Counterproductive subsidies, forthcoming regulations and verification methods must be taken into account if more private-sector investments are to be mobilized for climate finance initiatives. Simone Albus of the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH reports

Climate finance is still small in scale, and private-sector finance needs to be mobilised. This was a key message to emerge from the regional workshop ‘Scaling-up Climate Finance in the Asia-Pacific’, convened earlier this year by the Alliance for Public Private Climate Finance Asia-Pacific and Singapore’s Ministry of Foreign Affairs, at the Lee Kuan Yew School of Public Policy in Singapore. The summary report from the workshop has now been published and is available from GIZ.

Supported by CDKN, the aim of the workshop was to address the demand for developing capacity and promoting cross-country dialogues between government and financial stakeholders in the region. The 50 or so participants included ministry representatives of member states from the Association of Southeast Asian Nations (ASEAN) and Small Island Developing States, experts from international and regional organisations, think tanks, multilateral development banks and the private sector.

The regional organisations present included the United Nations Framework Convention on Climate Change (UNFCCC), Alliance of Small Island States (AOSIS), Secretariat of the Pacific Community (SPC) and the ASEAN Secretariat. Stakeholders attended from more than ten Asia-Pacific countries, including China, Thailand, the Philippines, Indonesia, the Cook Islands, Fiji and Samoa.

This diverse mix of public and private sector participants contributed greatly to fruitful discussions on how best to scale up climate finance in the Asia-Pacific region. Themes debated ranged from climate finance readiness and Measuring, Reporting and Verification (MRV), to case studies of existing public-private partnerships for climate-compatible development.

A vital issue brought up by Shelagh Whitley from ODI, representing CDKN, was that, for the 42 developing countries where data was available on either subsidies to fossil fuels or climate finance, there were approximately 75 times more ‘brown’ investments than ‘green’ ones. Understanding such counterproductive subsidies will be essential if we are to design interventions to mobilise private climate finance.

In this context, a presentation held jointly by Thorsten Giehler from GIZ and Alexandra Tracy from the Asia Investor Group on Climate Change (AIGCC) pointed out that it will also be important to take a closer look at forthcoming regulations in the financial sector (Basel III and Solvency II), as these will make it more difficult for private sector investors to scale up investments in long-term infrastructure projects with climate benefits, such as for renewable energy projects.

Approximately 71 trillion USD of assets are presently under management by pension funds, insurance companies and investment funds. This provides large potential for growth in the private climate finance sector, which, according to several reports, currently only accounts for around 250 billion USD. Participants noted that aligning climate policy and financial regulatory frameworks will be key to attracting private sector investments. Private investors attending the workshop urged the need for clear and consistent policies to enable them to engage more in climate finance and reduce the risk in long-term investments.

In the discussions on readiness for climate finance, Michael Rattinger from the Asian Development Bank suggested that demonstrating readiness was likely to become a competitive advantage for countries wishing to attract international public and private climate finance. Those that ensured low risks by reliably delivering projects and providing MRV of climate finance, would likely be favoured above those that did not. Participants consistently highlighted the need for long-term capacity building to increase readiness for public and private financing.

Recipient country representatives called for simplified access to climate finance and repeatedly stressed that some developing countries already possess tested in-country systems, for channeling moderate volumes of climate finance. In the panel discussion on MRV, speakers made a strong call for development partners to use, and scale up, these systems rather than creating parallel structures. Participants also agreed that common accounting rules and standard reporting formats more suited to recipient countries’ priorities are required.

One essential message was that we need to find a balance between the comprehensiveness of an MRV system versus practical feasibility for development partners and recipient countries. Vital lessons can be learnt from the fast start finance period for designing a transparent and effective MRV framework for climate finance, especially to increase transparency and consistency of measuring flows. Participants agreed that the international climate debate focuses too much on input measurements, such as the volume of money flowing into adaptation and mitigation, thereby neglecting the importance of measuring the impact of investments.

After the three days of discussions it was clear that, besides the need for more private sector engagement in climate finance, one of the most relevant challenges is how to ensure that finance gets to ‘the ground’. Upcoming activities organised under the frame of the Alliance for Public Private Climate Finance Asia-Pacific will therefore focus on showcasing in-country case studies of investments in projects that have directly and effectively influenced the climate resilience of communities.

Considering the growing adaptation needs in the Asia-Pacific region, adaptation finance is a topic that deserves more attention and will be addressed in more depth at future events.

To obtain the workshop summary report, please email: climatefinance-ap@giz.de.

In 2012, GIZ and AIGCC established the Alliance for Public-Private Climate Finance Asia-Pacific to encourage and facilitate low carbon and climate resilient investment in the developing countries and emerging markets of Asia-Pacific. The initiative involves dialogue with both public and private sector investors, detailed research and analysis, as well as policy advice and support for financial and government institution capacity development.

Contacts: Simone Albus, Stefan Bundscherer