by developed countries from
multilateral climate funds, MDBs, and bilateral sources.
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Achieving climate goals requires developing countries to
go beyond reliance on promised funding from developed
countries. It is encouraging that publicly sourced
climate finance to Asia-Pacific developing countries is
on the rise. However, even if these flows continue
growing at an annual rate of 12 per cent, as they did
between 2016 and 2020, the amounts will not suffice to
cover the large financial gaps faced by countries in the
region for the transition to a low carbon economy, nor
will the funds be enough to meet the investment
required for the energy transition.
The Just Energy Transition
Partnerships
The Just Energy Transition Partnerships (JETPs)
present a promising model of partnership between
policymakers, regulators, donors, and private investors
for the region. While it is not feasible for every country
in the region to participate in a JETP, policymakers can
nonetheless take away several key lessons from the
initiative.
The Indonesia Just Energy Transition Partnership
(JETP) was launched in November 2022. Following the
South Africa model, this is a country platform of
coordinated policies, regulatory improvements,
(anticipated) project pipelines, and financing
commitments that together aim to mobilize $20 billion
from 2023 to 2028 to accelerate a just energy transition.
Ten billion US dollars of public money will be
contributed by the International Partners Group (IPG)
members (France, Germany, the United Kingdom, the
United States of America, and the European Union), and
at least $10 billion of private finance will be mobilized
and facilitated by the Glasgow Financial Alliance for Net
Zero (GFANZ) Working Group.
The Viet Nam Just Energy Transition Partnership
launched in December 2022 will rally an initial $15.5
billion of public and private finance over the next three
to five years to support Viet Nam’s green transition.
Initial contributions to Viet Nam’s JETP include $7.75
billion in pledges from the IPG together with the Asian
Development Bank and the International Finance
Corporation. This is supported by a commitment to work
to mobilize and facilitate a matching $7.75 billion in
private investment from an initial set of private financial
institutions coordinated by the Glasgow Financial
Alliance for Net Zero (GFANZ), including: the Bank of
America, Citibank, Deutsche Bank, HSBC, Macquarie
Group, Mizuho Financial Group, MUFG, Prudential PLC,
Shinhan Financial Group, SMBC Group, and Standard
Chartered.
The Indonesia and Viet Nam JETPs provide a model to
the rest of the region to focus their financing strategies.
Their JETPs coordinate national commitments to
peaking emissions, phasing out coal, improving
regulations and ensuring bankable projects for private
finance as well as public finance. In turn, this
commitment and coherence at the national level has
attracted private finance commitments in addition to
donor finance. For the rest of the region’s developing
countries, the model suggests that pragmatically
focusing on coherence and change within a specific
sector can yield results. Strong policy and regulatory
commitment in a specific sector and area signals to
investors that pricing risks around regulatory and policy
uncertainty will likely subside, reducing the cost of
financing (or the “uncertainty premium”).
C. Challenges
This section discusses some of the challenges faced by
governments, particularly in developing countries, to
strengthen the depth, access, efficiency, and stability of
sustainable financial markets; and to bridge the gap by
mobilizing enough sustainable finance to meet national
goals.
The lack of policy coherence by policymakers affects
the amount of sustainable finance flows to countries
and the integrity (standards) of these flows. A lack of
coordinated policymaking between goals, trade-offs,
activities and resources between ministries,
departments, and agencies responsible for designing
and implementing climate-related mandates and
financial sector mandates adversely affects transaction
costs and reduces efficiency. It also negatively drives
risk perceptions about the reliability, predictability, and
stability of the policy and regulatory regime.
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Coherence between policy commitments and
independent regulatory approaches is also essential.
Scaling up green and climate finance involves
transforming not only green and climate finance policies
but also other areas of business and investment
policies, especially with regards to the real economy.
The policy environment exerts a strong influence over
investment decisions, and if the legal and regulatory
system is unclear, contradictory, or creates unintended
barriers, a country is less likely to attract the necessary
climate finance. One example is a country with an
ambitious emission reduction target, but legal and
regulatory frameworks that provide preferential
treatment for fossil fuels. Policymakers thus need to
balance numerous competing policy choices and
regulatory arrangements in many different sectors and
levels of government.
Expertise, skills, and resources are required by
policymakers to access multilateral climate fund
funding. The GCF project approval time, for instance, for
LDCs is often long. In the time span between November
2015 and July 2021, the median time for processing an
application was of 619 days or 21 months. Because
submissions are made quarterly in accordance with the
GCF project submission schedule, this could represent
up to six or seven rounds of reviews of the funding
proposal at the GCF Secretariat and/or from an
Independent Technical Advisory Panel (ITAP). The
shortest approval time for LDC projects was 113 days
(about four months) and the longest was 1,727 days or
58 months. Adaptation projects bore the longest
average time — 22 months compared to 20 months for
mitigation and cross-cutting projects.92
“Public sector of SIDS like Samoa inherently face major human
and technical capacity constraints throughout the project cycle,
from project origination to implementation. The complexity of
the climate finance landscape and the lack of harmonization
among the requirements of multilateral climate funds and
donors further exacerbate this challenge. Improved capabilities,
more predictable and long-term financing can be key to the
development of pipeline projects for potential investments and
access to funding opportunities for SIDS.” – Peseta Noumea
Simi, Chief Executive Officer, Ministry of Foreign Affairs and
Trade of Samoa
The cost of sustainable finance is affected by countries’
sovereign credit ratings. Sovereign credit ratings are
usually a combination of domestic economic risk, public
finance risk, external economic risk, financial stability
risk and environmental, and social and governance risk.
We see this in Table 2.4 below, which shows that
investment-grade sovereign ratings are correlated with
much larger volumes of GSS+ bond issuance. Such
bonds enjoy a cheaper cost of financing for green
projects and can be issued in larger volumes, given the
lower debt servicing costs. However, sustainable
finance instruments can still be issued successfully
without investment-grade ratings. As Table 2.4 also
shows, countries with non-investment grade sovereign
ratings have also successfully issued GSS+ bonds. The
volumes are still low, but they signal that there exists
appetite for such instruments.
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Table 2.4: GSS+ bond issuance and sovereign/jurisdiction credit ratings.
Country / Economy
GSS+ bond issuance, 2015-2022
(Millions of United States dollar)
Sovereign/Jurisdiction
Corporate
Sovereign/Jurisdiction
and corporate
Year of first issuance between
2015-2022 and type
Investment grade
China
280,759
280,759
2015 (Green)
Japan
94,536
94,536
2015 (Green)
Republic of Korea
1,315
71,959
73,274
2016 (Green)
Hong Kong, China
9,817
15,349
25,166
2015 (Green)
Australia
22,163
22,163
2015 (Green)
India
22,144
22,144
2015 (Green)
Singapore
1,737
8,778
10,516
2017 (Green)
Philippines
4,309
6,146
10,455
2016 (Green)
Indonesia
6,468
3,892
10,361
2018 (Green)
Thailand
3,382
6,169
9,552
2018 (Sustainability)
Malaysia
2,269
2,805
5,074
2017 (Green)
New Zealand
1,828
2,234
4,062
2016 (Green)
Non-investment grade
Uzbekistan
869
869
2021 (Sustainability)
Georgia
830
830
2020 (Green)
Türkiye
700
700
2016 (Sustainability)
Viet Nam
625
625
2021 (Green)
Armenia
64
64
2020 (Green)
Fiji
54
54
2017 (Green)
Bangladesh
17
17
2021 (Green)
Kazakhstan
0.4
0.4
2020 (Green)
Pakistan93
-
2021 (Green)
Non-rated
Russian Federation
117
117
2018 (Green)
Total
32,050
539,289
Number of issuances
45
2,212
Source: ESCAP based on Environmental Finance Data, accessed on 4 April 2023 and Trading Economics, accessed on 26 February 2023.
Note: Corporate refers to both financial and non-financial corporations. Issuances by government agencies and municipality are not
included.
Despite an increasing demand for green projects, the
paucity of bankable projects in national pipelines is a
serious issue. For governments, building a pipeline of
projects that meet the bankability needs of the relevant
investors in terms of climate finance is often a
challenging process. Outreach to the relevant investors
is also challenging. From a returns perspective, green
projects (particularly in adaptation) may involve high
upfront costs and a longer term for payouts. Pricing may
be better in non-green asset classes, though that may
not always be the case. However, risks in the interim
period between costs being paid upfront and returns
materializing later are still challenging to financiers.
These include risks at the country level, sector level,
borrower/project developer level, and increasingly,
related to external shocks. Untested regulatory
environments and green business models can also
create liabilities for first movers. In this instance, the
global discussion on reform within multilateral
development banks can help boost financing for riskier
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projects. But building climate finance or green pipelines
is nonetheless a whole-of-government process due to
the need to coordinate standards, sectors, and MDB and
investor outreach.
D. Recommendations
Based on the thorough discussion of trends,
opportunities, and challenges presented above, this
section puts forward a series of recommendations for
governments and policymakers. While they are not
exhaustive, they nevertheless present the most critical
areas for policymakers to begin as soon as possible. In
addition, these recommendations (which are set out in
detail here) have been aggregated into our final set of
ten principles of action for the region to bridge the
sustainable finance gap in Asia and the Pacific, set
forward in the final chapter.
▪ Develop effective and coherent NDC financing
strategies with interim 2030 and 2040 targets, and
clear resource mobilization plans. Efforts should
be spearheaded by authorities with clear
mandates. This would clearly signal to investors,
businesses, and project developers that
governments are committed to change. While most
governments have submitted NDCs, many of them
do not include financial needs – ideally broken
down by industry, sector, use, and area. Such
needs should ideally be identified in the form of a
national level NDC financing strategy which maps
climate mitigation and adaptation projects or
programs with expected/planned sources of
government finance, international financial
assistance, and private finance. Large ballpark
financial figures are currently included in some
NDC action plans, but without a clear methodology
that depicts how such figures were arrived at, it is
difficult for countries to begin mobilizing the
finance necessary from the best sources. What is
needed are defined investment priorities,
concomitant policy and regulatory improvements
related to those priorities, investor, DFI and MDB
outreach plans, including to potential international
donors, and a list of properly vetted projects that
are matched to possible financing sources. This
coherent and cohesive process itself requires
government investment in building capacity, data,
and systems.
The process would similarly include an
evaluation of regulatory and policy barriers to
enabling private sector investment in
adaptation.94 For example, in China (the largest
green bond market in the world), such a regime
is implemented with a focus on inter-ministerial,
central-local and international collaborations,
centralized policymaking, and the alignment of
green goals with performance assessments of
local officials.95 Interestingly, evidence reviewing
current financing strategies suggests that “it is
not clear that a strategy that includes detailed
costing of adaptation actions is more effective
than a high-level strategy that builds awareness
and high-level political buy-in.”96
Consequently, any financing strategy should be
broader than merely seeking resources from
developed countries. Improvements to the
enabling environment encourage increased
private sector investment. The political economy
of sustainable financing within a country should
also be considered, especially regarding
domestic investors and businesses. Finally, the
preparation of the strategy should involve private
finance from the beginning, even though this
compounds multi-stakeholder coordination
challenges. Such involvement is key for the lead
ministry in charge of NDC planning to translate
the country’s needs and opportunities into a
national priority list of feasible investments.
"When Armenia presented its NDCs, it was followed by a
concrete implementation plan that highlighted potential sources
for financing the NDCs and an annual financial plan, particularly
focusing on energy sector projects." - Erik Grigoryan, former
Minister of Environment, Armenia.
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▪ Encourage the financial sector and the private
sector to proactively plan for the net zero
transition, ahead of 2030 or 2050. This will also
increase local currency financing for the net zero
transition. As part of the above, the whole-of-
society transformation that needs to be
accelerated can kick off with governments
requiring the financial and private sectors to begin
disclosing their transition planning strategies.
Governments also need to call on the financial
industry (and therefore their underlying borrowers
the private sector) to set strategies and targets
that progressively align financial portfolios with
the NDCs. Of relevance to governments and other
public sector stakeholders is to ensure that any
legislation passed (particularly as it pertains to
corporate transparency and disclosure) is
supportive of emerging international sustainability
standards. As part of this approach, governments
should also encourage the use of central net zero
data platforms to overcome critical data gaps,
such as Singapore is doing through the
forthcoming Project Greenprint.97 Project
Greenprint is a blockchain-enabled, trusted,
common platform to manage and access ESG data
and to meet disclosure requirements locally and
internationally. It promotes data consistency and
clarity in disclosures and enables comparability of
data.
▪ Consider subsidizing the costs of measurement
and disclosures in green or sustainable finance, to
whatever extent possible, as part of the transition.
For example, the Monetary Authority of
Singapore’s sustainable bond grant scheme
offsets up to SGD 100,000 (approximately
$73,890) of additional expenses for external
reviews of eligible green, social, sustainability and
sustainability-linked bonds and promotes the
adoption of internationally accepted standards.
This has led to an increase in green issuance in
Singapore both by sovereigns and corporates.
Various, relatively small, incentives like these have
been used in Thailand, Indonesia, and China in
different forms such as discounts on pricing,
grants, tax breaks, tax credits, and other
incentives. While this may not be appropriate for
every economy, nevertheless their availability may
be useful to launch new markets and reduce first-
mover disadvantages.
▪ Ensure development of a pipeline of bankable
projects. The pipeline of projects needs to fit the
volumes, scales, and risk-return profiles that
interest multilateral climate funds, multilateral
development banks, development financial
institutions, and private investors. Solving this is a
complex issue and must include bringing relevant
investors onboard for advice at early stages,
despite the increased coordination costs faced by
investors. Private investors could in fact benefit by
not having to engage in the high transaction costs
related to identifying, developing, and financing
low-carbon bankable projects. Missing policy or
regulation in new sectors — such as renewable
energy or green technologies — further hinders the
development of such projects, where again,
governments can play a key role to develop them.
Additionally, governments may need proper
emissions-based assessments, disaster impact
assessments and nature-based assessments to be
able to prioritize projects. This activity also
requires significant capacity building within
ministries around the identification of such
projects. For example, the OECD’s review of green
infrastructure project pipelines98 highlights six
essential factors to attract investment to projects
in the pipelines. We underscore three of them for
all-sector green project pipelines:
Ensuring authority and ownership of the green
bankable project pipeline by ministries,
departments, or agencies with adequate ability to
co-ordinate public and private actors, signal
investment needs, translate national climate
commitments into prioritizing green projects, and
capable of outreach to multilateral climate funds
and private finance actors.
Ensuring that the right priorities are translated
through the pipeline is critical to build project
pipeline at the scale and rates far beyond current
volumes. Such priorities are not only about which
projects will reduce emissions the fastest but
should also reflect an understanding of the
commercial risks, potential returns, requirement
of heavy upfront capital expenditure and contract
enforcement risks.
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Ensuring transparency in how project pipelines
have been identified and using clear data and
criteria to specify why projects have entered the
pipelines. According to the Organisation for
Economic Co-operation and Development
(OECD),99 improved transparency equips
investors with information to justify subsequent
commitments and positions in pipelines, and to
develop exit strategies.
▪ Expand the role of national development banks, as
limited public capital must be deployed in a
manner that increasingly catalyzes private finance.
National Development Banks are a key element of
financial infrastructure in many emerging markets.
The Addis Ababa Action Agenda emphasizes the
fundamental role that well-functioning national and
regional development banks can play in financing
sustainable development. National banks play a
countercyclical role, especially during crises. The
Addis Agenda specifically calls on national and
regional development banks to expand their
contributions to areas important for sustainable
development. It also urges relevant international
public and private actors to support such banks in
developing countries. They are particularly
effective at accessing concessional financial flows
(either through directed lending or private
placement of bonds) from MDBs and bilateral DFIs
and intermediating them into the real economy,
either directly or as an apex lender. “Greening” an
existing national DFI or creating a new specialist
entity is a vital underpinning of continued access
to concessional finance. MDBs and bilateral DFIs
increasingly expect credit to be directed towards
sustainable economic development, and for
borrowers to demonstrate this through enhanced
ESG reporting and disclosure.
▪ Advocate for MDBs and bilateral development
financial institutions to increase local currency
lending. The global macroeconomic stability
concerns have again highlighted the profound
problems caused by the predominance of hard
currency lending by MDBs and bilateral
development finance institutions (DFIs). National
DFIs that previously borrowed cheaply in hard
currency are now struggling to manage these
dollar or euro liabilities against a loan book
dominated by local currency assets. The same
challenge affects the interface with MDBs and
DFIs looking to finance the commercial banking
sectors directly. The appetite for hard currency
lending during periods of currency depreciations in
the region has changed. As the global discussion
underway is tilting towards, MDBs and bilateral
DFIs need to explore new modalities for helping
borrowers absorb these exchange rate risks.
▪ Invest resources to build the necessary skills,
capacities, and data collection systems to bridge
the sustainable finance gap. For example, given
the substantial new commitments by donors100 to
multilateral climate funds, eligible governments of
developing countries should invest in improving
their capabilities to access the funds, particularly
when the transaction costs are worth the benefits
of the projects. Many countries also have
considerable room to improve their access to the
UNFCCC Financial Mechanism in the form of the
Green Climate Fund (GCF) and the Global
Environment Facility (GEF). Development of a
robust pipeline of project opportunities at a
national level is a critical success factor, as is the
accreditation of entities (particularly financial
institutions) that will curate projects and apply for
funding through the UNFCCC Financial
Mechanism. Figure 11 shows where countries have
already successfully applied to the GEF and GCF,
and where countries have been less successful or
not yet been successful, representing a set of
countries that would benefit from further
resources to strengthen capacities.
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Figure 2.11: Access to GEF and GCF climate finance in Asia and the Pacific.
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Source: ESCAP based on the World Bank Data, GCF Open Data and GEF Projects Database.101,102
Note: The figure shows the sum of GEF and GCF total financing at country level and excludes regional programmes. Total GCF financing
amount is calculated as the sum of Readiness Grants Financing and Funded Activities Financing. GEF financing corresponds to the sum of
project financing approved at country level. It includes grants and other types of financing under the following instruments - CBIT Trust
Fund, GEF Trust Fund, LDC Fund, Multi Trust Fund, NPIF, and the Special Climate Change Fund. Per capita financing is calculated based on
2021 population data.
▪ New climate finance partnerships, inspired by the
JETP model, should be considered. These
partnerships can bring together commitments to
transform the real economy by policymakers,
regulatory reform, donor capital, and private
finance. For example, in the energy sector, long-
term commitments to financing energy transitions
rely on the presence of comprehensive national
planning strategies that include energy efficiency,
electrification of end uses, clean power, and clean
fuels. Such integrated energy strategies are
lacking in many Asia-Pacific countries, but the
JETPs move decisively towards such integration.
Several cross-cutting barriers also inhibit clean
energy project development. These include lack of
carbon pricing and inefficient fossil fuel subsidies,
which can tilt the economic playing field against
clean energy. Inadequate regulatory frameworks,
including onerous permitting and licensing
processes, can exacerbate risks in early-stage
clean energy project development, for which
funding is particularly constrained. Again, these
barriers to climate action are anticipated to be
overcome to some extent by the JETPs.
▪ Adopt a conducive taxation regime towards the
net-zero-transition, and further align policy
coherence. Perhaps the most important role that
governments can play is to incentivize sustainable
economic development. Ultimately, financial
institutions will direct credit on the balance of risk
versus reward. Governments can reduce the risks
of enterprises adopting sustainable business and
operating models by creating fiscal incentives that
support extra financial headroom for financing.
This approach can be controversial with fiscal
planners that are rightly wary of undermining
public finances. Implementing well-aligned tax
incentives or deterrents can enable investors to
achieve their threshold of investment (referred to
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as the “hurdle rate” or the minimum rate of return
on a project or investment required by an investor)
— thus enabling more private finance.
