Role of Multilateral Development Banks in Spearheading Climate Action
Last year marked a record high contribution of Multilateral Development Banks to climate finance in lower and middle income economies – worth more than 60 billion dollars.
By Shilpa S
As global leaders have charted out new roadmaps for climate action in COP28, climate finance holds immense relevance. PM Narendra Modi, during his address at the big climate event, emphasised boosting climate financing and highlighted the role of multilateral development banks in ensuring the same for developing and developed countries.
Coincidentally, last year marked a record high contribution of Multilateral Development Banks (MDB) to climate finance in lower and middle income economies, worth more than 60 billion dollars. With the stated targets for clean energy transitions and other climate commitments, countries like India would need at least 4 – 6 trillion dollars for climate financing in the pre 2030 period and more than a whopping 10 trillion dollars to meet their net zero emission targets by 2070.
The role of MDBs is imperative, not limited to India but also in the developing world, where each nation would require around 2.4 trillion dollars on a yearly basis for climate resilient initiatives. Though governments would prioritise setting aside funds for the same, public financing would be insufficient for the expected scaleup in green sectors by 2030. Blended financing models comprising public and private capital along with financing from MDBs and Development Finance Institutions (DFI) are gaining momentum in the backdrop of these rising needs. Portfolios of dedicated funds, like the Green Climate Fund, must also be increased to facilitate various initiatives.
It is to be highlighted that the role these institutions would need to take up in the coming years would be much greater. Though channelling of funds through bilateral donors can continue, MDBs must proactively scale up their involvement at the ground level for climate resilient development.
Being multilateral bodies, MDBs offer scope to bring together like-minded nations, institutions and individuals looking forward to sustainable efforts. Apart from financial backing, MDBs are involved in technical assistance, knowledge sharing and capacity building initiatives at the local level. The World Bank supports countries in implementing climate smart agriculture plans through dedicated country specific knowledge assistance. It also created the ‘Climate Change Knowledge Portal’, a digital platform for access to comprehensive global, regional, and country data related to climate change and development. MDBs can utilise their country level engagements to spearhead similar initiatives and bridge the data and knowledge gaps with the support of regional and international research organisations.
For India, MDBs are a significant contributor to the umpteen number of sustainable initiatives undertaken for climate action. In 2023 alone, the World Bank has set aside 1.5 billion dollars for India to finance its low carbon energy development, with a vision to accelerate the green hydrogen programme. Asian Development Bank also supports climate priorities, which are in tune with ADB’s country partnership strategy 2023-2027 and Strategy 2030.
Involvement in the regulatory landscape is needed for setting up a conducive policy environment through local level engagements in countries to scale up green efforts. The European Bank for Reconstruction and Development (EBRD) is actively involved in the preparation of viable project pipelines, the identification of projects with better outcomes and thereby the attraction of investors. The bank has adopted a ‘Green Economy Transition’ (GET) approach from 2021-25 to transition to low carbon resilient economies. Through the GET approach, EBRD aligns green projects with international commitments like the Paris Agreement to scale up investments on themes like greening the financial sector, etc. Greening the financial system is formally led by the ‘Network for Greening the Financial System (NGFS)’, which is a group of central banks and supervisors committed to sharing best practices and mobilising mainstream finance to support the transition towards a sustainable economy.
Strengthening MDBs to be front runners in climate efforts is also crucial. Multilateral reforms in international bodies are being discussed to meet contemporary demands, balance western hegemony and increase the voice of the global south. On this front, MDB reforms were studied recently under an Independent Expert Group (IEG) setup under India’s G20 presidency. The IEG emphasised setting up bigger, better and bolder Multilateral Development Banks through a set of streamlined efforts that include operational changes by increasing the involvement of private players, reducing processing timings and securing opportunities for investors.
MDBs have immense potential to equip countries and individuals to strive towards climate action. The high credit rating of these organisations is to be leveraged for improving the credit worthiness of existing green projects and ensuring multi sovereign loan guarantees with an array of strong donors. Achieving the vision of bigger, bolder and better MDBs and proactive involvement at local levels will help realise most of the low carbon and green energy commitments by 2030.
The author is Associate – Research & Strategic Relations, Centre for Public Policy Research.
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