Greening National Development Financial Institutions : Trends, Lessons Learned, and Ways Forward

Overview & Synopsis

Funding needed to reach countries’ climate and environmental (C&E) objectives is in the trillions of dollars at a time when many countries face significant fiscal and economic constraints. Low-income and middle-income countries (LICs and MICs), other than China, need an estimated U783 billion dollars per year in additional investments for climate action, to recover education and investment losses from the pandemic and to address conflict and fragility, through 2030 (World Bank 2023). Investment needs could increase sharply if interventions are delayed, spending is inefficient, or policies are inadequate (Rozenberg and Fay 2019). Green financing can improve long-term fiscal sustainability and resilience, as well as enhance countries’ competitiveness and growth; however, the large funding needs for C&E action come at a time when many countries are facing broader development challenges. Slowing growth, rising food and energy prices, high levels of public and private debt, and growing fiscal constraints are exacerbated by rising interest rates globally, the persistence of the COVID-19 pandemic, and the impact of the war in Ukraine (World Bank 2022b). Under such circumstances, LICs and MICs face difficult trade-offs between competing investment needs and are struggling to mobilize public and private resources required for their climate, environmental, and development priorities. This report aims to take stock of the current trends and recommends policy actions for greening National Development Financial Institutions (NDFIs). By examining the current state and trends across different dimensions, as discussed later, this publication aims to identify steps that NDFIs could take to catalyze finance toward countries’ C&E objectives and to manage C&E risks. It also identifies priority actions that country governments, Multilateral Development Banks (MDBs) (including the World Bank), and financial regulators could take to create an enabling environment for greening NDFIs.