▪ A combination of policy and regulatory
improvement and investor participation from the
inception of projects is what is needed in any
sector, not just the energy transition, to overcome
the current mismatch between the demand and
supply of private finance for the net zero
transition. For example, anecdotally, some private
investors in energy transition projects worldwide
find that they have been brought on too late and
are expected to co-finance projects that have been
pre-designed in too restrictive a fashion. In some
cases, the best returns within the project have
already been dedicated towards one investor
(often an MDB), leaving other private investors
with less attractive returns within their share of the
project and reducing the volume of financing
available. If private investors are brought onboard
at inception together with other investors to
communicate their preferences on risk, return,
tenors, corporate governance, ESG standards,
climate and social impact, domestic and
international regulatory compliance, legal clauses,
dispute resolution and other aspects of the
transaction; then truly investment-ready pipelines
can be built faster and better.
Conclusion
While there is no one-size-fits all policy for governments
in Asia and the Pacific, all countries face the challenge
of bridging the sustainable finance gap. Regional
cooperation on data, cross-border challenges, and
aligning investment norms through common taxonomies
or common regulatory approaches can work to level the
playing field between countries and reduce arbitraging
opportunities. Importantly, regional cooperation allows
less developed countries to learn from the lessons of
other policymakers and share best practices relevant to
the region’s unique context.
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3. WHAT CAN
REGULATORS DO?
A. Introduction
A well-functioning sustainable financial system has
depth, efficiency, access, and stability. A rich diversity
of instruments is available to meet the demands of
investors amid a fast-flowing current of exchange. As a
Bank of Thailand regulator notes, “An efficient financial
market is one with proper depth and breadth. That is, on
the supply side there is a wide range of financial
instruments, offering choices of issuers, credit risks,
etc. to satisfy all classes of asset demand. On the
demand side, there has to be sizable investment
demand from various types of investors, with different
risk-return appetites. Also, a good diversity among
issuers and investors usually brings about a good mix of
market views, leading to an active exchange of financial
assets. A highly liquid financial market as such is able
to accommodate large and varied issuance of financial
instruments with minimum price effect. Here, financial
instruments can be quickly exchanged at reasonable
cost. [An] efficient clearing and settlement system is a
key supporting factor that helps lower transaction
cost.”103
Sustainable finance requires the participation of far
more regulatory bodies than just the financial
regulators. To date, much of the fast-changing
regulatory advances seen regionally and globally have
been driven by central banks and securities and
exchange commissions. While this report concentrates
on the role of financial regulators, sustainable or green
finance demands significant coordination and
coherence with other regulators. For example,
environmental protection agencies issue the permits
that allow investments to go ahead. Departments of
industries regulate the fiduciary duties of directors of
companies,104 especially in a context where litigation
that challenges companies’ contribution to climate
change is increasingly common. Competition and
consumer protection regulators are also involved,
through implementing guardrails against the potential
greenwashing of products and services. Real economy
regulators, such as energy regulators with science-
based targets involving emissions reductions, or
national electricity boards that make offtake
agreements with set prices in renewable energy,
similarly play a profound role in financing the energy
transition. New green technologies, such as green
hydrogen, may also involve regulators for carbon
trading, the greenhouse gas quota system, or to enforce
other compliance requirements around the carbon-
intensity of production of steel, fertilizer, and heavy
transportation. While financial regulators’ decisions
undoubtedly influence investment in sustainable
finance, and are at the heart of the regulatory debate,
they are unquestionably not the “only game in town”
when it comes to sustainable finance.
B. What is the role of
financial regulators in
sustainable finance?
There is currently significant debate about the extent
and substance of the role of financial regulators. On the
one hand there has been accelerating momentum to
develop sustainable finance taxonomies; on the other
hand, varied definitions, and degrees of implementation
throughout the region creates the risk of arbitraging
opportunities and disadvantaging actors with less
capacity. Consistency remains a work in progress.
Nevertheless, to varying degrees across the region,
regulators have adopted either piecemeal or in full the
following regulatory roles related to sustainable finance
(both Track 1 and Track 2):
▪ Ensuring that financial stability, which is affected
by climate change and biodiversity loss, is
maintained in the system through macroprudential
policies105
▪ Ensuring adequate microprudential supervision106
for the safety and soundness of financial
institutions and ensuring that capital by financial
institutions is sustainably managed
▪ Shifting capital towards low-carbon investments
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▪ Aligning national sustainable finance regulation
with international norms and standards
▪ Supporting policy priorities as articulated by
member States in the Paris Agreement and related
commitments
▪ Confirming that sufficient information and
capacities for the above are available throughout
the financial system
In the following section, the report discusses trends and
opportunities in regulatory roles, noting that this is an
extremely dynamic field and by time of publication the
landscape will have evolved significantly.
C. Trends and opportunities
Integrating climate-related
financial risks into macroprudential
stability assessments remains
challenging.
It is now widely accepted that physical risks and
transition risks undermine the stability of the financial
system. Physical risks refer to the risks arising from
weather-related events (rising sea levels, floods, heat)
which affect financial portfolios and can be jarring for
financial stability. Transition risks occur when
economies move towards a less polluting, greener
economy. Such transitions could mean that some
sectors of the economy face big shifts in asset values or
higher costs of doing business.107
The “tragedy of the horizon” poses significant additional
challenges to maintaining financial stability. Mark
Carney, former governor of the Bank of England and
Chairman of the Financial Stability Board, coined the
term “tragedy of the horizon” to refer to the decade-long
forecast used by central banks to manage monetary
policy and financial stability. However, the catastrophic
impacts of climate change will be felt beyond the
traditional horizons of most actors, with actions
undertaken today resulting in less costly adjustment.108
As Mark Carney noted, the risks to financial stability will
be minimised if the transition begins early and follows a
predictable path, thereby helping the market anticipate
the transition to a 2 degree world.109
In addition, physical and transition risks are prone to
being experienced as “green swans”. According to the
Bank of International Settlements, a ‘green swan’ is a
climate black swan, named after Nassim Nicholas
Taleb’s popular concept for events with major effects
that come as a surprise and are recognised only in
hindsight. The physical and transition risks of climate
change are characterized by deep uncertainty and
nonlinearity, so their chances of occurring are not
reflected in past data. These unknown unknowns make
traditional approaches to risk management largely
irrelevant.110 This is an indication of the challenges that
lie ahead — not only for central banks — but for the
entire financial system to assess and incorporate
climate-related risks into operations.
Climate risks translate into credit, market, underwriting,
operational, and liquidity risks. Figure 3.1 shows the
types and complexity of physical and transition risks,
the latter of which are particularly difficult to forecast.
Along with transmission channels, sources of variability,
and five types of threats – to credit systems, the market,
underwriting, operations, and liquidity — traditional
methods of financial risk management are at a loss in a
climate stress context. This profoundly affects the
traditional methods of managing macro and
microprudential risks in the region. It is therefore
equally, if not more, important that individual banks and
businesses acting in the financial system mainstream
the diagnosis, assessment, and planning into their
portfolios and operations. This will in turn help central
banks perform their supervisory duties well and to
conduct stress-tests under accurate parameters.
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Figure 3.1: Transmission channels from climate risks to financial risks.
Source: NGFS (2021a).
Assessing risk channels, given their complexities,
continues to be extremely challenging. According to
recent research published at the Journal of Financial
Regulation, difficulties in stress testing are exacerbated
by their long-time horizon (generally 30 years) and
radical uncertainty about possible climate pathways and
their probability distribution. Their unprecedented and
potentially catastrophic consequences mean that well-
established risk management tools in the financial
industry, such as Value-at-Risk models and stress tests,
cannot readily be used. Exploratory scenario-based
impact assessments must be used instead. In addition,
if climate-related risks materialize, they would affect the
economy and the financial system as a whole and may
be amplified by the pro-cyclical behaviour of market
participants; the self-reinforcing reductions in bank
lending and insurance provision; the bank-sovereign
nexus;111 the feedback loops with the real economy; and
network and cross-border effects.112
In addition, the ability to perform appropriate climate-
based stress testing by regulators is contingent on the
data quality and capabilities of regulators. The Network
for Greening the Financial System has made significant
advances to develop climate-based scenarios for
regulators which, due to the challenges and costs of
creating such scenarios, are beyond most individual
institutions. The first iteration of NGFS scenarios was
released in 2020. In Asia and the Pacific, four central
banks as of November 2022 concluded a first exercise
in stress-testing based on the three NGFS scenarios
known as the “hothouse” scenario, the “disorderly
transition” scenario, and the “orderly transition”
scenario, as shown in Figure 3.2. These scenarios imply
significant per cent changes in GDP from physical and
transition risks as seen in Panel 2 of Figure 3.2. For
example, the delayed transition scenario implies a close
to 5 per cent reduction in GDP globally by 2050 due to
the manifestation of both physical and transition risks.
While regulators in the region are increasingly
conducting climate stress-testing, gaps in data and
abilities remains a major hurdle. The four regulators who
have already conducted NGFS stress testing at time of
writing include: the Monetary Authority of Singapore,
People’s Bank of China, Japan Financial Services
Agency/Bank of Japan, and Bangko Sentral ng Pilipinas.
The Reserve Bank of India, Bank Indonesia, Bank of
Korea, Bank Negara Malaysia, and the National Bank of
Georgia are five additional central banks that are in the
midst of conducting the scenario exercise or planning to
do so.113 According to the NGFS, in light of challenges
posed by data gaps and methodological uncertainties,
no members as of yet have envisaged calibrating
prudential policies, such as capital requirements, on the
basis of their exercise.114
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Figure 3.2: Alternative scenarios and impacts of
financial risks due to climate-related risks.
Source: NGFS (2021a)
Ensuring financial stability also
hinges upon climate and nature-
related disclosures and data from
individual financial institutions.
Supervisory authorities report the lack of granular and
sectoral counterparty-level emissions data, as well as a
dearth of consistent and comparable data reporting
standards for counterparties and financial institutions,
as a major challenge.115 This is echoed by the Financial
Stability Board,116 which reports that “the lack of
sufficiently consistent, comparable, granular and
reliable climate data reported by financial institutions is
one main challenge for authorities in the development of
supervisory and regulatory approaches to climate-
related risks. Areas where data contribute to identifying
exposures and understanding the impacts from climate-
related risks include: sufficiently granular data on
sectors or economic activities that are sensitive,
vulnerable or exposed to physical, transition and liability
risks; financial institutions’ exposures to such sectors or
economic activities; geographical location of financial
institutions’ exposures most prone to physical risk; and
financial institutions’ and their counterparties’ reporting
of carbon-related metrics, including Scope 1, 2, and 3
Greenhouse Gas (GHG) emissions.”117 Figure 3.3 below
is an analysis118 of more than 2,000 companies on 22
stock exchanges in G20 countries, and shows the top
100 Scope 1 emissions data. Such data allows capital
markets regulators to work with issuers to take well-
calibrated and orderly actions towards the net-zero
transition.
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Figure 3.3: Scope 1 emissions of the top 100 issuers by market.
Source: Miller, and others (2021).
Note: the figure shows the analysis of the scope 1 emissions of the top 100 issuers by market capitalization listed on each of the 22
exchanges in G20 countries.
As outlined by the Bank of England in 2015, and is worth
being reminded of, data is required to be consistent,
comparable, reliable, clear and efficient. This means
that data should be consistent in scope and objective
across the relevant industries and sectors.
Comparable means it should allow investors to assess
peers and aggregate risks. Reliable means that it should
ensure that users can trust the data. Clear means that it
should be presented in a way that makes complex
information understandable. Efficient means that it
should minimize costs and burdens while maximizing
benefits. Convergence in standards across jurisdictions
ensures comparability regarding the quality and scope
of data.
This is not yet the case. Standards and frameworks are
rapidly fluctuating and improving for the better, but it
remains widely acknowledged that current sustainable
finance data disclosure frameworks do not (yet) meet
these objectives — impeding uptake and application.
Furthermore, the availability of quality data is critical to
set appropriate science-based targets and benchmarks
for future pathways of corporates, financial institutions,
and sectors. However, there are reasons to be optimistic
about the state of data for the sake of sustainable
finance. The International Sustainability Standards
Board (ISSB) plans to streamline sustainability
disclosures through its 2023 standard-setting work; the
EU’s Sustainable Financial Disclosure Regulation will
apply to all EU capital investing in the region; and the
upcoming United States Securities and Exchange
disclosure requirements will modernize reporting
structures. We hope that sustainability and green
disclosures will increasingly become consistent, clear,
and comparable.
In the meantime, voluntary international climate-related
disclosures to support regulators with the right
information is increasing by leaps and bounds.
According to the Taskforce on Climate Related Financial
Disclosures (TCFD),119 in its fifth annual TCFD status
report in December 2022, a survey of asset owners and
managers found that more than 60 per cent of managers
and 75 per cent of owners report climate-related
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information to their clients and beneficiaries. Nearly 50
per cent of asset managers and 75 per cent of asset
owners120 disclosed information aligned with at least
five of the 11 recommended disclosures. In addition,
participation in climate-related data disclosures through
financial filings or annual reports (including integrated
reports) surged from less than half of companies (45
per cent) in 2017 to more than 70 per cent of companies
in 2021.121 This clear hike in disclosures is reflected
below in Figure 3.4.
Figure 3.4: Implementation of the TCFD
recommendations and use of climate-related
disclosures.
Source: FSB (2022b).
Asia and the Pacific is the second leading region for
climate-related financial disclosures, after Europe.
According to TCFD, more than 4,227 organizations have
become supporters of the TCFD recommendations as of
February 2023, a number which has steadily risen since
the recommendations were first published in 2017.
Supporters include upwards of 1,500 financial
institutions, responsible for $217 trillion in assets. TCFD
supporters now span 99 countries and nearly all sectors
of the economy, with a combined market capitalization
of more than $26 trillion.122 Asia-Pacific organizations
account for 46 per cent of this number (1,956) – of
which 792 organizations became supporters between
2022 and February 2023 (40 per cent of the total for the
Asia-Pacific region). Figure 5 below shows the
distribution of sectors and countries where companies
are following TCFD disclosure requirements. Of these,
all regions have significantly broadened their levels of
disclosure over the past three years. While the number
of companies (1,956) is still a tiny proportion of all the
large companies in Asia and the Pacific,123 growing
adoption of the practice of disclosures is nonetheless a
positive trend that needs to be encouraged further.
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Figure 3.5: Number of organizations in Asia and the Pacific that have declared support for TCFD recommendations.
Source: TCFD124.
Note: The list of TCFD supporters includes organizations that have publicly declared support for the TCFD and its recommendations,
demonstrating that they are taking action to build a more resilient financial system through climate-related disclosure. TFCD supporters
include private companies, industry associations, banks, credit rating agencies, central banks, stock exchanges, government agencies,
and other types of organizations.
Finally, while climate-related disclosures are gaining
momentum, nature-related disclosures have yet to
become mainstream. The Taskforce on Nature-Related
Disclosures has published a draft framework125 to bring
clarity and methodological guidance to assessments of
nature-related dependencies, impacts, risks, and
opportunities. Like climate-related disclosures, such
disclosures should be in line with country commitments
within the Kunming-Montreal Global Biodiversity
Framework. As an indication for regulators and private
finance in the region, Table 3.1 below shows the
preliminary scope and possible extent of the
recommended nature-related disclosures.
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Table 3.1: The TNFD revised draft nature-related disclosure recommendations.
Source: TNFD (2022).
TNFD nature-related disclosure recommendations
Governance
Strategy
Risk & impact management
Metrics & target
Disclose the
organization’s governance
around nature-related
dependencies, impacts,
risks and opportunities.
Disclose the actual and
potential impacts of
nature-related risks and
opportunities on
businesses, strategy, and
financial planning where
such information is
material.
Disclose how the
organization identifies,
assesses, and manages
nature-related dependencies,
impacts, risks, and
opportunities.
Disclose the metrics and
targets used to assess and
manage relevant nature-
related dependencies,
impacts, risks, and
opportunities where such
information is material
Recommended disclosures
A. Describe the board’s
oversight of nature-related
dependencies, impacts,
risks, and opportunities.
A. Describe the nature-
related dependencies,
impacts, risks, and
opportunities the
organization has identified
over the short, medium,
and long term.
A. Describe the
organization’s processes for
identifying and assessing
nature-related dependencies,
impacts, risks, and
opportunities.
A. Disclose the metrics
used by the organization to
assess and manage nature-
related risks, and
opportunities in line with its
strategy and risk
management process.
B. Describe the
management’s role in
assessing and managing
nature-related
dependencies, impacts,
risks, and opportunities.
B. Describe the impact of
nature-related risks, and
opportunities on the
organization’s businesses,
strategy, and financial
planning.
B. Describe the
organization’s processes for
managing nature-related
dependencies, impacts, risks,
and opportunities.
B. Disclose the metrics
used by the organization to
assess and manage direct,
upstream and, if
appropriate, downstream
dependencies and impacts
on nature.
C. Describe the resilience
of the organization’s
strategy, taking into
consideration different
scenarios.
C. Describe how processes
for identifying, assessing,
and managing nature-related
risks are integrated into the
organization’s overall risk
management.
C. Describe the targets
used by the organization to
manage nature-related
dependencies, impacts,
risks, opportunities and
performance against
targets.
D. Describe the
organization’s integrations
with low integrity
ecosystems, high
importance ecosystems
and areas of water stress.
D. Describe the
organization’s approach to
locate the sources of inputs
used to create value that may
generate nature-related
dependencies, impacts, risks,
and opportunities.
D. Describe how targets on
nature and climate are
aligned and contribute to
each other, and any other
trade offs.
E. Describe how
stakeholders, including right-
holders, are engaged by the
organizations in their
assessment and response to
nature-related dependencies,
impacts, risks, and
opportunities.
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Trends in microprudential
supervision of financial institutions
Regulators have developed environmental and social
risk management (ESRM) guidelines for financial
institutions in the region. Many central banks in Asia
and the Pacific, notably in Bangladesh, Nepal, and
Philippines, have taken active steps to develop and roll
out ESRM guidelines for banking sectors and individual
financial institutions. Unlike the voluntary nature of
most roadmaps and taxonomies, ESRM guidelines —
which incorporate policies into institutional banking
processes and procedures — are mandatory. ESRM
strategies are risk management focused, and as such
they do not incorporate science-based targets or focus
on emissions reductions.
In addition to standard ESRM guidelines, there are
increasing calls for financial institutions to formulate
and disclose net-zero transition plans to regulators. The
Taskforce on Climate Related Financial Disclosures
recommended the introduction of climate transition
plans in 2021, which have been further reinforced by the
efforts of the G20 and the Glasgow Financial Alliance for
Net Zero.126 Such transition plans, set forward by both
financial institutions as well as real economy
businesses, differ by jurisdiction. The latest NGFS
stocktake of financial institutions’ transition plans127
relates that there are a range of approaches and
priorities put forth in transition plans. While some
economies have focused on emissions reduction, others
have prioritized sustainable development, enhancing
resilience to climate change, or developing the economy
while keeping emissions low, consistent with
international agreements. This, in turn, changes the
context for expectations of different jurisdictions.
Microprudential authorities will also assess financial
institutions’ safety and soundness during the transition
to a low-emission economy in different ways depending
on the prospects outlined in the plan.
Net zero and biodiversity transition plans are
increasingly called for. The World Wildlife Fund
(WWF)128 further urges central banks, financial
institutions, and actors such as insurers to adopt
credible transition plans, set out clear and actionable
steps to achieve science-based climate and nature
targets, and enable an economy-wide transition towards
sustainability. Transition plans must provide necessary
clarity and guidance to financial market actors and have
clear quantifiable, legally binding climate and
biodiversity goals for 2025, 2030, and 2050. The plans
should include all central banking, financial regulation,
and supervision activities. The WWF asks stakeholders
to ensure that monetary policies and financial regulatory
instruments better reflect the economic cost and
financial risk of “always environmentally harmful”
economic activities, companies, and sectors as these
assets represent the highest financial risks. Financial
institutions lending to companies involved in
environmentally harmful activities should face far higher
capital requirements to account for the long-term risks
involved.
