22 May 2024

The vital role of Multilateral Development Banks in mobilizing capital for green projects

Iván Poza Garcia, Global Head of Financial Institutions & Public Finance

In today's rapidly changing global landscape, the urgency to address environmental challenges and transition towards sustainable development pathways has never been more critical. However, many developing countries face significant obstacles in accessing the necessary financial resources and expertise to initiate and execute green projects effectively. In such a complicated environment, how can developing countries unlock substantial capital flows for sustainable development? 

Multilateral Development Banks (MDBs) play a pivotal role in bridging the gap between private sector investors and green projects by providing financial support and technical assistance in countries where capital deployment capabilities are limited. Through a variety of financial instruments, including loans, guarantees, and equity investments, MDBs mitigate investment risks in developing countries, making such projects more attractive to private investors. 

By leveraging their financial resources, technical expertise, and extensive networks, MDBs facilitate investments in renewable energy, climate adaptation, sustainable infrastructure, and other environmentally friendly initiatives. In Latin America, for instance, MDBs committed a total of $12.9 billion for climate finance in 2022, where 28% was destined towards climate change adaptation and 72% towards climate change mitigation.

Yet, despite increasing awareness of the importance of climate action, there remains a significant shortfall in funding for green projects in many regions. Emerging and developing economies will need more than $2.4 trillion annually in climate finance by 2030. To address this, several MDBs have already announced at COP28 their commitment to provide over $180 billion in climate finance through multi-year programs.

Continous collaboration between multilateral development banks, institutional investors, and insurers in mobilizing climate finance is crucial to unlock the large-scale investment required to address climate change effectively. By pooling resources, sharing risks, and aligning investment strategies, these institutions and other financial entities can maximize the impact of climate finance initiatives and accelerate the transition to a low-carbon economy. 

Besides collaborating with investors and insurers, MDBs work closely with governments and national development agencies to strengthen policy frameworks, build institutional capacity, and create enabling environments for sustainable investment. By providing technical assistance and policy advice, they help countries overcome regulatory barriers, streamline approval processes, and implement effective governance mechanisms for green projects. The European Investment Bank (EIB), for instance, provided €1.1 billion in climate-related technical assistance and advisory services in 2020. 

Public and private sector cooperation will be of vital importance to be able to meet the ambitious goals set forth by many countries and international organizations. More than 140 countries have a net-zero target and more than 9,000 companies have joined the Race to Zero, pledging to halve global emissions by 2030. In Latin America it is estimated that a $2.2 trillion investment is needed by 2030 in the water and sanitation, energy, transportation, and telecommunications sectors to expand and maintain the infrastructure it needs in order to meet the Sustainable Development Goals.

At BBVA, we are working to foster and increase collaboration with MDBs to support and maximize the impact on the most vulnerable communities in adapting to climate change. We have developed strong relationships with MDBs, cofinancing green projects and leading the capital deployment efforts where such capabilities are limited, as is the case in Latin America. Through their financial resources, technical expertise, and collaborative partnerships, MDBs facilitate investments in renewable energy, sustainable infrastructure, and climate resilience initiatives, driving transformative change and accelerating the transition to a low-carbon economy. However, to scale up climate finance and achieve meaningful impact, it is imperative to achieve greater cooperation and coordination among MDBs, governments, and the private sector.