HomeIndustry SectorsFinance and PolicyFinancing to address climate change is growing year on year

Financing to address climate change is growing year on year

Climate finance committed by multilateral development banks (MDBs) rose between 2019 and 2020 with 58% committed to low- and middle-income economies.

This is according to the recently published 2020 Joint Report on Multilateral Development Banks’ Climate Finance. The report says climate finance committed by the MDBS rose to a total of $66 billion in 2020, from $61.6bin in 2019, with $38bn of that going to low- and middle-income economies.

The total climate co-finance committed during 2020 alongside that from MDB resources was $85bn. This means MDB climate finance plus climate co-finance totalled more than $151bn. Private direct mobilisation stood at $5.9bn.

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MDBs consider accelerating the transition to low-carbon and climate-resilient economies through finance to be a key element of their efforts to realign activities they fund with the objective of the 2015 Paris Agreement to limit global warming to 1.5°C. Over the past six years MDBs have jointly committed $256bn in climate finance, of which $186bn was directed at low- and middle-income economies.

The annual report shows the progress MDBs are making on accelerating the delivery of finance targeting climate change, for which demand is growing. This new report marks the end of the reporting period tracking individual finance pledges since 2015. For most countries 2021 marks the start of increased ambition to meet nationally set targets.

MDBs believe they are on track

In 2019, at the UN Secretary-General’s Climate Action Summit, MDBs announced their expected joint annual climate action finance up to 2025.

These include at least $65bn, with $50bn of that meant to be directed at low-income and middle-income countries; an increase in adaptation finance to $18bn; and private direct mobilisation of $40bn.

The report, the tenth in a series, reads: “The MDBs will continue to improve their tracking and reporting of climate finance in the context of their commitments to ensure consistent financial flows to the countries’ long-term, low-carbon and climate-resilient development pathways, as established in Article 2.1 of the Paris Agreement.”

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Of the 2020 total of $66bn, $63bn came from the MDBs’ own accounts and almost $3bn from external resources channelled through and managed by MDBs. These included the Climate Investment Funds (CIF), Green Climate Fund (GCF) and climate-related funds under the Global Environment Facility (GEF), EU blending facilities and others.

Al-Hamndou Dorsouma, AfDB Climate Change and Green Growth director: “The African Development Bank’s share of climate change-related investments has increased four-fold from 2016 to 2019 and is expected to reach 40% of the Bank’s total investment at the end of 2021.  We are on track to mobilise the target of $25bn between 2020 and 2025 to support investments that address climate change and promote green growth.”

COVID-19 slightly derailed delivery of climate finance targets

Financing during 2020 played a key role in supporting countries to embed green and climate-focused solutions as part of their recoveries from the impact of COVID-19.

While these programmes affected MDBs’ normal lending operations and thus the delivery of their targets for finance aimed at climate change, seeing the total commitments for low- and middle-income countries dip from 2019’s $41.5bn, the 2020 report says interventions and support from the MDBs laid a solid foundation for “building back better” for a greener, more resilient, post-COVID-19 future.

Nearly $5bn of total MDB financing targeting climate adaptation and mitigation in 2020 was associated with climate change mitigation investments meant to reduce harmful greenhouse gas emissions and slow down global warming. Of this, half went to low- and middle-income economies.  More than $16bn (24%) for climate change adaptation finance was invested in adaptation efforts to help countries build resilience to the mounting impacts of climate change, including worsening droughts and more extreme weather events, from flooding to rising sea levels. Of this, 83% was directed toward low- and middle-income economies.

The 2020 Joint Report on Multilateral Development Banks’ Climate Finance, coordinated by the EBRD, combines data from the African Development Bank, the Asian Development Bank (ADB), the Asian Infrastructure Investment Bank (AIIB), the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the Inter-American Development Bank Group (IDBG), the Islamic Development Bank (IsDB) and the World Bank Group (WBG).

AIIB data is fully incorporated for the first time. As part of the MDBs’ ambition to extend and enhance climate finance reporting, the 2020 report also summarises information on finance targeting climate change tracking from the New Development Bank (NDB), presented separately from the joint figures and not yet included in the MDB climate finance total.

Theresa Smith
Theresa Smith is a Content Specialist for ESI Africa.