Can Development Banks Step Up to the Challenge of Sustainable Development?

ABSTRACT

Public development banks (PDBs) — at sub-national, national, regional or international level — can cooperate and become central in the implementation of sustainable economic models. PDBs are over 500 globally. They are both providers of public funding and enablers to leverage private finance. PDBs need to acquire ‘sustainable development analytical tools’ to select operations on the basis of criteria other than purely financial ones. This paper explores why development banks can play a leading role. It proposes five recommendations for decision-makers: (1) Streamline into financing decisions the need to transition towards low-carbon and equitable economies. (2) Mobilise and encourage the private sector such that all stakeholders reach convergence on sustainable development. (3) Use development banks to channel funds for transition purposes into concrete projects, programmes consistent with international agreements signed by their governments. (4) Support emergence of a responsible demand, given that PDBs themselves are not originators of projects. (5) Build a global coalition of PDBs, to tackling global problems.

KEYWORDS:

• Development banks
• sustainable finance
• Sustainable Development Goals
• climate
• IDFC

JEL CODES:

• F340
• G21
• H4
• O1
• O16

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 For a detailed analysis, please refer to: Xu, Marodon, and Ru (2021).

2 The French Caisse des Dépôts provided its first financing in support of territorial development in 1822 to the Port of Dunkerque.

3 The World Bank’s 2013 report on financial development is symptomatic of this view (Global Financial Development Report: Rethinking the Role of the State in Finance).

4 The case of Dexia bank, a former public development bank, now privatised, that specialised in local government financing, is interesting on this count. Its liquidation (by orderly resolution) in 2009 owed nothing to the quality of its portfolio, which was excellent, but rather to the maturity mismatch of its refinancing.

5 According to the International Monetary Fund, the G20 countries had already mobilised USD 10 trillion in July 2020, twice the amount that they had announced in March. Source: https://www.imf.org/en/Topics/imf-and-covid19/Fiscal-Policies-Database-in-Response-to-COVID-19.

6 IEA (2019).

7 https://www.oecd.org/fr/cad/financementpourledeveloppementdurable/normes-financement-developpement/aide-publique-au-developpement.htm.

8 https://www.brookings.edu/blog/future-development/2019/07/29/how-much-does-the-world-spend-on-the-sustainable-development-goals/.

9 Making the Global Financial System Work for All, Report of the G20 Eminent Persons Group on Global Financial Governance, October 2018.

10 The leverage effect is the amount of additional lending permitted either by increasing equity capital or by receiving budget allocations from government.

11 Added to this are questions of taxation and distortions to competition linked to the diversity of social and environmental standards across the world.

Additional information

Funding

The author(s) reported there is no funding associated with the work featured in this article.