Devex Invested: Inside Brazil’s G20 vision for multilateral development banks

More women in management, more listening to recipient countries, and maybe, at some stage, more capital … Today we bring you the scoop on how Brazil wants to use its G20 presidency to reform the world’s development banks.

Another turn in the road map

Making multilateral development banks less risk-averse and more ambitious, especially on climate change, has been the central push in recent years by industrialized nations that say they want to see the global financial architecture work better for low- and middle-income countries.

An internal document from late June, seen by Devex, shows how Brazil plans to use its presidency of the Group of 20 advanced economies to head toward “better, bigger and more effective MDBs.”

A Brazilian official tells us the text is the fruit of broad consultation, including with civil society, but that it is just an outline of a first draft of the road map that will be circulated in August. The final document is scheduled to be discussed in September and submitted to ministers in late October.

Here’s what caught our eye:

On capital increases. Under India’s G20 presidency last year, an independent report called for MDBs to triple their lending by 2030, with the expert authors arguing that they were “inescapably led” to call for a general capital increase for the banks to help get there.

But the politics are tricky. Development budgets are under pressure as centrist governments fret about the far-right; replenishments are coming up for the World Bank’s International Development Association, along with Gavi, the Vaccine Alliance; and Western countries are worried about diluting their voting share to the advantage of China.

That has prompted a search for other ways to boost banks’ lending, with the Brazilian text referring to ongoing work on lenders’ capital adequacy frameworks, as well as “innovative instruments” such as rechanneling Special Drawing Rights to MDBs — recently approved by the International Monetary Fund.

For now, the Brazilian outline states: “These measures, combined with regular MDB-led reviews of MDBs resources needs and mobilization instruments, would lay a solid basis for medium-term MDB’s board discussion on whether additional capacity (through capital increase, or other instruments like hybrid capital or portfolio guarantee) may be needed to face both countries’ development priorities as well as regional and global challenges in a balanced manner, building on countries’ needs and demands.”

Expect plenty of attention on that sentence in the coming months.

Do as we say, not as we do. MDBs love to tout their lending to female-run businesses, but their own senior leadership ranks often skew male.

Remember: Malado Kaba, the then-director of gender, women, and civil society at the African Development Bank, said in response to a question from Devex at a conference in Côte d'Ivoire in October 2022 that her then-employer was not where it should be regarding the share of senior roles held by women — before being contradicted by an AfDB spokesperson who said Kaba had “completely misrepresented” the bank.

Now Brazil seems keen to tackle the issue directly, flagging an upcoming G20 presidency report titled “Mapping out practices in international financial organizations, on regional and gender representation at their top positions.”

As for MDBs, the road map outline calls for:

• MDB boards to promote regional and general equality in senior positions.

• Shareholders to appoint diverse and “gender-representative” members to the boards of MDBs.

• MDB management “to include gender and regional considerations as a cross-cutting issue in MDBs operations.”

We could be wrong, but this is the first time we recall this oft-discussed, little-acted-upon issue being given such prominence.

Plugging in Finance in Common. MDB reform has been running next to another effort called Finance in Common — an attempt, championed by the head of the French Development Agency, Rémy Rioux, to create a network of more than 500 public development banks and direct them to sustainable development objectives.

Now Brazil wants to get the two trains on a similar track, noting that “by partnering with national and subnational development banks, MDBs can also align even more with national priorities and perspectives, mitigate currency risks and reduce the cost of capital.”

A key figure here could be Sergio Gusmão Suchodolski — the Brazilian competitive surfer turned development banker we told you about in a previous edition of Devex Invested — who is special envoy to the Finance in Common Summit. Read his recent take on the connections between development banks and the G20 here.

All aboard country platforms. One area where national development banks and MDBs can work better, according to the outline, is in the elaboration of so-called country platforms. A joint note from the MDBs in April noted that the basic idea is a shift “from a short-term project view to a longer-term programmatic perspective” designed to enhance impact and reduce fragmentation.

Brazil’s outline emphasizes that these should be “country-owned country-led strategies,” and that MDBs should “define an approach to engage national and subnational financial institutions in platform development and implementation.”

Interestingly, the outline makes no mention at all of Just Energy Transition Partnerships. JETPs are portrayed as a means for international donors to help low- and middle-income countries phase out fossil fuels. However, as Politico reported in December, U.K. officials have privately expressed concern about Vietnam’s “limited engagement and buy-in” to its JETP from key government ministries, for instance.

As talk of country platforms gathers pace, attention will be on whose priorities are really being put on a pedestal.

Learn more about the future of development banks — check out our MDB reform coverage.

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The climate bucket

Almost 40% of bilateral climate finance flowing to lower-income countries in 2021 was for projects that “would have happened anyway,” according to a new study by the U.K. organization Development Initiatives.

Euan Ritchie, a senior development finance policy adviser at DI and the study’s author, tells Devex that donors should be judged more on the impact their investment has had on reducing greenhouse gas emissions.

The goal of a $100 billion annual climate finance pot was set in 2009. Since then, funding of schemes where tackling climate change was “not the fundamental driver or motivation” is up tenfold. But, the report found, the increase in projects whose “principal” objective was tackling the climate crisis was only up 200%.

Ritchie’s recommendations?

• A stricter definition of future climate finance “commitments” made by donor nations to “avoid double counting.”

• That donors be required to “provide links to project documentation for projects over a certain value.”

• A “common benchmark” for assessing reporting, including the use of machine learning to better identify questionable claims.

• A strengthened United Nations peer review process to identify reporting approaches “out of line with common practice.”

Read more: Study highlights rise in climate finance for non-climate projects (Pro)

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What we’re reading

Google is no longer claiming to be carbon neutral. [Bloomberg]

World Bank launches $2.5 billion program to boost digitalization in Africa. [Devex]

Financing inclusive digital transformation under the EU Global Gateway. [ECDPM]