Public development banks in the spotlight: What we should be looking out for

The end of the year is always a busy period for the climate finance world, with international events multiplying to take stock of the latest achievements in the implementation of the Paris agreement and to identify the next – more ambitious – steps to be taken by the international community. Though the climax of these events is undoubtedly the COP (starting in two weeks in Sharm El Sheikh, Egypt), with the New York Climate Week, and the World Bank and IMF’s international meetings behind us, and the Finance in Common summit coming to an end, we start sensing that some topics are already drawing a lot of attention.

The role of public development banks (PDBs) is in the spotlight, and rightly so. There has indeed been a lot of recent talk – not always positive – on their exemplarity and their impact on the real economy, most memorably with the World Bank’s President questioning climate science, just a few weeks ago. Yet, we see that they still catalyse much of the international community’s expectations to “make finance flows consistent with a pathway towards low GHG emissions and climate-resilient development” – or in other words to be aligned with the Paris Agreement. It’s no longer just about international financial institutions showing the way to a sustainable transition, it’s also about local public banks, and how they are uniquely positioned to engage with local authorities to push climate issues on top of the agenda.

This year, more than ever, we see public financial institutions joining forces to come up with collective solutions to continue setting the pace for a broader mainstreaming of climate in the economy, despite the setbacks brought in by repeated crises. Two years after jointly committing to “Aligning their activities with the objectives of the Paris Agreement”, Finance in Common members (more than 520 PDBs) have reaffirmed their engagement towards climate action by focusing this year’s event on “accelerating green and just transitions for a sustainable recovery”, in these times of crises.  This ambitious objective will require a change in paradigm – as argued by Sarah Bendahou in her blogpost you can read in this newsletter – to replace the GHG emission reduction prism, by a more comprehensive, real economy impact prism. With several instruments already being explored by frontline PDBs, we should soon be able to draw some lessons, to broaden the outreach of this new, much welcomed approach.  

Shareholders will have a decisive role to play in giving PDBs the means to increase their impact and provide transformational solutions for a low GHG, climate resilient development. Clarified mandates, stronger financial support and revised supervisory requirements are avenues being explored to encourage PDBs to take more risk in favour of impactful climate financing decisions (some of these avenues were detailed in an Independent Review of Multilateral Development Banks’ Capital Adequacy Frameworks published this summer). In fact, ten of the World Bank’s major shareholders have just this week announced their intention of reforming the World Bank’s management to better meet today’s challenges and investment needs. This announcement had been eagerly awaited, not only because of the recent controversy surrounding World Bank’s President’s views on climate change, but mostly because more and more voices have been rising to point out some incoherences between some international financial institutions’ pivotal role in channelling climate finance and their actual engagements (with regards to fossil fuels for instance).