Green Investment Banks: Unleashing the Potential of National Development Banks to Finance a Green and Just Transition

The need is urgent for more sustainable finance and investment to achieve the Paris Agreement climate targets and the 2030 Agenda for Sustainable Development. Commercial financial institutions are limited in providing long-term finance, especially for activities with uncertain returns and positive externalities. As such, recognition is growing that public financial institutions need to play a greater role in scaling up investment in climate action and the Sustainable Development Goals (SDGs). Public development banks already play a critical role at the multilateral, regional, national, and subnational levels. With more than $23 trillion in assets and around $2.4 trillion of annual lending, they finance about 10%–12% of global investment (AFD 2022, Marodon 2022, Griffith-Jones 2022). The great magnitude of investment required to finance the transition to low-carbon, net-zero economies—to limit the rise in average global temperature to 1.5C° above pre-industrial levels—and the challenges in mobilizing private capital suggest an even larger role for public banks and funds in developing and advanced economies. Globally and regionally, calls have intensified for a greater role for multilateral development banks (MDBs).1 As recently highlighted in the Independent Review of Multilateral Development Banks’ Capital Adequacy Frameworks (Boosting MDBs’ Investing Capacity 2022), these institutions could unleash hundreds of billions of dollars in new lending if they were to adjust their capital adequacy frameworks and maximize the impact of their capital. Moreover, member governments can strengthen the firepower of MDBs with general capital increases and a rechanneling of Special Drawing Rights from advanced economies that do not need them. Stronger MDBs should be accompanied by meaningful governance reforms so they can fulfill their potential (e.g., Chakrabarti et al. 2022). Importantly, the MDBs need updated mandates to turn them into “green banks” or “climate banks.” In 2018, the Asian Development Bank (ADB) committed to supporting climate action in at least 75% of its operations, with a cumulative climate finance target of at least $80 billion by 2030 (raised to $100 billion in 2021). ADB is also projecting itself now as “Asia and the Pacific’s Climate Bank.” In November 2019, the European Investment Bank’s Board of Directors decided to transform the bank—the world’s biggest renewable lender—from a “bank supporting climate” into a “climate bank” and adopted the Climate Bank Roadmap the year after (EIB 2020). Other MDBs need to follow these examples and step up their efforts to become drivers of change.

source :

https://www.adb.org/publications/green-investment-banks