The Asia-Pacific region is facing a significant funding shortfall of at least $800 billion in climate financing, necessitating a coordinated approach from governments, central banks, financial supervisors, and multilateral institutions. Strategies include phasing out fossil-fuel subsidies, expanding carbon pricing, bridging data gaps, and promoting innovative financing through public-private partnerships.
Climate finance is urgent due to the rising global temperatures and the alarmingly slow progress in halving greenhouse gas emissions by 2030. Asia, home to several of the largest emitters, is particularly vulnerable to climate change due to its high population density and geography.
Asia’s role is pivotal as it contributes about two-thirds of global growth last year and will again in 2024. However, its heavy reliance on burning coal for energy means it contributes more than half of harmful global greenhouse gas emissions. Asia’s economies recognize the direct impact of climate hazards on lives and livelihoods and have made deeper commitments under the 2015 Paris Agreement.
The funding gap is significant, with emerging market and developing economies receiving only $333 billion, mostly from sustainable debt instruments like green bonds, and public sources contributing more than half. China leads in attracting climate finance, promoting renewable energy adoption, and collaborating with the EU to develop sustainable finance frameworks like the Common Ground Taxonomy and China Green Bond Principles.
Pacific island countries and small economies face challenges in accessing international capital markets and obtaining financing via global climate funds due to limited capacity and public investment management. Larger countries may find green bonds as costly as conventional securities due to investors’ less trust in green characteristics in Asia’s sustainable debt instruments. A survey of 19 Asian countries revealed gaps in data, disclosures, and taxonomies, exacerbated by inconsistent national climate policies that can promote fossil fuel subsidies.
Greenwashing risks challenge environmental claims, while geoeconomic fragmentation threatens collective action against climate change. Coordinating agencies and global collaboration is crucial for unlocking climate finance.
Asia’s governments can help by enhancing data, taxonomies, and disclosures, phasing out fossil fuel subsidies, and expanding carbon pricing. This would generate revenue for sustainable public investment, boost green technology, jobs, and growth, and support vulnerable households. Strengthening macroeconomic and public investment management can reduce risk premiums and funding costs, drive economic growth, and attract private capital.
Central banks and financial supervisors should promote global standards for transparent disclosures, strengthen climate risk analyses, and incorporate climate-related financial risks into prudential frameworks to enhance financial stability. Collaborating with multilateral standard setters is crucial for improving ESG score ratings and fostering trust.
The International Monetary Fund (IMF) is working with member countries to detail climate-related economic risks and policies, strengthen data and statistics, and catalyze financing from other sources. Cooperation among multilateral institutions is essential to achieve a balanced allocation between mitigation and adaptation lending.
