Chart of the Week: How Much Should Multilateral Development Banks Contribute to the Baku to Belém Roadmap to $1.3 Trillion?
By Rishikesh Ram Bhandary and Marina Zucker-Marques
Last week, the 30th United Nations Climate Change Conference (COP30) Presidency published the Baku to Belém Roadmap to $1.3T, which brings together a range of actions and reform measures that could help mobilize $1.3 trillion in climate finance by 2035. Last year at COP29, governments agreed on a climate finance goal of $300 billion—the New Collective Quantified Goal (NCQG)—which captures the collective commitment of climate finance providers. This year, the Baku to Belém Roadmap builds on this core goal of $300 billion and identifies a wide range of public and private sources that could be unlocked to achieve $1.3 trillion by 2035.
If the international community is to get anywhere close to the $1.3 trillion goal, multilateral development banks (MDBs) must play an important role. They have a unique ability to provide long-term, affordable finance, precisely the kind of finance required to make climate action feasible across developing economies. MDBs have collectively pledged to align their operations with the Paris Agreement’s goals—but their lending volumes must also adjust to the scale of finance needed.
Last year at COP29, MDBs committed to reach $120 billion in climate finance by 2030, which is being unlocked with the help of a range of internal accounting reforms and shareholder support. Earlier this week, they published a joint statement at COP30, re-committing to the $120 billion goal.
While these measures are welcome, our calculations show that MDBs need to considerably increase their ambition. As recommended by the G20 Independent Expert Group on Strengthening MDBs, closing the finance gap to meet climate and development goals will require MDBs to triple their overall lending volumes by 2030, which on climate finance would unlock $225 billion. Extending the pathway to 2035 would result in $325 billion, as shown in Figure 1 below—amounting to one-fourth of the $1.3 trillion goal from MDBs alone. This would be a substantial increase from existing commitments—extrapolating from the standing commitment of MDBs to supply $120 billion by 2030 suggests that MDBs would reach only $160 billion in lending volume by 2035.
MDBs should aim for $225 billion by 2030, placing them on track to reach $325 billion by 2035 and thus contribute one-fourth of the $1.3 trillion goal.
Figure 1: MDBs’ Climate Finance Commitments in Low- and Middle-Income Economies, 2019-23 (in $ billion) and Projections Towards 2030 and 2035 Goals
Exactly how MDBs increase their climate finance supply is also an important consideration. Our calculations show that MDBs face an important trade-off between stretching their balance sheets and fresh capital injections. Continuing implementing and raising the ambition of capital adequacy framework reforms is important. But relying just on capital adequacy framework reforms and balance sheet optimization to stretch balance sheets can increase risks to MDBs and put downward pressure on their credit ratings, which would undermine their ability to borrow cheaply. New injections of capital would help create more headroom but would require new financial contributions from members.
This trade-off will play out differently at different MDBs. Therefore, as called for by the G20 Roadmap Towards Better, Bigger and More Effective MDBs and now the Baku to Belém Roadmap, MDBs should conduct resource needs reviews. These reviews would take stock of what a borrower country needs to meet climate and development objectives and examine MDB financial capacity accordingly. It would be crucial to take into account not just the volume of finance required, but also the affordability of such finance. MDB finance should be available to borrowers at less than their medium-term growth rates to ensure that it does not jeopardize their debt sustainability. Resource needs reviews could provide an evidence-based foundation for conversations between board members and senior management at MDBs.
Through the Baku to Belém Roadmap, this year’s UN climate talks have provided a signal to MDBs to increase their ambition. It is now up to MDBs and their shareholders to take the Roadmap forward and chart a pathway that can help the world achieve its goals under the Paris Agreement.