challenges over extended periods. By leveraging shareholders’ capital con- tributions through private sector bond markets, they can provide significant financing with efficiency and scale. Central to the role of MDBs in climate finance is their unique and powerful financial model. MDBs raise most of their resources by issuing bonds on international capital markets, which they then lend for development projects at below-market rates. These projects – often related to climate action such as renewable energy, low-carbon trans- port or green infrastructure – typically generate limited financial returns. However, due to the strong repayment track record of borrowing countries, MDBs maintain excellent financial performance, supported by conserva- tive capital leverage and the backing of shareholder countries. MDBs have issued more than $1.5 trillion in bonds over the past decade, significantly contributing to global development finance. The Inter- national Bank for Reconstruction and Development, the World Bank’s main lending arm, has raised over $800 billion in capital since its inception. Despite the challenges posed by recent global crises, MDBs have continued to offer financing on favourable terms, helping developing countries navi- gate economic recovery and climate adaptation. Could MDBs do more? Although MDBs have performed well historically, the growing scale and complexity of climate challenges neces- sitate a rethinking of their role. The depth and variety of climate-resilient pathways have stretched their capital adequacy, prompting calls for MDBs to expand their impact. This expansion could involve innovating their financial models to mobilise more private sec-
Development Association going to market, the M300 initiative, and the Asian Infrastructure Investment Bank’s nature-based infrastructure solutions exemplify the innovative approaches needed to meet the grow- ing demand for climate finance. MDBs must continue evolving, by leveraging their financial models to catalyse greater private sector partici- pation in climate finance. In doing so, they can play a pivotal role in address- ing the global climate crisis and ensuring the world remains on a path towards sustainable development.
tor investment and streamline business procedures to reduce barriers for borrowers. MDBs could enhance their efforts by collaborating more closely with other stakeholders and develop- ing countries to build a robust pipeline of investable climate projects. The potential for private sector investment in climate-related projects is vast, yet significant gaps remain. To bridge these gaps, MDBs must explore strategies to enhance their capacity to attract and manage private financing. Initiatives such as the World Bank’s International
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