While increasing green investment continues to be important, public development banks must also focus on deploying the full force of the global financial system against climate change. Fortunately, they are uniquely positioned to catalyze structural reforms and create the conditions to mobilize private capital.
LOMÉ/BOGOTÁ – The devastating effects of global warming are unfolding before our eyes. Uncontrollable fires ravage the Amazon. Rising sea levels threaten to submerge Pacific islands. Droughts and floods in Africa, and hurricanes and typhoons in the Caribbean and Southeast Asia, are increasing in frequency and intensity. And yet the countries most affected by the climate crisis – nearly all of them in the Global South – have some of the lowest greenhouse-gas emissions worldwide. Helping these vulnerable countries build resilience is no longer an option; it is an imperative.
The United Nations Climate Change Conference (COP29) in Baku, Azerbaijan, concluded with the adoption of a New Collective Quantified Goal, with developed countries pledging at least $300 billion annually, and all actors agreeing to scale up public and private finance for developing countries to $1.3 trillion per year by 2035. While the Baku agreement has understandably been met with skepticism, we have no choice but to redouble our efforts to achieve these goals.
Public development banks – especially the 27 members of the International Development Finance Club (IDFC, which we co-chair), but also those in the broader Finance in Common network – will play an essential role in reaching these targets. IDFC members are from developed and developing countries, which allows us to take a balanced view. Beyond the question of whether the amounts agreed to in Baku are sufficient, we believe that a major challenge of financing climate action is efficiency. The quality of funded projects, within the framework defined by the Paris climate agreement, is what will enable IDFC members and other public development banks to contribute as much as possible to a sustainable transition.
But an even bigger challenge, particularly in an increasingly fragmented world, is how to deploy the full force of the global financial system against climate change. Increasing green investment while considering the needs of low- and middle-income countries is no longer sufficient. Instead, the aim should be to redirect all financial flows toward the green transition within the framework of the Sharm el-Sheikh dialogue.
Achieving this goal will require overcoming three obstacles. First, we must stop funding projects and sectors that exacerbate global warming – a gargantuan task, given that the majority of financial flows remain incompatible with the Paris agreement’s objectives. Second, we must start responding to the needs of the most climate-vulnerable countries, where adaptation and mitigation efforts are chronically underfunded. Finally, and perhaps most importantly, we need a radical overhaul of the global financial architecture.
This systemic transformation requires close collaboration between public and private actors. Public development banks have an important role to play here. They are uniquely positioned to catalyze change by influencing public policies, strengthening local capacities, supporting sectoral transitions, and creating the conditions to mobilize private capital. Such financing is crucial for narrowing the gap between the commitments announced in Baku and the huge investment needed for climate-change mitigation and adaptation efforts in the developing world.
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While IDFC members have invested significantly in the global energy transition, their ability to transform national and regional financial systems may be their greatest asset. Supporting the development of ambitious national climate agendas, helping businesses and communities execute their transition plans, and strengthening the capacity of local financial institutions will have a larger multiplier effect than any amount of direct spending.
To unlock this potential, several conditions must be met. First, all public development banks’ mandates and business models must be strengthened to reflect these objectives. And whether these banks are multilateral, national, or subnational, they need the means to act, which requires expanding their capital base and facilitating their access to concessional resources. Last, but certainly not least, we must develop a global accountability framework that classifies financial flows according to their contribution to the green economic transition. Doing so would allow development banks to work in a systematic and coordinated manner.
Such an approach would go beyond the traditional categories for climate finance. Of course, it will still be necessary to track the direct effects of climate finance and ensure their alignment with the Paris agreement. But we must also develop new tools to identify and encourage what we call “transformational finance”: interventions that, through their systemic nature or catalytic effects, help redirect much larger financial flows toward climate action. These could include removing market barriers, building large pools of bankable projects, and other measures that deliver structural change.
Responding to the climate emergency requires mobilizing the entire financial system. Public development banks are leading the way on this front, but they cannot devise comprehensive frameworks and set ambitious objectives by themselves. Solutions exist; we must implement them before time runs out.
