Green, social financing to aid in COVID-19 recovery

MANILA, Philippines — Investments focused on achieving positive environmental and social outcomes are expected to aid in the economic recovery in Asia-Pacific, the Asian Development Bank said.

ADB economists Shu Tian, Donghyun Park and Mai Lin Villaruel said green and social finance are yielding results that can contribute to a more sustainable world especially as countries bounce back from COVID-19.

Green and social finance are investment capital specifically targeted toward positive environmental goals such as clean energy and social goals such as low-cost housing for the poor.

According to the ADB Asian Development Outlook 2021, tapping green and social finance helps meet the preferences of various stakeholders, hedge and mitigate sustainability risks, and generate resilience under shocks.

“Tapping green finance serves as a credible signal of commitment to sustainable impact in the financial markets. Evidence from the global market shows that corporate green bond issuers achieve better environmental outcomes after they issue green bonds,” the ADB economists said.

ADB studies showed that Asian green bond issuers improved their environmental rating score on average by 17 percent after one year and 30 percent after two years of issuance.

At the market level, green bond issuance is associated with reduced carbon dioxide emissions as market participants become more aware of the Sustainable Development Goals and committed to achieving them.

Social impacts, on the other hand, are more varied, but ADB said innovative financing instruments such as impact bonds show potential.

“Green finance reflects an overall awareness of the SDGs which goes beyond environmental issues to encompass social issues,” the economists said.

For example, green bond finance is associated with improved air quality and lower mortality rate. Countries also witnessed lower emissions and narrowed gender gaps after they issued their first green bond.