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Shareholder-led Multilateral Development Bank Reforms

Catalysing private finance towards African climate goals

Africa is the least emitting continent, responsible for just 3% of global emissions and with nearly 20% of the world’s population, including some of the most climate vulnerable countries. And yet, the continent is losing between 5-15% of GDP growth to climate change annually. Action needs to be taken to close this $3trn climate financing gap.

Together with Africa Investor, we have published “Shareholder-led Multilateral Development Bank reforms”. In this paper, we outlined why reform is needed to address this problem, together with five priority recommendations:

1. Update MDBs’ purpose and governing charter documents via a special resolution to recognise the ongoing climate emergency and the crucial role that MDBs play in taking action to help mitigate and adapt to it.

2. Set targets for climate finance mobilisation by MDBs, including stretch targets, expressed as a proportion of beneficiary NDCs with Board-level oversight provided and public disclosure of progress against targets.

3. Scale the investment needed by African nations by prioritising originating and sharing risk with private finance.

4. Increase risk-related data transparency to support risk sharing with private finance, aiming to minimise the cost of capital for African nations, relating to NDC projects.

5. Streamline processes to support the necessary increases in both the pace and scale of financing required to deliver on African NDCs, providing additional project development support to scale the project pipeline.

The role for shareholders

“The shareholders of these global banks must ask the banks to develop new tools to meet these global challenges. The evolution of these banks will require changes to incentives, operating models and the uses of the banks’ financial resources. MDBs must adopt stronger targets for mobilising private finance.”

US Treasury Secretary Janet Yellen, October 2022

MDB shareholders must bring about change

The shareholders of MDBs hold a privileged position, with the power to table and institutionalise the necessary change, together with MDB CEOs. Heads of State and governments have an opportunity to empower their MDB shareholder representatives to mandate this change when Egypt hosts the United Nations Framework Convention on Climate Change 27th Conference of the Parties (COP27) in November this year.

Immediate actions

  1. Engage with respective member country government officials, starting with Heads of State and including, but not limited to, Ministers of Home Affairs, Finance, and Foreign Affairs on the benefits of these reforms in mobilising increased capital towards the achievement of NDCs.
  2. Mobilise a coalition of MDB shareholders to table a special resolution, by engaging with fellow governors on their respective MDB Board of Governors. MDBs’ Boards of Directors have already committed to joint action. This now needs to be institutionalised through top-down reform, including through engagement with MDB CEOs.
  3. Draft a special resolution to update the governing charter documents to recognise the climate emergency and the crucial role that MDBs play in taking action to help mitigate and adapt to it. The Appendix of this report provides a template which can be used and amended as appropriate.
  4. Decide on the submitting governors for the special resolution. Typically this must be proposed to the Chair of the Board of Governors.
  5. Table the special resolution to update the governing charter documents to recognise the climate emergency and the crucial role that MDBs play in taking action to help mitigate and adapt to it. Typically this requires a majority of the Board (in members and votes) to support adoption.

Shareholder action plan beyond COP27 to COP28

Shareholders should mandate their respective MDBs to:

  • Share more required risk-related data, as part of a new centralised data-sharing network, expanding on the Global Emerging Markets Risk Database Consortium (GEMs).
  • Set climate finance and private mobilisation targets by March 2023, embed these within scorecards and provide annual delivery reporting to the Board, with the first delivery reporting due ahead of COP28.
  • Revise risk frameworks to support the prioritisation of risk-sharing with private finance, including key risk indicators (KRIs) linked to the efficiency and scale of MDBs’ use and mobilisation of capital.
  • Engage Environment Ministers and Heads of State to develop criteria with which to identify selected projects of strategic importance to countries’ NDC plans and designate them for expedited approvals processes.
  • Agree plan with MDBs to implement the recommendations of the G20 Capital Adequacy Review*, to enable MDBs’ to increase climate finance and private finance mobilisation given existing capital, whilst taking action to preserve credit ratings and preferred creditor treatment. US Secretary Yellen recently stated that she would ask World Bank management to develop an "evolution roadmap" for changes by December 2022, with "deeper work" beginning by the Spring 2023.**"

*AfDB. 2018. African Development Bank and partners’ innovative Room2Run securitisation will be a model for global lenders.

**UNFCCC (n.d.). Global Stocktake.

Agree with MDBs:

  • Targets for climate private finance mobilisation and annual target delivery reporting formats to MDB Boards, with mechanisms agreed for periodic review and intervention.
  • Increase commitments to existing forums for project development support, including those run by and with the private sector, to address the project development financing deficit.
  • Establishment of a catalytic financing network, with pooled structuring expertise to support scaling of risk-sharing with private finance.

Launch collective MDB networks and forum including:

  • Centralised data-sharing network, pooling MDBs’ and private markets’ proprietary risk data, while protecting confidentiality.
  • Shared MDB structuring advisory board, to support an increase in catalytic financing and risk-sharing with private finance.
  • Review adequacy of own shareholder capital provision to MDBs.
  • Establish a Board Committee or revise the existing Committee Terms of Reference to incorporate oversight of MDBs’ climate finance and private finance mobilisation targets (see the Terms of Reference Template provided in Appendix 2).
  • Review the first Board Committee climate finance and private finance target delivery reporting from MDBs, ahead of COP28.

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