Key Points
- The U.S. and Japan provide ADB with $1.6 billion in sovereign guarantees to increase climate lending by $7.2 billion.
- ADB has committed to lend $100 billion to climate projects between 2019 and 2030, with $9.8 billion already disbursed in 2023.
- The World Bank launched a platform to increase climate guarantees, having guaranteed $10 billion for 2023 and aiming to double that by 2030.
- Developing nations may need over $2 trillion annually by 2030 for climate adaptation, underscoring the importance of diversified financing sources.
An executive confirmed that the Asian Development Bank (ADB) will increase its climate-related lending by up to $7.2 billion after securing sovereign guarantees from the United States and Japan. These guarantees mark a first in climate finance. They may serve as a model for other development banks as the U.N.’s COP29 climate summit begins in Baku, Azerbaijan, focusing on expanding finance for developing nations.
ADB has committed to a $100 billion cumulative climate finance target between 2019 and 2030, lending $9.8 billion in 2023 alone. Under the new framework, the United States will guarantee up to $1 billion in existing ADB loans. Japan will back $600 million, enabling ADB to allocate additional funds to climate projects across Asia.
“The structure is an innovative way to expand a multilateral development bank’s lending capacity without requiring new capital from donors,” explained Jacob Sorensen, ADB’s director of partner funds. The guarantees extend for 25 years, while the additional lending will roll out over the next five years, offering a sustainable way to increase lending for climate projects.
One of the initial beneficiaries of the additional climate finance will be a project in Pakistan to produce sustainable aviation fuel from cooking oil. This project, requiring a total of $90 million, will receive about half its funding from ADB’s new guarantee-backed scheme. A deal is expected to be signed on November 20.
The ADB, headquartered in the Philippines, spent three years working with Western governments to secure these guarantees, which it hopes other countries will adopt. ADB also shares its experience with other development banks, such as the World Bank, Inter-American Development Bank, and European Investment Bank, to create a more collaborative climate finance framework.
Public lending institutions have also provided sovereign guarantees to support private investments in climate-related projects. This year, the World Bank launched a platform to manage guarantees for loans and investments across its branches. It has guaranteed $10 billion for 2023 and aims to double that by 2030.
With climate change intensifying global threats from extreme weather, developing countries are expected to require more than $2 trillion annually by 2030 for clean energy and climate resilience. As COP29 begins, wealthy nations are under pressure to develop a robust financing plan that leverages development banks and private investors, moving beyond solely relying on donations from wealthy countries to address climate finance.
