GLOBAL CLIMATE CHALLENGES, INNOVATIVE FINANCE, AND GREEN CENTRAL BANKING Sayuri Shirai ASIAN DEVELOPMENT BANK INSTITUTE Global Climate Challenges, Innovative Finance, and Green Central Banking Sayuri Shirai ASIAN DEVELOPMENT BANK INSTITUTE © 2023 Asian Development Bank Institute All rights reserved. ISBN 978-4-89974-281-4 (Print) ISBN 978-4-89974-282-1 (PDF) DOI: https://doi.org/10.56506/WIUU5747 The views in this publication do not necessarily reflect the views and policies of the Asian Development Bank Institute (ADBI), its Advisory Council, ADB’s Board or Governors, or the governments of ADB members. ADBI does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. ADBI uses proper ADB member names and abbreviations throughout and any variation or inaccuracy, including in citations and references, should be read as referring to the correct name. By making any designation of or reference to a particular territory or geographic area, or by using the term “recognize,” “country,” or other geographical names in this publication, ADBI does not intend to make any judgments as to the legal or other status of any territory or area. Users are restricted from reselling, redistributing, or creating derivative works without the express, written consent of ADBI. ADB recognizes “China” as the People’s Republic of China; and "Hong Kong" as Hong Kong, China. Note: In this publication, “$” refers to United States dollars. Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5, Kasumigaseki, Chiyoda-ku Tokyo 100-6008, Japan www.adbi.org Contents Tables and Figures iv Abbreviationsvi About the Author viii Forewordix Introductionxi 1 Climate, Environment, and Corporate Management 1 2 The Role of the Banking Sector in Promoting ESG-Oriented Corporate Management 24 3 Climate Change, Environment, and Blended Finance for Emerging and Developing Economies 32 4 Climate Change, Nature Stock, and Debt Swaps for Low-Income Developing Economies 65 5 Green Central Banking and Climate-Related Monetary Policy 87 6 Green Prudential Policy and Financial Regulation 127 References166  iii Tables and Figures Tables 1.1 Survey Responses on ESG Rating Providers by Investor and Company Respondents  3.1 Aggregate Net Financial Flows to Emerging and Development Economies 5.1 Possible Climate-Related Policy Options for Central Banks 5.2 Selected Stylized Options for Adjusting Central Banks’ Operational Frameworks to Climate Risks 21 34 89 98 Figures 1.1 Positions Related to Environmental, Social, and Governance 6 1.2 GHG Protocol Scopes and Emissions Across the Value Chains (Scopes 1, 2, and 3) 9 1.3 ESG Score of Nonfinancial Companies in Japan, the European Union, the United Kingdom, and the United States 15 1.4 Environmental (E) Score of Nonfinancial Companies in Japan, the European Union, the United Kingdom, and the United States 16 1.5 Social (S) Score of Nonfinancial Companies in Japan, the European Union, the United Kingdom, and the United States 17 1.6 Corporate Governance (G) Score of Nonfinancial Companies in Japan, the European Union, the United Kingdom, and the United States 17 3.1 Emerging and Developing Economies’ Debt to the People’s Republic of China 35 3.2 DAC Member Economies’ Net Official Development Assistance in Real Terms 36 3.3 Total Climate Finance Provided and Mobilized 41 3.4 Relationship between Credit Ratings and CO2 Emissions 48 3.5 Four Types of Blended Finance Schemes 51 3.6 Climate Finance Partnership Fund Managed by BlackRock 62 4.1 Two Types of Debt-for-Nature Swaps 72 5.1 Central Bank Mandates and Growing Long-Term Climate Risks 93 6.1 NGFS Six Types of Climate Scenarios 134 iv  Tables and Figures v 6.2 6.3 6.4 Supervisory Actions and Expectations on Stress-Testing and Scenario Analysis in the Asia and Pacific Region SUSREG Climate-Related Indicators in the Asia and Pacific Region Fulfillment of Climate-Related Indicators on Supervisory Expectations on Banks 143 160 161 Abbreviations ADB AfDB AI ASEAN BCBS BOE BOJ CBD CEO CIV COP CO2 CO2e CSLN CSRD DAC DFC DFI DSSI ECB EMDEs EIB EIF ESCB ESG ESMA ESRB EU FDI FSA FSB G7 GCF GFANZ GHG GSIA IBRD ICAAP vi  Asian Development Bank African Development Bank artificial intelligence Association of Southeast Asian Nations Basel Committee on Banking Supervisio