ADO 2021 emphasizes green and inclusive financing in building back better and sustainably
On 28 April, the Asian Development Outlook 2021 was released. The report stresses the importance of green and social finance in ensuring inclusive, resilient and sustainable recovery for Asia and the Pacific Region from the coronavirus pandemic.
ADO 2021 outlined the role of different players in this green recovery building on the momentum already started by green and social finance in recent years particularly in the private sector. Changing investor preferences toward sustainable development goals has played a big role. Over $30 trillion, or one-third of global assets, are now under management guided by environmental, social, and governance considerations. Firms are using green and social finance to hedge sustainability risks, attract “patient investors,” and gain greater resilience to shocks. While high-income economies still dominate the market, developing Asia is the leader among emerging markets in green, social, and sustainability bonds, ADO 2021 finds.
Additionally, green and social finance fosters a virtuous cycle in that the sustainability and resilience not only impact the recipients of such financing instruments, but also the financiers. Evidence suggests that companies using green finance have enjoyed better stock performance and greater resilience during the pandemic. Asian green bond issuers also improved their environmental performance scores by 30% on average, two years after issuance. Cities that issue more green bonds see significant improvements in air quality, leading to health benefits.
ADB and other multilateral development banks (MDB) can help for the further growth of green and social finance grow, ADO 2021 asserts. This can be done by direct financing and by catalyzing capital from public and private sources through blended finance, credit enhancement, loan guarantees, and other innovative instruments. MDBs can also play a crucial role in helping strengthen market infrastructure and ecosystems, government policy, knowledge, and capacity in developing economies.