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World|economy|May 4, 2023 / 05:22 PM
'$1 in, $5 out'. ADB presents new facility to attract billions for green projects

AKIPRESS.COM - The Asian Development Bank presented the Innovative Finance Facility for Climate in Asia and the Pacific (IF-CAP), a landmark program which could significantly ramp up support for the region in the battle against climate change.

Director of the ADB Partnership Funds Department Jacob Sorensen spoke about the mechanism at the 56th annual meeting of the ADB Board of Governors in Incheon on May 4.

He said IF-CAP is a financing mechanism that is efficient due to the leverage guarantee structure with ‘$1 in, $5 out’.

This becomes even more important when one considers that $1 of ADB lending usually results in the implementation of a $3 to $4 project, Jacob Sorensen explained.

In theory, $1 IF-CAP could lead to $15-20 worth of projects on the ground, he added.

The real price for participation may be small, but the results are estimated at 15-20 dollars per project.

Using '$1 in, $5 out' model, initial plans for $3 billion in guarantees could generate $15 billion in new loans for needed climate projects in the region.

For example, reducing risk exposure due to guarantees will allow ADB to free up capital to accelerate new climate lending.

In the current geopolitical situation, unfortunately, the available funds are limited. ADB wants to ensure participation in such an effective method of financing projects to combat climate change, Jacob Sorensen stated.

IF-CAP is an innovative climate change financing mechanism in the Asia-Pacific region. The program was announced by ADB President Masatsugu Asakawa on May 2.

The initial partners of IF-CAP are Denmark, Japan, Republic of Korea, Sweden, UK and USA. These partners are discussing with ADB a range of project development grants along with guarantees for a portion of ADB's sovereign loan portfolios.

The mechanism for attracting external guarantees for climate finance has not yet been applied by any multilateral development bank.

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