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LOMÉ/BOGOTÁ – The devastating effects of global warming are unfolding before our eyes. Uncontrollable fires ravage the Amazon. Rising sea levels threaten to submerge Pacific islands. Droughts and floods in Africa, and hurricanes and typhoons in the Caribbean and Southeast Asia, are increasing in frequency and intensity. And yet the countries most affected by the climate crisis – nearly all of them in the Global South – have some of the lowest greenhouse-gas emissions worldwide. Helping these vulnerable countries build resilience is no longer an option; it is an imperative.
The United Nations Climate Change Conference (COP29) in Baku, Azerbaijan, concluded with the adoption of a New Collective Quantified Goal, with developed countries pledging at least $300 billion annually, and all actors agreeing to scale up public and private finance for developing countries to $1.3 trillion per year by 2035. While the Baku agreement has understandably been met with skepticism, we have no choice but to redouble our efforts to achieve these goals.
Public development banks – especially the 27 members of the International Development Finance Club (IDFC, which we co-chair), but also those in the broader Finance in Common network – will play an essential role in reaching these targets. IDFC members are from developed and developing countries, which allows us to take a balanced view. Beyond the question of whether the amounts agreed to in Baku are sufficient, we believe that a major challenge of financing climate action is efficiency. The quality of funded projects, within the framework defined by the Paris climate agreement, is what will enable IDFC members and other public development banks to contribute as much as possible to a sustainable transition.
But an even bigger challenge, particularly in an increasingly fragmented world, is how to deploy the full force of the global financial system against climate change. Increasing green investment while considering the needs of low- and middle-income countries is no longer sufficient. Instead, the aim should be to redirect all financial flows toward the green transition within the framework of the Sharm el-Sheikh dialogue.
Achieving this goal will require overcoming three obstacles. First, we must stop funding projects and sectors that exacerbate global warming – a gargantuan task, given that the majority of financial flows remain incompatible with the Paris agreement’s objectives. Second, we must start responding to the needs of the most climate-vulnerable countries, where adaptation and mitigation efforts are chronically underfunded. Finally, and perhaps most importantly, we need a radical overhaul of the global financial architecture.
This systemic transformation requires close collaboration between public and private actors. Public development banks have an important role to play here. They are uniquely positioned to catalyze change by influencing public policies, strengthening local capacities, supporting sectoral transitions, and creating the conditions to mobilize private capital. Such financing is crucial for narrowing the gap between the commitments announced in Baku and the huge investment needed for climate-change mitigation and adaptation efforts in the developing world.
PS Events: AI Action Summit 2025
It is not too late to watch our AI Action Summit event.
Click the link to watch world leaders, tech experts, and other distinguished speakers – including Justin Trudeau, Petr Pavel, Daron Acemoglu, Reid Hoffman, Marianna Mazzucato, James Manyiga, Audrey Tang, Sylvain Duranton, Celina Lee, Patrick Pouyanné, and others – discuss some of the most important questions raised by the rise of artificial intelligence.
Watch Now
While IDFC members have invested significantly in the global energy transition, their ability to transform national and regional financial systems may be their greatest asset. Supporting the development of ambitious national climate agendas, helping businesses and communities execute their transition plans, and strengthening the capacity of local financial institutions will have a larger multiplier effect than any amount of direct spending.
To unlock this potential, several conditions must be met. First, all public development banks’ mandates and business models must be strengthened to reflect these objectives. And whether these banks are multilateral, national, or subnational, they need the means to act, which requires expanding their capital base and facilitating their access to concessional resources. Last, but certainly not least, we must develop a global accountability framework that classifies financial flows according to their contribution to the green economic transition. Doing so would allow development banks to work in a systematic and coordinated manner.
Such an approach would go beyond the traditional categories for climate finance. Of course, it will still be necessary to track the direct effects of climate finance and ensure their alignment with the Paris agreement. But we must also develop new tools to identify and encourage what we call “transformational finance”: interventions that, through their systemic nature or catalytic effects, help redirect much larger financial flows toward climate action. These could include removing market barriers, building large pools of bankable projects, and other measures that deliver structural change.
Responding to the climate emergency requires mobilizing the entire financial system. Public development banks are leading the way on this front, but they cannot devise comprehensive frameworks and set ambitious objectives by themselves. Solutions exist; we must implement them before time runs out.