How regulators are supporting
government priorities and shifting
capital to low carbon investments
Regulators play a key role in translating policy
commitments into systematic actions. Every country has
a set of policy commitments and legislation, and they
are sometimes subject to internationally binding
financial regulations or norms. All these provide the
parameters for the national development of sustainable
finance and can be summarized through one or a
combination of the following: sustainable finance
roadmaps, sustainable finance taxonomies, green bond
frameworks, sustainable stock exchanges and/or other
sustainable finance initiatives. These sustainable
finance regulatory approaches for the most part specify
how capital can be deployed towards environmental
objectives and are different from the ESRM and climate
or nature-related risk assessment approaches discussed
above. It is important to note that although roadmaps,
taxonomies, and other sustainable financing
frameworks are usually not binding, they are
nonetheless critical tools to guide the development of
the sustainable finance ecosystem and signal the future
intentions of regulators.
Financial authorities are increasingly producing
sustainable finance roadmaps presenting the pathway
to achieve government targets. For example, in 2014,
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Indonesia’s Financial Services Authority (OJK) produced
a Sustainable Finance Roadmap as a comprehensive
plan for promoting sustainable finance. The roadmap
covered both the medium-term (2015–2019) and the
longer term (2015–2024) plan for the financial services
industry.129 The aim of the roadmap was to promote
sustainable development through key governmental,
industry, and international institutions. Given the
ongoing high demand for energy to support Indonesian
development, the sustainable finance roadmap (led by
the financial regulator) promotes energy conservation,
as well as the funding of new and renewable energy
sources. Other focus areas include agriculture,
processing industries, general infrastructure, and
measures to assist micro-, small- and medium-sized
enterprises. Since July 2017, OJK mandates banks to
develop sustainable finance action plans for sustainable
financing and to issue sustainability reports, as well as
to report their green financing exposures.130
Many countries globally are developing Sustainable
Finance Roadmaps to guide this process. These
roadmaps vary in depth and approach but are typically
understood as something more tangible than pure
strategy — without striving for the detail of an
implementation plan. Most aim to describe a suite of
sequenced tasks and activities, and assign stakeholder
responsibilities, in a way that improves communication
and cooperation between actors. Often the task of
developing a roadmap is spearheaded by regulators, due
to their convening power and thorough appreciation of
their respective franchises – whether banking, capital
markets, or insurance. The list of existing roadmaps in
the region can be seen in Table 3.1 below.
The type and purpose of each country’s sustainable
finance roadmap is different. For example, the Bangko
Sentral ng Pilipinas (BSP)’ Sustainable Finance
Roadmap131 was prepared to a) outline the goals to
support the current initiatives and policies to create a
supportive environment for the widespread adoption of
sustainable finance in the Philippines, b) determine
priority areas and acknowledge the basis for
improvements relating to sustainable finance, c) provide
strategic direction and recommendations to accelerate
sustainable finance and d) provide investment and
policy signals to support the transition to a sustainable
economy. Through this Roadmap, the BSP
communicates its expectations that banks should
disclose their sustainability strategy objectives, risk
appetite, and risk management system in annual
reports. In Singapore, the recent Finance for Net Zero
Action plan announced by the Monetary Authority of
Singapore covers four strategic outcomes around 1)
data, definitions and disclosures, 2) a climate resilient
financial sector (including climate-scenario analysis), 3)
credible transition plans (supporting the adoption of
science-based transition plans by FIs) and 4) green and
transition solutions and markets (including an
expansion of grant schemes totalling SGD15 million, or
more than $11 million, over the next five years till 2028)
to include transition bonds as well as incentives to
encourage the early adoption of entity-level
sustainability disclosures.132
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Table 3.2: Implemented national sustainable finance roadmaps.
Country
Sustainable finance roadmap
Date of issuance
Azerbaijan
Sustainable Finance Roadmap 2023-2026
2023
China
China’s Guidelines for Establishing the Green Financial System
2016
Georgia
Roadmap for Sustainable Finance in Georgia
2019
Indonesia
Sustainable Finance Roadmap Phase II (2021 - 2025)
2014 (Phase I), 2021 (Phase II)
Mongolia
National Sustainable Finance Roadmap
2018 (1st version), 2022 (2nd version)
Philippines
The Philippine Sustainable Finance Roadmap
2021
Singapore
Finance for Net Zero Action Plan
2023
Thailand
Sustainable Finance Initiatives for Thailand
2021
Sri Lanka
Roadmap for Sustainable Finance in Sri Lanka
2019
Source: ESCAP based on IFC and SBFN (2023).
Note: Australia and New Zealand have non-government-led sustainable finance roadmaps.
Box 3.1: Cambodia and ASEAN sustainable finance
roadmaps.
ESCAP is supporting the National Bank of Cambodia in
its development of a Sustainable Finance roadmap to
advance Cambodia's green and social finance agenda.
The roadmap aims to enable Cambodia to deliver on its
climate and sustainable development goals, enhance
Cambodia's financial sector's competitiveness and
resilience, coordinate activities between different
stakeholders, and analyze possible synergies and
tradeoffs in the current financial ecosystem.
In addition, in coordination with partners the Global
Green Growth Institute (GGGI) and the ASEAN
Secretariat, ESCAP is supporting the development of
the ASEAN Green Map, a regional approach focused on
green and climate-related financing aligned with the
ASEAN Secretariat's vision to mobilize finance for the
SDGs in the region. The roadmap will draw together
stakeholder views, international best practices, and
lessons learned. It will identify the challenges
policymakers and market participants face and provide
clear measures to help overcome existing barriers and
assist with concrete steps to enhance green finance,
particularly in ASEAN’s LDC member states.
Furthermore, it will discuss the available opportunities
to mobilize finance to support the environmental
transformation needed in ASEAN to meet the SDGs by
2030.
Box 3.2: Thailand sustainable finance initiatives.
Recognizing the crucial role sustainable economic growth
plays in bringing about better living standards and
inclusive economic development for all, in 2015 Thailand
adopted the United Nations’ 2030 Agenda for Sustainable
Development (consisting of the 17 Sustainable
Development Goals), and, in 2016, committed to the Paris
Agreement to advance its Greenhouse Gas Emissions
reduction by 20 to 25 per cent from the business-as-usual
level by 2030.
The Three Regulators Steering Committee (Bank of
Thailand, the Securities and Exchange Commission, the
Office of the Insurance Commission, and the Ministry of
Finance) is a non-statutory body that provides a regular
platform for the three key financial regulators to discuss
policy issues. Recognizing the importance of the finance
sector to sustainable development, the Three Regulators
Steering Committee formed the Sustainable Finance
Working Group.
On 18 August 2021, the Working Group on Sustainable
Finance jointly published Sustainable Finance Initiatives
for Thailand (known as the Initiatives), with one of their
key work plans being the focus on setting the direction
and framework to drive sustainable finance across the
financial sector.
Source: WG-SF, GBRW Consulting and IFC (2021).
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Green and sustainable finance taxonomies in the region
further help direct investment towards national green
priorities. According to ICMA, a green taxonomy is a
classification system to identify activities or
investments that will move a country towards meeting
specific targets related to priority environmental
objectives. The taxonomy aims to help financial actors
determine which investments can be labelled as green
or sustainable for their jurisdictions. According to the
World Bank,133 taxonomies assist regulators to green the
financial system by a) supporting regulatory
interventions on the taxonomy to encourage banks to
lend to eligible green companies, b) facilitating new
climate or sustainability-related reporting and disclosure
guidelines for financial market actors or enhancing
existing ones, c) measuring financial flows toward
sustainable development priorities at the asset,
portfolio, institutional, and national levels and d)
avoiding reputational risk by preventing “green-
washing”.
Green bond frameworks can be part of taxonomies or
exist separately. In the case of green bond frameworks,
ICMA’s Green Bond Principles (GBP) can be considered
a global standard for issuers. The ASEAN Green Bond
standards are, for example, closely aligned with the
Green Bond Principles. Developing a green bond
framework is a crucial step to prepare for the release of
a green bond by all issuers, including sovereign and
corporate. The framework reveals to investors the
critical elements of any thematic bond issuance. The
core components of the framework include: the
rationale and strategy; use of proceeds, including
eligible project categories and exclusions; evaluation
and selection processes; processes for management of
proceeds; reporting; external reviews; and amendments
to the framework. The framework helps to ensure that
bonds adhere to international best practices and
incorporate high-level oversight to ensure transparency
and accountability. While in general green bond
frameworks should match national green taxonomies,
they can be developed by both sovereign and corporate
issuers without a national taxonomy.
Sustainable finance taxonomies allow regulators to
guide markets based on national priorities. They provide
information to investors to understand whether an
economic activity is sustainable (usually and mostly
meaning environmentally sustainable) and to navigate
the transition to a clear environmental objective. Some
taxonomies have an overarching objective around
climate change mitigation, others on low-emissions
development strategies. In the Russian Federation, for
example, the green finance taxonomy covers both green
and transition activities. It is compatible with recognized
international taxonomies and reflects criteria for
sustainable projects. For transition projects, it includes
projects in hard-to-abate industries substantially
contributing to the Russian Federation’s net zero target.
Across Asia and the Pacific, many countries have
adopted their own individual taxonomies of sustainable
finance. Activities, assets and/or project categories,
such as what the finance is used for, are ranked by
contribution to environmental objectives. For example,
activities could be labelled green, amber, or red, based
on contribution to the environmental objectives of the
taxonomy.
Box 3.3: ESCAP’s work on green bond frameworks
ESCAP is currently supporting three member
countries (Sri Lanka, Cambodia, and Bhutan), to
develop green and sustainability bond frameworks
and build institutional capacity on thematic bond
issuance. In Sri Lanka, collaboration with the Ministry
of Finance and Sri Lanka’s Sustainable Development
Council facilitated the development of a sovereign
green bond framework that was subsequently
approved by Cabinet in May 2023. ESCAP and GGGI
will provide continued support for a second-party
opinion of Sri Lanka’s Green Bond Framework. In
addition, ESCAP is collaborating with Cambodia’s
Ministry of Economy and Finance and GGGI to
contribute to the Sovereign Thematic Bond Issuance
section of Cambodia’s Comprehensive Policy
Framework on the Development of Government
Securities 2023 – 2028 and a subsequent Sustainable
Finance Framework for future thematic bond
issuance. In Bhutan, ESCAP and the Ministry of
Finance of Bhutan conducted a workshop with key
stakeholders at the end of 2022 to create shared
understanding of the best practices and principles of
sovereign thematic bond issuance, which will guide
the future development of Bhutan's Sustainable
Finance Framework, which ESCAP is supporting.
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Figure 3.7: Green and sustainable finance taxonomy development in Asia and the Pacific.
Source: ESCAP
Emerging transition finance taxonomies are charting the
path for financing activities that reduce emissions and
move brown activities towards green activities.
Sustainable finance taxonomies so far have mainly been
green taxonomies that do not, for example, permit the
financing of coal or fossil fuels. However, there is now
increased global recognition that it is essential to
finance transition in hard-to-abate sectors, such as the
phase out of coal or the transition of brown to green
activities as in the transportation sector. The recently
released second version of the ASEAN Taxonomy
includes not only green activities but charts a path for
phasing out brown assets.134 It is a further example of
how taxonomies iterate and evolve as living
classification systems and expand to incorporate
transition objectives as well. According to Sustainable
Fitch, the localized approach of the ASEAN taxonomy to
incorporate the coal phase out as a supported activity (a
world first in taxonomies) is expected to promote more
regional ESG-labelled debt issuances and back the
funding needs for a scalable energy transition.135 The
Indonesian presidency of the G20 in 2022 led to the
formation of a framework on transition finance136 which
guides financial institutions and real economy firms to
identify and understand what constitutes a transition
activity or investment opportunity and reduce the
identification barriers, costs, and transition-washing
risk.
In addition to roadmaps, taxonomies, and green bond
frameworks, some central banks also utilize directed
lending policies towards green objectives. According to
a survey of central banks in the region by the Asian
Development Bank Institute,137 22 per cent (or four) of
18 central bank respondents stated that their institution
currently has a strategic investment mandate or
approach to scale up private investment in low-carbon
sectors. The research cites that to boost green finance
in Bangladesh, banks were instructed to provide
financial assistance to green projects, with a minimum
of 5 per cent of their total loan disbursement or
investment. In addition, banks and financial institutions
were mandated to set up a climate risk fund. As much
as 10 per cent of banks’ and financial institutions’
corporate social responsibility budget must be allocated
to the climate risk fund. Funding can be undertaken
either via the provision of grants or through financing at
lower interest rates. Starting from December 2016,
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banks and financial institutions were instructed to
establish sustainable finance units.138 Similarly, in Viet
Nam, in accordance with the National Green Growth
Strategy and the National Action Plan on Green Growth
between 2014 and 2020, the State Bank of Vietnam
(SBV) has been assigned to lead institutional
improvement and capacity building in the banking sector
for green growth.139 In 2015, the SBV issued Directive
No. 3 to promote green credit growth and incorporate
ESRM into lending operations. Decision No. 1552 is an
action plan for the banking sector to contribute to the
National Green Growth Strategy to 2020.140
Regulators are putting forth green incentives for issuers
and borrowers. The Monetary Authority of Singapore
(MAS) launched the Green and Sustainability-Linked
Loan Grant Scheme (GSLS), to support corporates in
obtaining green and sustainable financing by defraying
up to SGD100,000 ($75,000) of the expenses of
engaging independent service providers to validate the
green and sustainability credentials of the loan. (This
has now been expanded to cover the period from 2023
to 2028 under MAS’ Finance for Net Zero Action Plan).
The Hong Kong Monetary Authority (HKMA) launched
the Green and Sustainable Finance Grant Scheme (GSF)
in its 2021-22 budget to provide subsidies for eligible
bond issuers and loan borrowers to cover their expenses
on bond issuance up to HKD2.5 million ($320,000) and
external review services up to HKD800,000 ($100,000).
To support net-zero goals, the Bank of Japan (BOJ)
introduced a new fund-provisioning measure in 2021
providing funds for investments or loans made by
financial institutions that contribute to addressing
climate change at a zero-interest rate.
Box 3.4: Cambodian Sustainable Bond Accelerator.
While bond issuers in developing markets generally face considerable barriers to issuance, issuers of thematic bonds
(green, social, and sustainability bonds) are further constrained due to the limited awareness and capacities on the side
of issuers as well as high issuance costs. In March 2023, ESCAP, the Global Green Growth Institute, and the Securities
and Exchange Regulator of Cambodia (SERC), in collaboration with the Credit Guarantee and Investment Facility (CGIF)
and GuarantCo, launched the Cambodia Sustainable Bond Accelerator to provide technical assistance and support to
prospective private sector issuers.
Three private-sector bond issuers have been selected and will be provided with support, including developing bond
frameworks, meeting best practices, facilitating post-issuance reporting, and providing co-financing options to decrease
bond issuance costs and investment support. As H.E. Sou Socheat, Director General of the Securities and Exchange
Regulator of Cambodia (SERC), noted, "This is a crucial step towards growing Cambodia's capital market and achieving
our goal of encouraging the use of green, sustainability, and sustainability-linked bonds to aid private sector growth and
sustainable development in Cambodia." Through this support, ESCAP and its partners will be supporting the early stages
of green and sustainable bond issuance in Cambodia.
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There is growing momentum and consensus to
mainstream green regulation in the region. The
International Sustainability Standards Board global
baseline disclosure standards, released in June 2023,
will take a further step towards taxonomy unification
and allow for comparability and interoperability between
taxonomies across the region. Between the EU’s
Sustainable Financial Disclosure Regulation, which will
apply to all EU capital investing in the region, the
upcoming United States Securities and Exchange
disclosure requirements, and the strengthening
Environmental and Social Risk Management
frameworks, there is now a remarkably fast-growing
consensus regarding the need for green regulation in the
region. The pressure on policymakers, regulators, and
private finance to mainstream sustainable/green
principles into regular investing, credit decisions,
operations, risk management, and reporting is mounting.
We believe this means sustainable finance taxonomies
will only iterate to become even more clearer and
convergent, especially on environmentally-focused and
science-based definitions. This is important to reduce
high transaction costs, arbitraging opportunities and to
create an efficient and level playing field. In addition,
convergence towards common frameworks is essential
to reduce global emissions. Otherwise, one investor
divesting from brown activities may be replaced by
another investor who does not need to follow similar
guidance in their region, thus not reducing overall global
emissions.
Figure 3.8: Timeline of taxonomy development.
Source: ESCAP adapted from Gondjian and Merle (2021).
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D. Challenges
This section discusses some of the key challenges that
regulators face, as revealed in the discussion of the
trends and opportunities that they face.
Clear, consistent, comparable, reliable, and efficient
data is lacking. One of the key elements required for a
thriving sustainable finance regulatory framework is
data. From the perspective of scaling sustainable
finance, the reporting frameworks for most financial
institutions in the Asia-Pacific region do not capture
flows of sustainable finance. Most reporting to
regulators is rooted in prudential monitoring and
focused on specific sector, product, or risk exposures.
There is little transparency on the ultimate purposes of
funding and how it may either directly or indirectly affect
sustainable development goals. From the viewpoint of
making finance sustainable, few regulators in the Asia-
Pacific region have the complex mix of data required
from financial institutions, government, supranational
agencies, and scientific bodies to effectively model
climate risks. Nor do many have the complex models
required to measure and monitor climate risk within
their portfolios, or the expertise to build or adapt
existing models for use. While the forthcoming
disclosure requirements will apply to companies that fall
within those jurisdictions, for the multitude of FIs and
corporates in Asia and the Pacific to which global
disclosure requirements may not apply, data will
continue to be a challenge.
The costs of collecting, cleaning, verifying, and
publishing data continue to be disproportionately high
for smaller firms and financial institutions. Analyzing
and collating data from both financial institutions and
real economy clients can be expensive, especially where
substantial changes in business and operating models
are called for. Regulators are already reporting concerns
from financial institutions and their industry
associations about the potential cost of implementing
measures to support sustainable finance. They argue
that many customers, particularly SME bank borrowers,
are ill-placed to provide the required data, and the
additional compliance costs will result in reduced
access to finance. There is already a perception
amongst bank subsidiaries with parents in more highly
regulated jurisdictions that the reporting obligations of
the parent may cause them to be uncompetitive.
Establishing a “level playing field” both within a
jurisdiction (and regionally) is important to avoid the
dangers of regulatory arbitrage. While new technologies
and artificial intelligence will naturally reduce the costs
of analysis and monitoring, nevertheless data collection
is an activity that needs to be embedded at all levels of
an organization and requires investment.
Better alignment of taxonomies across countries is
needed to level the playing field. As reported by
Refinitiv,141 a global provider of green finance data, there
are multiple ongoing conversations about taxonomies
around the world. The implications for financial market
participants are significant because most organizations
are global in nature and operate across boundaries.
Having to comply with multiple “definitions” can be
costly, risky, and may not deliver the transparency and
reduced risk of greenwashing objectives underpinning
the regulatory developments. Investors also report142
that for companies operating across multiple Asian
jurisdictions, this multiplicity presents a difficult and
expensive compliance and reporting challenge,
particularly when businesses are already straining under
the weight of increasing anti-financial-crime compliance
burdens (as well as a shortage of expertise to manage
these burdens).
