Non-fossil to fossil energy ratio and scaling up climate investment in all sectors

Explanation

According to OCI’s Public Finance for Energy Database, in the fiscal period 2019 to 2022, for every USD 1 the ADB provided to fossil fuels, USD 4 went to renewables, USD 4.86 went to transmission and distribution, and USD 2.33 went to other energy types (which can include mixed energy, nuclear, or biomass projects). This ratio of renewables to fossil fuel financing is relatively high among the MDBs analysed by E3G’s Public Banks Climate Tracker Matrix, but still considerably lower than leading peer institutions such as the Inter-American Development Bank (IDB).[1] Beyond the investments directly supporting renewable energy evacuation (counted as part of the clean energy figure), the ADB has also emphasised the key role of its wider transmission and distribution investments in supporting renewable energy evacuation indirectly, as well as in supply-side energy efficiency.[2]

The ADB’s ratio of clean energy to fossil fuel finance has also improved considerably relative to the preceding three-year fiscal period (FY2015–FY2018), where financing for each energy type was close to equal (USD 1.03 to clean energy for every USD 1 to fossil fuels).[3] However, this should be considered in the context of a considerable decrease in the ADB’s overall energy sector investments. The ADB financed approximately USD 1.6 billion less in clean energy, and USD 4.2 billion less in fossil fuels in FY2019–FY2022 compared to FY2015–2018. Accordingly, the improved ratio for FY2019–2022 can be explained by a smaller decrease in clean energy finance than in fossil finance relative to FY2015–2018, as opposed to any absolute increase in either.

For the period 2016–2022, ADB energy financing was predominantly directed towards lower-middle-income countries (LMICs) (approx. 54%) and upper-middle-income countries (UMICs) (approx. 41%), with very little going to low-income countries (LICs) (approx. 2%). The vast majority of this financing was provided in the form of loans, with relatively minimal usage of grant or guarantee instruments.

Since updating its Energy Policy in 2021, the ADB excludes support for upstream or midstream oil projects. However, the ADB continues to support limited downstream oil projects, such as for isolated grids, remote areas, and in fragile and conflict-affected situations. The policy explicitly only permits downstream oil investments if renewable alternatives are not viable, and if a clear plan is in place to phase out fossil fuel reliance over time.[4]

The ADB recognises the role of gas as a “transition fuel”, considering it a cleaner fuel source for residential, commercial, and industrial use. Nonetheless, the Bank rules out support for upstream exploration and drilling activities, and states that it will be “selective” in its support for midstream and downstream gas facilities. In terms of formal policy this means: (1) provided that there is no other low-carbon or zero-carbon technology available; (2) that the project is economically viable considering the social cost of carbon; (3) that it avoids long-term lock-in of carbon infrastructure and the associated risk of creating stranded assets; and (4) that the project is consistent with the goal of achieving carbon neutrality by about 2050 according to a pathway consistent with member countries’ NDCs.[5]

Climate finance

The ADB is a leading provider of climate finance throughout Asia. Climate finance (both in absolute terms, and as a percentage of total operations) previously increased at a slower rate (and inconsistently, see the figure below) relative to the best performing peer institutions.[6] However, in 2023 the Bank significantly ratcheted up its climate finance provision to reach 45.6% of annual commitments – a level which it has since exceeded at 56.3% in 2024.

The Bank’s Climate Change Action Plan (CCAP) 2023–2030 reaffirms the ADB’s target for at least 65% of its operations to support climate change mitigation and/or adaptation by 2024, and 75% by 2030 (assessed as a three-year rolling average).[7] This target refers to the proportion of total projects supporting climate mitigation and/or adaptation, as opposed to the proportion of total Bank financing. The Bank’s most recent Corporate Results Framework 2025–2030 also sets a target for 50% of overall ADB lending (sovereign and non-sovereign) to be climate finance by 2030, which is consistent with the form of headline climate finance targets set by other MDBs. Compared with the 2023 baseline used of 46%, this requires an increase of four percentage points over seven years. As of 2024, the ADB has already exceeded this target.

