SPECIAL FEATURE
MA: It’s a big space and even with all of our resources combined, we never have enough. We’re talking about trillions of dollars of capital needed for climate finance alone. ADB has taken a bold step forward to declare its ambition to be the climate bank for Asia-Pacific. That’s our big priority. Last year we led a reform of our capital adequacy framework, which enables the bank to commit more capital for climate finance. ADB President Masatsugu Asakawa has announced US$100 billion of additional capital until 2030 and most of that incremental capital is devoted to climate finance (on top of our baseline business targets). This significant capital commitment is using our own capital resources. In addition, we have committed to a 1.5x long-term co- financing ratio, which means mobilizing other people’s money to co-finance our development undertakings, including climate finance. So for every dollar that we bring in for each project, we have to bring in 1.5x third-party monies as part of our mobilization and co-financing. We have a very active team that manages mobilization with a vast array of tools including risk participation, B-loans, syndications and management of third party funds, which all have the e ff ect of crowding financiers into a space that otherwise these financiers would not be able to access and develop on their own. That includes insurance companies, pension funds,
I think this is true not only for deal processing or deal approvals, but also in the portfolio management space, where there could be more collaborative sharing of data rooms, safeguard systems (because we’re all concerned about the same environmental and social safeguards), legal costs etc. That is the space where we can do more together as a community. OFQ : When it comes to partnerships, is “complementarity” a better guiding concept than “alignment”? The latter assumes going lockstep in the same direction, which may not always be helpful. MA: I think going in the same direction may not be the most desirable outcome in terms of development strategy. It’s also good to be in various di ff erent but important spaces – and perhaps the impact could even be larger if we don’t all concentrate in one space. Complementarity is where planning comes in. When we collaborate with each other in our respective strategies, we need to be cognizant of what each other is doing and how we can help each other – rather than crowd each other out in the same space. OFQ : What is ADB doing to crowd in private sector funding for climate and development projects?
concessionals, philanthropics and means bringing them into our projects. This approach enables us to support large ticket projects, which would not be feasible using just our own balance sheet. It is often seen in billion-dollar infrastructure projects involving renewable energies, particularly with unique and innovative features like smart batteries or new technologies. Risk distribution is very sensible not only from the point of view of mobilization, but also to structure risk and share it with other di ff erent capital providers that have di ff erent layers of risk appetites and then assigning risk share depending on their risk tolerance. We also use risk distribution very actively to blend various sources of funding to enhance the viability of highly innovative projects to help create markets. It’s also very important because it helps us to manage concentrations in the portfolio and optimize our balance sheet, because otherwise taking billion- dollar exposures in one project would result in a very bulky portfolio. OFQ : Is that 1.5x a standard target or is that really pushing the envelope en route to 2030? MA: 1.5x is an existing and mainstreamed target at ADB, which in some years we’ve even surpassed. Last year for example we managed 1.8x on average for all projects – so achieved and exceeded!
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