Opinion: Strengthening the MDB system to meet the climate challenge

As the world grapples with climate change and other global crises, it is essential for nations to come together and forge a new contract that addresses these issues head-on. This week the Summit for a New Global Financing Pact provides a platform for dialogue and collaborative action. Under the leadership of French President Emmanuel Macron, the summit in Paris will emphasize concrete financial commitments and reforms of the global financial architecture. As the multilateral development bank that was born amid the promise of the Paris Agreement, the Asian Infrastructure Investment Bank is ambitious in its efforts to collaborate with our peers and stakeholders to grow the MDB system’s contribution to global public goods. AIIB has set a target of reaching at least 50% climate finance share by 2025, cumulating to about $50 billion by the end of this decade. In 2022, we delivered about $2.4 billion in climate finance, or 56% of our total financing, reaching our climate finance goal three years early. We and other MDBs are exploring inclusion of climate-resilient debt clauses in lending operations to create short-term fiscal space to respond to climate emergencies. --— AIIB’s diverse, global membership is now 106 strong. Our lower-income and middle-income members in particular express a wide variety of needs in the face of a broad range of market conditions and fiscal challenges. As such, a differentiated approach to green infrastructure finance is a must. Climate change mitigation and adaptation, biodiversity and nature protection all require targeted, differentiated approaches to fill financing gaps, strengthen resilience and accelerate the net-zero transition. MDBs cannot meet this tall order individually. While each and every one has its own resources, MDBs work best when they team up as a system. We must act as a bridge between the public and private sectors to facilitate more effective private capital mobilization on a greater scale so as to support country and sector efforts on climate financing. There are various means to achieve this, including, among others, using our convening power to tap into concessional finance, investing in climate-focused private equity funds, and by working with other development partners to scale up climate and green infrastructure finance, opportunities galore exist for such bridge building. At the Summit for a New Global Financing Pact in Paris, I will ask my MDB peers to join hands in exploring new ways to improve our collective effectiveness. At the World Bank Group-International Monetary Fund Spring Meetings in Washington, D.C, I shared several suggestions — “gardening” ideas as I called them — to improve the way MDBs coordinate as a system. Gardening of the MDB system is a collective effort. MDBs should be proactive in this effort and we at AIIB are prepared to do our bit by building upon the initial momentum gained at the IMF-World Bank Spring Meetings. Our ideas to improve the MDB system’s response are around strengthening the joint MDB work with a focus on scaling and improving the MDB system response to global challenges. I suggest creating a joint MDB strategy initiative tasked with identifying and advancing an agenda for proposed joint MDB meetings and for regular heads of MDBs meetings. I will also recommend simplifying and streamlining co-financing across MDBs, making it easier for clients to work with multiple organizations interchangeably. The establishment of a joint mechanism for sharing best practices related to standards, financial innovation, and capital adequacy frameworks is also needed and should be institutionalized with high-level representation. MDBs each have their respective mandates. AIIB’s focus, as our name makes clear, is on sustainable infrastructure financing for members in Asia and beyond. While specialized in our scope, our mandate is anything but limited. The United Nations estimates that infrastructure is responsible for 79% of all greenhouse gas emissions and accounts for 88% of all adaptation costs. Moving beyond infrastructure, there are specific new areas of work that MDBs can continue to improve together. Working more strategically with other MDBs will be the best way to build on our strengths and deliver the solutions needed for our members. Collaboration on climate will be mission critical. To address fiscal challenges faced by countries affected by climate-related disasters, AIIB is exploring innovative financial instruments and structures such as infrastructure securitization programs, first loss financing, guarantees, and better asset monetization. We and other MDBs are exploring inclusion of climate-resilient debt clauses in lending operations to create short-term fiscal space to respond to climate emergencies. Another opportunity for MDBs to grow climate financing is partnering locally. AIIB is partnering with local institutions to finance renewable energy and energy efficiency infrastructure and is providing sustainability-linked financing for financial intermediaries in tandem with private capital. AIIB will continue to strengthen our local partnerships to augment our ability to deliver on our mandate. However, more climate capital is needed. Attracting investors into climate capital market products in Asia is crucial. Developing and improving climate investment frameworks, taxonomies, and metrics can better inform investors and mainstream capital market solutions for climate mitigation and adaptation. AIIB’s Climate Change Investment Framework and the issuance of sustainable development bonds, including a climate adaptation bond, is replicable. These and other initiatives are the scaffolding for elevating climate finance to new heights, so we hope to see them multiply. This week’s summit provides a critical moment for the international community to come together and address urgent challenges we face as momentum builds up to the 28th U.N. Climate Change Conference in Dubai. By sharing innovative ideas and promoting joint action among MDBs, we can collectively shape a new, global financial landscape that is inclusive, sustainable, and resilient.