The United States and Japan agreed to cover the risk for some existing loans, marking the first sovereign guarantees for climate funding, while the Asian Development Bank would expand its climate-related lending by up to $7.2 billion, according to an ADB executive.
With the U.N.’s COP29 climate meeting in Baku, Azerbaijan, beginning this week, focusing on expanding the amount of financing available to developing countries, the new approach, provides a possible model for other development banks to adopt.
Between 2019 and 2030, the ADB has established a long-term cumulative loan objective of $100 billion for climate finance. It made a $9.8 billion loan in 2023.
Negotiators warned this week that the opening of the Baku negotiations has been overshadowed by Donald Trump’s victory in the U.S. election last week, who has pledged to withdraw the United States from the Paris Climate Agreement.
This has increased pressure on China and Europe to assist achieve a positive outcome.
Laptops 1000The richest nation in the world would guarantee up to $1 billion of current loans from Asia’s leading development bank under the ADB plan, while Japan would cover $600 million, allowing the bank to make more loans for climate-related projects.
ADB partner fund director Jacob Sorensen told reporters, “The structure is a fantastic way of extending a multilateral development banks (MDB) lending capacity without going through the politically difficult situation of a general capital increase,” which would need to come from new country donations.
An ADB representative declined to comment on whether the new Trump administration will have an impact on the agreements, which were finalized last week.
“The guarantees themselves will last for 25 years, and the additional lending headroom they create will be implemented over the next five years,” the ADB said.
Preparing cooking oil for jet fuel
A project in Pakistan that uses cooking oil to create sustainable aviation fuel will be among the first to benefit from this new ADB drive, according to Sorensen.
According to the bank, the agreement is anticipated to be inked on November 20, and around half of the $90 million required would come from the ADB plan.
He noted that the Philippines-based ADB has been working with a group of Western governments for three years to negotiate the assurance contract and believes that additional nations will soon follow suit.
As part of larger, cooperative initiatives to expand climate-related finance, it has also been sharing its experience with the World Bank, Inter-American Development Bank, and European Investment Bank.
“We have been extensively in consultation with multiple other MDBs,” Sorensen stated.
The agreements are the first time sovereign guarantees have been used for climate finance, but they have been used in the past to finance other loan sectors like education.
Additionally, public lending organizations have started to insure additional, outside investments for climate projects.
To increase their use, the World Bank introduced a platform to hold all of these guarantees for loans and investments from across the organization’s numerous departments.
Axel van Trotsenburg, the bank’s senior managing director, told reporters last month in Washington that the initiative was “very well” underway, having guaranteed over $10 billion through the program in 2023 with a target of tripling that yearly amount by 2030.
Developing nations are predicted to require almost $2 trillion annually by 2030 to transition to clean energy and get ready for the circumstances of a warming planet, as climate change heightens the threat of extreme weather and disasters globally.
Rich countries expect that a financing agreement at COP29 looks to development banks and private investors for most of the global climate budget, rather than depending solely on their donations.
