Asian Development Bank must live up to its Pledge.
Oxfam recently published a report titled, ‘Climate finance in Asia: Assessing the state of climate finance in one of the world’s most climate vulnerable regions.’ It reveals that the Asian Development Bank (ADB) is the largest single multilateral provider of climate finance to Asia, committing $24.6 bn between 2013–2020, or an annual average of $3.1 bn. However, the bank’s climate portfolio is overwhelmingly dominated by debt instruments including in financing for adaptation to deal with climate impacts.
The ADB has positioned itself as Asia and the Pacific’s Climate Bank. In 2018, the bank set the ambition to mobilize $80 billion for climate financing from 2019–2030 to its developing member countries. In 2021, it raised the pledge to $100 billion and has marked $34 billion for adaptation.
A recent statement by the Bank, COP27 and the Importance of Climate Change Adaptation to Asia and the Pacific, highlights the need to scale up climate adaptation efforts and investments in Asia. ADB’s increased focus on adaptation is a welcome step but it needs to walk the talk.
As highlighted in Oxfam’s report, ADB uses a range of financial instruments including concessional and non-concessional lending, grants, and equity in its climate financing. Non-concessional debt instruments dominate the portfolio, constituting 82% ($20.3 bn). Concessional debt instruments make up just 12% in contrast ($2.9 bn). 3% of the ADB’s climate finance portfolio is delivered in grant form ($0.7 bn). The remaining 3% is delivered through non-concessional equity investments ($0.8 bn). Of the total $24.6 bn mobilized by the ADB between 2013 and 2020, $17.6bn can be traced back to developed country contributions. The adaptation component of that amount is $3.965bn. However, Oxfam calculated that only $0.787bn can be considered grant equivalent adaptation financing.
While the ADB has indicated a commitment towards climate adaptation, the financing mechanism of choice continues to be loans. In October 2022, it approved $1.5bn loan for Pakistan following the devastating floods earlier in the year. Also in the same month, the bank approved 250 million financing to strengthen climate and disaster resilience in Bangladesh which contains only 4 million in grants.
As climate change impacts escalate, the need to deliver grant based and scaled up adaptation has never been more important. Disappointingly, over the period 2013–2020, of the total $113 billion reported climate finance pledged to Asia, only a third is directed to adaptation and only 18 billion is estimated to be grant equivalent adaptation financing. Adaptation is vital for frontline communities to deal with the climate risks they face. Frontline communities require targeted grant-based finance that caters to their needs. Yet we see a clear bias from the providers of climate finance towards loans.
Adaptation finance faces systemic barriers which can be explained by the fact that the providers are in the lookout for the payback of their investment. In contrast, investment in adaptation doesn’t provide immediate economic returns and requires prioritization of grant funding.
ADB has a critical role in addressing the adaptation finance gap in Asia as part of its commitment to enable developing member countries achieve their economic and social objectives in the face of climate crisis. But it can’t achieve its objectives when countries battered by the climate crisis are further pushed into debt distress.
The ADB needs to urgently halt funding for fossil fuel expansion which it is continuing to support in the gas sector despite committing to end coal financing. It should also place far more attention in addressing the systemic crises of climate change and cancel unfair debts to its member states.
As exemplified in the Oxfam report, ADB over reports its climate funding. It must put in place robust accountability measures to overcome its transparency shortfalls and encourage other MDBs to do so.
The ADB needs to invest in technical capacity of climate vulnerable countries in better assessing their adaptation needs and identifying the investment needs and gaps. We need a structural change in the way things work. Furthermore, the ADB should uphold community participation in planning, design, and implementation of climate change adaptation projects it funds so that community concerns are prioritized.
ADB’s climate change commitment needs to be better aligned to Paris Agreement’s goals of not only limiting temperature rise to 1.5C but also for building climate resilience.
This blog was co-authored by staff members of the Oxfam in Asia Regional Platform, Myrah Nerine Butt, Policy Engagement Advisor and Sunil Acharya, Regional Policy and Campaigns Coordinator.
