Regional: Enabling Green Recovery in Central and West Asia through a Sustainable Financing Program

Finance / Infrastructure finance and investment funds

Coronavirus disease impact and constrained fiscal bandwidth. Sovereign institutions in the CWRD region dominate the key economic sectors and control a significant share of public resources that will be central to developing an effective COVID-19 green economic recovery approach for the region. The immediate consequences of COVID-19 have been rising public debt levels, increased sovereign risk, rating downgrades, and capital outflow, all which have been a cause of extreme concern among ADB DMCs. With more than 90% of Asia's overall infrastructure investment being provided by the public sector, the limited tax revenues, drop in overseas remittances, slower economic growth, and crisis relief packages have created a possible threat for reversal of green economic development policy mandates in favor of short-term revenue recovery measures and are further constraining public investments.

Enhanced role of public sector in green recovery. It is important that the private sector supplements the public sector's role in recovery strategies by scoping and identifying opportunities associated with climate change benefits. As DMCs contemplate and strategize the revitalization and the restart of their economies, it is critical that the recovery strategies they adopt do not neutralize past efforts toward creating a sustainable economy (footnote 11) and appropriately diversify their sources of financing to meet their nationally determined contributions (NDCs).

Limited uptake of sustainability-labeled financial securities. A main challenge limiting the growth of the sustainability-labeled financial securities market is the lack of supply of securities with good credit ratings owing to high transaction costs, lack of effective tools to validate projects, and ineffective risk mitigation tools. DMC governments are further constrained because of limited fiscal resources, sub-investment-grade sovereign ratings, small project sizes, and lack of asset securitization mechanisms. Sustainability-labeled financial securities like green bonds (footnote 11) complement the DMC governments' efforts in mobilizing private capital for meeting their NDCs through market-based approaches.

Weak institutional implementation mechanisms for green financing. Although work has been initiated on greening of the financial systems by many DMCs in the CWRD region, to accelerate the adoption of green financing guidelines and environmental, social, and governance (ESG) frameworks, the domestic financial institutions still need to design new financial products, develop internal systems and controls, educate relevant stakeholders (including staff), and identify target industries and technologies for requisite financing.

Institutional capacity of DMCs strengthened and sustainable economic growth facilitated

Capacity of CWRD DMCs for sustainable financing enhanced

1. Sustainable financing strategy for sovereign institutions developed

2. Institutional capability of sovereign institutions for sustainable financing enhanced

3. Knowledge support to sovereign institutions for mainstreaming of international sustainable financing standards and practices provided

4. Capacity for development of a national blended sustainable financing facility enhanced