In the Paris Agreement, developed countries committed to mobilising $100 billion annually by 2020 to support developing nations in addressing climate change. While this target was finally reached in 2022, it remains far short of what is required to meet the global climate financing needs. With the intensifying impacts of climate change, the financial demand continues to rise. The United Nations Conference on Trade and Development estimates that by 2030, developing countries will require approximately $1.8 trillion annually in climate finance.
At COP29 in Baku, Azerbaijan, the international community will engage in negotiations on the new Collective Quantified Climate Finance Goal (NCQG). Special advisor on climate change Avinash Persaud pointed out, “Multilateral Development Banks (MDBs) are key to breaking the deadlock and scaling up climate finance. Through their AAA credit ratings, they can effectively leverage capital and amplify the impact of climate funds.”
Expanding Climate Finance Through Multilateral Development Banks
Currently, MDBs account for around half of the existing $100 billion in climate finance, thanks to their ability to mobilise capital through leverage. Persaud explains, “MDB capital acts as loss-absorbing finance, enabling these institutions to raise funds at low costs from the market and support large-scale climate projects.” With a $20 billion annual contribution from developed-country shareholders, MDBs could mobilise up to $180 billion in long-term loans for developing nations each year. When combined with private-sector co-financing, the total could approach $300 billion annually.
This approach is particularly vital for climate-vulnerable countries. Persaud highlights, “By providing long-term, low-cost financing, MDBs can help the most climate-affected nations invest in resilience, reducing risks over time.” These funds are essential for Small Island Developing States (SIDS) and Least Developed Countries (LDCs), which often face significant barriers to accessing adequate financing for climate action.
Addressing Adaptation and Loss & Damage Financing Challenges
“Currently, 75% of MDB climate financing is allocated to mitigation projects, with only 25% directed toward adaptation,” Persaud points out. He advocates for a clear financing target that ensures a 50:50 split between mitigation and adaptation, especially for climate-vulnerable countries. Such a shift would help close the substantial adaptation financing gap.
As for Loss and Damage financing, which requires grants rather than loans, Persaud notes that it lies beyond the current scope of MDBs. He suggests integrating innovative financial mechanisms, such as global tax justice initiatives or reallocating Special Drawing Rights (SDRs), to address this pressing need.
To achieve an ambitious NCQG, Persaud urges developed-country shareholders to take greater responsibility while ensuring that developing nations perceive the financing opportunities as fair and accessible. He believes the United Nations Framework Convention on Climate Change (UNFCCC) should send a strong signal through the NCQG to support MDB participation. This could include embedding long-term, low-cost financing mechanisms within the NCQG framework, allowing MDBs to fulfil their potential as a bridge to more sustainable and inclusive financing for developing countries.
“The success of COP29 depends on countries demonstrating genuine commitment. If they do, we can build a more effective climate finance system and elevate global climate action to new heights,” Persaud concludes.
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