The European Bank for Reconstruction and Development (EBRD) and Cambridge University’s Centre for International Sustainable Development Law (CISDL) jointly convened a high-level plenary panel of the General Counsels and Deputy General Counsels from five multilateral development banks (MDBs) to share how their institutions are playing a key role – through financing, policy dialogue, technical assistance and capacity building support – to create an enabling environment for the mobilisation of climate finance to meet the goals of the Paris Agreement.
European Bank for Reconstruction and Development (EBRD)
Michael Strauss (General Counsel) shared that the EBRD’s Green Economy Transition approach sets the goal to increase green financing to more than 50 per cent of annual business volume by 2025, a target that has already been met for the two preceding years. This reflects the Bank’s commitment to channelling investments towards ‘green’ projects and opportunities. A perfect example of this is EBRD’s support for the rollout of renewable energy in Egypt when it helped finance the development of Egypt’s first solar park, the largest in Africa, the 1.5 GW Benban complex. The Bank has since then gone on to finance many more megawatts of renewable power and helped the Egyptian Electricity Transmission Company implement the country’s first competitive auction for utility-scale solar PV capacity.
As a result of this long-standing relationship with the Egyptian Government, Egypt named the EBRD its lead partner on the energy pillar of its Nexus Water-Food-Energy (NWFE-EP) initiative which was launched at COP27. NWFE-EP combines financing and systemic market transformation through the retirement of 5 GW of inefficient fossil fuel power capacity by 2025 and the deployment of 10 GW of solar and wind energy by 2028. The NWFE-EP is expected to unlock USD10 billion in private investment to support the deployment of renewable energy. It also aims to mobilise more than EUR500 million in technical assistance, grants and concessional loans from donors and international financial institutions to address critical bottlenecks, including a strengthening of the grid. This is a significant multiplier effect of the Bank’s investment in Egypt and its strong commitment to greening emerging markets.
2023 was a milestone year for the Bank as the commitment to ensure complete Paris Agreement alignment of operations took effect from 1st January 2023. EBRD’s Paris Agreement alignment approach covers the entire spectrum of investment operations – direct finance, intermediated finance and also equity and trade financing transactions. The Bank recognises that for its own green ambition to percolate to its partner financial intermediaries, there is significant work to be done to support this journey, and this is why EBRD is supporting partner financial intermediaries to prepare and implement their own individual transition plans in line with leading international standards.
In 2022, EBRD’s climate finance for low and middle-income economies rose to USD 4.3 billion from USD 3.9 billion in 2019, and for high-income economies reached USD 2.5 billion from USD 1.1 billion in 2019. In total, the EBRD’s climate finance for 2022 increased by 35 per cent from 2019 to reach USD 6.8 billion. In addition to its own climate finance contributions, EBRD also focusses on mobilising private sector climate finance. EBRD’s total climate private mobilisation stood at USD10 billion in 2022.
Asian Development Bank (ADB)
Tom Clark (General Counsel), shared that ADB was one of the first MDBs to announce an ambitious climate financing target of USD100 billion by 2030 at the U.N. COP26 at Glasgow. ADB is also one of the first MDBs to establish a climate risk screening and management framework for its operations. Notably, the ADB is 100% aligned with the Paris Agreement on sovereign operations, with a plan to be fully compliant (including non-sovereign operations) by July 2025. ADB is also working on multiplying its own funds by raising additional climate finance from the private sector, capital markets and philanthropies. For example, ADB’s Innovative Finance Facility for Climate in Asia and the Pacific (IFCAP) set up in 2023 was established to scale up climate finance of ADB’s donors by strategically leveraging funds from the private sector and philanthropies to help the region combat climate change. IFCAP aims to mobilise up to USD 4billion of climate finance for every dollar of donor contribution, potentially unlocking an additional USD9 billion for climate investment.
ADB is also focussing on supporting its private sector clients with retiring from dependency on fossil fuels, in addition to supporting the financing of renewable energy infrastructure. In 2021, ADB launched an Energy Transition Mechanism to support the early retirement of coal fired plants in Asia (Indonesia, Philippines, Kazakhstan, Pakistan and other member countries). ADB is also working on enabling policy based lending to create an environment for facilitating climate-related investments. This enables cutting edge legal reform work which mobilises private sector capital to de-risk climate investments that need to be made. ADB Ventures Group also provides early-stage funding and support to technologically driven projects ASEAN Catalytic Finance Facility crowding in private capital investment.
International Finance Corporation (IFC)
Leslie Sturtevant (Deputy General Counsel) shared that the World Bank has updated its mission to include the concept of ‘liveable planet’ – which is a powerful concept including themes of climate change mitigation, adaptation, resilience and decarbonisation.
In terms of Paris Agreement alignment, IFC is 85% aligned with the Paris Agreement and is on track to achieve 100% alignment by 2025. IFC works with clients to build their capacity and also select projects based on criteria for climate mitigation and adaptation by mainstreaming climate into its operations. IFC has a 35% target for climate finance, which it has exceeded since the past 5 years, and it plans to have a 50% target like the EBRD going forward. In FY23, IFC committed a record USD14.4 billion in climate finance, mobilising USD6.8 billion of additional capital alongside its own investment of USD7.6 billion to help client countries address the climate crisis.
