Enhancing Collaboration for Scalable Local weather and Growth Finance

At COP29 in Baku, nations agreed on a strengthened local weather finance trajectory by means of the New Collective Quantified Aim (NCQG). As nations put together new local weather pledges, together with Nationally Decided Contributions (NDCs), forward of COP30 in Belém, readability is required on how this scaling up will happen and the way private and non-private, in addition to home and worldwide finance, will remodel.

The Baku to Belém Roadmap goals to information this transition by figuring out a broad set of actions and measures by all actors wanted to scale up finance for local weather motion, amid issues round unstable market and geopolitical circumstances. Public finance actors are more and more important for leveraging further sources and shutting local weather finance gaps. Vertical local weather
and environmental funds (VCEFs), multilateral improvement banks (MDBs), nationwide improvement banks (NDBs), and the broader ecosystem of public improvement banks (PDBs) all contribute to improvement and local weather targets, however differ considerably of their dimension, governance, mandates, and operations.

VCEFs—comprising the World Setting Facility (GEF), the Adaptation Fund, the Local weather Funding Funds (CIF), and the Inexperienced Local weather Fund (GCF)—focus solely on local weather and surroundings, offering primarily grant-based concessional finance by means of partnerships with multilateral, nationwide, and personal entities. Growth finance establishments (DFIs) present the vast majority of world public local weather finance, of which MDBs delivered a report USD 125 billion in local weather finance in 2023, combining large-scale financing—largely as loans—with technical experience and coverage assist to advance sustainable improvement (EIB, 2024). NDBs, a various group of nationwide establishments centered on implementing nationwide insurance policies, might be necessary native intermediaries, leveraging their proximity to home actors and markets and their capability to offer finance in native foreign money to assist undertaking implementation and align worldwide finance with nationwide priorities. Nationwide DFIs (together with each NDBs and subnational improvement banks) dedicated USD 268 billion in local weather finance in 2022, demonstrating the important significance of NDB financing within the wider panorama (CPI, 2024a).

This report examines how collaboration between VCEFs, MDBs and NDBs can scale local weather finance—together with from non-public establishments—and speed up efforts to satisfy sustainable improvement targets. Commissioned by the G20 Sustainable Finance Working Group (SFWG), beneath the 2025 South African G20 Presidency, it goals to assist the SFWG Precedence 1 on strengthening the sustainable finance structure. The evaluation builds on the landmark 2024 Impartial Excessive-Stage Skilled Group Evaluation of the VCEFs and explores how VCEFs, MDBs, and NDBs can leverage their distinct but complementary institutional strengths to maximise their collective catalytic and transformational potential.

The report focuses on VCEFs’ collaboration with MDBs and NDBs and doesn’t cowl:

• Detailed entry, accreditation, or effectivity points inside VCEFs.¹
• Local weather ambition and institutional targets.
• Capitalization and resourcing challenges.
• Broader MDB-NDB cooperation.²

Monetary collaboration between VCEFs, MDBs AND NDBs

Collaboration between these establishments is wealthy and diverse, with sturdy potential to scale local weather finance by constructing a various capital stack that makes the very best use of every establishment’s threat capability and entry to concessional finance. This report research collaboration between VCEFs and MDBs, between VCEFs and NDBs, and amongst all three establishments.

Monetary collaboration contains exploring and implementing monetary devices to quickly mobilize non-public finance at scale. Personal traders typically face obstacles to financing local weather associated tasks in rising markets and creating economies (EMDEs) as a consequence of varied kinds of threat, spanning coverage, political, foreign money, sovereign, credit score, off-taker, liquidity, and generally know-how elements (CPI San Giorgio Group, 2024). There may be additionally uncertainty and unfamiliarity surrounding new markets and an absence of undertaking pipelines. Whereas MDBs, NDBs, and VCEFs have individually pursued efforts to higher mobilize non-public finance by means of merchandise that assist non-public establishments higher handle dangers, these establishments can cooperate extra successfully on this agenda, leveraging their distinctive strengths and capabilities. A few of the most promising devices and types of monetary collaboration that VCEFs, MDBs and NDBs may concentrate on are:

• Ensures. MDBs have led on ensures so far, with VCEFs and NDBs utilizing them solely modestly. When strategically deployed, ensures might be extremely efficient in supporting non-public finance mobilization, with bigger credit score assure services having the potential to leverage 6-25 instances (CPI, 2024b) extra financing than loans, although obstacles to their broader utility stay. On condition that some MDBs require concessional capital to supply sure kinds of ensures in some nations, VCEF-MDB collaboration might be useful in unlocking a larger scale of extremely MDB ensures with comparatively restricted use of VCEF capital.
• Fairness. Fairness funding is necessary for undertaking improvement and mobilizing further non-public capital. Catalytic fairness, which accepts sub-market phrases to soak up early-stage dangers, might be particularly efficient in unlocking non-public funding. Whereas fairness just isn’t a core instrument for many VCEFs and MDBs, they—together with NDBs—are properly positioned to leverage their respective capabilities to scale the deployment of catalytic fairness in a financially sustainable method. 

