Stephanie von Friedeburg is senior vice president, operations, at International Finance Corp. Alfonso Garcia Mora is IFC vice president for Asia and Pacific.
The droughts and monsoon floods that have pummeled Asia in recent years are a clear indication that the impacts of climate change are becoming more frequent and intense.
The cost of not addressing climate change sooner is already immense. If steps are not taken immediately to stop adding carbon dioxide to the atmosphere by 2050, we will lock in an even more harrowing future.
For example, as oceans and coral reefs are decimated, the more than 3 billion people who rely on fishing for their livelihoods, many of them in Asia and the Pacific, will see their livelihoods severely impacted.
Estimates suggest a global impact on gross domestic product of up to 13% relative to a prior trend baseline if we only implement the policies that we currently have. These losses would be particularly devastating for tropical regions.
As we head toward a critical U.N. climate summit in Glasgow this November, we need to look at 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.
Fish swim over dead coral caused by changing conditions such as rising seawater temperature off the island of Embudu, Maldives, in December 2019. © Getty Images The transition away from fossil fuels and carbon-intensive production and consumption will involve a historic shift toward emission-neutral alternatives in almost all sectors of the economy, requiring the collaborative engagement of both the public and private sectors.
With its new Climate Change Action Plan, the World Bank Group is boosting efforts to tackle both climate and development issues. In the process, we will look at maximizing the development opportunities that this decarbonization entails and will bring in private sector investments.
Greater focus will be given to decarbonizing key sectors like energy, agriculture, cities, transport and manufacturing, which account for over 90% of global greenhouse gas emissions.
Governments will not be able to finance that transition alone, as increasing fiscal constraints deter long-term capital investments. Getting to net-zero emissions is impossible without private sector leadership. For banks and investors, this could be the investment opportunity of the century.
The International Finance Corp. (IFC) estimates that Asia is home to over 80% of potential climate-smart investments worth at least $29 trillion between now and 2030, putting the region at the center of an emerging constellation of investment opportunities in everything from green buildings and electric vehicles to climate-smart agriculture.
The potential scale of investment should not be missed, with new instruments that will help to achieve this goal. Nascent products like sustainability-linked bonds, blue bonds and green loans mean that more opportunities to fight climate change are in sight.
These types of bonds can be linked to climate-specific targets that lower or raise rates, and can include penalties if the issuer fails to meet certain green benchmarks. This makes them a very strong instrument for sustainability investments and bond issuances, creating the right incentives on the issuers and providing a new asset class for investors interested in participating in the climate finance agenda.
While no single financing instrument can provide a viable long-term solution to bring in private sector investments, blended finance is also growing as a powerful tool that uses small amounts of concessional donor funds to attract private capital flows for sustainable development in emerging markets. This helps catalyze private financing that would not otherwise be available, supporting the creation of new markets.
The speed at which markets and the private sector fully adopt the climate objective and mobilize the necessary capital will depend, in part, on the coherence and credibility of climate policies and regulatory frameworks, as well as the standardization and transparency of 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 are in line with their climate philosophies.
Currently, there are more than 200 frameworks, standards and other forms of guidance on sustainability reporting and climate-related disclosures across 40 countries. This lack of consistent ESG reporting is undercutting market growth. The industry needs institutions with global influence and knowledge that can lead the convergence of these standards.
Building off the success of credible international standards like the Equator Principles, Green Bond Principles, the 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 building the green asset pipelines to be supported by these bonds.
In the Philippines, for example, IFC has invested $615 million in green and social bonds, having participated in the first issuances of these instruments in the country back in 2017.
The growth in this market, which has now seen about $5.4 billion in green, social and sustainable bonds issued, only underscores the demand for green investment. This scaling-up would not have been possible without all of the upstream work to develop the market in the Philippines.
What we need now is a global movement, combining government efforts to establish good climate policies and regulations with private sector financing and innovation. In addition, international financial institutions have an important role to play in coordinating and scaling up solutions.
The time for action is now. Let us seize the moment and pursue a green recovery from the COVID-19 pandemic that stimulates economies, creates jobs and ultimately helps countries rebuild better.