Coordination and coherence between policymakers,
standard-setters and regulators continues to be
essential. In this chapter we have focused mainly on
financial sector regulators, but there are a wide range of
other intermediary actors such as industry associations
(both financial sector and real economy); international
and national standard setting bodies; government
agencies; academic and training institutions; and
scientific and research agencies, amongst others, that
are relevant to sustainable finance products. Tight
coordination between these players is essential for the
effective and timely rendition of government sustainable
finance ambitions into the business and operating
models of financial institutions.
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“We need to convince all our stakeholders about their
engagement and move beyond individual roles and individual
mandates, because at the end of the day this is going to help all
of us to accomplish all of our mandates if we concentrate
properly” T M J Y P Fernando, Deputy Governor, Central Bank of
Sri Lanka.
Only a few regulators have committed to mandatory
green regulation, preferring to rely on voluntary
approaches. For example, banks in Hong Kong, China,
are expected to start making disclosures in line with
guidelines from the international Task Force on Climate-
related Financial Disclosures from mid-2023 and this
will become mandatory in 2025. In December 2021, the
Singapore Exchange (SGX) mandated climate and board
diversity disclosures.
While climate stress testing is underway, regulators are
not currently incorporating nature-related concerns into
their frameworks. The World Wildlife Fund’s 2022
Sustainable Regulation Annual Report evaluates
progress on sustainable financial regulations and
central bank activities in 44 jurisdictions representing
over 88 per cent of the global GDP and has put forward
an ambitious series of recommendations on nature-
based macroprudential supervision. Recommendation
3143 states that central banks should consider climate
and nature as a single twin crisis and ensure their
monetary policy implementation does not contribute to
either climate change or nature loss. The WWF further
proposes that central banks and supervisors should
further develop a risk-based classification framework
for sectors and assets exposed to biodiversity loss,
which may enhance the data required for stress-testing
and scenario analyses and reallocate capital flows from
biodiversity-negative to -positive projects.144 Lastly,
supervisors should mandate financial institutions to
report their management of nature-related risk and
opportunity based on the Taskforce on Nature-related
Financial Disclosures (TNFD) framework.145 According
to the WWF's Sustainable Regulations and Central Bank
Activities (SUSREG) Tracker, only about 20 per cent of
the jurisdictions have nature-related issues listed among
a list of general considerations, the remaining 80 per
cent lacking any supervisory consideration. Only one
Asia-Pacific jurisdiction has clearly requested banks to
consider deforestation issues in decision-making.146
Capacity constraints will continue to disadvantage
lesser developed economies. Regulators and
policymakers together will need to conduct proper
environmental impact assessments, map their
biodiversity and carbon sink assets, estimate and
protect against climate-related losses in their portfolios,
institute locally-appropriate safeguards in the financial
system, shift their economy to low emissions pathways
carefully, and ensure that a just transition is maintained.
Therefore, without the appropriate skills and capacity at
the level of financial regulators, the danger is that
inappropriate, long-term investments are made which
lock in countries to unsustainable and economically
disadvantageous pathways. Furthermore, differences in
standards between LDCs, SIDS, and other countries in
the region could mean that there are less sustainable
financial flows to those who most need it, as the stricter
ESG policies of major financial institutions toss these
economies into the “too hard” basket. This applies not
only to commercial financiers, but also to MDBs and
bilateral DFIs who tend to make bigger deals in bigger
economies.
Integrity matters. According to the United Nations
Environment Programme’s Finance Initiative (UNEP-FI),
in the absence of a universally accepted definition of
what is green and sustainable, it is important that
effective frameworks, taxonomy standards, and
regulations set the foundation for global best practices
and an equal playing field. In this regard, Asia-Pacific
regulators can play a role in encouraging the growth of a
robust ecosystem for third party verification/ assurance
and impact assessment. Strengthening the green
credentials of businesses and projects can further
assuage greenwashing concerns.
E. Recommendations
This section outlines recommendations for the region’s
regulators, in line with the trends, opportunities and
challenges discussed. In addition, these
recommendations (which are set out in detail here) have
been aggregated into our final set of ten principles of
action for the region to bridge the sustainable finance
gap in Asia and the Pacific, set forward in the final
chapter.
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Effort should be undertaken to facilitate interoperability
between taxonomies. As discussed, the growth of
individual taxonomies implies that autonomy is
maintained at the country level and that locally
appropriate pathways are embedded in such
taxonomies. However, the downsides of varied
taxonomies across the region are significant.
Compliance costs are higher, risks are multiplied,
arbitraging opportunities may be created and an
efficient and level playing field is not created. One large
institutional investor in the region has outlined three
areas to steer Asia-Pacific taxonomies147 to
convergence: a) adopt a principles-based approach to
provide flexibility when tailoring taxonomies in different
regions and economies; b) align taxonomies with widely-
adopted global or international standards, such as the
Common Ground Taxonomy (CGT) between the
European Union and China; and c) actively collaborate
amongst regulators, policymakers, and stakeholders to
develop transparent, relevant, comparable, and
interoperable standards and guidance.
Roadmaps, taxonomies, and sustainable finance
frameworks put forth by regulators should be aligned
with policymakers’ commitments, especially the NDCs.
One example is Thailand. In December 2022, the Bank of
Thailand and Thailand's Securities and Exchange
Commission issued a consultation on their pilot
sustainable finance taxonomy, which includes
objectives largely drawn from the EU taxonomy and a
traffic light system to categorize activities. This
followed the November 2022 announcement of
Thailand’s second updated nationally determined
contribution, which showed a more ambitious target to
reduce its greenhouse gas emissions by 30‑40 per cent
from the projected business-as-usual level by 2030. The
Thai government also announced a revised version of its
Long-Term Low Greenhouse Gas Emissions
Development Strategy, which proposed accelerated
efforts to combat greenhouse emissions.
Regulators should ensure fair and predictable
enforcement of current green finance requirements, for
example around ESRM management. A complaint often
heard in emerging markets is that while the ESRM
guidance by the central bank exists on paper,
enforcement is not always fairly implemented, allowing
financial institutions who are not actively penalized or
deterred to charge more competitive pricing. Ensuring
that fair enforcement is a key priority, and that there are
no exceptions (and thus ensuring adequate staff and
supervision to ensure comprehensive fair enforcement)
is therefore essential to create a level playing field.
Strengthening monitoring, reporting, and verification
capacity in markets. One of the most vexing challenges
faced by many emerging markets is the absence of ESG
Monitoring, Reporting, and Verification (MRV) capacity
and other ESG data vendors or ratings agencies. Organic
development is inhibited without a critical mass of
corporate customers or project sponsors, and the
demand from the latter is curtailed by the lack of a
competitive and competent local market. Furthermore,
financial sector industry associations and training
bodies should also take care to ensure that both the
theory and practice of sustainable finance is embedded
in academic curricula and professional qualifications for
financial services professionals.
More supervisors from the region should join peer-
learning based international alliances. International
peer-learning is of great importance when embarking on
the uncharted journey of scaling up sustainable finance.
Financial regulators are increasingly sharing knowledge,
developing common approaches, and attempting to
understand the landscape both within and outside their
own country through membership in key peer-based
international organizations. These include the Network
for Central Banks and Supervisors for Greening the
Financial System, which consists of 121 regulatory
authorities and 19 observers; the Sustainable Banking
and Finance Network housed at the International
Financial Corporation, consisting of financial sector
regulators, central banks, ministries of finance,
ministries of environment and industry associations; and
the Alliance for Financial Inclusion. The regulatory and
policy enabling environment surrounding climate finance
is evolving by leaps and bounds in developed countries,
and this rising tide will inexorably arrive at less
developed countries. The advantage that less developed
countries have in this regard is that they can leapfrog
the learning journey by learning from developed
countries, and take advantage of existing training, new
regulatory technology, and political economy lessons
learned on how to cascade regulations that avoid vested
interests.
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Mandatory verification and audit could accelerate
compliance in the region. This remains a topic of
debate, and only a few jurisdictions in the region for
example China, Hong Kong, China, and Singapore (to
name a few) have moved towards mandatory
regulations in green finance. Nevertheless, given the
urgency of meeting the 1.5C goal, and in terms of
pushing the real economy faster towards the net zero
transition, mandatory requirement of, and/or verification
of climate-related disclosures can be a powerful stick
while also unleashing green investment and green jobs
as a significant growth opportunity. This was also
echoed by banking leaders as part of UNEP-FI’s
Leadership Council meeting. While Council members
welcomed the ISSB’s draft sustainability standards,
although voluntary, they said sustainability reporting
should be treated like financial accounting and allow for
auditing. They also recognized that a harmonized
approach should recognize country and sector
differences and allow time to set and comply with
national sustainability disclosure rules.148
For LDCs and SIDS, regulators should continue to
prioritize standard financial sector development. While it
was beyond the scope of this report to discuss the
importance of deepening and expanding traditional
financial sectors, it is important to appreciate that
sustainable finance is still just finance, and most of the
barriers that impede access to finance that currently
prevail, will equally apply to sustainable finance flows.
Regulators in LDCs and SIDs should continue to pay
attention to mainstreaming financial sector
development including the following standard themes:
▪
Deepening formal savings and investments:
Increasing domestic savings and the role of
investment to capitalize the formal financial
sector remains vital.
▪
Improving financial inclusion: Boosting access to
finance for adaptation to climate change and
local mitigation efforts such as off-grid
renewables etc.
▪
Developing access to finance for sustainable
enterprise: Overcoming gaps in financing for
small and medium enterprises (SMEs)
(particularly larger ones seeking to expand fixed
assets and transform value chains) remains a
major challenge in many Asia-Pacific markets.
▪
Growing capital markets: Countries accumulating
long-term pools of domestic capital should
improve market and legal infrastructure to match
savings and investments with longer-term
financing for financial institutions and corporates.
F. Conclusion
This is a time of great change and forward momentum
for financial regulators in Asia and the Pacific. Like
policymakers, regional cooperation is of the utmost
importance to ensure interoperability between regulatory
frameworks, convergence towards widely accepted
norms around investment aligned with climate goals and
equalizing the playing field. To establish a level playing
field, however, special attention must be paid to the
least developed countries and small island developing
states. These countries should not be disadvantaged by
the imposition of standards and norms that
disproportionately redirect capital elsewhere. This is not
an easy task, but regional cooperation can do much to
reduce fragmentation and present a unified approach.
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4. WHAT CAN PRIVATE
FINANCE DO?
A. Introduction
The role of private finance to meet global climate goals
and the sustainable development goals has never been
more important than right now. This comes at a time
when expansionary fiscal support by governments are
constrained by difficult macroeconomic conditions.
Furthermore the staggering size of the amounts to be
financed in order to meet these goals means that private
finance must be crowded in at substantial scale and
pace. While the actions of policymakers and regulators
are critical in creating enabling conditions for private
finance to invest at greater scale and pace, the call for
private finance actors to expand their activities and
deepen pre-investment activities is increasing.
The universe of private finance in Asia and the Pacific is
vast and growing, with each actor bearing distinct
incentives and challenges. The universe includes banks
who lend to businesses and entrepreneurs in the real
economy; capital market issuers of equity and debt
securities, usually businesses and financial institutions;
asset owners such as pension funds, sovereign wealth
funds, foundations, endowments, trusts, and family
offices; and asset managers, such as mutual fund
managers, investment advisors, and stockbrokers. For
the purposes of this report, we also include development
financial institutions, such as multilateral development
banks like the Asian Development Bank and the World
Bank Group’s International Finance Corporation; bilateral
development financial institutions, such as the Dutch
Entrepreneurial Development Bank (FMO), the United
States Development Finance Corporation (DFC), British
International Investment (BII), the Norwegian Investment
Fund (Norfund), and the Swiss Investment Fund for
Emerging Markets (SIFEM); as well as some national
development banks (NDBs).
Private finance has historically operated under a
traditional fiduciary mandate to provide risk-managed
growth and returns (as well as other specific mandates)
in good faith to stakeholders. It does this through
financing specific projects or entities in various sectors
of the economy, such as industry, services, energy,
agriculture, transportation etc. In recent years, other
mandates such as specific environmental, climate and
social impact objectives (Track 1) or environment, social
and governance (ESG) risk management mandates
(Track 2) have been added, over and beyond what may
be regulatorily required in the investor’s jurisdiction.
These include environmental, climate and social impact
mandates related to the use of proceeds or objectives
(Track 1) or environment, social and governance (ESG)
risk management mandates (Track 2).
Today, the nature of fiduciary duty is changing around
the world. Historically private finance has operated
under managing appropriate risk-return ratios as part of
their oversight and duty of care related fiduciary duties
and climate risk was seen as a non-fiduciary issue.
Directors and trustees around the world are now re-
evaluating their roles to include climate risk as a
standard financial risk, especially as such risks now
have become increasingly foreseeable and thus can be
legitimately considered to be part of their oversight and
duty of care responsibilities. In a correlated trend,
climate litigation has also risen globally.149
The financial risk-return profile is naturally driven by the
regulatory framework in place, which is rapidly evolving.
Often, two regulatory frameworks related to sustainable
finance are in play simultaneously. The country where
the underlying projects, activities, and sectors are
located has its own mandatory or voluntary sustainable
finance (ESG and/or climate) standards; the second
sustainable framework is in the country where the asset
owner or manager is based. It is important to note that
the risk-return profile is also heavily influenced by the
perceptions of risk related to the destination country,
manifested in that country’s exchange rate as well as its
sovereign credit rating.
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Many asset owners, especially pension funds and
insurance funds, are prohibited by their mandate from
investing in non-investment-grade projects or entities,
due to their responsibility to provide a “safe pair of
hands” for clients. Deposit-regulated financial
institutions, MDBs, DFIs, and other banks are required to
comply with regulation on risk-weighted capital
adequacy ratios, meaning they must reserve a certain
amount of capital to protect against their risk-weighted
lending. Reserving capital also means that they are
unable to lend out that reserved capital and obtain
interest revenue, affecting the profit of the institution.
Put simply, lending to riskier activities means less profit
not only due to the inherent risk of activities going into
default, but also because of the need to set aside more
reserves; and the implication that this ‘idle capital’ will
produce less interest revenue.150 In addition, many asset
owners and managers have pension funds or mutual
funds that are dollar, euro, yen, or yuan denominated.
When they invest in other countries, they take on the
exchange rate risk, which substantially influences the
risk-return profile of investments, even though it does
not change the underlying real risk-return profiles of the
activities themselves.
This means that riskier projects, entities, and countries
(such as the Least Developed Countries) cannot qualify
under traditional norms as a destination for many funds.
It also means that these riskier projects, entities, and
activities located in such countries — which if funded,
might make substantial contributions to emissions
reductions or to the SDGs — unfortunately entail
extremely high capital costs for financing. Therefore,
only projects or entities that can cover the capital costs
and/or investors who either do not have to comply with
capital reserve requirements or have high risk tolerance
can invest in such projects.
In practice, this means that for private finance to flow
naturally to such “riskier” projects, they must generate
very high returns. For example, projects in new green
technologies, novel nature-based finance, or renewable
energy in LDCs, who face such parameters may have to
generate much more profit than less-risky projects
(located for example in countries with higher credit
ratings, or in established sectors where risks can be
clearly mitigated), just to cover the higher capital costs
of financing. This naturally drastically reduces the pool
of investment-ready project (under traditional norms of
investment-readiness).
For such projects where the potential to achieve
environmental impact is high, and the underlying project
is sound, concessional and risk-sharing finance as well
as local currency financing is essential. Concessional
finance is below market-rate finance and takes on many
forms, ranging from loans and grants to technical
assistance or guarantees. The degree of concessionality
is also highly heterogeneous. Financing from MDBs,
DFIs, NDBs, overseas development assistance (ODA)
and other grant or concessional capital can be used to
“de-risk” these projects, drive up their “grade” and
safety, and attract more and cheaper commercial
financing that can be layered on top of the capital
stack.151 It also exemplifies why local-currency financing
into such projects is of critical importance if the scale
and pace of private finance is to be accelerated because
local-currency financing can fund projects that do not
have to reach a higher rate of return simply to cover
exchange rate risk.
This places a focus on how enough ‘bankable’ projects,
activities and entities can be built, to investor-
specifications, in a regulatorily compliant manner, to
meet climate goals, at speed. Different investors in the
capital stack have different requirements. Therefore, it
is fundamental that a pipeline of projects, activities, and
entities with adequate risk-return-mandate profiles are
generated at scale and pace to enable Asia and the
Pacific to its meet climate and SDG goals. The scale of
this challenge should not be underestimated, nor the
requirements of project preparatory work (and costs)
required to substantively build viable project pipelines.
This also requires a new way of building projects –
especially in sectors and areas, such as in renewables
or in new decarbonization technologies, where
regulation has not yet emerged and, therefore, costs are
particularly prohibitive, and where new industries and
decarbonisation technologies risk upsetting long-
entrenched balances of power and interests that may
exist. This new way necessitates deeper participation by
investors in the pre-investment stage of pipeline
building.
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It is time for shareholders, boards, and personnel to
enact accelerated change. While many private finance
institutions are already working to accelerate change,
now it is time for shareholders, boards, and personnel to
accelerate their response to the challenge. Considerable
wealth has been created over the last two decades in
financial markets, along with rising inequalities and
huge adverse climate impacts. It is now time for
substantial change. Hitherto, in pricing projects,
activities and entities and in realizing returns, private
finance has long enjoyed not being required to
incorporate the environmental (or social) externalities of
these costs, whilst also enjoying low costs of capital
due to low inflation. Many shareholders and boards are
indeed rising to this challenge with voluntary
stewardship codes and net-zero commitments. Yet
given the mounting consequences of inaction, more
needs to be done at urgent scale and pace to turn such
commitments into reality.
This chapter focuses on how to unlock more finance for
climate action. While the extent of change required in all
asset classes and instruments, owners and managers,
jurisdictions and geographies across Asia and the
Pacific is beyond the scope of this report, we discuss a
few key issues which are critical to unlocking further
private finance to meet climate goals. These include: the
building of bankable projects in renewable energy and
new decarbonization technologies, such as green
hydrogen, both of which have a direct link to reducing
emissions and meeting the 1.5-2C goal; the role of
green instruments such as green bonds, debt for
climate/nature swaps and green loans in financing; the
role of MDBs in unlocking further financing, and the role
of local currency financing in bringing down risks,
lowering transaction costs and in financing such
development.
B. Trends and opportunities
The Asia-Pacific region is predominantly a loan market,
which continues to be at the frontier of the transition to
net zero in the region. While some capital markets in the
Asia-Pacific region are extremely deep and liquid,
trading cutting-edge structured financial products, the
predominant financial instrument used for investment
purposes in Asia and the Pacific is still the standard
loan product from banks to corporates. There is also a
correlation between the size of bank lending to private
sector, and the level of financial development in the
country, as seen in Figure 1 below. While figures on total
bank lending in the region are varied, one estimate152 of
the top 50 largest banks in Asia alone places their total
asset size as of April 2023 at more than $56.5 trillion.
Naturally this includes all financial products, but it is still
a clear indication of the depth of funds that can
potentially be mobilized towards climate action.
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Figure 4.1: Bank lending to private sector as % of GDP.
Source: ESCAP based on World Bank, World Development Indicators and IMF, Financial Market Development Index Database.153
Note: Values on bank lending to private sector are from 2018 and 2020, while IMF Financial Market Index values are from 2020. Countries
lacking available data on Financial Market Index were excluded from the analysis.
Banks are slowly moving from a Track 2 approach,
where all lending was sustainably managed, to also
increasingly direct lending towards green, sustainable
and sustainability-linked uses and outcomes.
Sustainable loans, based on sustainable loan principles,
are generally structured in the same way as standard
loans, except that the loan proceeds are tracked and
allocated to eligible sustainability objectives.
Sustainable loans also require transparency about how
the sustainable projects are selected and how the funds
are allocated. There are consumer or smallholder
agricultural products that are easier to package as part
of a sustainable loan portfolio like:
▪ Consumer loans for clean cooking, household
solar, energy efficient home improvement, low
emissions vehicles, etc.
