Green finance for sustainable investment

To place the Asian economies onto a sustainable development pathway requires an unprecedented shift in investment away from industries relying intensively on greenhouse gases, fossil fuels, and natural resources toward more resource-efficient technologies and business models. The finance sector will have to play a central role in this green transformation. Important aspects of green finance are sustainable investment and banking, where investment and lending decisions are taken based on environmental screening and risk assessment to meet sustainability standards, as well as insurance services that cover environmental and climate risk.

Against the backdrop of climate change vulnerability and the need for a reduction of carbon emissions, huge investments in green and climate-resilient infrastructure are needed across the region. The Asian Development Bank (ADB) has assessed the infrastructure gap in developing Asia to amount to US$26.2 trillion between 2016 and 2030 or US$1.7 trillion annually (ADB 2017). Of the US$26.2 trillion that need to be invested by ADB’s 45 developing member countries, US$3.6 trillion is specifically required for climate change mitigation and adaption costs—56% of the investment is needed for power, 32% for transportation, 9% for telecommunication, and 3% for sanitation. For Southeast Asia alone, the ASEAN Investment Report 2015 estimates that US$110 billion a year will be needed for infrastructure investment in power, transport, information and communication technology, and water and sanitation in the Association of Southeast Asian Nations (ASEAN) region through 2025 (ASEAN Secretariat and UNCTAD 2015).

All of this investment will have to be sensitive to environmental, climate, and associated policy risks. Funds for this investment will need to come from both the private and public sector, including domestic and international sources. The financing of sustainable infrastructure requires new approaches for mobilizing and intermediating long-term finance in the region. Integrating environmental and social considerations into lending decisions and …continue reading