Committed to addressing the USD2.4 trillion gap in emerging markets for Paris Agreement goals, the institution has integrated climate principles into its core business. For example, IFC has the Excellence in Design for Greater Efficiency (EDGE) program which aims to decarbonise real estate markets and has certified about USD57 billion in the value of floor space in 90 countries and supported approximately USD10.2 billion in investments. EDGE showcases the role of innovation in climate mitigation and the unlocking of green finance. IFC is also investing in new opportunities like green hydrogen, climate-smart technologies, green buildings, green and blue bonds and sustainability linked bonds.
IFC has a huge focus on de-risking investments – by use of blended finance products to enhance the returns for the private sector. In addition to this, IFC also advises on climate risk allocation and management, i.e., developing risk mitigation tools to help the climate department in interpreting technical methodologies and drafting the methodologies in a form which clients understand; climate litigation risk related advice and advising on greenwashing risk when engaging in carbon trade and carbon finance.
IFC has been instrumental in putting together biodiversity guidelines for investments as well as the Managed Co-Lending Portfolio Programme (MCPP) One Planet platform, which is the IFC’s syndications platform for institutional investors and is one of the institution’s most successful efforts to connect institutional investors with impact-driven opportunities for alignment with the Paris Agreement.
Green Climate Fund (GCF)
Gülen Newton (General Counsel) represented GCF, which is institutionally mandated to serve the Paris Agreement. It is the world’s largest climate fund at USD52 billion dollars (including co-financing). GCF is a country driven mechanism which supports country planning and is aligned with country priorities. It is an open partnership organisation that works with accredited entities, like MDBs and international financial institutions and community level organisations.
GCF has a wide range of financial instruments leveraging blended finance as well as piloting support for innovative financial structures. It targets a balanced allocation on the basis of its governing instruments, accepting higher risks to support early-stage project development and innovations for catalysing climate finance.
GCF has a crucial role in achieving balanced climate finance allocation to mitigation and adaptation as the world’s largest climate fund covering 128 developing countries and 240 climate projects. With an equal focus on adaptation and mitigation projects, GCF supports guarantees for climate bonds to impactful projects like the Infrastructure Climate-Resilient Fund which prevents significant climate induced losses associated with damages to infrastructure in Africa. To address the investment barriers of climate resilient infrastructure investments in sub-Saharan Africa, GCF provides USD 240 million in junior equity and, by supplying this catalytic first loss equity, mobilises investments from private sector investors and pension funds for projects in the region struggling to unlock such funding. GCF’s concessional capital is expected to absorb the increase in project cost for incorporating climate resilience into the design of the assets.
GCF is also the founding equity shareholder of the Green Guarantee Company (GGC), a first-of-its-kind institution dedicated to providing guarantees for climate bonds with significant climate adaptation and mitigation impacts. GCF will invest USD 40.5 million as the first tranche with subsequent investments up to an aggregate amount of USD 82.5 million as GGC scales up.
The fund’s commitment to benefiting micro and small enterprises, small corporate farmers, and female farmers highlights the inclusive impact of its initiatives. With a new strategy plan in place, GCF remains at the forefront of promoting the implementation of the UNFCCC, solidifying its role in addressing global climate change challenges.
International Fund for Agricultural Development (IFAD)
Katherine Meighan (Associate Vice President and General Counsel) highlighted that IFAD, recognising the profound impact of climate change on agriculture and food systems, has emerged as a key player in investing in resilient food systems. IFAD is a UN specialised agency that works in over 100 countries with small scale food producers and farmers. With the climate crisis, there is now an urgent need to transform agricultural food systems. According to IFAD’s estimations, every dollar invested in boosting agricultural resilience can save USD10 USD of future emergency aid. Therefore, access to finance is essential to sustain and improve the agricultural livelihoods that vulnerable communities rely upon.
Katherine noted that climate mitigation finance has risen rapidly, whereas climate adaptation, which can help people who are today hurt the most from climate change, is relatively underfunded. She also highlighted that, though agriculture and food systems contribute to one third of GHG emissions, IFAD projects are net carbon sink, i.e., that IFAD projects over last 20 years were not a net CO2 emitter but in fact they were absorbing emissions.
Financing small farmers and producers is risky and in the more vulnerable regions it is even riskier. IFAD is working to turn that around and scale up financing for such regions. To this end, IFAD has partnered with the Green Climate Fund, the Nordic Development Fund and the EU to set up the Africa Rural Climate Finance Mechanism – a large-scale public private climate adaptation platform to serve small scale food producers and rural microenterprises by blending de-risking with risk sharing for Kenya, Uganda, Rwanda and Tanzania. This is a scalable model to tackle climate adaptation moving forward.
By de-risking and providing technical assistance, IFAD aims to directly benefit one million people, ensuring that climate finance for adaptation in agriculture becomes more impactful. In a historic move, IFAD listed its sustainable bonds at the London Stock Exchange in 2023 and issued its first impact report – which tracks the use of IFAD proceeds to 16 out of 17 UN SDGs – signalling its commitment to climate-sensitive project implementation and collaborative efforts with legal and business partners.
The full panel discussion is available on YouTube: https://www.youtube.com/watch?v=vW5aMT5B5iY