▪ Buyer credit or supplier pre-financing for value
chains, particularly for sustainable agricultural
value chain inputs, such as:
Environmentally friendly fertilizer, herbicides, or
pesticides
Climate and disease resistant crop varieties and
more productive livestock husbandry
Irrigation equipment
Farm enterprise solar or biogas installations
Increasing use of sustainability-linked loans allow for
more flexibility, if structured and verified well.
Sustainability-linked loans involve setting "sustainability
performance targets" for borrowers (e.g. internal targets
such as reducing greenhouse gas emissions; improving
energy efficiency; reducing pollution; increasing
biodiversity; reforestation; conducting external
assessments or achieving a sustainability certification
or rating). If targets are met, the borrower is rewarded
with reduced loan interest rates, or penalized with higher
interest rates if key performance indicators (KPIs) are
not met. Unlike green loans, the proceeds of
sustainability-linked loans (SLLs) do not need to be
allocated exclusively to green projects; rather, they
incentivize borrowers to improve their overall
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sustainability profile or targets. These can be technically
more difficult to design and structure, but are also more
amenable for jurisdictions, sectors, or customers in the
early stages of the adoption of sustainability standards.
SLLs may be more suitable for SMEs as well. SLLs open
the sustainable loan market to companies in a wider
variety of sectors and to smaller companies which are
unable to overcome entry barriers to green loans or
issuing a green bond. SMEs are a likely candidate for
SLLs since they may be unable to commit the entire
proceeds of a loan to specific green projects. They are
also much more amenable to a full suite of flexible
credit products because the incentive can be placed
around the “relationship” rather than a strict “use of
proceeds” which tends to require a fixed term capital
investment loan.
Within loan markets, green, sustainable, and
sustainability-linked lending is on the rise but is still
small. As seen in Figure 4.2 below, sustainability-linked
lending is particularly growing, reflecting its increasing
versatility to finance entities rather than projects or
activities; therefore, allowing more “unrestricted”
funding. Sustainability-linked lending can also ensure a
direct tie to sustainability outcomes and objectives,
depending on the KPIs used. In Asia and the Pacific,
banks are still at the frontline in the transition to net
zero, and clearer and more effective regulation can drive
banks to embark or accelerate the transition to net zero
in the region.
Figure 4.2: GSS+ loans in Asia and the Pacific, 2017–
2022 (billions of United States dollars).
Source: ESCAP based on Environmental Finance data154
Note: 1) The data labels show total sustainable loan value.
2) Based on voluntary disclosure, green and
sustainability-linked loan data are recorded if they are aligned
with the Green Loan Principles and the Sustainable-linked Loan
Principles provided by the Loan Markets Association.155
Figure 4.3: GSS+ loans in Asia and the Pacific by country, 2017–2022 (billions of United States dollars).
Source: ESCAP based on Environmental Finance data.156
Note: Based on voluntary disclosure, green and sustainability-linked loan data are recorded if they are aligned with the Green Loan
Principles and the Sustainable-linked Loan Principles provided by the Loan Markets Association.157
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In terms of corporate GSS+ bond issuances and lending,
the top-two categories in 2022 were green bonds ($95
billion) and SLLs ($72 billion). Corporate bond
issuances increased in 2022 compared to 2021 for
social and transition bonds, but decreased for green,
sustainability, and sustainability-linked bonds, as shown
in Figure 4.4 below. In terms of corporate borrowing of
GSS+ loans, sustainability-linked loans and social loans
made remarkable progress during that period.
On the other hand, lending to fossil fuels and coal in the
region is still on the rise. As can be seen from recent
research from the IMF,158 in Figure 4.5 below, the debt
levels (including corporate bonds and corporate loans)
of companies in the coal value chain, as well as in oil
and gas, in Asia and the Pacific continue to surge, and
are larger compared to other geographies in the globe.
Asia and the Pacific is also home to a significant
number of asset owners, with a very high volume of
assets under management. Recent research shows that
the world’s top 100 asset owners’ assets under
management (AUM) totalled $25.7 trillion at the end of
2021, growing 9.4 per cent from the previous year.159 Of
these, Asia and the Pacific accounts for 36.1 per cent of
total AUM, making it the largest region in the study.160
The Government Pension Investment Fund (GPIF) of
Japan remains the largest asset owner in the world, with
an AUM of $1.7 trillion as of end 2021, and the China
Investment Corporation was the third largest asset
owner in the world (AUM of $1.2 trillion).161 Additionally,
the top 20 asset owners of this top 100 made up 55 per
cent of total AUM (i.e. more than $12 trillion),
representing a small group of private finance
stakeholders (mainly pension funds and sovereign
wealth funds) that can take forward the transition to net
zero for trillions of dollars of assets.162 Such asset
owners need to convert their net zero commitments into
faster action, including transition plans with targets for
2030 and 2040.
Stock exchanges in the region continue to be a
significant source of capital but market capitalization
has been relatively stable. Listed equity capital across
the region’s major stock markets continues to be a
major source of private finance, with the potential to be
turned towards climate action in a faster manner. Figure
4.6 below lists the market capitalization of the region’s
major stock exchanges by year and shows the relative
values of total equity capital raised in the last four years
across the region. China, Japan, and Hong Kong, China,
remain the most popular destinations for capital raised,
with the highest volumes of market capitalization.
Figure 4.4: GSS+ bonds and loans of corporate issuances in Asia and the Pacific, 2021–2022 (billions of United States
dollars).
Source: ESCAP based on Environmental Finance data163
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Figure 4.5: Debt levels of emerging market and developing economy companies operating in fossil fuel industries.
Source: IMF (2022).
Figure 4.6: Market capitalization of Asia-Pacific stock exchanges by country, 2019-2023.
Source: World Federation of Exchanges.164
Note: Market Capitalization values show the monthly average as of the 1st January of each year. In case of data gaps in the World
Federation of Exchanges database, data from the annual report of stock exchanges was used.
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Figure 4.7: Total equity capital raised in Asia and the Pacific, 2019-2022.
Source: World Federation of Exchanges and World Bank, national accounts data.165
Note: Total capital raised corresponds to the sum of monthly values from 1st January 2019 to 31st December 2022. It is calculated as the
sum of capital raised through Initial Public Offerings (IPOs) and capital raised by already listed companies. It includes both newly issued
shares and already issued shares.
Asian banks and private finance are still considerably
slow to make net zero commitments. At the time of
writing, there were 131 banks globally that have made
net zero commitments to align their lending and
investment portfolios with net zero emissions by 2050,
as part of the UN-convened Net Zero Banking Alliance
(NZBA) — the industry alliance for banks under the
Glasgow Financial Alliance for Net Zero. Signatory
banks also commit to setting and publicly disclosing
2030 targets within 18 months of joining the NZBA. Out
of the 131 banks who have made net zero commitments,
33 members were from ESCAP’s Asia-Pacific region.
Twenty-three banks were based in Australia, New
Zealand, the Republic of Korea, and Japan. Of the
remaining 10 banks, three were from Bangladesh, two
from Malaysia, four from Türkiye, and one from the
Russian Federation.166
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Box 4.1: Foreign direct investment into climate
mitigation and adaptation
Foreign direct investment (FDI) has an important role to
play in limiting climate change and filling in climate
finance gaps globally. Yet despite ample opportunities
for FDI to contribute to addressing climate change in
Asia and the Pacific, greenfield investment, or
investment in new productive activity, FDI flows to
climate mitigation and adaptation have been declining
over the past several years. Meanwhile both the value
and volume of climate mitigation projects are
significantly larger than climate adaptation projects. For
example, since 2016 there have been 1,218 climate
mitigation projects worth $247 billion, compared to 83
climate adaptation projects worth $2.7 billion (Figure 8).
In 2022 there was a pronounced loss of momentum in
climate mitigation FDI, which was accompanied by
growing investment in fossil fuels in the region.
Figure 4.8: FDI inflows into climate mitigation and
adaptation versus fossil fuels in Asia and the Pacific,
2016-2022 (millions of United States dollars).
Source: ESCAP calculations based on fDi Markets (2023).167
The lion’s share of FDI in climate mitigation in Asia and
the Pacific has gone into renewable energy and other
energy efficiency projects (Figure 9). In terms of project
numbers, since 2016 there have been 667 projects
related to renewable energy, 518 in energy efficiency,
and a meager 83 on low carbon transport.
Figure 4.9: FDI inflows into climate mitigation projects in
Asia and the Pacific, 2016-2022 (millions of United
States dollars).
Source: ESCAP calculations based on fDi Markets (2023).168
The value and volume of climate adaptation projects has
been low in the region, and largely focused on
introducing clean technologies to foreign operations.
For instance, in 2021 Teijin Polyester of Japan invested
$17.2 million and created 44 jobs in its Thai subsidiary
to convert domestically-produced plastic bottles into
recycled polyester chips to produce high-quality
polyester filament. The facility is expected to produce
7,000 tonnes of recycled polyester chips annually by
2025. Some recent examples from 2022 include an
investment of $27 million by Covestro (Germany) into
China to set up a dedicated line of polycarbonate
mechanical recycling, and another investment by
Covestro (Germany) in Thailand to repurpose and
convert its existing compounding plant to a recycling
facility. Notably, no least developing countries or small
island developing countries – arguably two sets of
countries urgently in need of climate FDI – have
received climate FDI since 2011.
The low and uneven distribution of FDI to developing
countries in the region underscores the urgent need to
bring FDI into conversations about unlocking climate
finance for developing countries. FDI is an important
type of private sector investment with immense
potential to help developing countries fill climate
finance gaps; however, it has until now been left out of
the discussions at forums on climate finance.
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There is an urgent need to support developing countries,
especially least developing and small island developing
countries, and their investment promotion agencies
responsible for attracting and facilitating climate-related
FDI. Most importantly, these agencies need support to
identify the climate projects that would give their
countries a competitive advantage to attract and target
investors; generate leads; repackage and repurpose
brownfield investment sites into green projects; and
pitch investment opportunities to foreign investors.
Investment promotion agencies should consider
incorporating tailored indicators to assess, evaluate and
measure the climate relevant characteristics of
investments. UN ESCAP has developed sustainable FDI
indicators that would enable investment promotion
agencies to do precisely this.169 On a policy advocacy
level, they also need to build their capacity to articulate
to relevant ministries the need for better incentives for
climate FDI and to phase out fossil fuel subsidies and
incentives. UN ESCAP, through its assistance and
capacity building programme of FDI for sustainable
development, is supporting investment promotion
agencies in the region in each of these areas.170 More
information on this work can be found here:
www.unescap.org/our-work/trade-investment-
innovation/business-investment.
Trends in multilateral development
bank (MDB) and development
financial institution (DFI) lending
In addition to their role as investors, MDBs can play an
even more important role in unlocking sustainable
finance through encouraging and supporting policy
change and mobilizing additional private finance for
global and regional goals alongside their own
investments. While multilateral development banks are
considered public actors, in practice they operate in a
fashion like other private financial institutions, following
risk-return-mandate profiles instituted by their boards.
However, in addition to their global, regional, and in-
country role as investors, they are uniquely placed to
carry out investing for global public goods, and to
mobilize private finance for this purpose while assisting
and supporting policy changes to enable the
achievement of goals.
In 2021, MDBs delivered $82 billion in climate finance
and simultaneously mobilized an additional $41 billion
in private finance.171 The additional mobilization of
private finance usually is arrived at through MDBs taking
an anchor investor role in a (sometimes pioneering)
project that then signals to other investors that the
investment is ‘bankable’. This is not always because the
MDB has instituted a first-loss or partial credit
guarantee; sometimes it is simply a signal that an
adequate amount of due diligence and vetting of the
project and project sponsor’s financials, governance,
and ESG risks has been passed. MDBs and bilateral DFIs
can also support private credit institutions by investing
equity (increasing shareholder’s funds) in the financial
institution to allow them to expand their lending
portfolio; and/or buying bonds issued by the financial
institutions (usually in some sort of private placement);
and/or extending credit.
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Initiatives to support private FIs by MDBs and DFIs entail
a cost of capital that is attractive to the FI and/or with
terms and conditions that would be difficult to obtain
from commercial sources. Before engaging in debt or
equity investment, however, MDBs and DFIs will typically
work with FI partners by providing wholesale loans
typically on concessional terms. Increasingly these
funding lines need to be linked to ESG standards in
finance (Track 2, sustainably managed finance) by
which the recipient undertakes to build a portfolio of
lending that assesses ESG risks associated with that
lending. Figures 4.10 and 4.11 show the development
finance commitments to mitigation and adaptation in
Asia and the Pacific by the top nine MDBs and DFIs in
2020. On an aggregate level within the region defined by
the membership of ESCAP, in Figure 4.11 below, we see
that 64 per cent of MDB funds were committed to
mitigation-related finance, with the rest directed to
adaptation finance. The majority was committed by the
World Bank Group (including equity, grants, and loans).
Figure 4.10: Top nine MDBs and DFIs in Asia and the Pacific by climate-related development finance.
Source: ESCAP based on OECD, Climate Change: OECD DAC External Development Climate Finance Statistics.172
Note: Total climate-related development finance corresponds to the sum of MDBs and DFIs grants, loans, and equity in Asia and the
Pacific. Both concessional and non-concessional activities are included. Guarantees are excluded as they are categorized as non-flow
operations. The figure includes total amounts committed by MDBs and DFIs and includes regional investments.173
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Figure 4.11: MDBs climate-related development finance in Asia and the Pacific by adaptation and mitigation, 2020
(millions of United States dollars)
Source: ESCAP based on OECD, Climate Change: OECD DAC External Development Climate Finance Statistics.174
Note: The figure shows the share of Adaptation and Mitigation related finance in MDB lending to Asia and the Pacific. Both concessional
and non-concessional activities are included. Guarantees are excluded as they are categorized as non-flow operations. Values show the
total amount of committed climate-related development finance and correspond to the sum of debt, grants, and equity.175 The analysis
examined 8 MDBs in the region – World Bank Group (WBG), Asian Development Bank (ADB), European Bank for Reconstruction and
Development (EBRD), Asian Infrastructure Investment Bank (AIIB), European Investment Bank (EIB), Islamic Development Bank (IsDB),
Black Sea Trade & Development Bank (BSTDB), Council of Europe Development Bank (CEB).
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Most of the investment was in debt and was not
concessional. As seen in Figure 4.12 below, energy was
the single biggest destination for MDB/ DFI investment
funds in the region (followed by transport and storage).
Over 90 per cent of the instrument used was debt, and
only 30 per cent of the financing was concessional by
MDBs and DFIs.
Figure 4.12: MDBs and DFIs climate-related development finance in ESCAP members by sector, financial instrument, and
concessionality type.
Source: ESCAP based on OECD, Climate Change: OECD DAC External Development Climate Finance Statistics.176
Note: The figure includes total committed amounts by MDBs and DFIs and covers regional investments.
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MDB and DFI finance does leverage private finance, but
has the potential to leverage even more private finance.
According to Figure 4.13 below and the methodology
used by OECD, $2 billion in private finance was
mobilized by MDBs in Asia and the Pacific in 2020.
Estimates of how much private capital is leveraged by
MDBs vary widely. For example, the G20’s Independent
Review of Multilateral Development Banks’ Capital
Adequacy Frameworks cites that in 2020 the MDBs
covered by their review directly mobilised only 14 cents
for every dollar of own-account investments, mostly
through their private sector arms.177 This is still too
small. In 2023, the Independent Expert Group
commissioned by the Indian G20 Presidency issued a
report saying that MDBs only mobilise 0.6 dollars in
private capital for each dollar they lend on their own
account and that they should aim to at least double this
target.178 The Independent Expert Group further states
that they ‘envisage a doubling of concessional and non-
debt creating finance in the system as a whole, with
priority given to support for low-income countries.
Additional concessional finance should also support
vulnerable countries and incentivize projects with global
public good benefits. We further envisage a tripling of
non-concessional official finance by 2030, compared to
2019 pre-pandemic base year levels.179
Figure 4.13: Total amount of mobilized private finance by MDBs across regions, 2020.
Source: OECD Statistics, Mobilisation.180
Note: The term “mobilized climate finance” measures the amounts activated in the private sector by MDBs. It covers five instruments
(guarantees, syndicated loans, shares in collective investment vehicles, credit lines, and direct investments in companies) and is collected
based on instrument-specific methodologies, which measure the amounts mobilized from the private sector by official development
finance interventions. Total amount of private climate-related finance is calculated based on the OECD methodology in line with Rio
Markers. This differs from the methodology adopted by the Joint MDB report, which relies on the data and methodology of the MDB
Taskforce on Private Investment Mobilization for tracking the private share of climate co-finance. The methodology of the Joint MDB
report relies on a broader coverage of data disclosed on mobilized private climate finance; it covers more instruments and includes social
infrastructure (hospitals, schools, etc.), which are excluded from the OECD dataset.
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The call on MDBs to increase the concessionality of
their financing and expand risk-taking has intensified
but actual reform is still slowly emerging. While MDBs
recognized the need to increase concessional finance
and scale up private sector mobilization, among other
priorities at COP27, the methods remain a source of
much debate. The reforms under discussion at the
World Bank Group — with forthcoming announcements
following completed reviews and discussions at the
Spring and Autumn 2023 meetings — may mark a
historic moment and change in the MDB landscape.
Such momentous change has not been seen since the
Bretton-Woods negotiations in 1944, which led to the
formation of the IMF and the World Bank Group (WBG).
In this context, the development committee has asked
the WBG Management to identify gaps in WBG’s current
institutional and operational framework and deliver a
work program by the end of the year, for consideration
by the Executive Board (which oversees the routine day
to day matters at the WBG).181
According to the Development Committee, “This work
program should be aimed at strengthening the WBG’s
role and capacity to continue to be responsive to the
evolving needs of all client countries. This should
include designing pertinent financial reforms to
responsibly make the most efficient use of the WBG’s
balance sheets and generate new resources and
contribute to strengthening coordination and
collaboration across the broader international financial
architecture, as well as incentivizing country demand,
and addressing any operational obstacles to the WBG’s
effective response.”182
The Board of Governors additionally requested WBG
Management to explore the recommendations of the
Independent Review of MDB Capital Adequacy
Frameworks (CAF),183 commissioned by the G20, to
make the most efficient use of the Group’s balance
sheets to increase lending capacity, while preserving
long-term financial sustainability, robust credit ratings
(i.e. AAA ratings), and preferred creditor status. The
appeal for historic transformation has far-reaching
implications for how MDBs operate on the ground; how
operations, policy reforms and lending operations will be
sourced, built, made bankable, and financed; and how
private finance will be herded in.
The reforms under discussion at the World Bank Group
will have implications for other MDBs. The World Bank
Group, which is the largest provider of climate finance,
has been asked by its shareholders in the Development
Committee, known as the Boards of Governors of the
Bank and the International Monetary Fund, to “among
other things, support the following:
i)
the development of countries’ long-term
strategies for investing in climate action;
ii)
the preparation, screening, and structuring
of reforms and projects for bankable,
climate-resilient investments that mobilize
private capital and foster a business
environment aligned with low carbon and
resilient development;
iii)
increased concessional and blended
finance for adaptation and mitigation; and
iv)
bold investment in high-quality,
sustainable infrastructure that enables a
just energy transition.”184
ADB’s newly announced Innovative Finance Facility for
Climate in Asia and the Pacific (IF-CAP) could further
expand climate finance in the region. ADB’s stated
intention to be the climate bank for Asia and the Pacific
was further cemented in 2023 with IF-CAP’s
announcement to provide grants and guarantees for
parts of ADB’s sovereign loan portfolio. The ADB’s
proposed model of “$1 in, $5 out”, the initial ambition of
$3 billion in guarantees could create up to $15 billion in
new loans for much-needed climate projects across Asia
and the Pacific. According to ADB, a leveraged
guarantee mechanism for climate finance has never
before been adopted by a multilateral development
bank.185
It is worth highlighting that MDBs occupy a unique
position in the global financial architecture. Their capital
adequacy frameworks are not subject to prudential
supervision and governance (unlike commercial banks
governed by the Basel Framework), but by the distinct
makeup of each MDB’s board. MDBs also have Preferred
Creditor Treatment (PCT), meaning that “sovereign
borrowers will continue to repay MDBs even if they go
into default or delay payment to other creditors. In
addition, MDBs typically do not reschedule, restructure
or write off sovereign loans.”186 Most uniquely to MDBs,
and the subject of much debate, is the matter of how to
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treat MDB’s unique callable capital. The assessment of
capital adequacy frameworks for individual MDBs
considers each one’s exclusive callable capital.
