Development banks’ role in economies toward SDGs
At COP 28, the International Development Finance Club showcased its remarkable achievements in green finance while fostering dialogue on global challenges from the perspective of development banking.
Public development banks, or PDBs, have a unique role to play in helping to reorient economies toward the Sustainable Development Goals and the objectives of the Paris Agreement. PDBs can do so by addressing market failures, mobilizing governments and public institutions, financial markets, the private sector, civil society, and by linking global issues with local solutions. They can contribute to the reconciliation of short-term priorities with longer-term visions and impacts on the people and the planet.
The International Development Finance Club is a group of 26 leading national and regional development banks working together to implement the SDGs and the Paris Climate Agreement agendas. IDFC represents the largest provider of public development and climate finance globally, with $4 trillion in combined assets and annual commitments above $800 billion, including more than $200 billion per year of climate finance. IDFC’s main objectives include knowledge sharing and capacity building, advocacy, cooperation between members, and access to project preparation and project financing, as well as cooperation with partners within the financial ecosystem.
For the fourth consecutive year, the club coordinated a pavilion at the 28th United Nations Climate Change Conference, or COP 28, providing a great opportunity to showcase how IDFC is implementing these objectives. In 2022, IDFC reported a record high of $288 billion in total green finance commitments, which represents a 29 percent increase from 2021.
Cumulatively, green finance commitments by IDFC members surpassed $1.5 trillion since the Paris Agreement was signed in 2015. This reporting is based on a methodology, jointly developed by IDFC and multilateral development banks, called the Common Principles for Climate Finance Tracking. Constantly improved, the methodology is a good example of cooperation to reporting and transparency. For more than a decade, IDFC has conducted an annual mapping of member institutions’ green finance contributions.
Mitigation finance reached $245 billion, the highest level to date, marking an increase of 31 percent over 2021. Adaptation finance also reached a record high, increasing 52 percent to $31.6 billion. The uptick in adaptation finance follows members’ commitment to increase their adaptation finance in the IDFC 2021 State of Ambition. At $78 billion in total renewable energy finance in 2022, IDFC contributes a significant portion of the annual average of $494 billion in renewable energy finance tracked globally. IDFC members almost doubled their investments in renewable energy since the Paris Agreement. In 2022, IDFC members reported a record high of $288 billion in total green finance commitments, a 29 percent increase from 2021. In total, since 2015, IDFC reported $1.5 trillion in green finance.
In the framework of the climate change negotiations, two ongoing processes are addressing the need for a new, scaled up, and impactful post-2025 financial regime for climate action.
One is the establishment, prior to 2025, of a New Collective Quantified Goal, or NCQG, on climate finance, from a floor of $100 billion per year, taking into account the needs and priorities of low- and middle-income countries. The second one is the Sharm el-Sheikh dialogue aiming at exchanging views on and enhancing understanding of the scope of Article 2, paragraph 1(c), of the Paris Agreement about making all finance flows consistent with a pathway toward low greenhouse gas emissions and climate-resilient development.