Asian Development Bank to Increase Climate Lending

The Asian Development Bank will increase its climate-related lending by up to $7.2 billion after the United States and Japan agreed to underwrite risk for some existing loans, an ADB executive has said.

This marks the first ever sovereign guarantees for climate finance.

The new strategy offers a potential template for other development banks to follow as the U.N.’s COP29 climate summit in Baku, Azerbaijan, starting this week focuses on ramping up the amount of finance available to developing nations.

The ADB has set a long-term cumulative climate finance lending target of $100 billion between 2019 and 2030. In 2023, it lent $9.8 billion.

The U.S. election victory last week of Donald Trump, who has vowed to remove the United States from the Paris Agreement on climate, has overshadowed the start of the Baku talks, adding pressure on Europe and China to help get a strong result, negotiators said last week.

Under the ADB plan, the world’s richest country would guarantee up to $1 billion of existing loans from Asia’s top development institution, while Japan would underwrite $600 million – freeing the bank to lend more for climate-related projects.

“The structure is a fantastic way of extending a multilateral development bank’s (MDB) lending capacity without going through the politically difficult situation of a general capital increase, which would need to come from fresh country donations,” Jacob Sorensen, director of partner funds at the ADB said.

An ADB spokesperson declined to comment on whether the deals, which were finalised last week, would be affected by the incoming Trump administration.

The extra lending headroom, with the guarantees generated will be deployed over the next five years, while the duration of the guarantees themselves will be 25 years, according to the ADB.

Reuters/Hauwa Abu