This is the first of a series of interviews in the run up to COP28 in Dubai, beginning November 30.
Getting a “better grip” on the “fragmented climate finance architecture” should be front and centre of discussions ahead of, during and after COP28, the international climate conference that will take place in Dubai this autumn, says Warren Evans, senior climate envoy at the Asian Development Bank (ADB).
Mr Evans, who spoke to The Banker via Zoom from Bangkok, says getting a grip means solving the perennial problem of how to scale up climate finance and increase “transparency around where the money is coming from”.
Agreement from politicians at COP28 on “fast tracking the energy transition and slashing emissions quickly is critical” to drive momentum in the banking sector, says Mr Evans, although he is fairly pessimistic about the chances of this happening in Dubai.
While he does not expect any major steps to be taken to address the “fragmented nature” of climate finance at this year’s COP, Mr Evans is hopeful that “we can get an initial cohesive and coherent dialogue around how we use climate finance, how to blend it, to try to reduce the fragmentation and improve the efficiency and effectiveness of the funding the world has”.
An important contribution to scaling up climate finance was the ADB’s decision at the beginning of October to update its capital adequacy framework, unlocking $100bn in new funding capacity over the next decade to address climate, environmental and development challenges in Asia and the Pacific. The reform is designed to increase financing, while ensuring the ADB maintains its AAA credit rating.
A new approach to mobilising additional climate finance
Mr Evans describes the ADB’s Innovative Finance Facility for Climate in Asia and the Pacific (IF-CAP) as “a new approach to mobilising additional climate finance by using guarantees from donors to carve out part of [its] existing sovereign portfolio” for climate investments.
“For every dollar, guarantees will leverage about $4 to $5 of climate finance,” he says. The bank’s immediate target is $3bn in guarantees, which should provide about $12bn to $15bn in climate finance for mitigation and adaptation over a five-year investment period, starting in the second quarter of 2024.
Combined, Mr Evans insists the capital adequacy framework reform and the IF-CAP are a “big deal”: “They will provide a level of comfort to meet the demands of our member countries over the coming years given the increase in frequency and intensity of climate events.” This means funding decarbonisation and boosting resilience to extreme weather events like storm surges.
The days of focusing solely on financing mitigation measures, like increasing renewable energy technologies, are long gone, Mr Evan says. Today, the emphasis has to be on helping countries adapt to the worsening impacts of climate change. Based on current projections, the climate-finance breakdown at the ADB is approximately 60% for mitigation and 40% for adaptation, he says.
But investing in resilience is a “big challenge” and generating the concessional and grant funding required to meet it “is a work in progress”, says Mr Evans, who expects it to be a big part of political discussions at COP28.
Financing the low-carbon transition can be managed with funds that are already available, continues Mr Evans. “Much of what countries will do on adaptation is a public good, it is important for a country’s economic development and the wellbeing of the poorest, but frequently it will not generate a revenue stream,” he says.
The ADB is in discussions with donor countries, philanthropies, civil society organisations, academia and others to discuss solutions to this dilemma. Mr Evans singles out two focus areas.
The first is attracting attention to “nature-based solutions, which can improve resilience to climate impacts, sequester carbon, generate biodiversity benefits and ecosystem services, and, in some cases, provide opportunities for ecotourism. There is lots of interest from some major sovereign funds in this area, hopefully with some significant concessional finance,” says Mr Evans.
Climate finance solutions that better protect women
The second area of adaptation finance garnering particular attention is women and high temperatures. A study published in July 2023 by the US-based Adrienne Arsht–Rockefeller Foundation Resilience Center found the impacts of extreme heat, largely driven by climate change, are disproportionately harmful and costly to women.
“We are looking at potentially innovative ways to finance solutions to better protect women from these impacts, like micro-insurance and cooling systems at a city level,” says Mr Evans. Micro-insurance schemes pay women so they do not have to work when temperatures get too high.
All multilateral development banks are under pressure to reform to better respond to the problems facing the world. Mr Evans says he welcomes this demand for change and insists multinational development banks are responding. “I’d love to see the same changes from sovereign funds, the bigger insurance companies and pension funds,” he asserts, insisting he is confident they will take climate action in line with what science demands.
“This is not a flavour-of-the day challenge,” says Mr Evans. “This is a real world challenge that is not going away and does not care about political boundaries. Addressing the climate challenge has to be front and centre of everything that we do.
“It bothers me when I still hear that by focusing on climate, we are diluting our development impact. If we don’t focus on climate, we won’t succeed with development. We won’t be sustainable. In many countries we are not investing in the right things. We have no choice but to understand the climate risk of everything we do.”
