MANILA - Green and social finance must be nurtured to ensure that Asia and the Pacific's recovery from the COVID-19 pandemic is inclusive, resilient, and sustainable, according to a new Asian Development Bank (ADB) report released on Wednesday.

The report, Asian Development Outlook (ADO) 2021, urges governments to use policies to support social and green finance development or financing instruments designed to promote environmental and social goals.

The report's theme chapter, Financing a Green and Inclusive Recovery, says governments must use fiscal measures, legislation, and regulation to accelerate the growth of green and social finance.

Regulations that enforce common standards for information disclosure and impact measurement can help ensure that green and social finance is effective, sustainable, and attractive - especially for the private sector.

"COVID-19 has disproportionately hurt the poor, but it also presents an opportunity to build back better," ADB Chief Economist Yasuyuki Sawada said.

"This 'Great Reset' requires vast investment in the environment and in social sectors such as health and education. It can only happen through concerted efforts by the region's governments and the private sector, especially since government revenue has been hit hard by the pandemic," he said.

"Governments should strengthen the market infrastructure and ecosystem for green and social finance so that it can flourish and contribute to a sustainable and inclusive recovery," Sawada added.

According to the report, green and social finance has grown rapidly in recent years, especially in the private sector. Changing investor preferences toward sustainable development goals have played a significant role, adds the report.

The report says that over $30 trillion, or one-third of global assets, are now under management guided by environmental, social, and governance considerations.

It says that firms are using green and social finance to hedge sustainability risks, attract "patient investors," and gain greater resilience to shocks.

While high-income economies still dominate the market, the report says that developing Asia is the leader among emerging markets in green, social, and sustainability bonds.

The report further says that evidence suggests that companies using green finance have enjoyed better stock performance and greater resilience during the pandemic.

The report adds that Asian green bond issuers also improved their environmental performance scores by 30 percent on average, two years after issuance. Cities that issue more green bonds see significant improvements in air quality, leading to health benefits, says the report.

The report outlines several financing tools that can promote a green and inclusive recovery, including stimulus packages, microfinance, and carbon pricing.

Multilateral development banks, like the ADB, can also help green and social finance grow, the report notes.