Aneta Nikolova Environment and Development, ESCAP

Innovative Climate Finance Mechanisms

for Financial Institutions in Fiji, Pakistan, Indonesia and Sri Lanka

Multistakeholder Consultative Forum on Green Finance

1st August 2017

Manila, Philippines

Convening power: The

Asia-Pacific Forum on

Sustainable Development

and related regional

dialogues on trade, STT,

finance for development

Analytical work: Focusing

on integration of three

dimensions of sustainable

development; means of

implementation

Partnerships &

stakeholder engagement:

Asia-Pacific SDGs

Partnership (with ADB and

UNDP); AP-Regional CSO

Engagement Mechanism

Capacity development:

Becoming fit for purpose

- internal capacity

building ; stronger UN

system coordination

Project Overview

• Funding: UN Development Account

• Duration: 3 years

• Target countries: Fiji, Indonesia, Pakistan, Philippines, Sri Lanka• B

Objectives• Identify the gaps and needs for investments in low carbon

development activities in support of NDC implementation

• Empower the national Central Banks to enhance their role as the regulators of the national financial system

• Provide capacity development and technical advisory services to Central Banks to develop policies and guidelines to stimulate investments in climate mitigation and adaptation projects

Project Elements and Timeline

Inception Phase

• Regional and National Scoping Studies

• 1st round of National Workshops

• Regional Seminar

Manila, Philippines Colombo, Sri Lanka Islamabad, Pakistan

Jakarta, Indonesia

Capacity Development Support• Menu and a Toolkit of Policy Options

• Online platform for Climate Finance Champions-Regional and National Component- National Factsheets and Case Studies, reports of workshops

• Online/onsite courses-1st August with provided by RENAC, Germany

• Tailored technical advisory services to the needs of the target countries: Fiji, Sri Lanka, Pakistan, Philippines

• Support the Bali Center for Sustainable Finance, Indonesia

• 2nd round of National Workshops

Scoping Study Content• Institutional arrangements and mapping of key stakeholders: role of relevant

ministries, financial institutions, and the role private sector in mobilizing climate finance

• Domestic schemes/incentives for mobilizing climate finance: including best practice and impacts from financial institutions in the region

• Current policy frameworks to support national climate finance flows (especially links to national financial institutions) and their impacts (where available)

• State of development of the national finance/banking sector incl consultative process with major stakeholders

• Levels of ambition proposed as part of Nationally Determined Contributions(NDCs) submitted to the UNFCCC

• Mapping of other similar capacity building initiatives

• Assessment of Technical Assistance required by the Central and National Banks

• Identification of key stakeholders and national champions for promoting and advocating climate finance initiatives and policies

Short List of Tools

• Disclosure requirements of climate-related financial risks

• Green Finance Guidelines and Frameworks

• Green Macroprudential Regulation and Climate-related stress testing

• Directed Green Credit Policy Instruments

• Green Differentiated Reserve Requirements

• Accepting Carbon Certificates as part of Commercial Banks’ Legal Reserves

• Green Quantification Easing and Reserve Management

Nationally Determined ContributionsIndonesia

26% by 2020

29% by 2030

based on a 2010 projected BAU scenario

Sri Lanka

7%between 2021-2030

based on a 2010 projected BAU scenario

Pakistan

20% by 2030

based on business as usual scenario

Philippines

70% by 2030

based on a 2000-2030 projected BAU scenario

Financial Institutions and NDC Inter-linkages

Inter-linkages between the key financial institutions and the NDC implementing agencies

Little Good

Sri LankaPakistan

IndonesiaPhilippines

Contributions by Financial Institutions

Indonesia

OJKBEI, BRI

Sri Lanka

DFCC

Pakistan

State Bank of PakistanZarai Taraqiati Bank

Philippines

Land BankPhilippines Development BankBank of the Philippine Islands

Banco de Oro Unibank

Key Instruments for MobilisingDomestic Private Climate Finance

Indonesia

Sustainable Financing Roadmap

Sri Lanka

Sustainable Financing Roadmap

Pakistan

Green Banking Guidelines

Philippines

Legislative

Indonesia

Indonesia ClimateChange Trust Fund

Sri Lanka

Sri Lanka Climate Change Trust Fund

Pakistan

Climate Change Financing Framework

Philippines

People’s Survival Fund

Policy Frameworks to Support National Finance Flows

National Champions Identified

Indonesia

Indonesia FinancialServices Authority

OJK

Sri Lanka

Central Bank of Sri Lanka

Pakistan

State Bank of Pakistan

Philippines

Climate Change Commission

Central Bank of the Philippines

BSP

Regional Seminar: June 19-20, 2017

Needs for further capacity development support: Fiji

The Reserve Bank identified the needs for further capacity development support in the following areas:• Assessment of bankable taking into consideration

environmental risks;• Developing financing requirements that encourage

implementation of mitigating environmental damage or adaptive initiatives in the proposal.

• Issuance of policies and guidelines promoting best practices towards green financial system.

• Develop innovative mechanisms for leveraging private sector funds for green/ climate finance.