MDB-NDB monetary collaboration is already in depth—exceeding USD 100 billion from 2014 to 2024 throughout all improvement areas (FERDI, 2025) and largely involving institutional lending preparations similar to on-lending. MDBs can even present grants and ensures to NDBs, and help them in accessing monetary sources, together with from VCEFs and capital markets.

These and varied different devices can be utilized for local weather co-financing to pool sources from a number of establishments and improve undertaking scale. The typical complete worth for VCEF-funded tasks is USD 100 million with co-financing vs. USD 7 million with out. Co-financing can even cut back fragmentation and result in simpler deployment of concessional finance. It may well assist risk-sharing, assist mobilize non-public finance, and leverage NDBs’ native data (ODI, 2020). Nevertheless, whereas co-financing might be helpful between VCEFs, MDBs and different public establishments, it’s not the dominant or at all times essentially handiest type of MDB-NDB engagement. Realizing advantages of co-financing is commonly difficult as a consequence of differing requirements and standards, prolonged approval processes, and restricted capability.

Establishments differ of their definitions of co-financing and of mobilization, demonstrating the necessity for harmonization in monitoring methodologies. Knowledge gaps and inconsistent reporting restrict a full evaluation of co-financing between VCEFs, MDBs and NDBs. That stated, obtainable ex-ante information from VCEFs from 2019 to 2023 offers insights on the size and developments of co-financing and mobilization related to VCEF tasks (an in depth methodology might be present in Annex 1):³

• MDBs are the most important contributors of co-financing with VCEFs, totaling USD 17 billion in co financing from 2019 to 2023, offering a median of USD 107 million per co-financed undertaking from 2019 to 2023, largely by means of debt.
• Personal finance is mobilized by means of bigger tasks. The typical worth of VCEF-funded tasks with non-public sector funding was USD 135 million, in comparison with USD 78 million for tasks which might be financed solely by VCEFs and different public actors.
• Mitigation tasks attracted extra co-financing and mobilization than adaptation, with each VCEF greenback leveraging 5 for mitigation vs. solely three for adaptation. This skew might be as a consequence of stronger returns and extra mature markets for mitigation, and factors to a systemic funding hole for adaptation.
• VCEF tasks in middle-income nations (MICs) appeal to extra co-financing and mobilization than these in low-income nations (LICs). MICs obtained 43% of co-financing and mobilization volumes, in comparison with simply 8% for LICs, reflecting variations in capability, fiscal constraints and issue attracting non-public funding in some nations.

VCEFs, MDBs and NDBs can even collaborate to extend availability of native foreign money financing. Forex threat administration is essential for growing local weather funding in EMDEs, the place undertaking revenues are usually generated in native foreign money whereas financing is offered in laborious foreign money, creating vulnerability to change fee fluctuations. Joint collaboration between VCEFs, MDBs and NDBs to supply extra native foreign money financing choices, alongside coverage and capability constructing efforts, will help to make financing extra viable and predictable for recipients and assist to mobilize broader finance.

There is a chance to deal with the challenges to monetary collaboration between VCEFs, MDBs and NDBs. Regardless of shared targets and concerted efforts, collaboration between these actors might be hindered by inefficient processes, restricted suggestions loops, and knowledge asymmetries. These obstacles additionally create substantial transaction prices for personal sector entities trying to associate with VCEFs, MDBs, and NDBs, limiting the uptake of the instruments these establishments provide to mobilize non-public finance. Our evaluation recognized the next obstacles:

• Accreditation to VCEFs is complicated and time-consuming. The GCF has accredited essentially the most NDBs (25 so far), with restricted NDB accreditations by different VCEFs. Whereas NDBs can entry VCEF finance through MDBs, extra standardized or direct choices might be expanded. Personal entities might be accredited, however the course of is prolonged; future reforms to deal with this situation are being developed.
• Challenge approvals and disbursements are sometimes sluggish. The GCF launched the “Environment friendly GCF” initiative in 2023 to hurry up opinions to beneath 9 months.
• Numerous requirements, taxonomies, and processes trigger duplication and inefficiency. Mutual reliance initiatives enhance effectivity by delegating widespread duties to at least one establishment. Harmonization of key financing definitions throughout establishments needs to be pursued.
• There’s a want for due diligence interoperability. VCEFs, MDBs and NDBs may cut back administrative burdens that sluggish undertaking progress with a view to incentivize non-public sector engagement by means of harmonization or mutual recognition of their respective due diligence processes.
• Info asymmetries make it tougher for establishments to work collectively. Digital options, together with information sharing and accessible, up-to-date repositories of knowledge on potential sources of finance and the related necessities are wanted.
• Weak suggestions mechanisms imply that classes from collaborations are sometimes misplaced or poorly documented. Common, mild contact suggestions mechanisms together with workshops and surveys may enhance studying and coordination.

Realizing the potential of VCEFs, MDBs AND NDBs

This report focuses on VCEF-MDB-NDB non-financial collaboration in three key areas: (1) supporting nation platforms to coordinate financing according to nationwide priorities, (2) collaborating on technical help (TA) to construct capability and put together tasks for profitable implementation, and (3) enhancing the enabling surroundings by means of insurance policies and laws to broaden and mainstream local weather finance.