Ultimately, “shareholders define MDB objectives, supply
share capital and define the limits of risk that they are
willing to tolerate”.187 For example, the Independent
Expert Group of the 2023 G20 has said ‘in order to
respond to today’s challenges, MDBs need to reframe
their mission, raise their level of ambition and financing,
and change the way they work internally, with each other
and with other public and private development
partners’.188 Importantly, they ‘recommend that the G20
link the sustainable lending levels of the MDB system in
2030 to the financial support needed by developing
countries to invest to achieve these goals. This would
establish, for the first time, a clear link between
mandates and financing for the MDBs as a system. We
further recommend that the G20 review the adequacy of
such lending levels every three years in line with the
recommendations of the report of the G20 panel on
capital adequacy frameworks.189 It is therefore up to
shareholders to redefine how MDBs will play their part in
the global financial architecture.
C. Challenges
This section of the report addresses the challenges
confronting Asia and the Pacific to amplify privately
sourced finance for climate action and sustainable
development.
Asian banks are considerably slow in in making net zero
commitments and need to urgently commit to credible
net zero transition pathways. The state of net zero
commitments by Asian banks is a code red situation.
Asian banks are still considerably slow to pledge net
zero commitments by 2050. When they make 2050
commitments, it is necessary that they also outline
credible transition pathways by setting 2030 targets (as
is required for example by the industry-led, UN
convened, Net Zero Banking alliance which forms the
industry partnership for banks party to the Glasgow
Financial Alliance to Net Zero). Without setting the
appropriate 2030 targets, 2050 targets will not be
met.190 More than 90 per cent of the 500 largest banks
in Asia (with a combined $71.8 trillion in total assets,
$37.4 trillion in net loans, $49.7 trillion in customer
deposits, and $425 billion in net profit in 2021)191 have
not yet made credible net zero commitments by 2050
with intermediate targets by 2030. Under such
circumstances, change is unlikely to happen fast
enough. It is possible for financing towards net zero to
happen in the absence of a net zero commitment; but as
discussed earlier, the picture emerging from Asia and
the Pacific is that coal financing is on the rise,
emissions are on the rise, and net-zero action is
insufficiently financed.
This also means a significant lack of local currency
financing for the net zero transition. The lack of net zero
commitments from Asia-Pacific also translates into a
lack of local currency financing for the net zero
transition. This is further corroborated anecdotally by
international banks and investors, who bemoan the
significant dearth of local banks investing in the energy
transition, the managed phase out of coal, and in new
green technologies in the region. The lack of mandatory
regulation to shift banks towards concrete
commitments, despite national commitments to the
Paris Agreement, may be an additional reason why
Asian banks are slow. Importantly, local banks bring
investment in local currency, removing the need for the
hurdle rate for investments to compensate for the
exchange rate risk. Without the credible participation of
Asian banks in the transition to net zero, adequate
finance cannot be mobilized to meet the 1.5C goal. To
the extent that finance can drive action and incentives
for the real economy to transition, the lack of progress
by Asian banks also acts as a brake on the transition of
the real economy.
Asia’s growing energy demand requires significant
private finance, but challenges abound in financing the
just energy transition. Coal power generation is the
largest source of carbon dioxide emissions globally.
According to the Glasgow Financial Alliance for Net
Zero, if existing coal power assets continue to operate
as planned, they alone will generate enough emissions
to exhaust two-thirds of the remaining carbon budget
associated with limiting warming to 1.5C. The
International Energy Agency predicts that more than 70
per cent of growth in global electricity demand will come
from Southeast Asia, India, and China over the next
three years.192 In addition, the average age of coal fired
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power plants in these regions is about 15 years,
compared to average ages in Europe and America of
more than 30 years.193 This means it will be more
expensive to phase out coal, and it is estimated that
there are about 5,000 coal fired power plants operating
in Asia and the Pacific.194 Financing is thus required to
acquire coal assets for early phaseout. While most net-
zero committed banks have a no-coal financing policy
(or at least a no-new-coal financing policy), what is
essential for the managed phase out of coal in an
orderly and just manner is to invest in the phaseout of
coal. This will mean investing in new coal in the short
term, and seeing emissions rise in the financing
portfolio in the short term. ADB’s energy transition
mechanism, as well as the Just Energy Transition
Partnerships, also further support the early retirement of
coal in the region. At a side event to the ECOSOC Forum
on Financing for Development organized by ESCAP in
2023, it was further noted that the cost of early
retirement of coal-based power plants varies across
plants and depends on when they will be retired. The
case of a specific power plant in Asia-Pacific was
mentioned which would cost $625 million to retire in
2025, $314 million to retire in 2030, and $127 million to
retire in 2035 as an example of varying and sizeable
decommissioning costs. Various options to finance this
decommissioning were discussed including policy
changes and innovative financing mechanisms,
including carbon credits and accelerating investments in
renewables as well as options to transition of the plants
into renewables, such as wind or solar or hydrogen.
Such an approach, if it could maintain the revenues of
the power plant and its levels of employment, would
also minimize social disruption.
The costs of investing in renewable energy have
significantly declined and global investment in
renewable energy has soared in 2022 to a record high of
$495 billion globally. However, this still represents less
than one-third of the average investment needed each
year between 2023 and 2030, according to the 1.5°C
scenario predicted by the International Renewable
Energy Agency (IRENA). Investments are also not on
track to achieve the goals set by the 2030 Agenda for
Sustainable Development.195 Renewable power
investment has risen rapidly in Asia-Pacific countries to
more than $335 billion in 2022, and accounts for around
55 per cent of the global total. Still, except for China and
India, the region comprises less than 20 per cent of
global investment.
Private finance is the major source of funding for
financing clean energy investment and long-term debt is
the preferred instrument, but bankability issues persist.
Between 2013 and 2020, private sources accounted for
75 per cent of global renewable energy investment,
though some technologies with long lead times, such as
hydropower and geothermal, relied more on capital from
state-owned enterprises and public financial
institutions. Financing has shifted towards balance
sheet structures, at more than 60 per cent in 2020,
though project finance transactions remain prevalent.
While utility-scale renewable power investments are
often highly leveraged, debt has played a greater role in
onshore wind than solar photovoltaics (PV). Bankability
issues often arise from insufficient pricing and
remuneration frameworks; lack of standardization
around common contingency, risk mitigation, dispute
resolution and other contractual clauses; and perceived
cash flow risks. Availability of grid infrastructure and
land as well as equity shortfalls for early-stage project
development remain persistent barriers in many
markets.
Large-scale private financing is also required for new
green technologies such as green hydrogen to be
deployed in hard-to-abate sectors.196 Green hydrogen is
produced by electrolysis, which is essentially the
process of splitting water molecules into hydrogen and
oxygen, by passing electricity through water. If the
electricity for electrolysis is generated through
renewable energy sources, the production process does
not result in a carbon by-product, and it is therefore an
ideal (clean) form of hydrogen production from an
emissions reduction perspective.197 The continuing drop
in the cost of green hydrogen technologies and the
volatility of fossil fuel prices therefore makes green
hydrogen an attractive solution for energy security and
storage capacity,198 but large upfront financing
requirements, and challenges in the enabling policy and
regulatory frameworks still need to be overcome.
Globally, governments have committed more than $37
billion in public funding to hydrogen development, while
the private sector has announced investments of around
$300 billion. Nearly 40 per cent of the global demand for
hydrogen is generated from the Asia-Pacific region and,
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within Asia and the Pacific most of the demand comes
from China, which accounts for 26 per cent of global
demand. Global competition to win business for the
green hydrogen sector is increasing in an environment
of high interest rates. The massive subsidies offered to
green hydrogen under the US Inflation Reduction Act and
the EU’s contracts for difference scheme via its new
Hydrogen Bank seek to attract domestic green hydrogen
investment. However, it is unlikely that emerging
markets and developing economies have either the cash
to match these subsidies nor the credit ratings to
borrow competitively.
For both new renewable energy project investments and
new green technologies, particularly in more challenging
markets in Asia and the Pacific, building bankable
pipelines is fraught with challenges. While there are
substantially large pools of debt and equity available
regionwide in local currencies, there is a discrepancy
between available capital, ready projects, and the
execution of transactions. The absence of standardized
transaction templates to easily replicate requirements,
risk contingency clauses, and dispute resolution
mechanisms, remains a challenge. In addition, poor
connectivity between investors and projects leads to
poor visibility about what bankability means to different
investors. Therefore, it is likely that misunderstandings
about how to structure projects and engage with
multiple investors arise. High transaction costs for
adding guarantees, first-loss-tranches, and the blend of
concessional capital with commercial capital also
prohibit the rapid scale and replicability of projects.
Projects thus tend to be executed on a deal-by-deal
basis, with most deals taking anywhere between one
and two years to execute.
Private finance, whether local investors in local currency
or international investors in hard currency, need to
spend more effort in assessing and pricing risk
appropriately. Too often perceptions drive risk pricing in
countries where benchmarks on risk-return-mandates do
not exist. Investors without boots-on-the-ground and the
ability to conduct sustained due diligence prefer not to
engage with new countries where they have never done
a transaction before. This exacerbates the problem of
capital not flowing to where it is most needed (and
where in fact returns could be made). Large, capital
expenditure heavy projects with upfront payments and
returns spread over a long tail require long-term
financing solutions, preferably in local currency. But if
Asia-Pacific investors do not engage with trying to
understand how to finance new sectors and projects
without existing benchmarks and locally tailored lending
methodologies, there will continue to be a significant
bottleneck in financing.
Small-ticket projects are increasingly overlooked in the
urgent search for scale, but they also need to be
nurtured. For a full pipeline of energy transition projects
to materialize at large scale and high pace, underlying
pipelines of smaller energy transition projects at smaller
ticket sizes are often required. This is typical for
investments in general – angel investment offers a
proving ground for companies with strong ideas or
concepts. As their concepts reach the early stages of
becoming proven, companies can raise larger ticket
Series A and B venture capital. Upon proving themselves
more and growing even further, larger-ticket private
equity funds invest based on the belief that they can
grow these companies all the way to an initial public
offering and listing on a stock exchange where retail
investors can buy a share. Similar principles apply here.
Insufficient project preparation funds exist to ensure
projects meet the risk-return-mandate requirements of
different investors. Project preparation significantly
lessens the risks inherent to projects, particularly when
done in partnership with investors. Proper feasibility
studies conducted in line with a model of a transaction
template (which outlines what risks investors are willing
to take and what contingencies they may need) will
significantly lower the risks in projects. Third party
verification of such studies, as well as support to
investors (particularly local investors who may not have
experience in such investments) through technical
assistance in the sector or project also constitutes a
strong part of effective project preparation. In the
region, small ticket-size projects by businesses face
high transaction costs to get off the ground. In some
cases, they are simply not eligible for large grant
facilities like the Green Climate Fund or the Global
Environment Facility. Neither are they eligible for the
technical assistance grants delivered by multilateral
development banks which are mostly given alongside a
specific prospective investment by the MDB. In some
cases, even when they are eligible for these large
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facilities, applications require significant skills which
they lack. More inclusive and wide-reaching project
preparation funds, while requiring more funds and
possibly generating some failures in terms of
investment, may on a net basis however generate
significantly more bankable projects.
Since financing ultimately drives investment by the real
economy, two‑thirds of the largest listed businesses still
lack a net zero pledge.199 Only 8 per cent of companies
in Asia and the Pacific have set a net zero goal by 2021,
according to CDP, a climate disclosure nonprofit.200 Of
the one third of largest listed businesses that have
made a net zero pledge, only a portion have committed
to an independent voluntary initiative. Most
privately‑listed businesses and state‑owned enterprises
have no net zero target at all.201 Even with 2050 net zero
commitments, the challenge is that emissions need to
peak (in two years’ time) by 2025 globally, and
emissions need to be cut by nearly half by 2030,202 in
order to limit the temperature rise to 1.5C.203 Therefore
companies that have set a 2050 net zero goal need to
still commit to credible transition pathways with 2030
goals and other interim goals.
The absence of data that would enable transaction
benchmarks to be built remains a major challenge,
including in biodiversity finance. Investor-grade data on
risks, dependencies, and impact on science-based
targets, is needed. This would allow pricing benchmarks,
as well as other reference points for appropriate
covenants, impact standards, and outcomes to be
placed. For biodiversity finance, complex biodiversity
measurements — such as revenue related to carbon,
biodiversity net gain, and other new indicators for
traditional investors — create a challenge for
investment.
D. Recommendations
In this section, we outline the key recommendations for
private finance emerging from the discussion on trends,
opportunities, and challenges. In addition, these
recommendations (which are set out in detail here) have
been aggregated into our final set of ten principles of
action for the region to bridge the sustainable finance
gap in Asia and the Pacific, set forward in the final
chapter.
Instead of being on track to reduce emissions by 45 per
cent by 2030, emissions are set to increase by close to
11 per cent.204 Instead of delaying the efforts to
transition closer to 2050 or 2060, making the costs to
transition even greater, private finance needs to act now
to proactively plan for the transition to net zero. If
private finance adopts an active role and becomes the
vanguard of change, actions will cascade down to
businesses, corporates, and households who use private
finance for their activities, thereby spurring widespread
change in the timeframe needed. The groundbreaking
report by the High Level Expert Group on the Net Zero
Emissions Commitments of Non-State Entities, tasked
by the United Nations Secretary General and chaired by
the Honourable Catherine McKenna, put forth a series of
recommendations on net zero pledges for actors
including private finance. We refer to the following
relevant recommendations on credible transition
pathways for such actors including private finance
below:205
▪ A net zero pledge must contain stepping-stone
targets for every five years and set out concrete
ways to reach net zero in line with the
Intergovernmental Panel on Climate Change or
International Energy Agency net zero greenhouse
gas emissions modelled pathways that limit
warming to 1.5°C with no or limited overshoot.
Implementation needs to begin immediately, and
not delay action to the last minute, reflecting the
fact that global emissions must decline by at least
50 per cent by 2030. The plans must disclose how
capital expenditure plans, research and
development plans, and investments are aligned
with all targets (e.g. capital expenditure‑alignment
with a regional or national taxonomy) and split
between new and legacy or stranded assets. Net
zero plans must detail the third‑party verification
approach and ensure audited accuracy.
▪ On coal for power generation, net zero targets and
transition plans of all financial institutions must
include an immediate end of: (i) lending, (ii)
underwriting, and (iii) investments in any company
planning new coal infrastructure, power plants, and
mines.
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▪ Private finance should focus on renewable energy:
Financial institutions should create investment
products aligned with net zero emissions by 2050
and facilitate increased investment in renewable
energy.
▪ Private finance should also focus on financing
biodiversity: Businesses should invest in the
protection and restoration of ecosystems beyond
the emission reductions in their own operations
and supply chains to achieve global net zero. This
is important considering the systemic financial
risks associated with the loss of biodiversity and
the exacerbated climate impacts associated with
the loss of natural carbon sinks. Businesses,
especially financial institutions, should anticipate
the final guidance of the Taskforce on
Nature‑related Financial Disclosures by factoring
in nature risks and dependency to all elements of
their net zero transition plans.
Private finance, including MDBs and DFIs, need to
engage in partnerships now, not just transactions.
Solving the highly complex problem of financing climate
action at scale and pace requires moving beyond short-
term, transaction-oriented thinking and deploy strategic
thinking about how to generate many deals within a
country in the relevant sectors. This requires private
finance to partner with policymakers and regulators and
drive new climate finance partnerships. It also requires
investors with experience in financing the net zero
transition to build the capacity of regulators and
investors in-country who may not have such experience.
The Just Energy Transition Partnerships present one
model of ambitious partnerships. The caveat is that time
is of the essence and partnerships need to be built and
executed urgently.
Multilateral banks and development finance institutions
need to rethink their approaches to concessional
lending and their abilities to take on more risk. In doing
so, they will have to work closely with financial
institutions and businesses to build projects that are
well-structured, leverage more private financing than
before (thus ensuring shared returns to all investors, not
just one), mitigate risk through good preparation, design,
and execution, and genuinely require concessional or
grant tranches. These projects should also be aligned
with countries’ national and sectoral transition pathways
and MDBs and DFIs are a powerful partner in
conversations with countries on developing such
credible transition pathways.
Project pipeline building requires significantly reformed
approaches if scale is to be achieved. The classic model
of investors either building their own pipelines
confidentially or waiting for fully packaged bankable
projects to be referred to them will no longer work in
certain sectors relevant to the transition, such as often
in energy transition or in new technologies. The scale of
investment required, and the tight timeframe in which to
achieve such a scale, is too high and requires significant
pre-investment partnerships. Foreign investors and local
investors need to work together in the early stages of
project building, and to collaborate to blend local and
hard currency as well as grants and concessional
finance from multiple sources. While this report has
focused on concessional finance from MDBs and DFIs,
we note that there is also substantial concessional and
grant finance available from foundations. The newly
announced Energy Transition Accelerator by Rockefeller
Foundation and the Bezos Foundation206 aim to bring
substantial philanthropic capital to incentivize new
private-sector climate finance for mitigation and
adaptation that augments — not substitutes for — other
sources of public, private, multilateral, and philanthropic
finance and companies’ continued investments in deep
emissions reductions within their own value chains.
Finally, to ensure that project preparation funds are
optimally employed to ensure the creation of genuinely
investment-ready projects, investors should advise
project preparation fund implementation, even if in a
light-touch manner. This will avoid the unfortunate, but
common, occurrence of existing project pipelines for
investment which fail to receive financing as a range of
investors do not consider them investment-ready and
investors have not been engaged from the inception of
project development. By setting up a modality in which
project developer and financial institutions regularly
meet and co-create investment projects in a progressive
and iterative manner, supported by grant funds that
defray high-risks surrounding the project preparation,
higher-quality projects can be built.
Private finance also needs to invest in building the
capacity of staff and systems. For banks and investors
who are yet to make a net-zero pledge and transition
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their lending and investing operations, significant
investment in staff capacity and systems is required to
design, plan, and manage this transition urgently.
Investments by private finance are thus urgently
required. Private finance institutions can join peer-to-
peer learning networks. There are also international
principles that individual financial institutions of any
jurisdiction can apply to. The best known are those
developed by UNEP-FI encompassing the Principles of
Responsible Banking, the Principles of Responsible
Investment, and the Principles of Sustainable Insurance.
These self-organized peer-to-peer learning networks are
vital to share knowledge and raise standards.
Private finance should also encourage their real
economy borrowers and clients to implement the net
zero transition. Finance and the real economy are
intertwined, and neither can afford to lag behind the
other. Encouraging industry borrowers who seek finance
to adopt voluntary net zero standards relevant to their
sector, will help private finance. For many countries,
sectoral transition pathways will be needed, and these
will differ from other countries due to different starting
points and different goals. Finance and the real
economy businesses need to participate in those
sectoral transition pathways; both in design and in
implementation.
