{"id":23997,"date":"2024-04-17T09:00:42","date_gmt":"2024-04-17T14:00:42","guid":{"rendered":"https:\/\/blogs.edf.org\/climate411\/?p=23997"},"modified":"2024-04-23T10:28:34","modified_gmt":"2024-04-23T15:28:34","slug":"multilateral-development-banks-must-turn-words-into-action-on-climate-finance","status":"publish","type":"post","link":"https:\/\/blogs.edf.org\/climate411\/2024\/04\/17\/multilateral-development-banks-must-turn-words-into-action-on-climate-finance\/","title":{"rendered":"Multilateral Development Banks Must Turn Words into Action on Climate Finance"},"content":{"rendered":"
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Shoreline protection in Bangladesh. IMF Photo\/K M Asad 2021 via Flickr<\/a> (CC BY-NC-ND 2.0<\/a>)<\/figcaption><\/figure>\n

By Angela Churie Kallhauge<\/a>, Executive <\/span>Vice President, Impact<\/span>\u00a0<\/span><\/span>\u00a0<\/span><\/em><\/p>\n

Addressing our planet\u2019s climate crisis requires commitment, cooperation, and urgency \u2013 all underpinned by finance. But our international financial systems were not designed for a challenge of this scale, and we are falling behind in meeting the needs of developing countries in combatting climate change.<\/span>\u00a0<\/span><\/p>\n

In response to this challenge, the World Bank, the world\u2019s largest multilateral development bank (MDB), adopted a reform agenda last year to become more fit-for-purpose, by providing countries with easier access to money to face the climate crisis. Other MDBs are pursuing similar transformations.<\/span>\u00a0<\/span><\/p>\n

We now need to ramp up the implementation of these reforms over the coming year. In November, the world will convene in Azerbaijan for the UN Climate Conference, COP29, to set a new target for climate finance. And unless we know how these reforms will allow MDBs to deliver and mobilize money where it\u2019s needed most, the new finance goal may fall flat.\u00a0<\/span>\u00a0<\/span><\/p>\n

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Why is MDB Reform Necessary?<\/span><\/b>\u00a0<\/span><\/p>\n

Developing countries are often those hardest hit by climate change, yet they have limited resources to respond. Finance experts estimate that they may need <\/span>up to $2.4 trillion per year<\/span><\/a> in investment by 2030 to meet the Paris Agreement goals\u2014far greater than current finance available.<\/span>\u00a0<\/span><\/p>\n

MDBs can help fill this massive investment gap. They provide grants and low-interest loans to developing countries to foster development, fight poverty, and address climate change \u2014 making them well-positioned to support developing countries with climate-related challenges. For example, after Hurricane Maria displaced thousands in Dominica in 2017, the World Bank provided <\/span>$115 million<\/span><\/a> in emergency support to rebuild the island and foster resilience.\u00a0<\/span>\u00a0<\/span><\/p>\n

However, even with MDB support, when climate disasters strike, many developing countries face underlying financial pressures which have not been effectively addressed by international institutions. Nearly seven years after Hurricane Maria, Dominica remains incredibly indebted and at risk of debt distress. They are not alone: most Caribbean countries have high public debt, alongside <\/span>limited access to private finance<\/span><\/a>.<\/span>\u00a0<\/span><\/p>\n

Other regions face similar challenges \u2013 many African states are struggling to finance their energy transition due to perceptions of high risk, and some climate-vulnerable countries like Kenya and Ethiopia have seen credit rating downgrades in recent years. Finance that is provided is often at incredibly high interest rates, and the costs of capital for clean energy projects in African countries is <\/span>three times greater<\/span><\/a> than in developed countries.<\/span>\u00a0<\/span><\/p>\n

In response to these challenges, a chorus of calls for MDB reform have echoed across the global community in recent years. The good news is that these reforms are now underway. Last October the World Bank adopted a reform agenda which includes a new playbook for action and a new vision statement – to create a world free of poverty <\/span>on a livable planet – <\/span><\/i>firmly integrating climate change into its core mission.<\/span>\u00a0<\/span><\/p>\n

The Bank\u2019s <\/span>new playbook<\/span><\/a> seeks to \u201cdeliver impact at scale,\u201d including by strengthening the mobilization of private finance and expanding financial capacity. Other MDBs are implementing similar reforms, with positive progress on issues such as cross-bank coordination and the use of debt pauses to prevent countries from falling into debt distress.<\/span>\u00a0<\/span><\/p>\n

Why is Implementing MDB Reform Critical for the 2024 Finance Goal?<\/span><\/b>\u00a0<\/span><\/p>\n

The international community is currently deliberating on a new goal for how much climate finance developed countries should channel to developing countries. The current goal of $100 billion per year, set in 2009, was only met for the first time last year. The new goal will be far more ambitious, with some countries calling for a target of $1 trillion or more. To meet this level of finance, we will need to draw from multiple sources including the public and private sector.<\/span>\u00a0<\/span><\/p>\n

The MDBs will play a pivotal role in reaching this target, particularly when it comes to crowding in new sources of private finance. Currently, MDBs leverage $0.60 in private capital for every $1 of MDB financing, but G20 experts have <\/span>called<\/span><\/a> on them to double this ratio. This could have a transformational impact by catalyzing finance at far greater levels than before and helping us meet an ambitious finance goal. MDBs can unlock new private sector partnerships by doing more to reduce the risk of climate projects through tools like guarantees.<\/span>\u00a0<\/span><\/p>\n

How can M<\/span><\/b>DBs Seize this Moment?<\/span><\/b>\u00a0<\/span><\/p>\n

At this week\u2019s Spring Meeting of the World Bank in Washington DC, and across the rest of 2024, MDBs must make swift progress on implementing reforms to meet the urgency of the moment and build momentum towards a meaningful finance goal. Priorities should include:\u00a0<\/span>\u00a0<\/span><\/p>\n