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May

Mobilising Private Capital for Green Finance in Asia and in Europe


Speech by Thomas Silberhorn at the Annual Meeting of the Asian Development Bank in Frankfurt on 4 May 2016

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Ladies and gentlemen,

Every year, 5.5 million people die as a result of the effects of air pollution. Eighty per cent of wastewater in developing countries is channelled into rivers and lakes without being treated. Around the world, ever greater areas of water and soil are becoming contaminated.

Climate change poses a threat to the people and economies of Asia and across the world. Its destructive effects are being made even more devastating by El Niño. For example, in Indonesia bush fires went out of control. As a result of the drought caused by climate change, forested areas there burned for months.

These are only a few examples of how, round the world, development and sustainability are on divergent courses. That is why it is high time for the international community to join forces and take determined action. The 2030 Agenda and the Paris Climate Agreement delineate a clear-cut path to development that is economically, socially and ecologically sustainable.

The signing of the Paris Agreement a week ago on Friday sent out a strong message: Never before have so many states signed up to a treaty under international law on the very first day of signing. This means we have a very clear mandate to limit global warming to well below 2 degrees Celsius and, if possible, to no more than 1.5 degrees Celsius. Worldwide financial flows should be re-directed towards supporting low-carbon, climate-resilient development. All development organisations are called upon to pursue this guiding principle.

What does this mean in practical terms? All development organisations need to develop strategies for phasing out the use of fossil fuels so that we can reach a carbon neutral state in the second half of this century. This, of course, will give a real boost to Green Finance!

However, the goals that we have set ourselves as a global community by adopting the Sustainable Development Goals and the Paris Climate Agreement cannot be reached by states on their own. Rather, we need to mobilise private finance to help us pursue development that will be sustainable in the future. That means we need to offer incentives so that money invested is used for the benefit of people and nature, instead of doing them harm. How this can be achieved is what we want to discuss here today.

Over the coming years and decades, Asia will need investments of more than 100 billion dollars annually! Investments that will be put into infrastructure for energy, transport, information and communication technologies, water and sanitation facilities. And these investments need to be 'green' in terms of their impact on the climate and the environment.

In Asia, much headway is already being made in this direction. Although only seventy-one of the almost 1,500 Asian banks have signed up to the UN Principles on Responsible Investment, the 'green finance' market is growing at a dynamic rate. Whilst, in 2014, Asia's share of the international 'green' bond market came to only one per cent, it rose in 2015 to a share of 14.4 per cent. This shows that sustainability and a return on investment can go hand in hand. But we can all do even more!

Private enterprise, too, urgently needs to act. There are still too few companies who, in their daily business, actually consider the environmental and climate risks. Such negligence can have financial repercussions, as shown a few days ago by the decision of the Norwegian pension fund – the largest state fund in the world: It removed eleven companies from South East Asia from its portfolio – for poor environmental management. This is a wake-up call for all private enterprise. Those who switch to investments in sustainable practices now will win out in the long term.  Those who don't, won't. In other words, they will lose out!

We in Germany try to act according to this maxim. That is why in only ten years Germany has increased its contributions to international climate financing fivefold. In 2014, we were the world's largest donor of public funding for climate-related measures – paying out 5.1 billion euros. With our climate funding, we are also mobilising private investments. We hope that, with the help of private investments, we will be able to make available at least 10 billion US dollars a year for international climate financing from 2020 onwards.

Thus, we are offering incentives for investment in 'green' business ventures. By putting up public funds, we are reducing the risks for private investors and encouraging private-sector funding to move in the right direction. This allows institutional investors, for example, to put their money into investments involving microfinance, fair trade or renewable energies.

It is our intention to campaign for 'green investments' at international level, too. During Germany's G7 presidency last year, we launched an initiative on climate risk insurance called InsuResilience. The aim of the initiative is to insure a total of 500 million poor people against climate risks by 2020. This won't make hurricanes or floods any less devastating, however they will no longer destroy people's livelihoods in an entire region. To get this initiative off the ground, we are working with very able private partners such as the reinsurance company Munich RE.

I am pleased that the Chinese government has made green finance the topic of one of the study groups meeting during China's G20 presidency. The study group's task is to look at ways in which more private capital can flow into green investments.

The Financial Stability Board has been commissioned by the G20 to examine voluntary codes or principles for the financial markets that would help to reveal climate risks. Greater transparency should help the financial sector to factor in the cost of climate risks in their decisions. Germany, too, has been very active in this regard. For example, within the framework of our Emerging Markets Sustainability Dialogue on Green Finance, we are developing instruments that will help financial institutions better gauge environmental risks when taking investment decisions. For you know: You can't treasure what you can't measure.

In all these activities, the Asian Development Bank is, and has been, an important partner for Germany. I am particularly pleased that the ADB and Germany have decided at this year's Annual Meeting to set up an Asia Climate Finance Facility. Together, we will use this Facility to give a boost to project development, private-sector climate finance and climate risk insurance schemes in Asia. And, in the process, we will benefit mutually from each other's experience.

Let us use this Host Country Seminar to let action follow the words of New York and Paris. And let use our money to create a world in which all humans, including the generations to come, can live in dignity.

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