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Financing for Sustainable Infrastructure: A Guide for Asia Pacific Cities
Discover best practice and knowledge on climate finance access and implementation for cities in the Asia Pacific (APAC) region.
This resources guide provides best practice and knowledge on climate finance access and implementation for cities in the Asia Pacific (APAC) region, including:
An overview of the APAC climate finance landscape;
Key findings from CDP's 2023 global finance snapshot;
Benefits and guidance of disclosing sustainable infrastructure projects including a summary of CDP's capacity-building program with Bank of America (BofA);
Best practice APAC guidance and resources; and
Case studies demonstrating the successful implementation of adaptation and resilience actions across the region.
Background
The Asia Pacific (APAC) region is particularly vulnerable to the impact of climate change. Responsible for over 55% of global greenhouse gas (GHG) emissions – which have grown continuously between 2010 and 2022 – the region plays a key role in keeping global warming within 1.5°C. The region’s growing population of 4.7 billion people (as of 2022) makes up around 60% of the world’s population. Unfortunately, this makes it more challenging to address climate change since most of the population live in urban areas prone to extreme weather events, rising sea levels, landslides, and floods.
The APAC economy is also considered significantly more vulnerable to the impacts of climate change than for other regions. It’s estimated that the potential losses to regional GDP caused by climate hazards could reach US$953 billion under the 1.5°C global temperature raise scenario, and US$980 billion under the 2°C scenario or seismic-related disasters each month, on average, translating to approximately 3,200 deaths and US$3.8 million in economic damages monthly.
Experts predict that low-lying Pacific islands face disruptions as a result of rising sea levels while rapidly growing megacities face the challenge of providing urban services under stressed climatic conditions. By mid-century, rising sea levels will impact nearly a billion of people in the APAC region. Megacities like Mumbai, Dhaka, Bangkok, Ho Chi Minh City, Jakarta, and Shanghai run the risk of being submerged.
APAC cities must act now and enhance their climate ambitions to overcome these challenges and contribute to the global goal of keeping global warming well below 1.5°C by 2030. Of the 142 APAC cities in 2023 that reported committing to an active GHG emissions target, only 20 have committed to achieving net-zero between 2026 and 2050, highlighting the massive gaps that APAC cities face in securing carbon neutrality in the long term.
Climate finance landscape of Asia Pacific region: overview
Between 2018 and 2019, the APAC region spent $519.9 billion in climate finance: US$225.6 billion in 2018, increasing by 30% to US$294.3 billion in 2019. The public sector contributed the most to total climate finance flows, at US$351.8 billion (68% of flows), of which US$241.7 billion came from development finance institutions (DFIs), the top public sector contributors. Public finance was the main source of climate finance for most subregions in APAC (except for South Asia, which relied almost equally on private finance). The private sector’s 32% contribution ($168.1 billion) to total flows during the period derived mainly from corporations, household spending, and commercial financial institutions.
Mitigation finance – particularly in the energy sector – dominated climate finance in the APAC region during this period, reaching US$472.5 billion (91% of total flows). This was mostly driven by finance directed toward solar photovoltaic (PV), wind, and hydropower generation in China and India. Financing for low-carbon transport also grew rapidly, as more corporations and public sector stakeholders invested in rail and transit, and electric vehicles gained wider use among households (CPI 2019).
Meanwhile remaining total flows were made up of adaptation finance (8%, equal to US$40.8 billion), and dual-benefit finance for both projects with mitigation and adaptation outcomes (1%, equal to 6.7 billion). Adaptation finance rose by 31% during this period, from US$17.7 billion in 2018 to US$23.1 billion in 2019, signalling efforts to achieve a better balance between mitigation and adaptation finance, in response to Article 9 of the Paris Agreement. However, a wide disparity remains between the estimated costs of adaptation and the documented allocation (IPCC 2022).
Despite increasing expenditure between 2018 and 2019, climate finance in the APAC region is still not at a sufficient level to help meet the goals of the Paris Agreement. Global investment must increase by at least 454% to US$4.1 trillion, to do so, with APAC needing an average of US$1.699 billion annually up to 2030 (or a total of US$16.999 billion over the next decade).
Global finance snapshot 2023: Key findings
In 2023, 208 APAC cities disclosed through CDP-ICLEI Track. Of these, 105 cities across 16 countries disclosed a total of 277 climate infrastructure projects worth US$18.4 billion, seeking US$8.2 billion in investment. CDP’s regional pipeline of projects provides actionable insights on sustainable infrastructure investment opportunities across the APAC region. It offers valuable information on the types of projects APAC cities are seeking to advance for climate action, key areas for private and public investment, regional, and sector needs.
Key takeaways from 2023 data:
45% of total reported projects are at an early stage of development and require further technical assistance to advance towards implementation.
At the subregional level, the demand for project preparation support is most evident in Southeast Asia. 75% of early-stage projects (93 projects) are reported by cities located in this sub-region.
