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Catalyzing Climate Finance for Better Infrastructure and Business in Shandong, People’s Republic of China

  • Project Name: Catalyzing Climate Finance: Shandong Green Development Fund Project
  • Region/Country: East Asia/People’s Republic of China
  • Sector and Themes: Finance
  • Year: 2019–Present
  • Project Leaders: Leung Kang Hang
Catalyzing Climate Finance for Better Infrastructure and Business in Shandong, People’s Republic of China
Shandong province in the People’s Republic of China has the country’s highest greenhouse gases emissions and faces multiple climate vulnerability challenges.

This is the first project by ADB in the field of green finance to establish a green fund with loans from international financial organizations.

Development challenge

Shandong is one of the focus provinces in the People’s Republic of China (PRC) that was selected to pilot the government’s paradigm shift under the 13th Five-Year Plan—from a GDP development-orientation to a development model centered on quality growth. Shandong has the country’s highest greenhouse gases emissions and faces multiple climate vulnerability challenges. The province is required to reduce its carbon dioxide emission intensity by 20.5% by 2020. Shandong also aims to achieve peaking of carbon dioxide emissions around 2027, or 3 years earlier than the national goal. The province faces many challenges in meeting these goals due to heavy reliance on coal and increasing traffic: in 2017, the provincial capital Jinan was ranked as the most congested city in the PRC.

Traditional sovereign financing and banking systems have little incentive to cater to climate change investment. A new approach is needed to unlock significant climate finance for cities, especially from private, institutional, and commercial sources.

Solution

The Shandong Green Development Fund (SGDF) Project was initiated to catalyze capital for the development of climate-positive infrastructure and business.

It comprises a mix of $1.2 billion in public and private sector capital, and $300 million in catalytic resources from international financing institutions. Executed by the Shandong Provincial Government and implemented by the Shandong Development and Investment Holding Group, the project will finance a portion of the total capital expenditures of selected climate-positive subprojects for a capped period to make the subprojects bankable, by addressing the upfront project risks, as well as promoting advanced technologies and an integrated approach for climate change. The subprojects will be screened and selected with climate criteria and performance established in the SGDF Green Climate Assessment Guidelines, which is in line with the Green Climate Fund investment framework. It is the first climate fund in the PRC to be categorized as having effective gender mainstreaming.

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The project will help reduce carbon dioxide-equivalent emissions and directly build resilience for 7.5 million people in Shandong province by 2040.

Knowledge products and services delivered

The project produced its first publication, an ADB brief titled Catalyzing Climate Finance with the Shandong Green Development Fund, which describes the national climate policy context, explains the selection of Shandong to pilot the study and its climate finance priorities, and describes ADB’s role, the project development objectives, structure, investment strategy, project selection criteria, and its initial project pipeline.

Impact and results

The SGDF will be structured as an investment pooling vehicle for climate financing. By 2030, the project is expected to reduce carbon dioxide-equivalent emissions by 3.75 million tons per year and directly build resilience for 7.5 million people in Shandong province by 2040. The executing and implementing agencies have mobilized staff and fund management company CICC Capital Management Co. Ltd. to undertake start-up activities including operations setup, discussions with private sector investors, subproject sourcing, agreements preparation, and obtain related clearances as needed. The project helped in preparing the SGDF Green Climate Assessment Guidelines, the cost estimates, and the climate mitigation and adaptation benefits on 10 project concepts, including three pre-feasibility studies.

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The project will help promote advanced technologies and an integrated approach for climate change

Lessons for Replication

The study identified key areas for policy action including creating an enabling environment to cater to climate financing requirements for longer term, and building up climate finance capacity and knowledge. These policies will help overcome barriers in climate finance.

Hashtags:
#ClimateChange #ClimateFinance ##SDG #Strategy2030 #Shandong #Collaboration #Investment
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