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The Role of National Development Banks in Catalyzing International Climate Finance

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Published: March, 2013

National Development Banks (NDBs) can play a big role in climate finance. In many cases, they already are: In CPI’s most recent estimate, NDBs, together with bilateral financial institutions, raised and channeled USD 54 billion in 2010/2011 to renewable energy, energy efficiency, and other climate-related measures.

The question is, could they do more? By raising and distributing international and national public climate finance in their respective local credit markets, NDBs have unique potential; their knowledge of and long-standing relationships with the local private sector put them in a privileged position to access local financial markets and understand local barriers to investment.

To answer this question with more certainty, Climate Policy Initiative recently contributed to a study promoted by the Inter-American Development Bank. The research aimed to understand the role NDBs could play in channeling and leveraging climate finance, and the conditions needed for them to be most effective.

Drawing from experiences of NDBs within the Latin American and Caribbean region, the study finds that while many NDBs are already piloting an array of financial and non-financial instruments to promote private ‘green’ investments, these institutions are at diverse stages of ‘readiness’ to fully promote climate-related programs. Many still need to build capacity, and to acquire experience in the preparation, risk assessment, evaluation, and monitoring of climate projects.

So, to come back to the earlier question – yes NDBs could do more, but decision makers should look for ways to support existing efforts, and consider the particular experience, characteristics, and potential of NDBs when developing policies and mechanisms for delivering climate finance on the ground.

For more information, check out the Inter-American Development Bank study.