Of the 204 projects that included cost estimates, 33% are relatively small-scale with estimates under US$500,000. These are largely disclosed by small and medium-sized cities, highlighting the need to mainstream financial aggregation strategies with the support and backing of national governments.
Of the 260 projects that included the status of financing, 80% (207 projects) are seeking financing or funding. Of these, 45% are partially funded and seeking additional funding, 42% are not funded and seeking full funding, and 13% are not funded and seeking partial funding. The large proportion of projects seeking partial or additional funding suggests that cities face challenges in raising the funds needed for full implementation as well as in securing financing more broadly.
Renewable energy is the leading sector for climate projects in the region with a total of 52 projects worth US$5.8 billion. This is followed by waste management (48 projects worth US$4.4 billion) and transport (39 projects worth US$6.3 billion) – the sector with the largest financing demand.
Explore CDP's Global Infrastructure Snapshot 2023 and APAC City Climate Finance Snapshot 2022.
Disclosing sustainable infrastructure projects: Benefits and guidance
For local governments looking to position themselves to receive technical assistance, funding and financing opportunities (to advance climate action), transparent disclosure of environmental data through CDP-ICLEI Track is a key step.
Local governments can leverage CDP-ICLEI Track to close data gaps and identify important steps needed in their climate action journey. For example:
Compiling the greenhouse gas (GHG) emissions inventory;
Completing their climate change risk and vulnerability assessment; and
Setting their climate action targets and developing climate action plans.
Through CDP Scoring, the Global Covenant of Mayors for Climate and Energy, and other initiatives available through such transparent disclosure, local governments can receive tailored feedback to guide their climate action strategy. With a robust strategy developed in line with best practice, local governments are better positioned to receive support.
Additionally, local governments can also report climate infrastructure projects that are seeking funding or project preparation support through CDP-ICLEI Track.
CDP can bridge the gap:
Local governments disclose projects through CDP’s annual questionnaire.
CDP analyzes climate projects and showcases these to our network and partners (including policymakers, companies and capital markets).
As a result, local governments are better positioned to receive assistance, funding and financing opportunities.
Learn more about how project disclosures can help your city.
With cities in Asia being among the most vulnerable to the impacts of climate change, there is an urgent need to address the financing and implementation gaps related to climate adaptation and resilience action in the region.
Recognizing this, CDP conducted a capacity-building program in 2023 supported by the Bank of America (BofA) Charitable Foundation to help local government representatives build their knowledge and understanding on implementation and financing of climate adaptation and resilience action.
This program is the latest in three years of capacity-building activities between both parties. The first two years focused on climate risk and vulnerability assessments (CRVAs) and adaptation planning – two key areas where data disclosed through CDP showed that Asian cities were lagging. You can read a summary and find related training materials.
The 2023 program consisted of:
training workshops for selected cities with city climate finance expert speakers;
peer-to-peer knowledge exchange between cities; and
sharing of resources and opportunities for city climate finance.
Key learnings from 2023 program
In 2023, CDP focused on bridging the climate resilience implementation gap in Asian cities. CDP conducted a two-part series of workshops with an objective to:
Provide training on climate adaptation/resilience action implementation and financing;
Increase understanding of actions relating to these topics among city representatives; and
Increase the number of related actions seeking financing reported by Asian cities.
Both workshops featured a diverse group of speakers working on issues related to climate change adaptation. This group spanned the private sector, NGOs, project preparation facilities and other local authorities:
The City Climate Finance Gap Fund (or simply, Gap Fund) provides cities with technical assistance and capacity-building for low carbon and resilient urbanization. It does this by building a high-quality urban investment pipeline, as well as sharing knowledge on project preparation with developers and financiers:
To receive the GAP fund, cities must meet the eligibility criteria (eg country, sector, urban dimension, project stage), and submit the expression of interest (EOI) for project ideas that have a high climate action potential – note, this must be submitted by the local authority or municipal council.
Eligible sectors include:
sustainable urban mobility;
energy efficiency and renewable energy;
water and waste management;
greening urban areas;
nature-based solutions;
solid waste management and circular economy;
green buildings;
affordable housing;
adaptation to climate risk; and
multi-sector, area-based investment programs.
It is crucial that cities make the applicant’s details clear in the EOI, such as the city official’s name, position and contact information. This will make it easier for the Gap Fund Committee to contact the successful applicant (to prepare a detailed proposal and initiate technical assistance). Cities also need to emphasize the climate focus at the forefront of their application and present the co-benefits. Lastly, it is important to detail the precise stage that the project is at and the kind of technical assistance required, since Gap Fund does not finance project implementation.
Cities and local authorities can check eligibility and apply with an EOI via the Gap Fund website.
Best practice guidance and resources for APAC cities
Project Preparation Process
Project preparation is the process of defining, studying, refining, and developing an infrastructure project concept to the point that it becomes bankable, raising implementation financing from public or private sources. The process involves the following steps:
Concept/Design/Scoping: Some activities in this phase develop an extensive portfolio of existing priority initiatives, assess eligibility of projects according to the context and priorities observed, identify the most appropriate sources and mechanisms of funding. These include review strategies and policy instrument scoping (eg urban development plans, climate action plans, sectoral plans, innovation agenda and the 2030 Agenda).
