Philippines’ fertile ground for creation of climate finance market

MANILA, Philippines — The International Finance Corp. (IFC), a sister organization of the World Bank, believes that the Philippines has a viable business environment for building a market for green infrastructure and energy sources, as well as specialized financing. 

In a recent interview, Vivek Pathak, director of the IFC’s East Asia and Pacific Department, said they are now on a mission to help create an ecosystem for green finance in the Philippines as climate finance gains a stronger foothold in Asia. 

The Philippines, he said, is shaping up to be an important market for IFC’s green investments because of the numerous opportunities as well as the increasing familiarity of businesses with climate finance. 

IFC has so far provided $465 million in financing for climate smart projects of Filipino firms in just over a year. 

These include the recent investment of $75 million in the first-ever listed green bond issued by AC Energy Finance International Ltd. and guaranteed by AC Energy, the power arm of Ayala Corp.; $150 million in Banko de Oro’s green bond issuance in December 2017; $90 million Mabuhay Bond to finance the capital expenditure program of Energy Development Corp. last year; and the $150 million investment in the green bond issued by China Bank also last year. 

“You need to build the whole ecosystem for green finance. So it’s about regulators, government, private sector, financiers. And like any ecosystem, it takes time to develop but I think the Philippines is adapting quite fast right now,” Pathak said in a recent interview. 

“I’m hoping five years from now, it would not be needed anymore because the market would be so developed, everybody understands it, the banks can do it and we move on to making a new market,” he said. 

Pathak visited the Philippines recently to meet with several firms on projects that can incorporate green finance and design. These include companies under the Ayala Group and one bank that he declined to identify at the moment. 

Right now, IFC sees several areas in the economy that can be advanced using green finance. So far, these include climate smart infrastructure, renewable energy, green buildings, affordable housing, and agriculture-related logistics among others. 

“You can have green in every walk of life. And that is our first objective: how to get banks to look at these as good business opportunities. That would be a push,” Pathak said. 

While Asian countries have been rather slow to bite on climate finance, there has been growing awareness and interest in it for the past three years. 

“Climate is no longer a do-gooder CSR activity which is what it was 15 years ago. And I think that the positive news is climate has moved away from being a CSR activity to becoming a mainstream activity today which is profitable,” Pathak said.

Countries are also becoming more interested in it because some green technologies like solar are now becoming more on par with fossil fuel energy sources in terms of cost and performance.  

“I think as a first step what we see in the Philippines is more renewable energy projects coming in whether it’s hydro, and eventually solar. It is a little bit slow but I think there are a lot of other things in climate that you can do,” said Pathak. 

“Our objective is to take them beyond just renewable energy because we think the market is much, much bigger. There is logistics, even agriculture-related logistics,” he said. 

Pathak said that as IFC works continuously with banks, they have become more receptive about green finance. 

“We spend years working with some banks on how do they recognize green finance as a new business line. We help them, we have experts, we work with them. It’s  a very comprehensive approach. And at the end of the day we can show them the opportunity, but in some ways, I think they want to be convinced on their own. And the good news is they are getting convinced now, they are seeing it,” he said. 

IFC, a member of the World Bank Group, is focused on making investments in the private sector. Around 68 percent of IFC portfolio is dedicated to green finance and it wants to grow this significantly, Pathak said.