Multilateral Development Banks: Delivering climate finance but falling short on reforms

Multilateral Development Banks (MDBs) are vital in addressing global challenges, particularly by providing the climate finance needed for vulnerable nations to reduce emissions and adapt to climate change. The MDBs’ latest Joint Report on Climate Finance reveals a record $125 billion delivered in 2023, with $74.7 billion (60%) allocated to low- and middle-income countries. However, while this progress is promising, significant gaps in transparency, accessibility, and equitable distribution persist.

MDBs have increased their climate finance commitments, with institutions like the Asian Development Bank (ADB) raising targets to 50% of total financing by 2030. Private sector mobilization is also improving, with every dollar of public climate finance now leveraging $0.38 in private investment, a notable increase from previous years. MDBs have also adopted a Common Approach to Measuring Climate Results, which aims to connect financing with tangible outcomes and improve coordination across institutions.

Despite these advancements, MDBs are falling short in several areas. Adaptation finance lags behind mitigation, with only a few MDBs prioritizing it as required under the Paris Agreement. Concessional financing, essential for low-income and climate-vulnerable nations, is declining, with grants falling from 10% of total MDB climate finance in 2022 to just 6.7% in 2023. Furthermore, MDBs continue to finance fossil fuel projects, undermining their climate goals.

The share of climate finance directed to the most vulnerable nations, including Least Developed Countries (LDCs) and Small Island Developing States (SIDS), is also decreasing. While MDBs provided a record $16.3 billion to these regions in 2023, their overall share of climate finance is shrinking, jeopardizing essential support for the world’s most at-risk populations.

As governments negotiate a new collective climate finance goal at COP29, MDBs must play a more ambitious role in shaping the future of global climate funding. This includes balancing adaptation and mitigation efforts, expanding concessional financing, and scaling collaboration with national and private financial institutions to support large-scale, transformative projects.

MDBs have demonstrated their potential to deliver substantial climate finance, but they must now address critical gaps to ensure their operations are effective, equitable, and aligned with global goals.