Conclusion
Private finance actors must redefine how they engage
with net zero, committing to net zero targets, as well as
a credible transition pathway, and driving action within
the real economy to the maximum possible extent. To
fulfill net zero targets and finance action, project
pipeline building must also be redefined to include
greater collaboration between a multitude of actors.
Commercial investors and development financial
institutions, such as MDBs and businesses/project
developers, need to work hand-in-hand with green
project developers at the pre-investment stage. Instead
of operating on a per deal basis, common approaches to
templating transactions can be adopted, creating a
replicable model for transactions in the net-zero arena,
and ensuring investments take place at scale and pace.
In Asia and the Pacific, local banks and investors need
to take their place at the forefront of investing in the net-
zero transition.
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5. TEN PRINCIPLES OF
ACTION TO BRIDGE
THE SUSTAINABLE
FINANCE GAP IN ASIA
AND THE PACIFIC
Climate change has been called “a wicked problem par
excellence”207 because it constitutes of a series of
interconnected problems that cannot be solved in
isolation. Financing climate action in time is thus also a
wicked problem par excellence. It requires policymakers
to collaborate with regulators and private finance to
drive action in the real economy. It calls for urgent
implementation, in a world in which we have already
experienced a 1.1C change, and in which if we continue
as normal, the carbon budget to stay within 1.5C will be
depleted in less than six years, according to the IPCC. It
has been said that the global battle for climate change
will be won or lost in Asia and the Pacific.208 If the Asia-
Pacific region is at the core of the problem, however, it
is also at the core of the solution.
In the previous chapters, we discussed at length the
trends, opportunities, challenges, and recommendations
for policymakers, regulators, and private finance related
to how sustainable finance can bridge the gap in the
region. Based on that analysis, we aggregate the
recommendations across the three actors into the
following ten-point principles of action, which we hope
constitutes an action plan for stakeholders in the region.
Governments and regulators
1. New climate finance partnerships are developed
through which governments, regulators, MDBs,
and private finance commit to action around
specific goals and contribute specific tasks in
line with this shared goal. Just Energy
Transition Partnerships, which are led and
owned by countries, provide a useful model for
the region, especially if execution can be
accelerated.
2. Effective NDC financing strategies are
developed, led by authorities with clear
mandates, which signal credible transition
pathways with interim targets and clear
resource mobilization plans. This will provide a
clear and vital signal to investors, businesses,
and project developers that governments are
committed to change. This signal of reliability,
stability, and predictability is a core part of
costs around projects.
3. Policy coherence and capacities are developed
across key government ministries such as
finance, energy, transport, and environment,
reducing the costs of financing. Governments
need to invest in both the effort for such
coordination and the capacities for such
coordination. This will also allow governments
to better work with MDBs, DFIs, and
development partners to obtain the assistance
they need in the timeframe they need it in.
4. Decisive regulatory action takes place to shift
capital in Asia and the Pacific towards the net
zero transition. Asia and the Pacific is home to
significantly large pools of capital capable of
bridging the gap in sustainable finance.
Regulators need to adopt a more active role in
shifting capital towards climate action,
recognizing that doing so will strengthen
financial stability in the system, as well as
create a level playing field for all. In doing so,
regulators will also need to move towards
consistent taxonomies and roadmaps across
countries, to create a level playing field.
5. Investment in the capacities of financial
personnel to assess climate risk, innovate green
financial instruments, and supervise the
transition path of the green economy is
undertaken. International groupings such as the
Network for Central Banks and Supervisors for
Greening the Financial System (NGFS) or the
Sustainable Banking and Finance Network
(SBFN) can be effective to promote peer-
learning among members.
6. Investment in much-needed sectoral and
project-based financial data is undertaken.
Common data platforms that share valuable
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data on ESG, climate, nature, contracts, clauses
standards, targets, and deals (where possible)
will streamline investment, assist
benchmarking, strengthen credibility and ensure
replicability and scale of green transactions and
deals.
Private Finance – Asia-Pacific banks, investors and
issuers
7. Commitments to net zero pledges for 2050 with
credible transition pathways including 2030
goals are made. The slowness of banks in Asia
and the Pacific to commit to net zero and
transition their lending and investing portfolios
with interim 2030 science-based targets is a
serious brake on driving finance towards
climate action in the region.
8. Local-currency financing of energy transition
projects as well as green technologies and other
net-zero investments is increased. Local-
currency financing is critical to accelerate the
scale and pace of private finance because it can
fund projects that do not have to reach a higher
rate of return just to cover exchange rate risk as
well as provide other benefits. Increased net-
zero commitments by private finance in Asia
and the Pacific (number 7 above) combined with
a focus on investing in the energy transition in
their local currency will leverage and bring
forward the needed investment at scale.
9. Concessional financing and risk-sharing by
multilateral development banks, bilateral
development financial institutions, and public
development banks is expanded and
accelerated. This will de-risk otherwise sound
projects and ultimately leverage significant
private capital. A 1:5 ratio, like ADB’s goal, can
be one benchmark to ensure that concessional
funds truly leverage private finance and go
towards well-structured projects. This will also
guarantee well-designed projects in which
concessional finance truly catalyzes and
mobilizes greater private finance. In doing so,
however, it is critical to ensure the project is
both high impact to support the net-zero-
transition and commercially attractive.
10. Investment of time and effort with partners in
green project preparation is increased in more
challenging markets, whether it is in the LDCs,
SIDS, or in new green technologies. Setting up a
modality in which project developers and
financial institutions regularly meet and co-
create investment projects in a progressive and
iterative manner can accelerate the preparation
of effective pipelines of bankable green projects
at scale. While large projects have lower
transaction costs, investing in project
preparation for smaller-ticket green projects will
ensure a long-term pipeline of large projects.
Ultimately good project preparation and
dedicated resources to that end will reduce the
risk of projects when implemented.
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ANNEXES
Annex A: Climate financing needs in Asia and the Pacific
Table A.1: Financing needs for mitigation and adaptation in Asia and the Pacific from nationally determined contributions
(millions of United States dollars).
Source: ESCAP based on data from IGES NDC Database.209
Note: Only parties to the UNFCCC that report financing needs are included in the table.210
Party to the UNFCCC
Financing needs (millions of United States dollars)
Submission dates
Mitigation
Adaptation
Total
Date of the last
submission
Initial/updated
submission
South and South-West Asia
Afghanistan
6,620
10,790
17,410
23/11/2016
1st update
India
834,000
206,000
1,040 000
26/08/2022
1st update
Iran (Islamic Republic of)
52,500
140,000
192,500
21/11/2015
Initial
Nepal
21,600
21,600
08/12/2020
2nd update
North and Central Asia
Georgia
2,000
2,000
05/05/2021
1st update
Kyrgyzstan
7,240
2,830
10,070
09/10/2021
1st update
Turkmenistan
10,500
10,500
21/10/2016
1st update
South-East Asia
Cambodia
5,800
2,000
7,800
31/12/2020
1st update
Lao People's Democratic
Republic
4,700
4,700
11/05/2021
1st update
The Pacific
Fiji
2,970
31/12/2020
1st update
Kiribati
80
21/09/2016
1st update
Niue
10
28/10/2016
1st update
Palau
10
10
22/04/2016
1st update
Solomon Islands
130
130
250
19/07/2021
1st update
Tuvalu
360
22/04/2016
1st update
Vanuatu
310
720
1,030
23/03/2021
1st update
East and North-East Asia
Mongolia
3,400
3,400
13/10/2020
1st update
Total
932,910
378,370
1,314,690
Count
10
10
17
Shares of mitigation/
adaptation (%)
71
29
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Annex B: Credit ratings
Table B.1: Credit ratings of ESCAP members and rated dates.
Sovereign/Jurisdiction
credit rating
S&P
Moody's
Fitch
Ratings
Date
Ratings
Date
Ratings
Date
Armenia
Non-investment grade
B+
12-Oct-21
Ba3
24-Mar-22
B+
10-Feb-23
Australia
Investment grade
AAA
6-Jun-21
Aaa
20-Oct-02
AAA
13-Oct-21
Azerbaijan
Non-investment grade
BB+
22-Jan-21
Ba1
5-Aug-22
BB+
21-Oct-22
Bangladesh
Non-investment grade
BB-
5-Apr-10
Ba3
9-Dec-22
BB-
29-Aug-14
Cambodia
Non-investment grade
B2
15-Nov-22
China
Investment grade
A+
21-Sep-17
A1
24-May-17
A+
5-Nov-07
Fiji
Investment grade
B+
22-Sep-21
B1
7-Oct-22
Georgia
Investment grade
BB
25-Feb-22
Ba2
28-Apr-22
BB
27-Jan-23
Hong Kong, China
Non-investment grade
AA+
22-Sep-17
Aa3
20-Jan-20
AA-
20-Apr-20
India
Non-investment grade
BBB-
26-Sep-14
Baa3
5-Oct-21
BBB-
10-Jun-22
Indonesia
Investment grade
BBB
27-Sep-22
Baa2
13-Apr-18
BBB
21-Dec-17
Japan
Investment grade
A+
9-Jun-20
A1
1-Dec-14
A
25-Mar-22
Kazakhstan
Investment grade
BBB-
2-Sep-22
Baa2
11-Aug-21
BBB
29-Apr-16
Kyrgyzstan
Non-investment grade
NR
23-Sep-16
B3
17-Oct-22
Lao People's
Democratic Republic
Non-investment grade
Caa3
14-Jun-22
Macao, China
Non-investment grade
Aa3
24-May-17
AA
15-Apr-21
Malaysia
Investment grade
A-
27-Jun-22
A3
11-Jan-16
BBB+
2-Dec-20
Maldives
Non-investment grade
Caa1
17-Aug-21
B-
13-Oct-22
Mongolia
Non-investment grade
B
9-Nov-18
B3
16-Mar-21
B
9-Jul-18
New Zealand
Investment grade
AA+
21-Feb-21
Aaa
20-Oct-02
AA+
9-Sep-22
Pakistan
Non-investment grade
CCC+
22-Dec-22
Caa1
6-Oct-22
CCC-
14-Feb-23
Papua New Guinea
Non-investment grade
B-
24-May-22
B2
10-Nov-22
Philippines
Investment grade
BBB+
30-Apr-19
Baa2
11-Dec-14
BBB
12-Jul-21
Russian Federation
Investment grade
NR
8-Apr-22
NR
31-Mar-22
NR
25-Mar-22
Singapore
NR
AAA
6-Mar-95
Aaa
14-Jun-02
AAA
14-May-03
Solomon Islands
Investment grade
Caa1
8-Oct-21
Republic of Korea
Non-investment grade
AA
8-Aug-16
Aa2
18-Dec-15
AA-
6-Sep-12
Sri Lanka
Non-investment grade
SD
25-Apr-22
Ca
18-Apr-22
RD
19-May-22
Tajikistan
Non-investment grade
B-
28-Aug-17
B3
17-Oct-22
Thailand
Investment grade
BBB+
13-Apr-20
Baa1
21-Apr-20
BBB+
17-Mar-20
Türkiye
Non-investment grade
B
30-Sep-22
B3
12-Aug-22
B
8-Jul-22
Turkmenistan
Non-investment grade
B+
10-Feb-23
Uzbekistan
Non-investment grade
BB-
4-Jun-21
Ba3
20-Jan-23
BB-
21-Dec-28
Viet Nam
Non-investment grade
BB+
26-May-22
Ba2
6-Sep-22
BB
1-Apr-21
Source: ESCAP based on Trading Economics.211
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Table B.2: Investment VS non-investment grade.
S&P
Moody's
Fitch
Description
AAA
Aaa
AAA
Prime
AA+
Aa1
AA+
High grade
AA
Aa2
AA
AA-
Aa3
AA-
A+
A1
A+
Upper medium grade
A
A2
A
A-
A3
A-
BBB+
Baa1
BBB+
Lower medium grade
BBB
Baa2
BBB
BBB-
Baa3
BBB-
BB+
Ba1
BB+
Non-investment grade
BB
Ba2
BB
Speculative
BB-
Ba3
BB-
B+
B1
B+
Highly speculative
B
B2
B
B-
B3
B-
CCC+
Caa1
CCC
Substantial risks
CCC
Caa2
Extremely speculative
CCC-
Caa3
In default with little prospect for recovery
CC
Ca
C
C
D
/
DDD
In default
/
DD
D
Source: ESCAP based on Trading Economics.212
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Annex C: Access to UNFCCC Financing
Table C.1: ESCAP members and associate members that have not accessed UNFCCC climate finance mechanisms.
UNFCCC
GCF
GEF
Adaptation Fund
American Samoa
American Samoa
American Samoa
Afghanistan
Australia
Australia
Australia
American Samoa
Hong Kong, China
Brunei Darussalam
Hong Kong, China
Australia
Macao, China
Hong Kong, China
Macao, China
Azerbaijan
French Polynesia
Macao, China
French Polynesia
Brunei Darussalam
Guam
French Polynesia
Guam
China
Japan
Guam
Japan
Hong Kong, China
New Caledonia
Japan
New Caledonia
Macao, China
New Zealand
New Caledonia
New Zealand
Democratic People's Republic
of Korea
Northern Mariana Islands
New Zealand
Northern Mariana Islands
French Polynesia
Northern Mariana Islands
Guam
Republic of Korea
Iran (Islamic Republic of)
Russian Federation
Japan
Singapore
Kazakhstan
Türkiye
Kiribati
Marshall Islands
Nauru
New Caledonia
New Zealand
Niue
Northern Mariana Islands
Palau
Philippines
Republic of Korea
Russian Federation
Singapore
Thailand
Timor-Leste
Tonga
Türkiye
Tuvalu
Vanuatu
Source: ESCAP based on GCF Open Data and GEF Projects Database.213
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Annex D: Carbon pricing initiatives in Asia and the Pacific
Table D.1: Status and progress of carbon pricing initiatives at national and sub-national level in Asia and the Pacific.
Jurisdiction covered (Country,
region, city)
Type of
jurisdiction
covered
Country of
subnational
jurisdiction
Name of initiative
ETS implemented/scheduled
Australia
National
-
Australia Carbon Credits Act (Carbon
Farming Initiative)
China
National
-
China national ETS (for power sector)
Kazakhstan
National
-
Kazakhstan ETS
Republic of Korea
National
-
Korea ETS
Beijing
Subnational
China
Beijing pilot ETS
Chongqing
Subnational
China
Chongqing pilot ETS
Fujian
Subnational
China
Fujian pilot ETS
Guangdong (except Shenzhen)
Subnational
China
Guangdong pilot ETS
Hubei
Subnational
China
Hubei pilot ETS
Saitama
Subnational
Japan
Saitama ETS
Sakhalin
Subnational
Russian
Federation
Sakhalin ETS
Shanghai
Subnational
China
Shanghai pilot ETS
Shenzhen
Subnational
China
Shenzhen pilot ETS
Tianjin
Subnational
China
Tianjin pilot ETS
Tokyo
Subnational
Japan
Tokyo CaT
ETS under consideration / in development
Malaysia
National
-
Malaysia ETS
Pakistan
National
-
Pakistan ETS
Russian Federation
National
-
Draft Bill on State regulation of emission and absorption
of GHG
Thailand
National
-
Thailand ETS
Türkiye
National
-
Türkiye ETS
Viet Nam
National
-
Viet Nam ETS
Shenyang
Subnational
China
Shenyang ETS
Carbon tax implemented/scheduled
Singapore
National
-
Singapore carbon tax
ETS implemented/scheduled & Carbon tax under consideration
New Zealand
National
-
New Zealand ETS & New Zealand carbon tax
ETS under consideration & Carbon tax implemented/scheduled
Indonesia
National
-
Indonesia ETS for the power sector & Indonesia carbon
tax
Japan
National
-
Japan ETS & Carbon Tax for Climate Change Mitigation
Source: World Bank Carbon Pricing Dashboard214 and UNCTAD Sustainable finance regulations platform.215
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Annex E: List of stakeholders
Table E.1: Singapore FinTech Festival expert roundtable discussants
Name
Organization
Title
Aziz Durrani
ASEAN+3 Macroeconomic Research Office (AMRO)
Capacity Development Expert
Darian McBain
Outsourced Chief Sustainability Officer Asia
Chief Executive Officer (CEO)
Kristina Anguelova
WWF - Sustainable Finance Institute Asia
Head of Asia Sustainable Finance
Nasir Zubairi
Luxembourg House of Financial Technology (LHoFT)
CEO
Nicholas Gandolfo
Sustainalytics Corporate Solutions, Singapore,
Sustainalytics
Vice President
Steve Cochrane
Moody’s Analytics
Chief APAC Economist
Miranda Carr
MSCI
Global Head of Applied ESG & Climate Research
Chea Serey
National Bank of Cambodia
Director General
Satoru Yamadera
Asian Development Bank
Advisor
Kelvin Tan
HSBC
Managing Director, Head of Sustainable
Finance & Investments, ASEAN
Abhishek Kaul
IBM
Associate Partner, Sustainability & Analytics
Lise Pretorius
Matter
Head of Sustainability
Maria Perdomo
UNCDF
Regional Coordinator, Asia and the Pacific
Eugene Wong
Sustainable Finance Institute Asia
CEO
Paul Dickinson
CDP - Disclosure Insight Action
Founder Chair
Jaclyn Dove
Standard Chartered Bank
Head of Sustainable Finance Strategic
Initiatives
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Table E.2: Stakeholders consulted for the key informant interviews.
Name
Organization
Title
Bank of America
Aziz Durrani
ASEAN+3 Macroeconomic Research Office (AMRO)
Capacity Development Expert
Erik Grigoryan
Environment Group
Founder and CEO
Eugene Wong
Sustainable Finance Institute Asia
CEO
Ines Marques
Green Hydrogen Organization
Director of the Green Hydrogen Development
Plan
Kelvin Lester K. Lee
Securities and Exchange Commission, Philippines
Commissioner
Michael Salvatico
S&P Global Sustainable1
Head of Asia, Pacific, Middle East & Africa ESG
Solutions
Miranda Carr
MSCI
Global Head of Applied ESG & Climate
Research
Piyawan Khemthongpradit
Bank of Thailand
Assistant Director,
Financial Institutions Strategy Department
Thammachart
Thammaprateep
Bank of Thailand
Senior Analyst, Financial Institutions Strategy
Department
Table E.3: List of speakers at ESCAP Expert Group Meeting on Public Debt and Sustainable Financing in Asia and the
Pacific.
Name
Organization
Title
Aigul Kussaliyeva
AIFC Green Finance Centre
Director of Sustainable Development of AIFC
Authority
Allinnettes Adigue
Global Reporting Initiative
Head GRI ASEAN Regional Hub
Liz Curmi
Citi Global Insights
Head of Energy transition and Climate finance
Lyn Javier
Central Bank of the Philippines
Assistant Governor, Policy and Specialized
Supervision Sub-Sector
Kosintr Puongsophol
Asian Development Bank
Financial Sector Specialist
Nikita Bajracharya
Dolma Advisors
Senior Investment Manager
Ricco Zhang
International Capital Market Association
Senior Director, Asia Pacific
Robert Willem van Zwieten
Route17
Founding Partner
TMJYP Fernando
Central Bank of Sri Lanka
Senior Deputy Governor
Youraden Seng
National Bank of Cambodia
Director, Banking Supervision Department II
Yuki Yasui
Asia-Pacific Network of the Glasgow Financial
Alliance for Net Zero
Director
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EXECUTIVE SUMMARY
ENDNOTES
1 World Bank Treasury (2023).
2 OECD (2021a).
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107
CH1. ENDNOTES
3 UNFCCC (2022d).
4 Ibid.
5 Ibid.
6 UNFCCC (2022b).
7 IPCC (2022a).
8 ADB (2023b).
9 ESCAP (2015).
10 ESCAP (2023)
11 ESCAP (2021).
12 ESCAP (2015).
13 ADB (2023b).
14 ADB (2023b).
15 ESCAP, UNEP and UNICEF (2022).
16 IPCC (2023)
17 Ibid.
18 Ibid.
19 CBD (2022).
20 United Nations (2022).
21 Torkington (2023).
22 Available at https://dataexplorer.unescap.org.
Accessed on 3 April 2023.
