Private Sector’s Critical Role in Combating Climate Change in Asia and the Pacific

ADB is bringing new resources and new ideas to the fight against climate change. Through its private sector operations, ADB plays a major role in financing path-breaking private sector projects on climate.

The climate crisis is threatening recent global development gains and progress. As Asia and the Pacific’s climate bank, ADB is bringing new resources and new ideas to the fight against climate change. Through its private sector operations, ADB plays a major role in financing path-breaking private sector projects on climate. Better business opportunities for the region’s private sector are a key engine of growth and prosperity.

"A healthy private sector is the key to meeting Sustainable Development Goals. Our involvement in a transaction gives projects additional credibility with host governments, and with private investors and lenders. We structure bankable, innovative projects to help create a clean, inclusive, and prosperous future for our region’s economies,” says Suzanne Gaboury, ADB's Director General for Private Sector Operations.

ADB’s climate investments support core areas of agribusiness, renewable energy and infrastructure, and social sectors. Cofinancing and startup investments are also in full gear to promote climate solutions in the region.

Teams from ADB's private sector operations share project highlights and underscore their priorities in supporting climate action in the region.

Renewable energy and climate-smart infrastructure

Climate finance is important for ADB and it's part of Strategy 2030. As of March 2021, approximately about 25% of ADB private sector's outstanding portfolio by number, roughly about $2.5 billion, is committed to clean energy projects. And we're seeking to do a lot more.

The three things I want to highlight that we are very focused on are:

1. More upstream work to provide governments the right capacity to develop more renewable projects.
2. Markets that most commercial banks are not ready to lend to, specifically what we call fragile and conflict-affected states as well as small island developing states. So, markets like Cambodia and Pacific islands like Tonga, are our key focus areas.
3. There's a lot of focus on renewable energy but ADB's job is to look at markets and sectors that others are not looking at. So whether it's a new technology in renewable energy like hydrogen or waste-to-energy, and other ways to fight climate change like electric mobility these are areas we're exploring. 

All across the region, we are seeing renewed commitments from the governments to facilitate the private sector to play a far more vital role in addressing climate change. We at the ADB's private sector operations department are actually pushing the climate finance agenda in multiple ways in the region. And in terms of new sectors, we are seeing an increasing call for support in relatively newer areas such as storage and electric mobility.

Adherence to Paris Agreement is increasingly assuming center stage in our private sector infrastructure support in the region. We are actually using alignment with the Paris Agreement as an important part of our initial screening process. We do sincerely expect the topography of the energy sector in the region to dramatically change in the next five to 10 years. Energy transition, in various forms and manners, has certainly picked up steam in this region.

Facilitation of blended financing for green growth

The private sector has an enormous role in providing solutions to climate change. In fact, projects financed by blended finance programs are on track to achieve emission reduction of over 18 million tons of carbon each year. This is roughly equivalent to 5.5 million cars off the road every year. We've also helped create 35,000 new jobs and increased economic opportunities for women and girls through ADB's climate-related projects.

ADB's blended finance projects have always had a strong focus on climate change and we see enormous potential for growth. There's a lot of innovation and thinking in private sector climate solutions across Asia and the Pacific and we're grateful to be part of this. Certainty is critical for the private sector to operate efficiently and part of ADB's role is to support markets to encourage stable, prosperous, inclusive, and resilient growth. Our focus is on finding new ways to unlock markets and we're ultimately aiming to increase the pace, scale, and ambition of climate solutions. There's a lot of work to be done and it's an exciting space to work in given the energy transition across the region. 

Sustainable agribusiness

The global food system accounts for 34% of greenhouse gas emissions. At the same time, agriculture is the most affected sector by climate change. Climate change is affecting crop yields and making small farmers more vulnerable. So it is not a sector that can be ignored when talking about climate change. $350 billion of investments are needed annually to transform the food and agriculture system to become greener and more resilient.

In terms of milestone investments by ADB’s private sector operations in this space:

• In 2016, we made our first climate mitigation investment with Saikexing, a dairy farm business in the People’s Republic of China where we helped the company invest in biogas digesters to convert animal waste to energy.
• In 2017, we made our first climate adaptation investment with Hasfarm, a company growing flowers and vegetables under high-tech greenhouses in Viet Nam where 500 hectares of land were made more climate-resilient.

So far, about 30% of our agribusiness projects have included climate finance components. We plan to increase this proportion to 50% by 2025 and 75% by 2030. We hope to bring it to over $1 billion of climate finance commitments for agribusiness over the decade up to 2030.

Climate-financing solutions

Financial institutions provide ADB with the ability to fund smaller green infrastructure projects.  Additionally, financial institutions provide a platform to reach a number of sectors and borrowers who may be too small to fund directly. ADB has provided long-term funding for green infrastructure projects in transport. In the People's Republic of China for instance in 2013, we put together a $275 million loan program for financial leasing companies to fund clean buses. The leasing allows the bus operators to tap additional financing at longer tenors, which is not readily available through banks. Financial leasing companies themselves need long-term funding. Many of these companies are constrained by their limited access to the capital markets and to long-term bank loans. ADB provided loans with tenors of up to eight years to three leasing companies to support the leasing of buses running on cleaner fuel and hybrid buses with fuel savings rates of more than 10% and electric buses. We also provided a technical assistance grant of over $2 million, which was financed by the Global Environmental Facility. The technical assistance program helped strengthen the capacity of the bus operators in improving the selection, management, and operation of green buses, and the local government in terms of measuring greenhouse gas emissions.

We are working to green a number of sectors outside of transport and green infrastructure projects.  For instance, ADB is providing long-tenor funding for green mortgages and strengthening the ecosystem of green housing in India. We're also looking at ways to help small and medium-sized enterprises to decarbonize in South Asia. We also believe that women can be central to climate finance solutions. It's therefore critical to leverage their knowledge, capacities, and skills towards adapting and mitigating climate change. And we'll do so through a variety of different initiatives including through our newest program, the Women's Finance Exchange. We will partner with financial institutions in the private sector to expand women's roles as economic movers and who can also enable climate-responsive innovations.

Early-stage investment for climate action

Innovative business models will play a powerful role in addressing Asia Pacific's climate-related development challenges. That's why the Asian Development Bank established ADB Ventures. ADB Ventures helps promising early-stage innovators operating across our region scale up their impact in emerging markets. The solutions we invest in aim to conserve energy, reduce waste, shrink agriculture’s carbon footprint, and make people, communities, and industries more resilient to the impacts of climate change.

ADB Ventures announced its first investments in March 2021. Our investments are done with cofinancing support from the governments of Finland and the Republic of Korea, the Climate Investment Fund’s Clean Technology Fund Program, and the Nordic Development Fund. ADB Ventures is just getting started. We intend to make more than 15 investments from our $60 million equity fund over the next several years. We will continue to raise new funds from the public sector and private sector partners, employing a combination of early and growth-stage equity, debt, and grant financing to support ADB's climate goals. Our vision is to become a leading regional impact technology platform by 2030, crowding in more than $1 billion risk-capital towards the Sustainable Development Goals.

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