Anjali Viswamohanan, Director of Policy at the Asia Investor Group on Climate Change, says governments should work closely with stakeholders on resilience and adaptation measures.
In the final hours of COP28, much attention was paid to the wording of the governments’ response to the Global Stocktake, particularly the collective agreement on “transitioning away” from fossil fuel use in energy systems. But this historic breakthrough, along with its twin pledge to triple renewable energy capacity by 2030, will not yield an immediate impact on rising temperatures and their physical impacts.
For this reason, many also paid close attention to what the Global Stocktake text said about climate adaptation, including the Asia Investor Group on Climate Change (AIGCC), which published its investor expectations on the national adaptation plans (NAPs) of Asian countries in November 2022.
The themes of adaptation and resilience were “amplified significantly across the whole text”, according to Anjali Viswamohanan, the group’s Director of Policy.
Admittedly, COP28 delivered no big breakthrough on the Paris Agreement’s Global Goal on Adaptation. Negotiators did agree to time-bound targets for themes, sectors and policy-setting frameworks, including risk assessment, planning, implementation and monitoring, as part of a programme for measuring progress toward the goal’s overarching objectives. But the targets were not quantified, nor was there greater clarity on how to double adaptation finance by 2025, despite growing evidence of widening gaps between supply and demand.
Instead, the Global Stocktake text underlined the need for greater ambition and action, by parties and non-parties alike, toward achieving those 2030 targets for boosting the resilience of water supply, food and agricultural production, health services, natural ecosystems, and human infrastructure and settlement.
On adaptation finance, parties recognised the importance of supporting developing countries by “scaling up new and additional grant-based, highly concessional finance, and non-debt instruments” and emphasised the need to “enhance their enabling environments” for private finance, in the form of policy incentives and guidelines.
The text also stressed the key role of collaboration and “global solidarity” in adaptation efforts, “including long-term transformational and incremental adaptation”. This need for more international coordination and policy clarity in the inevitably iterative task of building adaptation struck a chord with Viswamohanan.
“It’s integral that governments are able to work with stakeholders to ensure that the measures that are being implemented for resilience and adaptation are done at a systemic not just an asset level to take account of inter-regional factors, for example,” she says.
Treaty texts are easily dismissed, but Viswamohanan left Dubai feeling broadly encouraged about the level of focus on adaptation, including on finance flows. Adaptation finance was a big part of discussions, she notes, both formally and at the side events, suggesting a change of tone since COP27.
“Last year, adaptation was treated almost as a public service, but that conversation has shifted to one which has a clear role for private finance in building resilience and adaptation,” she says.
The AIGCC has around 70 members, largely asset owners and managers, which operate in 11 markets across Asia and manage US$32 trillion in assets globally.
“On the same page”
At COP28, UN Climate Change confirmed that 11 countries, including four from Asia, had submitted NAPs during 2023, bringing the number received from developing countries to 52.
Malaysia announced plans to develop its NAP in September, while several other governments across the region are also understood to be formulating theirs. Forty four of the 52 had received approval for 83 projects from the Green Climate Fund (GCF) by November, generating US$18.6 billion in funding overall.
“NAPs are key for developing countries to identify their resilience-building needs and access the necessary funding to implement adaptation action,” said UN Climate Change Executive Secretary Simon Stiell at COP28.
2024 could be a significant year for climate adaptation in Asia, with Bangladesh set to host the next iteration of NAP Expo, the annual event aimed at sharing experience and best practice in formulating and implementing NAPs.
“The plans will need to be comprehensive enough in terms of the data and scenarios being used to estimate their level of risk to ensure alignment between investors and governments,” said Viswamohanan.
“They need to be on the same page on understanding the risks and working together on identifying resilience measures. Governments need to mandate disclosures from companies to develop a company-level database that can support overall risk assessments.”
While 2023 marked a continued ratcheting up of adaptation action, more detail and urgency is still needed. To date, only eight sectoral NAPs have been submitted, including one from Nepal focused on health. A NAP Progress Report published by UN Climate Change’s Least Developed Countries Expert Group in November further underlined calls to shift from formulation to implementation of adaptation plans.
The report admitted even formulating NAPs can be a challenge, partly due to limited available resources in some countries to coordinate the relevant stakeholders domestically, but also the difficulties involved in identifying accredited parties to develop and submit the project proposals needed to access GCF funding. NAPs typically identify risks and impacts, as well as indicative costs, and increasingly funding sources, with countries including Bangladesh and Cambodia establishing national trust funds to direct resources across sectors.
According to the report, priority measures and actions in NAPs to date include climate-resistant agriculture, consistent clean water supply, critical infrastructure resilience, ecosystem-based adaptation, strengthening healthcare resilience, early warning systems and disaster preparedness.
“Creating a pipeline of projects for resilience is also important to get those conversations going on defining adaptation finance solutions. A lot of markets in Asia are only in their early stages on this. They’re not looking at physical climate risk as a systemic risk yet, rather in isolation in a few areas based on existing impact. That really needs to shift, which is why you need a whole-of-government approach,” says Viswamohanan.
