Stephanie von Friedeburg is Senior Vice President of Operations at International Finance Corp. Alfonso Garcia Mora is IFC’s vice president for Asia and the Pacific.
The droughts and monsoon floods that have hit Asia in recent years are a clear indication that the impacts of climate change are increasingly frequent and intense.
The cost of not tackling climate change sooner is already immense. If steps are not taken immediately to stop the addition of carbon dioxide to the atmosphere by 2050, we will lock in on an even more painful future.
For example, as oceans and coral reefs are depleted, the more than 3 billion people who depend on fishing for their livelihoods, many of them in Asia and the Pacific, will see their livelihoods severely affected.
Estimates suggest an overall gross domestic product impact of up to 13% from a previous baseline trend if we only implement the policies we currently have. These losses would be particularly devastating for the tropics.
As we head to a critical United Nations climate summit in Glasgow in November, we must view the transition to net zero carbon emissions as an unprecedented opportunity to clean up our economies, protect communities from the worst possible scenarios. and create millions of jobs in the process, including for the poorest groups.
The transition from fossil fuels and carbon-intensive production and consumption will involve a historic shift towards emission-neutral alternatives in almost all sectors of the economy, requiring the collaborative engagement of the public and private sectors.
With its new Climate Change Action Plan, the World Bank Group is stepping up efforts to tackle climate and development issues. In the process, we will seek to maximize the development opportunities that this decarbonization implies and bring private sector investments.
More attention will be paid to the decarbonization of key sectors such as energy, agriculture, cities, transport and manufacturing, which account for over 90% of global greenhouse gas emissions.
Governments will not be able to fund this transition on their own, as growing budget constraints discourage long-term capital investment. It is impossible to achieve net zero emissions without the leadership of the private sector. For banks and investors, this could be the investment opportunity of the century.
The International Finance Corp. (IFC) estimates that Asia is home to more than 80% of potential climate-smart investments worth at least $ 29 trillion by 2030, placing the region at the center of an emerging constellation of investment opportunities in all areas, from green buildings and electric vehicles to climate-smart agriculture.
The potential scale of investments should not be missed, with new instruments that will help achieve this goal. Nascent products like sustainability bonds, blue bonds and green loans mean that more opportunities to tackle climate change are in sight.
These types of bonds can be tied to specific climate targets that lower or raise rates, and can include penalties if the issuer does not meet certain green benchmarks. This makes it a very powerful instrument for sustainable investments and bond issuance, creating the right incentives for issuers and offering a new asset class to investors interested in participating in the climate finance program.
While no single financing instrument can provide a viable long-term solution to attracting private sector investment, blended finance is also growing as a powerful tool that uses small amounts of concessional donor funds to attract inflows of funds. private capital for sustainable development in emerging markets. This helps catalyze private finance that would not otherwise be available, supporting the creation of new markets.
The speed at which markets and the private sector fully embrace the climate goal and raise the necessary capital will depend, in part, on the consistency and credibility of climate policies and regulatory frameworks, as well as on standardization and transparency. reporting.
We need clear and consistent taxonomies that define sound environmental, social and governance, or ESG, practices to prevent impact washing. This gives investors a fair opportunity to select projects that conform to their climate philosophy.
Currently, there are over 200 frameworks, standards and other forms of guidance on sustainability reporting and climate-related disclosures in 40 countries. This lack of consistent ESG reporting is hurting market growth. Industry needs institutions with global influence and knowledge that can lead to the convergence of these standards.
Building on the success of credible international standards such as the Equator Principles, Green Bond Principles, upcoming Blue Bond Guidelines and EDGE Green Building Certification, IFC is trying to help increase the size of the market by working with regulators, setting standards and supporting issuers on the structuring of these investment instruments and on the construction of the green asset pipelines that will be supported by these bonds.
In the Philippines, for example, IFC invested $ 615 million in green and social bonds, having participated in the first issues of these instruments in the country in 2017.
The growth of this market, which has now seen around $ 5.4 billion in green, social and sustainable bonds issued, only underscores the demand for green investments. This rise in power would not have been possible without all the upstream work to develop the market in the Philippines.
What we need now is a global movement, combining the efforts of governments to establish good climate policies and regulations with private sector finance and innovation. In addition, international financial institutions have an important role to play in coordinating and scaling up solutions.
The time to act is now. Letâs seize the opportunity and pursue a green recovery from the COVID-19 pandemic that is boosting economies, creating jobs and ultimately helping countries rebuild better.