In the Joint Multilateral Development Banks Statement for COP29, MDBs provided an update on expected annual climate finance flows through 2030. According to the statement, MDB climate finance for low-and middle-income countries is expected to reach $120 billion by 2030, with $42 billion for adaptation and $65 billion from the private sector. For high-income countries, the MDBs expect to mobilize around $50 billion, with $7 billion for adaptation and $65 billion from the private sector.
While this statement commits the MDBs to deliver climate finance, it repeats preexisting goals rather than genuinely scaling up climate finance. It is clear that the target set by MDBs is inadequate and far below what is needed to meet the needs of communities most vulnerable to climate change. MDBs should prioritize delivering high-quality climate finance to those most vulnerable to climate change, specifically low- and middle-income countries. The promise of climate finance to high-income countries raises questions around whether climate finance is going to those who need it the most.
Relatedly, one of the concerns with MDBs taking on a larger role in providing climate finance is the trend of delivering finance as loans. In 2023, 63 percent of climate finance for low- and middle-income countries and 81 percent for high-income countries was in the form of loans. This is particularly problematic for low- and middle-income countries as it can divert resources that would be invested in long-term mitigation and adaptation strategies. For some countries, loan repayment places a financial burden that can result in extracting natural resources, such as fossil fuels, to repay the loan. Climate finance should help countries develop long-term low-carbon and resilient pathways; it should not add to or exacerbate vulnerability. If MDBs cannot provide climate finance in a manner that is needs-based, helps reduce emissions, and increases adaptation and resilience, it is unclear whether they are best suited to deliver it.
Throughout COP, donor countries emphasized the role of the private sector in climate action moving forward, a sentiment reflected in the MDB Statement. The MDBs’ intention to use the private sector to scale up climate finance is problematic on several levels. First, information disclosure in private sector projects is low, which is particularly concerning given that climate finance as a whole is opaque and difficult to track. This is important for evaluating whether climate finance is meeting its intended impact. Second, accountability is likely to suffer if the private sector takes on a much larger role, as the private sector arms of MDBs have a historic pattern of financing harmful projects and failing to take accountability. Third, private sector flows tend to be less predictable than other sources, especially when long-term commitments are required.
Another concern with the private sector approach is that it is unlikely to provide sufficient adaptation finance. There is a large adaptation finance gap, and given the private sector’s historic aversion to finance adaptation projects, this gap appears likely to widen even more. Barriers to private investment in adaptation include a perception that these projects do not yield a sufficient return on investment as well as the fact that projects tend to be long term (10 to 20 years), which means that repayment takes much longer. Without a clear strategy on how these barriers will be overcome, and transparency and accountability improved, the increasingly large role the private sector is expected to take on in the delivery of climate finance threatens to leave vulnerable communities at risk.
Instead of focusing on “leveraging” private sector finance, MDBs would do better by building on their strengths in climate knowledge and policy, through technical assistance and policy finance. The World Bank, for example, has developed a series of Country Climate and Development Reports that provide a blueprint for countries to achieve both climate and development goals. The World Bank and regional MDBs should use their support to help implement these, while remaining open to stakeholder input and making iterative improvements.
With this in mind, we have the following recommendations for MDBs:
- Increase transparency. MDBs should increase the transparency of climate finance at the project level through project documents and in any reports on progress, such as the World Bank’s annual climate finance project list or the Joint Report on MDB Climate Finance. This will help track climate finance flows and assess whether it is being disbursed where it is most needed to verify it is having a positive impact on both development and climate outcomes.
- Provide grant-based climate finance. MDBs should provide climate finance through grants for low- and middle-income countries. These need not be huge if they are well-targeted. They should prioritize improving the quality of climate finance to meet the needs of communities most vulnerable to climate change.
- Focus on the long-term. Much of the climate finance provided by MDBs intends to address short-term risks and impacts, and while this is important, shifting the focus to long-term improvements can enhance overall climate resilience and low-carbon development pathways.
- Be more selective with private sector partners. MDBs should not accept private sector partners who do not commit to transparency, accountability, and predictability, along with MDB environmental and social standards, in their climate finance. This includes other financial intermediaries.
- Become more outcome-oriented. It is critical to confirm that climate finance is actually having a positive impact on climate change and managing social and environmental risks. To do this, MDBs should prioritize tracking outcomes to determine if climate finance meets its intended impact and provides expected benefits.