Statement at Asia-Pacific Climate Action: Making private financial flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development for the implementation of the Paris Agreement and the 2030 Agenda
Delivered at Asia-Pacific Climate Action: Making private financial flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development for the implementation of the Paris Agreement and the 2030 Agenda
Ladies and Gentlemen,
Developing countries in Asia and the Pacific are historically the least responsible for greenhouse gas emissions that result in climate change, but are most vulnerable to its environmental, economic and social impacts.
Responding to this challenge will require significant investments. Developing Asia alone needs an estimated US$3.6 billion per annum up to 2030 to transition toward net zero emissions and increased resilience as required by the Paris Agreement.
But low-income countries have huge spending needs and scarce resources and these requirements are likely to exceed the fiscal space available in most countries.
Green bonds represent a promising new tool to increase the intermediation of global private capital towards climate-resilient investment opportunities in the region. In 2016, globally, $7 trillion were raised through debt capital markets, of which only a negligible portion was ‘green’.
Yet, most climate-vulnerable, Least-Developed Countries (LDCs) or Small Island Developing States (SIDSs) in the region cannot independently raise finance through this channel due to their low credit quality and perceived risks, small size, underdeveloped local capital markets, gaps in capacity and knowledge to identify suitable project pipeline or to create suitable instruments. Instead, they rely mainly on local bank lending, fiscal policy instruments, development co-operation or climate grants to transition to LCCR development. This limits the potential size of their investments, in some cases displaces social spending, and uses up valuable grant resources in an inefficient way, namely without leveraging additional funding.
Enabling vulnerable countries to gain access to the international capital markets to finance the green transition could be one of the most effective ways to finance climate action. Every dollar will leverage many more. This can also provide a golden opportunity for the region to deepen its financial system and reorient it towards new growth opportunities.
Several countries in the Asia-Pacific region are already leading the way. China was the largest issuer of green bonds in the world, but Japan, India and South Korea all showed upward momentum. This bodes well for the acceptance of green bonds as a credible alternative to previous forms of funding for infrastructure projects.
ESCAP has just released a new report. Allow me to highlight a few of the main recommendations.
First, it will be important to facilitate the emergence of a pipeline of specific projects that can be financed through green finance instruments. In a world awash with capital, it is paradoxical that the complexity of finding investment opportunities remains a stumbling block, as well as the relatively high costs associated with such a discovery. This can deter global investors from considering investment opportunities in the target countries. By facilitating the emergence of such pipeline, the region will be better equipped with a credible investment proposition for global private capital flows.
Second, there is a need to supplement the emergence of green projects with a grant facility to make up for the capital markets’ shortcomings in the target countries. Many private borrowers risk foregoing the opportunity of raising funds through international bonds or loans, while relying on comparatively scarcer bank loans, given the additional burden put on them by international guidelines. Through a targeted grant facility, the region can solve many of these shortcomings and support the emergence of a rich pipeline of new bond issues, while reinforcing the microstructure of its local capital markets, thus capitalizing on such development to create a positive feedback loop for longer term economic and social growth.
Third, it is necessary to foster the acceptance of projects from the target countries by the global investment community, and in particular the global green funds. With adequate marketing directed at the global financial community, the region can increase its impact on the global financial community and reduce the intangible barriers that may remain in the minds of global investors by pooling resources by adopting a unified approach.
Finally, the foundations can be laid for the emergence of new forms of financing to create increased funding capacity in the region, using some proven techniques, such as securitization.
The region should now consider developing a clear Regional Climate Action Agenda for all stakeholders that unifies the region’s climate ambitions with making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.