Empowering key development finance institutions in Asia to accelerate the decarbonization of the energy sector
The report outlines Asia’s challenges to decarbonising energy while driving economic development. It suggests there is significant room for improvement among regional banks and to achieve their commitments to the Paris Agreement, firms need to implement more stringent sustainable finance policies.
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OVERVIEW
The report highlights key challenges facing development finance institutions (DFIs) in dealing with ESG issues and decarbonising their investments while driving economic development. The report outlines opportunities for improvement among DFIs in aligning their policies with the Paris Agreement and integrating ESG factors.
Assessing DFIs’ sustainability policies and processes within a comprehensive scoring matrix, the report found that while many DFIs had established renewable energy financing frameworks and pledged to manage climate risks, only four DFIs have an explicit energy sector-specific policy. The report finds a need for DFIs to improve their implementation of ESG policies, which requires clear articulation of roles and responsibilities and transparent integration of E&S criteria into approval processes.
The report recommends DFIs take a comprehensive approach to sustainability implementation. This approach involves:
- Investment-enabling policies and regulations: DFIs should have policies outlining the requirements for environmental and social due diligence, and climate risk assessments at every stage of the investment lifecycle. DFIs must also require clients to make sustainability-related commitments, such as establishing science-based GHG emission targets, releasing public TCFD reports, and divulging plans for decommissioning fossil fuel assets.
- Investment portfolio and products: To mitigate environmental risks, DFIs must expand their sustainable finance products and services, increase the proportion of clean investments versus fossil fuels in portfolios, and develop risk mitigation instruments.
- Strengthen governance and capacity: DFIs must expand training efforts to ensure all staff, including boards and senior management, are comprehensively prepared to appraise climate risks and opportunities. Additionally, they should integrate sustainability-related criteria into staff appraisals and Key Performance Indicators (KPIs).
- Scale up financial support and technical assistance: DFIs should raise the proportion of financial investments in clean energy solutions compared to fossil fuels, and deploy financial flows to further reduce the cost of capital and increase investment for renewable projects in developing countries.
- Foster greater collaboration with stakeholders in the extended enabling environment, including governments, businesses, and civil society.
