The state of green banks 2025 learnings from green financing structures around the world

There is a compelling need for specialized yet differentiated green finance institutions that can overcome the barriers to scaling climate investment. Given the limitations of traditional financial systems in meeting the global estimated USD 7.4 trillion annual shortfall in climate finance (CPI 2024), green banks will be crucial to bridge the gap. This is particularly true for emerging markets and developing economies (EMDEs), where green banks can play both a development and financing role.

Advanced economies first established green banks to address the challenges of financing emerging technologies to mitigate the climate crisis. The UK, Australia, and several US states created standalone institutions from 2008 to 2015,3 and the US then established dozens of further subnational green banks from 2019 to 2024. EMDEs have also adopted various forms of green banks since 2010s, based on their circumstances and needs. Countries established standalone green banks, greened existing PDBs, and set up green windows within PDBs. Green financing has also evolved in diverse, collaborative formats beyond banking institutions.

Like PDBs, green banks open new channels for capital from developed countries to reach sustainable projects in EMDEs. Sovereigns in donor countries are significant providers via bilateral agencies, multilateral climate funds, and MDBs. Climate funds channel finance through MDBs or directly to PDBs on climate action mandates.

In addition to serving as intermediaries of international capital, green banks are increasingly recognized as key actors in developing domestic capital markets. By de-risking and aggregating climate investments, green banks help to mobilize domestic private sector participation, particularly from commercial banks and institutional investors. They play a catalytic role in building a track record for new technologies and project types, making them more attractive to traditional financiers. Green banks also support issuing green bonds and other climate-aligned financial instruments by local governments and project developers. This can help to deepen domestic debt markets and standardize green finance practices.

Importantly, green banks help create investable pipelines that align with the risk-return expectations of local institutional investors. This provides opportunities for these investors, including pension funds, to invest in long-duration, stable, and socially beneficial infrastructure. This amplifies the impact of International capital flows and strengthens national financial ecosystems, enabling more sustainable and self-reinforcing investment in low-carbon, climate resilient infrastructure over the long term. At the same time, various climate finance and economic development trendlines are converging around green banks. MDBs are reforming to be more catalytic, increase local currency financing, and more vigorously support the development of local capital markets.

source:

https://www.climatepolicyinitiative.org/wp-content/uploads/2025/04/The-State-of-Green-Banks-2025.pdf