23 Available at https://dataexplorer.unescap.org.
Accessed on 3 April 2023.
24 UNCTAD (2014); OECD and UNDP (2012).
25 IISD (2022).
26 ESCAP (2019).
27 Ibid.
28 Vitor (2023).
29 IPCC (2021).
30 Black, and others (2022).
31 ESCAP, UNEP, and UNICEF (2022).
32 Songwe, Stern, and Bhattacharya (2022).
33 UNFCCC (2022a).
34 Larsen, Brandon, and Carter (2022).
35 Johnson, and others (2021).
36 Ibid.
37 The term investment and financing are often used
interchangeably, but they are not exactly the same.
Investment means allocating money to activities or
financial assets that will generate a future profit, while
financing means raising money to fund an investment.
38 ICMA (2020b).
39 The SBFN represents 63 institutions from 43
countries, accounting for over $42 trillion, or 86 per
cent, of the banking assets across emerging markets.
40 GFSG (2016).
41 UNFCCC (n.d.a).
42 There is no one uniform definition of greenwashing.
The European Securities and Markets Authority (ESMA)
have sought industry views on legally defining
greenwashing to be enshrined in law. A commonly
referred to analysis is regarding the seven sins of
greenwashing by TerraChoice (2010), The Cambridge
dictionary defines greenwashing as the practice of
making people believe that your company is doing more
to protect the environment than it really is.
43 MSCI (n.d.).
44 Ibid.
45 PRI (2018).
46 UNFCCC (n.d.d).
47 UNFCCC (n.d.a).
48 UNFCCC (n.d.b).
49 UNFCCC (n.d.c).
50 UNFCCC (2022c).
51 SDG Goal No. 7 is to ensure access to affordable,
reliable, sustainable, and modern energy for all. It has
five targets to be achieved by 2030, three of which are
outcome targets (universal access to modern energy,
increase global percentage of renewable energy, double
the improvement in energy efficiency) and two of which
are means of implementation targets (to promote
access to research, technology, and investments in
clean energy and to expand and upgrade energy
services for developing countries).
52 Indicator 7.1. 2 is the proportion of population with
primary reliance on clean fuels and technology, while
indicator 7.2.1 measures renewable energy share in the
total final energy consumption and indicator 7.a.1
measures international financial flows to developing
countries in support of clean energy research and
development and renewable energy production
(including in hybrid systems).
53 An exception is the SDG bonds, which are instruments
that clearly link the use of proceeds to the United
Nations Sustainable Development Goals (SDGs) through
a multiplicity of methods.
54 United Nations (2019).
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108
CH2. ENDNOTES
55 World Bank (2015).
56 See for instance, Zingales (2015).
57 The correlation is calculated through the Pearson
correlation coefficients to show the significance of the
correlation between GDP per capita and the IMF
Financial Development index components.
58 Krieger-Boden, Nunnenkamp and Görg (2016).
59 OECD and UNCDF (2020).
60 ESCAP, UNEP, and Greenwerk (2020).
61 UNFCCC (2016).
62 UNFCCC (2021).
63 ICMA (2020a)
64 London Stock Exchange (n.d.).
65 World Bank (2023).
66 CBI (2023).
67 CBI (2023).
68 Cheng, Ehlers , and Packer (2022).
69 Varez (2023).
70 Ahluwalia, and others (2022).
71 Cheng, Ehlers , and Packer (2022).
72 Ibid.
73 Mexico (2022, EUR 1.25 billion second issuance,
following the world’s first issuance of an SDG bond in
2020 by Mexico of EUR 735 million), Uzbekistan (2021,
$235 million SDG bond) and Benin (2021, EUR 500
million issuance) have issued SDG bonds, supported by
the United Nations Development Programme. SDG bond
proceeds feed into the federal budget and are
channelled into projects that support the Sustainable
Development Goals. Eligibility criteria and monitoring
standards are established by the United Nations
Development Programme.
74 Munthe (2023).
75 Available at
https://carbonpricingdashboard.worldbank.org/ ,
accessed on 1 March 2023
76 Available at https://gsfo.org/sustainable-finance-
regulations-platform, accessed on 29 March 2023.
77 Carbon pricing initiatives have been classified as
ETSs and carbon taxes according to how they operate
technically; local terminology may vary. Jurisdictions
that only mention carbon pricing in their NDCs are not
included.
78 Systems operating like a baseline-and-offsets
program, such as Australia Safeguard Mechanism, fall
outside the scope of the Carbon Pricing Dashboard.
79 World Bank (2023).
80 The High-Level Commission on Carbon Prices
concluded in 2017 that carbon prices needed to be at
the level of $40/metric tons of carbon dioxide (tCO2) to
$80/tCO2 in 2020 and reach $50/tCO2 to $100/tCO2 by
2030 to be on track to keep temperatures below 2°C—
the upper end of the limit agreed upon in the Paris
Agreement (2017 USD). Adjusting for inflation allows a
more direct comparison with current carbon prices—
prices would need to reach $61 to $122 by 2030 (in
2023 USD).
81 World Bank Treasury (2023).
82 Ibid.
83 Isgut and Taloiburi (2022).
84 Chamon and others (2022).
85 Ibid.
86 ESCAP (2022).
87 OECD (2021a).
88 Available at www.oecd.org/dac/financing-
sustainable-development/development-finance-
topics/climate-change.htm, accessed on 2 April 2023
89 OECD (2021b; 2022).
90 Mezzanine financing is a layer of financing that fills
the gap between senior debt and equity in a company. It
can be structured either as preferred stock or as
unsecured debt, and it provides investors with an option
to convert to equity interest. Mezzanine financing is
usually used to fund growth prospects, such as
acquisitions and expansion of the business. (Corporate
Finance Institute, 2023)
91 Available at www.oecd.org/dac/financing-
sustainable-development/development-finance-
topics/climate-change.htm, accessed in July 2023.
92 Climate Analytics (2021).
93 Issued by a government agency.
94 Tall and others (2021).
95 Lin and Hong (2021).
96 Murphy (2022).
97 MAS (2021).
98 OECD (2018).
99 Ibid.
100 GCF (2023).
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101 Available at
https://data.worldbank.org/indicator/SP.POP.TOTL,
accessed on 29 March 2023.
102 Available at www.thegef.org/projects-
operations/database, accessed on 3 March 2023.
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CH3. ENDNOTES
103 BOT (n.d.).
104 For example, according to the Commonwealth
Climate and Law Initiative (CCLI) and Climate
Governance Initiative (CGI) (2021), “Climate-related
disclosure standards have significant consequences for
boards. Directors have obligations to approve or attest
to the accuracy and completeness of disclosures made
in financial filings. Directors on audit committees will
likewise have additional responsibilities to engage in
testing and overseeing the robustness of the climate
scenario assumptions underpinning key aspects of the
audit process.”
105 Macroprudential policies are financial policies that
aim to ensure the stability of the financial system as a
whole in order to prevent substantial disruptions in
credit and other vital financial services necessary for
stable economic growth. The stability of the financial
system is at greater risk when financial vulnerabilities
are high, such as when institutions and investors have
high leverage and are overly reliant on uninsured short-
term funding, and interconnections are complex and
opaque. High vulnerabilities increase the likelihood that
a firm’s failure or other negative shock will cause
distress at other financial institutions because of direct
exposures and through fire sales, contagion, or other
negative externalities arising from the initial shock.
Macroprudential policies aim to reduce the financial
system’s sensitivity to shocks by limiting the buildup of
financial vulnerabilities (Yilla and Liang, 2020).
106 Microprudential supervision refers to the supervisory
role performed by central banks to monitor financial
institutions to ensure the stability and soundness of
practices by individual banks.
107 BOE (2019).
108 Carney (2015).
109 Ibid.
110 Green swans, or “climate black swans”, present many
features of typical black swans. Climate-related risks
typically fit fat-tailed distributions: both physical and
transition risks are characterized by deep uncertainty
and nonlinearity, their chances of occurrence are not
reflected in past data, and the possibility of extreme
values cannot be ruled out. In this context, traditional
approaches to risk management consisting of
extrapolating historical data and on assumptions of
normal distributions are largely irrelevant to assess
future climate related risks (Bolton, and others, 2020).
111 The bank-sovereign nexus refers to the fact that
many banks hold domestic sovereign debt, especially in
emerging economies, which can amplify
macroprudential risk. IMF research shows that an
increase in sovereign credit risk can adversely affect
banks’ balance sheets and credit supply especially in
countries with less well-capitalized banking systems.
Sovereign distress can also impact banks indirectly
through the nonfinancial corporate sector by
constraining their funding and reducing their capital
expenditure. Notably, the effects on banks and
corporates are strongly nonlinear in the size of the
sovereign distress (Deghi, and others, 2022).
112 Demekas and Grippa (2022).
113 FSB and NGFS (2022).
114 NGFS (2021b).
115 NGFS (2021a).
116 FSB (2022a).
117 The Greenhouse Gas Protocol Corporate Standard
classifies a company’s GHG emissions into three
scopes. Scope 1 emissions are direct emissions from
owned or controlled sources. These are usually the
easiest to measure. Scope 2 emissions refer to the
indirect emissions from the generation of purchased
energy. Scope 3 emissions refer to all indirect
emissions (not included in Scope 2) that occur in the
value chain of the reporting company, including both
upstream and downstream emissions. The latter is
usually the hardest to measure and can account for
more than 70 per cent of the carbon footprint
(Greenhouse Gas Protocol, 2019).
118 Miller and others (2021).
119 The TCFD is part of the Financial Stability Board
(FSB) in the Bank of International Settlements (BIS).
120 Asset owners refer to organizations that represent
the holders of long-term retirement savings, insurance,
and other assets such as pension funds, endowments,
family offices. Asset managers refer to those that plan,
acquire, deploy, and dispose of clients’ assets.
121 FSB (2022b).
122 FSB (2022b).
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123 According to one estimate by Statista (2021), there
were estimated to be 206,296 large companies
operating in Asia with a further 79,992 in Europe, 39,792
in North America, 15,606 in Latin America, 6,002 in
Africa, and 3,834 in Australia. (Estimated number of
large companies (250+ employees) worldwide from
2000 to 2021.
124 TCFD, available at www.fsb-tcfd.org/supporters,
accessed on 8 February 2023.
125 TNFD (2022).
126 GFANZ defines a net-zero transition plan as follows:
A net-zero transition plan is a set of goals, actions, and
accountability mechanisms to align an organization’s
business activities with a pathway to net-zero GHG
emissions that delivers real-economy emissions
reduction in line with achieving global net zero. For
GFANZ members, a transition plan should be consistent
with achieving net zero by 2050, at the latest, in line with
commitments and global efforts to limit warming to
1.5C, above pre-industrial levels, with low or no
overshoot. Financial institutions’ net-zero commitments
should cover at least the Scope 1 and Scope 2
emissions associated with clients or portfolio
companies. They should also cover Scope 3 emissions
associated with clients or portfolio companies in
sectors that are significant climate change contributors
or where company Scope 3 emissions are material and
can be incorporated based on data availability (GFANZ,
2022).
127 NGFS (2023).
128 WWF (2022).
129 Durrani, Volz, and Rosmin (2020).
130 Ibid.
131 BSP (2022).
132 MAS (2023).
133 Hussain, Tlaiye, and Rolando Marcelo (2020).
134 ASEAN (2023).
135 Sustainable Fitch (2023).
136 G20 Sustainable Finance Working Group (2022).
137 Durrani, Volz, and Rosmin (2020).
138 Ibid.
139 Ibid.
140 Ibid.
141 Philipova (2022).
142 Regulation Asia (2022).
143 WWF (2022).
144 Ibid.
145 Ibid.
146 Ibid.
147 Jason Norman Lee, Managing Director for Legal &
Regulatory at Temasek International in Singapore,
quoted in Regulation Asia (2022).
148 UNEP FI (2022).
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112
CH4. ENDNOTES
149 In May 2021, the Court of the Hague delivered a
landmark decision, ordering Shell to reduce its global
CO2 emissions by 45 per cent by 2030 (Milieudefensie v
Shell plc). Similar claims were filed in Germany in 2021
against the car manufacturers BMW, Mercedes Benz,
and Volkswagen. In the US, ExxonMobil, its chairman,
CEO, and other directors have been subject to several
securities and financial regulation claims, relating to
alleged failures to disclose climate risks properly
(Ramirez v ExxonMobil) (Page and Butland, 2022).
In February 2023, activist group ClientEarth sought to
bring a derivative action against Shell's directors for
their alleged failure to effectively address the risks of
climate change. The case was ground-breaking as the
first-ever climate litigation attempting derivative action
to establish personal liability for a company's directors
who allegedly failed to address the threat of climate
change. While the High Court dismissed this case in
May 2023, it nevertheless accepted that ClientEarth had
established a prima facie case. "Shell faces material
and foreseeable risks as a result of climate change
which have or could have a material effect on it."
According to legal firm Dentons (2023), ‘this finding will
not be lost on others seeking to bring ESG claims.”
150 Most banking regulators follow the
recommendations of the Basel Committee on Banking
Supervision, which defines capital adequacy ratios using
risk-weighted assets in the denominator. With riskier
assets having a larger weight, they require larger
increases in capital reserves compared to less risky
assets.
151 The capital stack of a project or entity refers to the
mix of various forms of capital in the capital structure,
that is ordered by who has the rights and in what order
the capital owner gets paid in terms of both profits and
income as well as in event of default. Common capital
forms include senior debt (usually the first to get paid
out such as collateral-backed loans, commercial bank
loans), junior debt (a form of second-tier subordinated
debt such as mezzanine debt) and common equity.
Concessional funding can thus be blended with private
commercial finance and used at different levels of the
capital stack.
152 Yamaguchi and Taqi (2023).
153 Accessed on 8 February 2023.
154 Accessed on 4 April 2023.
155 For more information, see
https://efdata.org/pages/methodology.
156 Accessed on 4 April 2023
157 For more information, see
https://efdata.org/pages/methodology.
158 IMF (2022).
159 Thinking Ahead Institute (2022).
160 Ibid.
161 Ibid.
162 Ibid.
163 Accessed on 4 April 2023.
164 Accessed on 6 April 2023
165 Available at https://statistics.world-exchanges.org/
and
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD,
accessed on 6 April 2023
166 UNEP FI (n.d.).
167 See www.fdimarkets.com
168 Ibid.
169 See https://e-
learning.unescap.org/thematicarea/detail?id=43
170 More information on this work can be found here:
www.unescap.org/our-work/trade-investment-
innovation/business-investment.
171 EIB (2022).
172 Available at https://oe.cd/development-climate,
accessed on 17 February 2023.
173 This analysis examined 13 active MDBs and DFIs in
the region – World Bank Group (WBG), Asian
Development Bank (ADB), Kreditanstalt für
Wiederaufbau (KfW), European Bank for Reconstruction
and Development (EBRD), Asian Infrastructure
Investment Bank (AIIB), European Investment Bank
(EIB), Islamic Development Bank (IsDB), Black Sea Trade
& Development Bank, Proparco, Council of Europe
Development Bank (CEB), Export-Import Bank of Korea,
FinnFund, Austrian Development Bank. For more
information on the methodology, please consult:
www.oecd.org/dac/financing-sustainable-
development/development-finance-
data/METHODOLOGICAL_NOTE.pdf. We note that
Development Finance Corporation (USA), British
International Investment (BII), Nederlandse
Financierings-Maatschappij voor Ontwikkelingslanden
N.V. (FMO, the Netherlands) and others are not included
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113
here and would increase the figures if included.
174 Available at https://oe.cd/development-climate,
accessed on 17 February 2023.
175 More information on the methodology is available at:
www.oecd.org/dac/financing-sustainable-
development/development-finance-
data/METHODOLOGICAL_NOTE.pdf.
176 Available at https://oe.cd/development-climate,
accessed on 17 February 2023.
177 Boosting (2022).
178 G20 Independent Expert Group (2023).
179 Ibid.
180 Available at
https://stats.oecd.org/Index.aspx?DataSetCode=DV_DC
D_MOBILISATION, accessed on 28 February 2022.
181 In June 2023 at the President Macron’s Summit for A
New Global Financing Pact, the World Bank announced a
‘toolkit’ on financing for disaster-affected countries,
including a pause on debt repayments.
182 Arbeleche (2022).
183 Boosting (2022).
184 Arbeleche (2022).
185 ADB (2023a).
186 Boosting (2022).
187 Ibid.
188 G20 Independent Expert Group (2023).
189 Ibid.
190 As Ravi Menon, Managing Director of the Monetary
Authority of Singapore said, “2020 to 2030 is the critical
decade for climate action. Net zero commitments for
2050 are fine and good but a credible trajectory towards
that goal will be substantially determined by 2030. While
a growing number of countries and companies have set
net-zero targets, very few have credible plans to meet
them. The problem is that countries and companies
alike are pledging to hit targets in almost three decades'
time without committing to action for which they can be
held accountable in the short term. To achieve net-zero
by 2050, the necessary policies and the associated
investments must be made between now and 2030,”
(Menon, 2022).
191 The Asian Banker (2021).
192 IEA (2023).
193 IEA (2021).
194 GFANZ (2023).
195 IRENA and CPI (2023).
196 Hard to Abate (HTA) sectors are sectors in which it is
difficult to move away from fossil fuel energy uses and
in which it is hard to directly electrify using renewable
power. These include major industries that rely on fossil
fuels for high-temperature energy or for chemical
feedstocks and include steel, cement, iron, chemicals
and building materials which together are responsible
for approximately 30 per cent of the world’s annual CO2
emissions. Another HTA sector is heavy duty
transportation, such as trucking and shipping, which is
harder to electrify than passenger transport because it
would require enormous batteries that add to vehicle
weight and take a long time to charge. (Nault, 2022).
197 Andretich and others (2022).
198 Green Hydrogen Organisation (2022).
199 United Nations (2022).
200 CDP Disclosure Insight Action (2022).
201 United Nation (2022).
202 IPCC (2022a).
203 The IPCC report (IPCC, 2022a) additionally states
“tracked financial flows fall short of the levels needed to
achieve mitigation goals across all sectors and regions.
The challenge of closing gaps is largest in developing
countries as a whole. Scaling up mitigation financial
flows can be supported by clear policy choices and
signals from governments and the international
community (high confidence). Accelerated international
financial cooperation is a critical enabler of low-GHG
and just transitions and can address inequities in
access to finance and the costs of, and vulnerability to,
the impacts of climate change (high confidence). {15.2,
15.3, 15.4,15.5, 15.6}”
204 United Nations (n.d.).
205 United Nations (2022).
206 The Rockefeller Foundation (2023).
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114
CH5. ENDNOTES
207 Termeer, Dewulf and Breeman (2012).
208 ADB (n.d.).
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115
ANNEXES ENDNOTES
209 Available at www.iges.or.jp/en/pub/iges-indc-ndc-
database/en, accessed in October 2022.
210 For some countries the sum of mitigation and
adaptation financing needs does not add to the total as
total financing needs are based on different studies and
methodology. In some cases, only the country total
financing needs is available.
211 Accessed on 26 February 2023.
212 Ibid.
213 Available at www.thegef.org/projects-
operations/database, accessed on 3 March 2023.
214 Available at
https://carbonpricingdashboard.worldbank.org/,
accessed on 1 March 2023.
215 Available at https://gsfo.org/sustainable-finance-
regulations-platform, accessed on 29 March 2023.difficulty
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