Some of the previous inconsistency in the ADB’s climate finance contributions can be attributed to the Bank’s COVID-19 response, with 2020 (16%) and 2021 (21%) figures representing a dip relative to 2019. Despite this, in October 2021 the Bank showed strong ambition by increasing its climate finance target. Furthermore, climate finance – as a percentage of total operations – rebounded in 2022 (35%), before rising in 2023 (45.6%) and 2024 (56.3%).

In absolute terms, the Bank committed a record high amount of USD 11.2 billion in climate finance from its own resources in 2024, as shown by the figure below. The current target is to deliver more than a cumulative USD 100 billion for the period 2019–2030 (increased from the previous USD 80 billion target), with an interim target of more than USD 35 billion over 2019–2024. The ADB exceeded this interim target, having reached USD 41.9 billion in cumulative commitments by end-2024. To meet its enhanced cumulative target for climate finance in the period 2019–2030, the ADB would need to commit roughly USD 9.7 billion annually in climate finance for this period (over USD 1 billion less than it achieved in 2024).

Until 2022, adaptation finance had consistently accounted for around 25–30% of the ADB’s total climate finance, despite the pressing adaptation needs in many Asian countries. However, adaptation finance has significantly increased in recent years to 39.8% of climate finance in 2022, followed by 42.6% in 2023 and 40% in 2024, indicating an improvement in the ADB’s ability to channel finance to adaptation projects.[8]

Recommendations:    

• Building on the considerable improvement in the Bank’s ratio of finance provided for clean energy relative to fossil fuels for the latest three-year fiscal period, the ADB should aim to further strengthen its efforts to reduce fossil fuel investments while significantly increasing its clean energy portfolio, in line with the energy lending of leading peer institutions such as the IDB. To align with the goals of the Paris Agreement, this could be complemented by establishing a progressive, 1.5 °C aligned timeline for phasing out fossil fuel lending across its energy sector portfolio while ensuring energy access and contributing to a just transition.   
• The ADB should set updated interim targets (such as for 2027) and provide annual forecasts en route to meeting its 2019–2030 climate finance commitments, to ensure the Bank continues to increase from its current levels of climate finance in absolute and proportional terms. These tools would serve a dual purpose. For the Bank, they would offer more granular stepping stones towards achieving the eventual 2030 cumulative goal, as well as a regular indication of whether the Bank is on track to allow for any timely adjustments in approach required. For shareholders and third parties, this would provide greater transparency and accountability regarding the ADB’s progress on climate finance prior to 2030.
• The ADB should consider clarifying the CCAP language around the target for 75% of the discrete number of operations to be supporting climate action, to ensure this is not misconstrued by external stakeholders as comparable to wider MDB climate finance targets (which are predominantly defined in terms of the proportion of total financing). Relatedly, the Bank should consider formally including the CRF target of 50% of total financing to go towards climate in the CCAP.

[1] Different institutions face (in some cases very) different operating contexts in terms of development, demographic, and climate challenges. This high-level comparison of energy lending should be viewed with this firmly in mind, and is intended to serve as an illustrative guide to how different MDBs are allocating their energy finance.

[2] Information received directly from the ADB.

[3] Notably, the relative total of financing for transmission and distribution has also increased considerably (previously at USD 1.3 for every USD 1 to fossil fuels).

[4] For more detailed analysis, see the “Fossil fuel exclusions” metric.

[5] Ibid.

[6] For example, the African Development Bank’s (AfDB) climate finance as a share of total approvals has increased from 34% in 2020 to 41% in 2021 and 2022. Across these years, total climate finance has consistently exceeded fossil fuel lending by a large margin.

[7] This 75% target was first established by the ADB’s Strategy 2030. For full analysis of the CCAP and Strategy 2030, see the “Climate and overarching strategy” metric.

[8] Adaptation finance shares calculated on the basis of the total climate finance figures (covering both commitments from the ADB’s own resources and funds mobilised from external resources)