Countries in the Asia-Pacific region face a shortfall of at least $800 billion in climate financing.

With public finances depleted by the pandemic, policymakers must unlock the vast potential of private capital to join the fight more effectively against global warming.

Doing so will demand a coordinated and multi-faceted approach by actors on all sides, from governments and central banks to financial supervisors and multilateral institutions.

Important strategies include phasing out fossil-fuel subsidies, which have reached a record $1.3 trillion. It will also be key to expand carbon pricing, bridge critical data gaps, and promote innovative financing along with public-private partnerships.

Here's an explainer based on our latest research, which draws on recent chapters of the Global Financial Stability Report on scaling up climate finance and other IMF studies on climate issues:

Why is climate finance urgent?

Progress is too slow. Global temperatures are set to surpass the critical 1.5 degrees Celsius threshold above pre-industrial levels. Efforts to halve 2019 levels of greenhouse gas emissions by 2030 fall alarmingly short, targeting only an 11 percent reduction.

Without stronger action, our warming planet imperils homes, health, and food security. Mobilizing more climate finance is vital not only for mitigating emissions but to build adaptive capacity through investments in climate resilient infrastructure.

This is especially important for Asia, which is home to several of the largest emitters and a region acutely vulnerable to climate change due to high population density and geography.

What makes Asia’s role pivotal?

The region’s transition to greater sustainability has global implications. Asia contributed about two-thirds of global growth last year, and will again in 2024, but its heavy reliance on burning coal for energy means that it contributes more than half of harmful global greenhouse gas emissions.

Asia’s economies recognize how climate hazards directly impact lives and livelihoods, and have made deeper commitments, as their revised Nationally Determined Contributions under the 2015 Paris Agreement show. Asia can aid the climate fight by demonstrating how to balance economic growth and environmental sustainability.

Ritu Basu serves as the Mission Chief to Brunei Darussalam in the IMF’s Asia and Pacific Department. She obtained her PhD in Economics, from the University of California, Los Angeles. Ms. Basu has extensive experience in various IMF departments, covering countries such as Bangladesh, Russia, and Ukraine and FSAPs in Norway, Philippines, and the Eastern Caribbean Currency Union. Notably, she has led capacity development missions to India on sub-national fiscal frameworks. Earlier in her career, she worked as a consultant at the World Bank for the World Development Report. Currently, her focus is on addressing issues related to Climate Change.

Cheng Hoon Lim is the Deputy Director in the Statistics Department of the International Monetary Fund. She brings extensive surveillance and policy experience, grounded in deep knowledge of both macroeconomic and financial sector fields. In her tenure at the IMF, Ms. Lim has held several senior positions and has published on a wide range of topics, including on inflation and monetary policy, housing markets, macroprudential policy, climate finance, and gender economics. She has spearheaded the development of analytical tools for assessing systemic risk, with the aim of integrating financial stability considerations more effectively into macroeconomic assessments. Ms. Lim holds a BA magna cum laude and Phi Beta Kappa from Smith College, and received her PhD from Cambridge University.

This article first appeared at the IMFBlog, a forum for the views of the International Monetary Fund (IMF) staff and officials on pressing economic and policy issues of the day. The views expressed are those of the author(s) and do not necessarily represent the views of the IMF and its Executive Board. Reprinted with permission.