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Supporting Blue Skies through Green Development Loans

Yixin Yao, Lijun Zhou and Shu Tian 14 Feb 2022

Close collaboration, innovative project design, and technical and management capacity building have supported green development and air quality improvement by the PRC and the ADB. The PRC has made strong commitments to tackling air pollution, particularly in the greater Beijing-Tianjin-Hebei (BTH) region, including via policy interventions such as the Comprehensive Action Plan for Air Pollution Prevention and Control, 2013–2017, and the Thirteenth Five-Year Plan (2016–2020). Together with ADB, the government established a multiyear cluster lending program from 2015 to 2020 to offer global public goods, address air pollution and climate change challenges, and boost public health.

Since 2015, eight projects with around $2.45 billion in financial assistance from ADB have been implemented as cluster projects to catalyze green finance and build the institutional capacity of various stakeholders through strengthened policy reforms and regulatory frameworks, innovative financing mechanisms, and investments for accelerating the clean energy transition and the adoption of advanced green technologies. The data (ADB 2020a) show that this long-term collaboration and endeavor contributed to a significant air quality improvement in the greater BTH region, where the annual average PM2.5 (fine particulate matter) concentration decreased by 27%, from 60.3 μg/m3 in 2015 to 47.9 μg/m3 in 2019. The implementation of the cluster projects also demonstrated successful and viable large-scale pollution reduction efforts that can be replicated in other parts of the PRC and in developing Asian countries facing similar challenges. Here, we summarize some of the key learnings from these experiences.

Strong government commitment and ADB’s prompt response have been timely and essential for meeting the evolving financing needs. ADB’s corporate strategy for delivering $100 billion in climate financing to its developing member countries during 2019–2030 (ADB 2021) and its Country Partnership Strategy 2016–2020 with the PRC are well aligned with the PRC’s development plans and priorities to support the government’s reform agenda by focusing on strategic priorities, such as environment and climate change, regional cooperation, and inclusive and sustainable growth. These ensure ADB’s positive and quick response to the government’s evolving financing requirements. For instance, the first loan under the cluster was approved in December 2015, but it was not listed in the original Country Business Plan at that time. ADB and the PRC took quick action to process the project, with strong commitment and results-oriented approaches from both sides.

Flexible and innovative project design provides solutions customized to local conditions and government policies. During the implementation of the BTH cluster project, ADB adopted flexible lending modalities, such as policy-based loans, financial intermediation loans, results-based loans, and conventional project loans. These flexible project designs provide tailored financing and knowledge solutions to meet the various demands from the local community and ensure effective and efficient results delivery. According to project information published by ADB, financial intermediation loans were selected for five projects as these were designed to leverage financing from various partnering financial institutions, cultivate a market-based financing mechanism and institutional capacity for the private sector’s green investment operations, and broaden access to a wide range of green investment solutions. A policy-based loan modality was adopted to build the Hebei provincial government’s capacity to develop and implement an integrated policy and regulatory framework for air quality control during policy reforms. The results-based loan modality was chosen to accelerate the transition from coal to clean energy sources in Henan, while the conventional project loan was chosen to foster the adoption of innovative energy solutions on heating and cooling in a specific area in Shandong.

The strong technical and management capacity of executing and implementing agencies ensures effective project implementation. During project implementation, ADB and local governments selected executing and implementing agencies with a strong technical and management capacity to effectively carry out the related functions of the projects. For example, for the policy-based loan, ADB took the responsibility of developing up-front policy reforms based on its comparative advantage and expertise as the sole international financial partner with experience on Hebei’s provincial development strategy. For the financial intermediation loans, ADB’s role focuses on leading co-financing from various international financial institutions and sharing knowledge on innovative project management techniques and internationally aligned green finance taxonomies; environment, social, and governance (ESG risk) framework and disclosure requirements; and the issuance of “clean air bonds” aligned with the Climate Bond Standard (ADB 2020b). Meanwhile, local executing and managing agencies with strong technology experience, know-how, and client resources, such as the China National Investment and Guaranty Corporation and China Energy Conservation and Environmental Protection Group, were selected to set up a green finance platform, fund, and facility and conduct project selection criteria and identification. Such an arrangement ensures that partnering entities can maximize their advantage in delivering results.

Close coordination and collaboration with participating partners support smooth project implementation and maximize co-financing opportunities. Successful project implementation calls for joint efforts from multiple international and domestic financial institutions and development partners, local governments, and private sector entities. Close collaboration with both international and domestic financial institutions increased co-financing opportunities to leverage private capital for ESG investments, which also benefited the building of development partnerships for future projects. Communication via meetings and missions among participating entities, either onsite or virtually, speeds up project processing and reduces logistics costs. Smooth communication and coordination not only deliver broad-based co-financing but also connect advanced management and technical solutions to green projects in key sectors such as energy, transport, urban, and agriculture.

Capacity building and knowledge sharing contribute to sustained results and future replication. During project preparation and implementation, staff from participating entities, including executing and implementing agencies, the private sector, local co-financing partners, governments, and other stakeholders, have developed and strengthened their skills in project management, safeguarding policies, innovative clean technology and low-carbon technologies, and business solutions, as well as international green finance practices, measures, and standards. The strengthened personnel and institutional capacity have not only facilitated project management and operational efficiency but also made it possible for the achieved results to be sustained after the closure of the project. ADB has also provided ongoing technical assistance via joint workshops to enhance project design and implementation capacity, as well as disseminate knowledge and experiences to facilitate knowledge sharing for project replication in other places facing similar challenges.

Overall, these ADB projects have responded to member countries’ climate change commitments and needs in a timely and tailored manner. Strong collaboration, innovative project design, and effective technical and management capacity support have been instrumental for project design and implementation, and these experiences are expected to provide useful insights for other regional developing economies.

References

Asian Development Bank (ADB). 2020a. Air Quality Improvement in the Greater Beijing–Tianjin–Hebei Region—Green Financing Scale-up Project (RRP PRC 51033): Environmental and Social Management System. https://www.adb.org/sites/default/files/linked-documents/51033-001-esmsab.pdf

ADB. 2020b. ADB Supports Air Quality Improvement and First Clean Air Bonds in PRC. https://www.adb.org/news/adb-supports-air-quality-improvement-and-first-clean-air-bonds-prc

ADB. 2021. ADB Raises 2019–2030 Climate Finance Ambition to $100 Billion. https://www.adb.org/news/adb-raises-2019-2030-climate-finance-ambition-100-billion

Authors
Yixin Yao

Yixin Yao

Senior research fellow, ADBI

Lijun Zhou

Lijun Zhou

PhD candidate at the University of Hohenheim, Stuttgart, Germany

Shu Tian

Shu Tian

Economist, ADB

This article is reproduced from Asia Pathways.

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