Infrastructure financing and climate change are the most pressing issues facing Asia and the Pacific today. Given extreme weather, climate-resilient infrastructure investment is crucial to sustainable development and significantly impacts society. Record heatwaves swept across Bangkok just last month, where ESCAP is headquartered, with temperatures regularly exceeding 40 degrees Celsius across mainland South East Asia, including Myanmar, Lao PDR, and Cambodia. Cited as the worst April heatwave in Asian history in more than a dozen countries, the region is facing unprecedented temperature changes as global warming accelerates.
Financing infrastructure development
To address these challenges, increased investment in climate-resilient infrastructure is needed. However, infrastructure financing in Asia and the Pacific faces several challenges. One of the significant challenges is the lack of available infrastructure financing, let alone climate-resilient infrastructure. The Asian Development Bank (ADB) estimates that the region needs approximately USD$1.7 trillion per year in infrastructure investment between 2016 and 2030 to meet its development needs, of which USD$200 billion accounts for climate change mitigation and adaptation costs. However, the bank also notes a USD$350 billion gap between the financing needed and the financing available. Another challenge is the difficulty in attracting private sector investment. While there is growing interest from the private sector to invest in infrastructure as a stable asset class in the region, significant barriers remain, including regulatory hurdles, political instability, and a lack of transparency in the investment process.
Climate change and infrastructure development
The good news is the World Bank reports that there is a net benefit on average for investing in more resilient infrastructure in low and middle-income countries, amounting to about USD$4.2 trillion. Their cost-benefit analysis demonstrates that the cost of climate-proofing infrastructure can be offset by the economic benefits of avoiding damage from extreme weather events. Investing in climate resilience measures can improve the overall economic performance of infrastructure assets over time. However, as the ADB estimates, the required USD$200 billion per year for developing Asia to meet its climate mitigation and adaptation costs is especially challenging for developing and least developed countries in the region. In this regard, the right partnerships could serve as a catalyst to attract the necessary investments needed to close this infrastructure demand gap.
Partnerships for infrastructure financing
Taken together, the region's infrastructure investment gap, compounded by the effects of the COVID-19 pandemic and climate change, requires improved coordination between governments, development banks, and the private sector. There is a need to bring the best of both sides together, leveraging expertise, innovation, and investment from the private sector with bankable projects and a transparent market environment from the public sector. Furthermore, developing more effective public-private partnerships, sharing knowledge and expertise, and leveraging innovative financing mechanisms such as green bonds and blended finance can help increase the availability of financing for infrastructure projects and reduce the impact of climate change on these investments.
ESCAP's efforts in infrastructure financing
ESCAP is a critical intermediary in strengthening regional cooperation among policymakers and major regional stakeholders and in connecting and matching proposed investments with sustainable investment development projects. Since establishing the Infrastructure Financing and Public-Private Partnerships (PPP) Network of Asia and the Pacific in 2018, ESCAP has been making significant progress in bridging public-private partnerships with over 54 member States globally by facilitating their climate action goals into concrete investments and bankable project pipelines. It works closely with other UN agencies, multilateral development banks, and reputed financial institutions to leverage private investors' collective capabilities and networks to catalyze more investments into sustainable and climate-smart infrastructure development.
The Network has encouraged governments and private sector actors to design, implement, and monitor sustainable infrastructure projects that are resilient to the impacts of climate change by building the capacity of government agencies responsible for infrastructure development and developing guidelines for designing and constructing climate-resilient infrastructure. To this end, the Network introduced the newly revamped InfraPPPnet web portal in January 2023. It serves as an important digital platform to disclose the infrastructure project pipeline and regulatory framework from the region, facilitate matchmaking of bankable infrastructure projects, and disseminate international infrastructure financing knowledge products. To date, the Network successfully features over 80 regional projects across 12 sectors with an investment value of USD$25.7 billion.
Although the challenges posed by climate change and infrastructure financing in Asia and the Pacific are significant, they are not insurmountable. This requires increasing investments in sustainable and climate-friendly infrastructure, improving the regulatory environment for private sector investment, and strengthening the capacity of stakeholders. ESCAP, in this regard, will continue to play a vital role in promoting collaboration and accelerating actions among governments, development banks, and the private sector to overcome these challenges and protect our planet.