Unlocking Private Investment for Sustainable Infrastructure in the Pacific Islands: Japan’s JCM and ESG Innovation

Developing countries in which infrastructure development is heavily dependent on overseas development aid face significant sustainability challenges, including financing gaps and inadequate maintenance. Increasing private-sector investment is crucial for addressing these challenges. This paper proposes an innovative framework linking environmental, social, and governance (ESG) principles with a revised joint credit mechanism (JCM) to attract private investment in infrastructure development, particularly in Pacific Island countries facing the climate crisis. Under the revised JCM, by allocating generated carbon credits to participating Japanese companies, rather than the Japanese government, corporations can monetise credits through market transactions, creating compelling economic incentives for private-sector engagement. In ESG-advanced markets, credits serve as strategic instruments for corporate value enhancement beyond revenue generation, while corporations require continuous credit acquisition to sustain investor confidence. Our revised framework provides a sustainable solution to both financing gaps and infrastructure maintenance challenges. Our analysis demonstrates that integrating market dynamics and corporate incentives into bilateral climate mechanisms holds substantial potential for mobilising private capital for sustainable climate infrastructure finance. This approach represents a promising departure from traditional donor-dependent models, effectively aligning corporate interests with sustainable development objectives while advancing national emission reduction commitments.