Readying the Multilateral Development Banks for the Climate Fight
The world is confronting its biggest threat with one arm tied behind its back. Although the increasingly devastating effects of the climate crisis are becoming more apparent with each passing year, multilateral development banks (MDBs) are still playing only a marginal role in the global response. The annual meetings of the World Bank and the International Monetary Fund on October 9-15 are a crucial opportunity to change course.
Recent events in Libya, Pakistan, and the Horn of Africa confirm a hard, tragic truth: climate disasters are now firmly intertwined with development. The global system of AAA-rated MDBs – with the World Bank at its center – should be at the heart of financing climate-change mitigation and adaptation efforts in the developing world. Yet they are not stepping up.
Total MDB lending hovers around $100 billion per year, and, as the recent report of the G20 Independent Expert Group on MDBs points out, net transfer from MDBs to developing countries is currently close to zero, or even turning negative, once debt repayments are factored in. Compare that to the estimate by the Independent High-Level Expert Group on Climate Finance that we need an additional $2.4 trillion per year for climate and development finance.
More initiatives are needed to unblock the flow of private capital to green projects in developing countries. To that end, the Summit for a New Global Financing Pact in Paris this summer introduced a proposal for a partial foreignexchange guarantee to protect investors more cheaply from losses associated with volatile exchange-rate fluctuations in developing countries. That is a critical step forward. But many categories of climate investment – including resilient infrastructure (such as stronger sea-level and flood defenses) and climate-resilient health and education systems – do not generate enough revenue to attract privatesector players.
Different climate-financing needs call for different financing methods, which is why Barbadian Prime
Minister Mia Amor Mottley’s Bridgetown Initiative advocates addressing climate finance as a holistic global system. When it comes to building resilience in developing countries, MDBs must take the lead.
We already know the scale of the adaptation-finance gap. In its widely discussed November 2022 report, the Independent High-Level Expert Group on Climate Finance – led by Vera Songwe, Nicholas Stern, and Amar Bhattacharya – estimated that an extra $200 billion of annual MDB spending is needed to protect lives and livelihoods from climate change across the developing world.