A key focus for the AIGCC is to ensure that the climate adaptation plans of governments and companies are compatible and comprehensive enough to attract investors. “We’ve started some level of engagement on adaptation planning by companies,” says Viswamohanan.
“We will be taking that work forward with more focused discussions with governments in the region, ensuring that the plans being developed are adequate for investors and companies to be able to collaboratively develop projects and plan solutions.”
In its recommendations on NAPs, the AIGCC says governments should include a financing strategy which identifies areas for participation by private investors. NAPs should identify financing gaps, outline finance options and strategies across asset classes and explain operational next steps. The AIGCC also suggests establishing an advisory group to develop mechanisms and vehicles for adaptation finance that leverage public funding sources to attract private finance.
This builds on the earlier efforts of the AIGCC’s Physical Risk Working Group, which has worked with member institutions on best practice in conducting physical risk assessments at a portfolio level, in order to understand the extent of exposure of each asset, both at the company level and also along the supply chain.
“We’ve also been encouraging investors to engage with companies to understand how they are looking at their assessments and developing their plans. And now we’re at the stage where some companies have done some assessments and need to start implementing measures to ensure that business is not disrupted by any of these climate risks,” explains Viswamohanan.
Focus on transition
While climate adaptation is rising up the agenda for investors in Asia and elsewhere, much of the AIGCC’s work focuses on the role of asset managers and owners in facilitating the transition to a net zero economy.
Viswamohanan says the conversation between corporates and investors on transition is “well under way” in Asia, meaning the commitments made in the final COP28 text consolidate much of what the market was already preparing for. All governments now need to walk the walk, she says.
“What we need to see next is the transition of these global commitments into domestic policies to quicken the pace of decarbonisation. Some countries have been doing it already, but others now need to follow suit.”
Above all, this means governments giving investors and corporates clear signals.
“For the next set of nationally determined contributions, investors would like to see countries really committing, in terms of the ambition of the targets they are setting, being held accountable at an international level and supplementing that with national-level policies,” says Viswamohanan.
The transition challenges facing Asian economies are reflected most evidently in the fact that the two largest countries in the region – India and China – have yet to commit to net zero emissions by 2050. The scale of the decarbonisation task is also evident in the travails of the Just Energy Transition Partnership programmes designed to wean Vietnam and Indonesia off coal.
A slower pace of change in CO2 emissions levels than some western economies is inevitable given the eastward migration of manufacturing in recent decades and should not mask the significant steps toward low-carbon economies that have already been made in these and other countries across Asia.
“There has been some progress in certain countries in developing transition pathways for certain sectors. The Asian case is interesting because of the presence of heavy industry and manufacturing,” acknowledges Viswamohanan.
“They are very hard to decarbonise and require many elements to accelerate this process, including technology and finance. Countries have been developing pathways and companies have been responding, but we need to look at what would help to raise ambition.”
To this end, last year the AIGCC convened a decarbonisation pathway discussion amongst companies in four Asian markets. This initiative highlighted the different challenges faced across markets, looking at the factors that influence firms to transition faster, in order to share which policy measures were most effective. “These dialogues are essential to build momentum; working in isolation on transition pathways is not the way to go. We need to see more collaboration,” says Viswamohanan.
Close collaboration is also key to aligning the portfolios of Asia’s institutional investors with the goals of the Paris Agreement, Globally, the relationship between asset owners and managers on the path to net zero is not without its tensions. In Asia, things are still a relatively early stage, according to Viswamohanan.
“A number of asset owners in Asia are still thinking about how to integrate climate into the way they operate. So it’s important to facilitate peer-to-peer learning on the approaches of different asset managers, to help the asset owners translate their needs into mandates.”
The AIGCC has established an asset owner working group to share best practice in this area and to support the region’s asset owners in contributing to global dialogue.
Survey evidence suggests Asian investors are increasingly focused on operationalising their awareness of climate-related risks and opportunities. A recent poll conducted by the AIGCC of 100 asset owners and 83 managers headquartered in the region found that 63% had set a climate policy and 38% had set a net zero target, but only 25% had set interim targets.
Just 20 – albeit with a collective US$5 trillion at their disposal – had set targets to direct capital toward renewable energy and other climate solutions.
However, the AIGCC believes this is just the tip of the iceberg, in terms of investor demand, with policy barriers preventing Asian investors from allocating capital to mitigate climate risks.
“Under the right local policy conditions, private investors can quickly deploy significant capital that will support governments’ growing responsibilities on climate,” said AIGCC CEO Rebecca Mikula Wright in a statement accompanying the preliminary findings.
“Commitments to triple renewable energy capacity and phase out fossil fuels, as proposed for COP28, are the kinds of policy signals that will attract Asian investors’ capital.”
The AIGCC will publish further results later this quarter.