Pre-feasibility: Typically, shorter than a feasibility study, a pre-feasibility study is an assessment that provides early technical considerations on a project’s interventions, justifies why these interventions were chosen over other options, and provides a clear overview of the benefits and co-benefits.
Feasibility: Feasibility is the phase where a city can elaborate on a work plan with several activities such as elaborating the technical information (e.g. carry out market and demand analysis, risk mapping, information technology etc.), compliance and impact assessment, economic and financial evaluation, and executive project that elaborates on the technical data sheet and sustainability sheet.
Structuring and Transactions: The final stage of project preparation encompasses the legal and financial structuring of the project (eg financial risk assessment, cash flow analysis, compliance permits etc). This is also the stage when the prepared project executes the legal steps to secure financing and to procure construction and operation services, as well as when risk management processes and responsibilities are detailed (Beckers and Stegemann 2013). This stage includes the commercial and financial close.
At the project level, key barrier themes are project design and structuring, and sector maturity and technology readiness. City governments have some ability to overcome related challenges.
Recommendations for cities to overcome these barriers include:
Transparent working practices to reduce perceived risk and improve access to finance; and
Enhancing return on investments and attractiveness of climate projects for private sector actors.
Furthermore, Project Preparation Facilities (PPFs) can simplify the process by providing precise support. PPFs are organizations that support cities in developing investment ready projects. See our resources below to learn more about PPFs available to APAC cities.
Project finance: Sources and instruments
Project finance may come from a variety of sources, the main ones being equity, debt and government grants. Financing from these sources has important implications on a project's overall cost, cash flow, ultimate liability, and claims to project incomes and assets.
Equity: Project sponsors, governments, third-party private investors, and internally-generated cash provide equity. These providers require a rate of return target that is higher than the interest rate of debt financing (to compensate for the higher risks taken by equity investors as they have junior claim to income and assets of the project).
Debt: Lenders of debt capital have senior claim on income and assets of the project. Generally, debt finance makes up the major share of investment needs – usually about 70 to 90% – in PPP projects.
The most common forms of debt are:
Commercial loans – funds lent by commercial banks and other financial institutions that are usually the main source of debt financing;
Bridge finance – short-term financing arrangements (eg for the construction period or for an initial period) which are generally used until a long-term financing arrangement can be implemented;
Bonds and other debt instruments (for borrowing from the capital market) – long-term, interest-bearing debt instruments purchased through either the capital markets or private placement (ie direct sale to the purchaser, generally an institutional investor – see below); and
Subordinate loans – similar to commercial loans, but secondary or subordinate to commercial loans in their claim on income and assets of the project.
Government Grants: Government grants can be made available to make PPP projects commercially viable, and therefore reduce the financial risks of private investors and achieve socially desirable objectives (eg to induce economic growth in lagging or disadvantaged areas). Many governments have established formal mechanisms for the award of grants to PPP projects. Where grants are available, they may cover 10 to 40% of the total project investment, depending on government policy.
Selecting an adequate instrument and/or finance provider will depend on the type of asset recycling project, as well as the type of concessionaire/private partner selected.
To learn more about the financial instrument for urban climate projects, please refer to the CCLFA Financial Instrument Toolkit.
Guide to Climate Finance for Local Governments (Indonesia)
Browse our preparedness tool for Indonesian city officials developing climate resilient and sustainable infrastructure projects. These resource are designed to apply across a broad subset of local and regional governments with varying population sizes, demographics, climate conditions, and political environments.
Case studies
Learn more about the successful implementation of adaptation and resilience actions across Asia Pacific.
Penang Island, Malaysia
Penang Island Nature-Based Solution Adaptation Program
Footnotes
1. 'A disaster emergency is underway in Asia and the Pacific as risks outpace resilience, warns new UN study'. United Nations Economic and Social Commission for Asia and the Pacific (2023) [Press Release].
2. '100 Climate Actions from Cities in Asia and the Pacific'. Asian Development Bank (2021).
3. 'Asia's Climate Emergency'. International Monetary Fund (2021).
4. 'Climate Finance Landscape of Asia and the Pacific'. Asian Development Bank (2023).
5. 'Global Landscape of Climate Finance 2021'. Climate Policy Initiative (2021).
Guidance Note on the TCFD Recommendations for City, State, and Regional Governments
Guidance for reporting in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
Climate Risk and Vulnerability Assessment Guide
Training guide for cities on how to conduct a climate risk and vulnerability assessment, including case studies and resources.
Climate change adaptation and resilience planning
Learn more about CDP's capacity-building program (2022), supported by Bank of America Charitable Foundation for local authorities in South and Southeast Asia. This document provides a summary of the program's key learnings for city stakeholders in Asia and globally.