ADB to Boost Climate Lending by $7.2 Billion with First-Ever U.S., Japan Guarantees

November 13, 2024

The Asian Development Bank (ADB) is set to increase its climate-related lending. This follows an agreement between the United States and Japan to underwrite risks for existing loans. This initiative marks the first instance of sovereign guarantees for climate finance. The ADB’s new strategy aims to provide a framework for other development banks. These developments come just ahead of the U.N.’s COP29 climate summit in Baku, Azerbaijan.

Increased Lending Capacity

The ADB plans to boost its climate finance lending by up to $7.2 billion. The U.S. will guarantee up to $1 billion of existing loans, while Japan will underwrite $600 million. This arrangement allows the ADB to lend more for climate-related projects. The guarantees will extend over a period of 25 years, with the additional lending expected to be deployed within the next five years.

Long-term Climate Finance Goals

The ADB has set a cumulative climate finance target of $100 billion from 2019 to 2030. In 2023, the bank lent $9.8 billion towards climate initiatives. This new funding strategy is crucial as developing countries are projected to require over $2 trillion annually by 2030 for climate transition efforts. The need for robust financing solutions is urgent, especially in the face of increasing climate threats.

Immediate Project Beneficiaries

One of the first projects to benefit from this initiative is in Pakistan. The project aims to generate sustainable aviation fuel from cooking oil. Approximately half of the $90 million required for this project will come from the ADB scheme. The deal is expected to be finalised on November 20, 2024.

Collaborative Efforts with Other Institutions

The ADB has been working closely with various Western governments to develop this guarantee deal. The bank is also sharing its experiences with other multilateral development banks, including the World Bank and the European Investment Bank. This collaboration aims to scale up climate-related lending and enhance the effectiveness of funding strategies.

Expanding Use of Sovereign Guarantees

Sovereign guarantees for climate finance are a novel approach. Previously, they were used for funding in sectors like education. Public lending institutions have begun to guarantee third-party investments for climate projects. The World Bank has also launched a platform to consolidate these guarantees, aiming to double its annual guarantee figures by 2030.

Global Climate Financing Needs

As climate change leads to more extreme weather events, the need for funding becomes critical. Developing nations are increasingly vulnerable and require substantial financial resources to adapt. Rich nations are focusing on securing a financing deal at COP29 that extends beyond mere donations. Development banks and private investors are expected to play a vital role in meeting these financial needs for climate action.

Important Facts for Exams:
ADB – The Asian Development Bank aims for $100 billion in climate finance by 2030. It focuses on increasing lending through innovative sovereign guarantees. This initiative supports developing nations .
COP29 – The 29th Conference of the Parties to the UN Framework Convention on Climate Change is crucial. It takes place in Baku Azerbaijan. The summit focuses on climate financing for developing countries.
Sovereign Guarantees – Sovereign guarantees are a new tool for climate finance. They allow governments to back loans for projects. This method previously funded sectors like education and is now expanding.

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