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Report

Scaling up climate-compatible infrastructure

National development banks (NDBs) and development finance institutions – domestically focused, publicly owned financial institutions with a specific development mandate – are poised to play a role in bridging the investment gap for climate-compatible infrastructure in developing countries. But delivering on the Paris Agreement will require NDBs to transition from their traditional role as ‘financer’ to ‘mobiliser’ of investment for infrastructure, and to be better recognised in the international climate and development finance landscape. This paper highlights the role of NDBs drawing from case studies of the Brazilian Banco Nacional de Desenvolvimento Econômico e Social and the Development Bank of Southern Africa. As such, it provides important impetus to the international discourse on decisive climate action.

Key points

According to authors of the report: “While NDBs differ in scope, size and remit, they are individually and collectively crucial actors within the sustainable development and climate agendas. The value added of NDBs lies in their proximity to policy makers, local markets and local contexts; their ability to provide financing in local currency; and their role in intermediating international development finance.”

Authors provide the following recommendations:

1. Ensure clear mandates, strategies and tools for climate action
Both BNDES and DBSA have started to put policies and strategies to support environmental and climate mainstreaming into action to increase their green finance and to shift portfolios towards climate friendly investments. Going forward, a clear focus on financing the implementation of current Nationally Determined Contributions (NDCs) and providing the basis for more ambitious subsequent NDCs could help NDBs scale up green and climate finance.
2. Make the shift from financer to mobiliser of investment for infrastructure
Spurred by national awareness of the limits to public finance and the need for more infrastructure investment, both BNDES and DBSA are transitioning from their traditional role as providers of long-term finance for infrastructure promotion to mobilisers of other sources of finance. This involves increasingly positioning themselves as enablers that (1) carry risks not readily assumed by the private sector; (2) improve the risk-return profile of infrastructure investment to mobilise commercial capital; and (3) catalyse markets through a programmatic approach of taking nascent climate solutions to market and demonstrating project viability.
3. Ensure support from governments and the international climate finance community
Both BNDES and DBSA are backed by their governments, and their financing is directly influenced by government plans and policies. In addition to strengthening mandates for climate action, and assigning NDBs with a clear role in national climate policy discussions, direct financial support from the government will enable NDBs to create markets for low-carbon technologies. Access to international climate finance – for example, through the Green Climate Fund – is also seen as a driver of climate action through NDBs.