Climate finance in multilateral development banks

Executive summary

Multilateral development banks (MDBs) are meant to channel climate finance where private capital will not go. But a structured analysis of 30 programmes across 10 MDBs reveals a persistent pattern: the most sophisticated financial tools tend to reach the markets that are already best prepared, not the ones most exposed to climate risk. This study is the first cross-institutional, programme-level landscape analysis of MDB sustainable finance covering two decades of activity.

The world’s climate bankers have the tools. Are they reaching the right markets?

Closing the global climate finance gap requires an estimated USD 6.3 trillion per year between 2024 and 2030. Current flows reached only USD 1.9 trillion in 2023. The shortfall is sharpest in emerging markets and developing economies, where private investment is held back by weak project pipelines, high capital costs, and political uncertainty. MDBs sit at the centre of efforts to bridge this gap: they provide concessional finance, technical assistance, and risk-mitigation tools designed to draw in private capital where it would otherwise not flow.

Despite the scale of MDB activity, remarkably little is known about how these institutions actually design and deploy their sustainable finance programmes at the programme level. Aggregate financing volumes are increasingly reported, but the thematic priorities, financial instruments, blended finance structures, and geographic footprints of individual programmes remain poorly mapped and rarely compared across institutions. Without this comparative picture, it is impossible to identify where the gaps lie, which approaches work best, or whether MDB finance is actually reaching the countries that need it most. This study provides the first structured, cross-institutional landscape analysis to address that gap.

Data and method

• Selection of 30 sustainable finance programmes across 10 MDBs: Asian Development Bank (ADB), African Development Bank (AfDB), Caribbean Development Bank (CDB), European Bank for Reconstruction and Development (EBRD), European Investment Bank (EIB), Inter-American Development Bank (IDB), International Finance Corporation (IFC), Islamic Development Bank (IsDB), and the World Bank Group (IBRD, IDA, MIGA).
• Programmes selected on three criteria: explicit climate or sustainability objectives; structured multi-project facilities (not one-off loans); and publicly available documentation on instruments, structures, and geographic coverage.
• Landscape analysis framework built around three analytical dimensions: thematic focus; financial instruments and blended finance mechanisms; and geographic and sectoral deployment.
• Structured coding sheet extracts comparable variables for each programme, enabling cross-institutional comparison and pattern visualisation through tables, bar charts, Sankey diagrams, and rollout timelines.
• Sources: MDB annual reports, climate finance reports, programme fact sheets, Joint MDB Climate Finance Reports (2015–2023), and publications from the OECD and Climate Policy Initiative.

Findings

• Mitigation dominates; adaptation is an afterthought. Programmes targeting renewable energy, energy efficiency, and low-carbon infrastructure dominate the MDB portfolio. These are commercially viable investments that suit debt-based financing and attract private co-finance. Adaptation finance is fragmented and significantly underrepresented—dedicated adaptation programmess are the exception, not the rule. Biodiversity, indigenous community finance, and just transition agendas appear only marginally. Gender-focused work is mostly siloed into financial inclusion programmes rather than integrated into mainstream climate finance.
• Loans and credit lines are the default instrument. Across all 30 programmes, concessional loans and credit lines paired with technical assistance form the backbone of MDB delivery. More specialised tools—guarantees, first-loss capital, equity co-investments, results-based financing, and political risk insurance—are used far less frequently and are concentrated in a small number of institutions. IFC and ADB deploy the most diverse instrument mixes. Technical assistance is not a peripheral add-on: programmes that embed it directly into architecture, training partner banks and building country-specific capacity, achieve lasting market transformation beyond capital deployment alone.
• Blended finance is common in name, limited in practice. Blended structures are referenced across most programmes, but their complexity varies enormously. Five distinct institutional roles emerge: Market Enablers (EBRD, CDB); Pipeline Builders (AfDB, ADB); Capital Mobilizers (IFC, EIB); Sovereign De-riskers (World Bank Group); and Faith-Based Investors (IsDB). Multi-layered blended architectures—combining concessional debt, junior equity, grants, and results-based financing—remain the exception. AfDB’s Sustainable Energy Fund for Africa stands out as a programme that successfully combines these layers to de-risk first-of-a-kind renewable energy projects even in fragile markets.
• Sophisticated tools flow to the markets that need them least. Geographic deployment reflects institutional mandates and market readiness more than it reflects climate vulnerability. Within every MDB’s footprint, more innovative and risk-sharing instruments consistently flow toward middle-income markets with established legal and financial infrastructure, while high-vulnerability, low-capacity contexts receive simpler, grant-heavy packages. This pattern mirrors, rather than corrects, existing development inequalities.
• The Paris Agreement was a turning point. A structural shift is visible around 2015. Pre-2015 programmes tend to be sector-specific and debt-heavy. Post-Paris programmes are markedly broader, integrating adaptation, gender, MSME finance, and just transition elements alongside mitigation. Post-2020, digitalisation is being embedded into MSME and gender facilities, and there is a stronger push to scale successful pilots into new geographies. MDB sustainable finance strategies have evolved from standalone green windows into integrated platforms delivering multiple development outcomes simultaneously.

Bottom line: MDBs have the tools to close the climate finance gap. The challenge is where those tools are deployed, and where they are not

MDBs possess a genuinely diverse toolkit of sustainable finance instruments and have deployed it with increasing sophistication over two decades. But the architecture of deployment reflects a structural bias: the most catalytic capital—complex blended structures, risk-sharing instruments, layered equity and guarantee facilities—flows most reliably to markets that least need it. High-vulnerability countries and fragile contexts receive simpler, debt-heavy packages that can add to debt burdens without adequately de-risking private investment. Adaptation finance remains fragmented. Gender and social inclusion objectives are siloed. The challenge is not a shortage of instruments: MDBs already have what is needed. The challenge is the unevenness of deployment and the absence of binding commitments to redirect catalytic capital toward the markets and themes where climate need is greatest.

Implications for decision-makers

For MDB shareholders and governance bodies

• Reweight capital allocation frameworks toward vulnerability, not bankability. Concessional and catalytic capital must flow to markets where climate risks are greatest, even when private co-financing potential is lower. This is a deliberate policy choice, not a consequence of market conditions.
• Set binding adaptation finance targets within MDB climate strategies. Adaptation should not remain secondary or standalone. Embedding adaptation components into mitigation-focused programs—particularly in renewable energy and transport—creates dual-benefit projects and begins to close the adaptation funding gap.

For MDB management and program designers

• Scale risk-sharing instruments in least developed countries and small island states. Guarantees, first-loss capital, political risk insurance, and currency risk tools are proven—their underuse in high-vulnerability markets is a policy choice, not a technical limitation. Capital adequacy reforms and targeted technical assistance to prepare these markets are the levers to pull.
• Mainstream gender and social inclusion into large-scale climate infrastructure programs. Currently, gender finance is almost entirely confined to MSME-targeted facilities. Embedding inclusion metrics into mainstream climate investments would expand the reach of gender finance and improve the development quality of infrastructure programs.

For policymakers and researchers

• Build a publicly accessible, programme-level climate finance database. The joint MDB tracking framework should be expanded to disclose program-level data on total financing volumes, concessional levels, mobilisation ratios, and impact indicators. Greater transparency enables recipient governments, civil society, and researchers to hold MDBs accountable and build the comparative evidence base needed to drive future reform.

Authors

Suvd Baasandorj

Suvd is a recent gradate from the MSc Climate Change Finance and Investment at the University of Edinburgh Business School. She now leads sustainable finance at KHAN Bank in Mongolia, the country's largest commercial bank and leading provider of green finance.