Over 30 countries are exploring the green bank concept to drive country-led decarbonization. However, most of this work is happening in isolation. There needs to be a systematic approach to support countries’ efforts and bring the green bank concept to scale.
Climate investments must shift to the national level
While the flow of investment for low-carbon development in emerging markets is growing, it continues to fall far short of what is needed to achieve Paris climate commitments. The global system that has evolved for mobilizing and allocating green infrastructure finance into these markets is complicated, inefficient, and poor at leveraging private capital.
The time for action is now: after decades of global negotiations, the new Paris system is centered around country-level planning and action. To realize these goals, new climate finance capacity is needed at the national and subnational level because of the necessity to develop local capital markets, activate local commercial banks, and connect with local market intelligence. Therefore, nationally based institutions such as green banks are coming into focus as the vital link in consistently channeling capital into country-led decarbonization.
Green banks can foster strong national financial capacity to mobilize investment
The term “green bank” is shorthand for financial institutions, funds, or facilities dedicated to leveraging private-sector investment into low-carbon and climate-resilient solutions. They do this by building national financial capacity to address market barriers, helping to channel domestic savings and private investment into priority projects. Green banks also provide international financial institutions with a strong national cofinance partner (and lead arranger) with blended finance capabilities. For donor countries, green banks are an effective and efficient wholesale distribution partner for concessional green finance. As a result, green banks can accelerate a global shift away from high-carbon investment toward greening the entire economy through opening new markets, increased national financial capacity, and the local ability to find and arrange deals. Likewise, support of green banks by international institutions and countries can help shape an international climate and development system that enables the formation of green banks. Learn more about green banks here.
Without collaboration, the uptake of the global green bank movement could be limited
Green banks have been successful in a number of OECD jurisdictions. The Green Bank Network, an association of green banks, estimates its members have deployed $11.3 billion in capital, which resulted in $41.1 billion worth of projects financed and 25 million tons of CO2 avoided. That’s equivalent to taking 11.6 million cars off the road. On average, GBN members have leveraged more than $2.60 in private capital for every dollar of public capital invested.
Recognizing the applicability of the green bank model in emerging markets (characterized by market failures inhibiting private capital flows), over 30 developing countries in Asia-Pacific, Latin America, and Africa are exploring green banks in various forms. Some are extensions or evolutions of existing national development banks, some are private institutions seeking to be first movers, and others are new green finance institutions.
However, there has never been a global community where these countries can compare experiences and build a community of practice supported by international expertise and capital. Learn about our solutions here.