Interview with Avinash Persaud: How to Break the Climate Finance Deadlock at COP29 with Multilateral Development Banks #NewsUnitedStates

In 2015, the Paris Agreement included a goal of mobilizing $100 billion in climate finance per year by 2020 to support developing countries in their efforts toward climate mitigation, adaptation, and addressing loss and damage. While the $100 billion target was finally reached in 2022, this sum remains far below the amount required to meet current and future climate needs. As climate impacts intensify, so does the financial requirement. According to the United Nations Conference on Trade and Development, developing countries alone will need about $1.1 trillion in climate finance from 2025 and some $1.8 trillion by 2030.

At the upcoming United Nations Climate Change Conference (COP29) in Baku, Azerbaijan, countries will negotiate a New Collective Quantified Goal (NCQG) for climate finance. Civil society groups have been vocal in advocating for an NCQG of at least $300 billion in public climate finance. The biggest sticking point in these negotiations is the question: “who pays?” Developed countries say the “quantum” can increase only if some emerging economies contribute, while those emerging economies counter that it is the responsibility of developed countries to provide this finance and keep the principles from Paris and the Framework Convention. There is a stalemate.

Whatever the outcome, multilateral development banks (MDBs) will play a critical role in helping to reach it. MDBs currently provide approximately half of the existing $100 billion commitment, largely due to their unique capacity to leverage capital through AAA credit ratings. This leverage allows MDBs to access low-cost financing, enabling them to multiply their resources and support climate projects on a much larger scale than other sources, such as climate funds.

Given their capacity, the potential for MDBs to contribute meaningfully to an ambitious NCQG is significant and could be a way to end the stalemate. This interview with Avinash Persaud, Special Advisor on Climate Change to the President of the Inter-American Development Bank, explores the role of MDBs in climate finance and how, with shareholder support, they can help break the NCQG deadlock and deliver climate finance at scale.

How can multilateral development banks (MDBs) help us increase the amount from $100 billion to at least $300 billion?

MDBs already provide approximately half of the $100 billion figure, as measured by the amount of climate finance directly lent and mobilized to developing countries for adaptation and mitigation that we can attribute to developed country shareholders of the MDBs.

The MDBs provide the greatest leverage because they are AAA-rated banks with capital. Climate funds do not provide leverage. MDB capital is loss-absorbing money, which means it is money that the lender has to pay back if a borrower defaults. For every dollar of loss-absorbing money, the MDBs can borrow $6–8 from the markets at low “AAA” borrowing rates and then lend that $8 plus one ($9) with a modest spread. They can get up to $8 and beyond by asking their shareholders to guarantee climate loan portfolios or re-channel their special drawing rights.

If, for instance, developed country shareholders put in $20 billion of capital per year, MDBs could on-lend, long-term, $180 billion per year ($9 x $20 billion). If their private sector arms blend half of that, say, $90 billion with the private sector at today’s blending rate of 1:1.25, then they can directly mobilize a further $112 billion. Adding $180 billion to $112 billion equals $292 billion—almost $300 billion.

Prorated, $20 billion equates to about $1 billion per year for countries like the UK, France, Germany, and Japan. If developed country shareholders put in capital alone, the shareholders of others like China, India, Saudi Arabia, Brazil, Mexico, and South Korea would fall unless they matched their contributions to their (more minor) shareholdings. This could take MDB climate lending to developing countries from all shareholders towards $380bn.

Can MDBs help fund loss and damage?

Loss and damage financing requires grants, whereas the NCQG is primarily focused on adaptation and mitigation. MDBs are better suited for concessional, long-term financing, which aligns more closely with adaptation and mitigation needs rather than direct funding for loss and damage.

How can we use MDBs to close the massive adaptation financing gap?

If we just tell MDBs to leverage and mobilize, it will bias them toward mitigation, which tends to be on projects that generate revenue and attract private sector co-financing. Today, MDBs’ climate lending is 75% directed toward mitigation and only 25% toward adaptation. If we want them to have an equal impact on mitigation and adaptation, especially for climate-vulnerable countries, we need to explicitly target 50–50 in terms of impact, not input.

How can this help the particularly vulnerable countries, especially the least developed countries (LDCs) and small island developing states (SIDS)?

In addition to a specific adaptation and mitigation target, MDBs and others need to be pressed on instruments for LDCs and SIDS and other highly vulnerable countries. In particular, those countries need long-term, low-cost financing to fully realize the savings from resilience investments and to enhance their resilience to current climate impacts.

Our team often says the politics of climate finance are in the COP, but the money for it is outside. Can MDBs engage in creative diplomacy to bridge this gap? What does it take?

Although the World Bank, unlike other MDBs, is part of the United Nations system as a specialized agency, all MDBs operate under independent governance structures. Therefore, the focus at COP should be on securing commitments from developed country shareholders to use the tools available to them, including MDBs, where they have significant influence.

How could the United Nations Framework Convention on Climate Change (UNFCCC) send a strong signal through the NCQG to encourage MDB support?

To encourage MDBs to support an ambitious NCQG, the UNFCCC needs to show developed countries a way to commit to a higher climate finance target without overwhelming their budgets. This can be done by embedding options within the NCQG text that specifically include long-term, low-cost financing mechanisms tailored to benefit developing countries. By framing this as part of a broader menu of options on how developed countries can meet an increased NCQG commitment, the NCQG can encourage MDB participation in a way that is implicitly supported by and not met with resistance from developing countries, who may otherwise feel excluded from affordable finance opportunities. This approach allows MDBs to leverage their unique capabilities to provide sustainable financing for developing nations without sparking conflict over financial responsibility.