While climate change issues occupy a large place on the agenda of the international community, many developing countries are experiencing serious negative impacts as a result of climate change. Development banks are key actors that play a vital role in supporting climate action projects in these countries.
Development banks are international financial institutions aimed at promoting economic and social development in developing countries. In the context of climate change, it has a major role in providing financial and technical support to projects that seek to adapt to environmental impacts and reduce harmful emissions.
Development banks are a vital bridge between global policies to combat climate change and the actual needs on the ground in developing countries. By providing financing and technical expertise, these banks help implement sustainable projects aimed at protecting the environment and enhancing the sustainability of communities.
New pledges
During the COP28 conference hosted by the United Arab Emirates, multilateral development banks announced a joint pledge to provide more than $180 billion to support climate financing initiatives.
The World Bank also announced an ambitious financing package on the sidelines of the United Nations Climate Change Conference (COP28), to help developing countries better withstand the repercussions of climate change in order to create a better world for all.
The World Bank seeks to do more to combat climate change and do so faster, allocating 45 percent of its annual financing to climate-related projects for the fiscal year running from July 1, 2024, to June 30, 2025.
Support developing countries
In this context, banking expert, Sahar El-Damaty, in special statements to the “Eqtisad Sky News Arabia” website, points out the importance of the role played by various regional and international development banks with developing countries regarding climate projects, which is a growing role within the paths of development and climate action in those countries. Countries that suffer directly and significantly from the impacts of climate change on their economies, despite their limited contribution to emissions.
The formation of development banks is a pivotal factor in efforts to combat climate change and promote sustainable development in developing countries. Its efforts reflect an international commitment to address the challenges of climate change and achieve a balance between economic development and environmental preservation for current and future generations.
In El-Damaty’s estimation, there are two basic factors that rely on the role of development banks and their contributions in this context: The first factor is related to supporting projects – which countries identify among their priorities in serving development and climate projects, and to meet nationally determined contributions – especially with regard to projects related to industry, to reduce pollution resulting from large factories, especially the most polluting industries.
She adds: “These countries need the necessary technology in order to confront pollution, and among them are expensive machines and machinery, and so on (..),” explaining at the same time that among these projects are those related to projects related to the green economy, including especially the expansion of solar energy and solar energy. Wind and other renewable energies, in order to help reduce emissions and reduce pollution.
In addition to this, there are other giant projects such as electric cars, for example, all of which are projects on the radar of many countries. In the context of development and climate (as two interconnected lines). Al-Damaty explains that these types of ambitious projects are usually very expensive, and therefore developing countries need long-term financing, which is relied upon by development banks, which provide special benefits, including helping countries in developing these projects.
- In 2022, total financing provided by multilateral development banks to low- and middle-income economies reached $60.7 billion, an increase of about 50% from 2021.
- $38 billion (63% of the total) went to fund mitigation projects. and $22.7 billion (37%) to support adaptation.
- Developing countries are looking to increase the pace, financing and adaptation projects.
The second factor that many ignore – according to what Al-Damaty confirms – is what is related to cultural development, which is an inseparable role from the role associated with supporting the transition to a green economy and major projects, especially since awareness campaigns and initiatives are allocated in the context of supporting and educating people about climate action and ways to preserve the environment. It is a pivotal role, not a theoretical one, that can be built upon to contribute to preserving the environment and clarifying its concepts, and thus helping in one way or another in efforts to confront climate change.
Projects supported by development banks in the field of climate action vary widely, from renewable energy projects such as solar and wind, to improving environmental sustainability in various sectors such as agriculture and industry. These projects also seek to provide sustainable job opportunities and promote economic development in local communities.
In addition, development banks play a vital role in promoting awareness and capacity building in the field of climate change. By providing training courses and transferring knowledge, they contribute to enabling developing countries to develop effective strategies to address environmental challenges.
It is noteworthy that during the work of COP28, the development banks issued a joint statement (signed by the African Development Bank Group, the European Investment Bank, the Asian Development Bank, the Asian Infrastructure Investment Bank, the Development Bank of the Council of Europe, the European Bank for Reconstruction and Development, and the International Development Bank Group The United States, the Islamic Development Bank, and the World Bank), during which they affirmed their commitment to concerted global action, including increasing joint financing and private sector participation, to address climate change.
Climate and development
These roles played by development banks are relied upon in making a difference in the context of development in developing countries, in cooperation between them and governments, which is what the Egyptian Minister spoke about in the last symposium, where she stated that:
- The common link between climate-related initiatives is the involvement of multiple stakeholders, starting with governments that have a base to pay for when it comes to policies and regulations, as well as multinational development banks when it comes to the way forward.
- It should arise from country-specific climate targets, given that each country has its own Nationally Determined Contributions (NDCs) and these must be translated into projects.
- These projects are not just climate projects, but they are also development projects (…) because climate and development go hand in hand and “we should not look at climate as a burden.”
- This is what Egypt sought to confirm, and in cooperation with all development partners, including the African Development Bank, the World Bank, the European Bank for Reconstruction and Development, and the European Investment Bank, in order to create complementarity between what each partner can do to help us implement this project, This includes financing, technical assistance, etc.
Climate and local banks
Along with the role of development banks, there are broad roles for local banks in climate action. While development banks focus on major projects and investments, local banks provide financial support and banking services to companies and individuals at the local level. This includes financing local small and medium enterprises, and providing banking services for sustainable development projects.
Therefore, the role of local banks complements the role of development banks in stimulating sustainable development and adaptation to climate change challenges at a less modular level.
In this context, Egyptian banking expert, Mohamed Abdel-Aal, said in exclusive statements to “Iqtisad Sky News Arabia” website, that climate change, rising temperatures, and environmental pollution push us to seek to reduce the carbon footprint in all fields. Reducing the carbon footprint with regard to the banking system has both an environmental and financial aspect. Because spending on projects that contribute to reducing the carbon footprint imposes new responsibilities on the banking sector.
Abdel-Al gives, as an example, that spending is directed to environmentally friendly projects or so-called green investment, and loan issuances are directed to green financing or projects that are compatible with the environmental adaptation plan. These projects have a fairly low interest, but their requirements are high and they require banking services. To include new cadres who understand climate projects and how they can monitor them.
He stresses that monitoring here is greatly required to ensure that the loan is disbursed in what is allocated for it, and this of course requires technical committees to research how to achieve a reduction in the carbon footprint, while spreading awareness to the banking system and its customers. Banking agencies must also extend lines of cooperation with institutions interested in improving indicators. Climate, heat emission resistance, and carbon footprint reduction.
He explains that more than 80 percent of emissions are caused by advanced industrial countries. Therefore, the banking institutions of these countries must develop a plan to finance developing countries for adaptation while implementing the adaptation and environmental preservation plan.
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