Southeast Asia faces a two-pronged challenge when it comes to infrastructures. Although the sector remains the backbone of economic growth in ASEAN countries, it carries a high environmental cost, causing degradation of natural resources, air and water pollution, and increased greenhouse gas emissions. At the same time, current investments in this area are insufficient to meet needs. According to a study by the ADB, these needs total some $210 billion annually, including the costs of attenuation and adaptation to climate change. There is, thus, clearly an urgent need to invest more in environmentally friendly, climate-compatible and socially inclusive infrastructures in Southeast Asia.
The Private Sector: a Crucial Player
Public investment will not be sufficient to close the gap between what is needed and the volume of investment required. Private stakeholders, meanwhile, have the capacity to invest considerable resources to address current development challenges in the region, yet the vast majority of green infrastructure projects are not considered “fundable” at this point because they are deemed to be too risky.
A large number of financiers have therefore decided to join forces and actively participate in the ASEAN Catalytic Green Finance Facility, which aims to improve the financial attractiveness of investing in green infrastructures by reducing the associated risks and promoting the use of private funds.
Backed by a large number of project sponsors, this facility will help collectively remove the obstacles to investment by private stakeholders.
Meeting the Paris Agreement Targets
Given that in 2016, Asia represented slightly more than 47% of global CO² emissions according to Global Carbon Atlas, organizing the green finance sector and supporting projects is a necessity.
In addition to funding, the facility therefore calls for setting up a technical support mechanism to help countries identify and design these projects, in line with the commitments made by all ASEAN countries in the Paris Agreement. The aim is to fund only infrastructure projects that are tied to measurable green and climate-related goals.
This support is in keeping with AFD’s strategy in the region: “AFD intends to direct its funding to projects related to climate change issues. In the ASEAN countries, we would like to see 70% of our projects with a co-benefit for the climate,” explains Bensaïd.
That is why France, via AFD, has already provided a €1 million grant to support the initiative. Going forward, Agence Française de Développement’s support will take the form of helping to fund some of these projects. The grant will be used in particular to fund the project preparation phase and reinforce the climate requirements for this type of investment.
ADB and AFD, a Long-Standing Partnership
AFD has been a partner to ADB since 1997. The two institutions have jointly funded more than 60 projects; ADB has supported AFD’s increase in activities in Asia by facilitating its entry into new countries of action and new sectors. The partnership was renewed for six years in October 2016, based on concrete goals for collaboration on major topics: sustainable cities, urban transportation, and climate change.
France’s participation in the initiative, which is also supported by the ADB, the European Investment Bank, KfW, the Overseas Private Investment Corporation (OPIC), the OECD Centre on Green Finance and Investment, and the Global Green Growth Institute, illustrates the strong partnership-based approach promoted by AFD.
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