• Issuance of green bonds

Needs for further capacity development support: Indonesia

• Strengthen the capacities for developing and assessment of bankable projects

• Monitoring of their implementation• Better illustrate the overall financial flows in the climate resilient

development• Identify how different sectors relate to climate finance and how

funding can stimulate further economic development• Provide advice to decision makers and to support the

communications of cross-sectoral coordination committees with Ministry of Finance

• Provide further support for the capacity development activities that OJK plans to roll on in the Bali Centre for Sustainable Finance

• Further technical advisory services for the development of concrete financial instruments

Needs for further capacity development support: Pakistan

• The financial sector need to support the NDC targets aiming at reducing carbon emissions and these should be adopted as key criteria for financing national development projects and activities by the national banks;

• New procedures and guidelines for the commercial banks need to be issued by the Central Bank to guide the implementation of the above;

• A priority list of sectors for low carbon climate resilient investments to guide the national banks should be developed based on their contributions to the total country carbon emissions;

• When financing mechanisms are being developed the existing institutional architecture needs to be considered;

• Need for capacity development and technical advisory support for development and assessment of bankable projects, including for funding from the Global Climate Fund

• Additional awareness raising activities are also needed (national workshops)

Needs for further capacity development support: Philippines

• Need for a signal/instructions/guideline from public authorities with regulatory functions, including from the Central Bank on the need to prioritize investments in low carbon climate resilient development;

• These guidelines need to be more general and less prescriptive to allow flexibility in choosing technologies and approaches for investments in low carbon climate resilient development projects according to the most recent developments;

• Further awareness raising and training of representatives of the financial and banking sector in understanding of the risk in a global context and the rationale behind green banking;

• Additional capacity building support for developing financial framework and strategic approaches for partnership;

• Strengthening the monitoring and evaluation procedures, and overall financial governance and financial institutions through developing of a green banking law.

Needs for further capacity development support: Sri Lanka

• Provide technical assistance for the development of a national sustainable/green financing roadmap and the supporting regulatory tools and mechanisms.

• Support the establishment of an “Integrated Committee” between the Sustainable Development Council, Climate Change Council, Central Bank, and in close collaboration with the Ministry of Sustainable Development and Wildlife, the Mahaweli Development and Environment and the Ministry of Finance and Policy Planning. Such measure will enhance the communications and institutional capacities of the main institutions involved in climate finance governance in the country.

• Enhance general awareness raising and technical training seminars for promotion and development of specific financing instruments

• Develop a training course/module on green banking/climate finance to train staff of the Central Bank and other banks.

Main outputs of the Regional Seminar

Enhanced commitments

towards concrete climate-

responsive actions

Key national champions were

identified as critical drivers for CF

Central Banks must guide and shape new

financial paradigms by forming an enabling

regulatory framework

Green bonds emerged as a high-

value driver of sustainable financial

change

The fastest way to change any industry

sector is to influence the regulatory mechanisms which govern it and the

role of sustainable financing roadmaps

ESCAP can play a key role in quickly

matching the capacity development needs of

the national climate experts with the

agencies and partners providing such support though the SDG help

Desk

The need for national coordination and

institutional coherence was identified

Recommendations for Banking Sector

• Integrate climate risk into risk management strategies

• Incentivize adaptation and climate-proof financial instruments to support climate change adaptation or minimise mal-adaptation along agro-value chains

• Explore opportunities to develop new products and services in collaboration with other actors

• Proactively support climate change adaptation by calling for greater financial inclusion (e.g. services that target women with a framework to monitor and evaluate progress.

Needs for Capacity DevelopmentThe participants agreed on four broad areas where the project activities can make a difference and benefit the climate finance practitioners the most:

Empower Central Banks: as the primary regulator of the national financial markets to develop green finance guidelines and advisory frameworks that will create national financial environment conductive to investments in low carbon climate resilient development, as well as linking to the broader financing for sustainable development.

Awareness Raising: on financial instruments and technological developments for low carbon climate resilient development for financial institutions, including banks, insurance and securitization companies, capital markets institution, etc. on the climate risks on their investments, increase the attractiveness of sustainable/green banking.

Information-Sharing & Coordination Mechanisms: Between ministries and government institutions, governmental and private financial institutions, private sector associations and bilateral and international development for coherent climate finance interventions.

Empower SMEs and Financial Institutions: Develop bankable projects by building the technical capacity of writing fundable proposals to source budget from national and international origins.

Summary and Opportunities Central Banks are all members of the Sustainability Banking

Initiative of IFC

Domestic financial institutions are already playing a role through various initiatives

Better links are needed between DFIs with NDC Implementing Agencies and targets

Contributes to improved development and implementation of national climate change financing frameworks

Create the policy environment to stimulate domestic financial institutions and private sector contributions to GHG Emissions Reductions

THANK YOUClimate Finance Team

Aneta Nikolova Kai Kim ChiangEnvironment Affairs Officer Senior Consultantnikolova@un.org chiang2@un.org

Nina SchneiderData and Policy Analystschneidern@un.org

Environment and Development DivisionUnited Nations Economic & Social Commission of Asia-Pacificwww.unescap.org