Public development banks: towards higher climate ambition

This coming Monday will see the start of COP29 – formally the 29th session of the Conference of the Parties to the UN Framework Convention on Climate Change (UNFCCC), in Baku, Azerbaijan. The edition is nicknamed “the finance COP” and is important on more than one account, not least as Trump’s victory likely leads to a change of course for the US on climate commitment.

The volume and structure of the finance mobilised to support developing countries to transition to low-emission and climate-resilient economies tops the agenda.

This autumn’s busy negotiation agendas, offer a window of opportunity to move the reform of the international climate finance architecture (IFA) up one level. This acceleration is urgent if we want to keep pace with the dramatic change in scale needed to finance the climate transition.  In 2023, developed countries announced that they had – for the first time since 2009 – achieved their USD 100bn/year climate finance target to support climate action in developing countries. Just two years later, this target is already obsolete, with needs for emerging and developing economies (excluding China) estimated at around USD 2.4 trillion per year by 2030. 

Options for Public Development Banks. Since the adoption of the Paris Agreement in 2015, several public development banks (PDBs) have responded with structured approaches to align their operations with the Agreement’s expectations (as described in Section 1). However, many PDBs, particularly those in emerging markets and developing economies, are yet to adopt an approach to align with the Paris Agreement (i.e., Paris alignment). As entities whose investment mandates are established by the Parties to the Paris Agreement (i.e., national governments), PDBs have specific obligations derived directly from these Parties’ commitments to act across all policy and regulatory frameworks under their jurisdictions, including for state-owned or state-mandated institutions and agencies. Accordingly, PDBs are expected to operate in a manner that supports the achievement of the Paris goals. More specifically, they are obligated to integrate their activities within the Agreement’s implementation mechanism by providing financial, technical, and capacity building support that is entirely consistent with national low-emission climate-resilient development pathways.