• Nation platforms might be an necessary instrument for enhancing collaboration and coordination to scale local weather finance. Nation platforms provide a possibility for VCEFs, MDBs, NDBs, and different key actors to coordinate assist round a country-led long-term funding plan, aligned with Lengthy Time period Methods, NDCs, and/or Nationwide Adaptation Plans (NAPs). Local weather finance suppliers must transcend project-by-project investments to think about the right way to align with nationwide priorities, together with the right way to maximize the influence of restricted concessional and risk-bearing capital. They have to additionally collaborate to supply a robust bankable undertaking pipeline, catalytic coverage and regulatory modifications, and revolutionary devices and applications that may crowd in non-public capital.
• TA offered to foster capability constructing, undertaking preparation, and coverage improvement can allow present and future local weather finance and unlock alternatives for added sources, together with from the non-public sector. These instruments are significantly invaluable for supporting governments and organizations with inadequate capability and technical experience to design insurance policies, implement climate-resilient tasks, market transformation exercise, combine new local weather applied sciences, and entry funds.
• Efforts to construct an enabling surroundings can handle persistent challenges similar to regulatory gaps, value distortions favoring fossil fuels, restricted consciousness of inexperienced alternatives, and coverage uncertainty that impede funding. MDBs, VCEFs, and NDBs can all play distinct however complementary roles in supporting nations to form these environments: MDBs convey technical experience, policy-based lending, and shut working relationships with governments; VCEFs present grants and TA to nations with weaker institutional capability; and NDBs can advise on native obstacles to funding and assist translate nationwide local weather plans into actionable, investable tasks. The provision and entry to strong information are additionally important to enabling knowledgeable decision-making on local weather finance. VCEFs, MDBs and NDBs must collaborate to make sure their invaluable work is being tracked, reported, and monitored, and to eradicate the info gaps that hinder progress. Working towards a coordinated method to sharing information and data change, in addition to uniform
  measurement and reporting necessities, may speed up implementation on the bottom.

Suggestions

Potential steps that VCEFs, MDBs and NDBs may take to enhance collaboration and improve their collective local weather finance provision and personal capital mobilization may embody the next⁴:

Collaborate to offer focused programmatic assist for nation platforms

• VCEFs, MDBs and NDBs, with the assist of nationwide governments, ought to make the most of their respective strengths and work as a system and throughout the system to reinforce nation platforms, guided by country-led priorities, aligned with Lengthy Time period Methods, NDCs, and/or Nationwide Adaptation Plans.
• The place nation platforms are already established or rising, MDBs, VCEFs, and the related NDBs ought to coordinate their work to make sure strategic alignment and allow info change, together with for mobilization of personal capital, beneath the management of nationwide governments.

Pursue interoperability to simplify engagement

• VCEFs, MDBs and NDBs ought to harmonize due diligence processes between and inside establishment sorts to ease non-public sector engagement, doubtlessly involving or counting on present MoUs or mutual reliance agreements between organizations, thus making approvals transferable throughout establishments. All through these efforts, make sure the
  highest environmental and social requirements for safeguards are attained.
• VCEFs ought to allow cross-recognition of accreditation throughout funds in particular contexts, similar to when an Accredited Entity has delivered financing in a particular sector with one fund, and is in search of related financing from a fund to which it’s not but accredited.

Unlock the total potential of NDBs

• VCEFs ought to set up devoted funding for proposals from Accredited Entities, together with MDBs, that contain co financing or partnering with unaccredited NDBs to broaden NDBs’ entry to VCEF funds.
• NDBs and nationwide governments ought to work collectively to construct a coherent “whole-of PDB system” by mirroring the continuing MDB roadmap to PDBs and enabling mutual recognition of procedures and requirements amongst all actors. This contains setting out how collaboration between VCEFs and MDBs can assist the supply of this roadmap.
  Be aware: this suggestion can also be associated to the work of the Worldwide Monetary
  Structure Working Group of the G20.

Improve data sharing

• VCEFs, MDBs and NDBs ought to formalize routes for sharing classes discovered and greatest practices from co-financing efforts to mitigate dangers of delays and to keep away from excessive transaction prices, shifting ahead.
• VCEFs, MDBs and NDBs ought to develop and formalize change or secondment applications from NDBs with capacity-building must different DFIs, MDBs, and VCEFs, in an effort to develop in-house data regarding local weather finance options.

Keep momentum on enhancing the effectivity of key VCEF processes

• VCEFs ought to construct on latest enhancements to processes for accreditation, approvals and disbursements.

Collaborate to ship transformational finance

• VCEFs and MDBs, with NDBs’ assist, ought to collectively determine the place monetary collaboration can set up new markets in local weather finance and financing SDGs, significantly for adaptation and biodiversity.

Construction applications to permit responsiveness to personal mobilization alternatives

• Inside programmatic buildings and services, VCEFs ought to reserve Board approvals for program-level choices and discover the delegation of project-by-project approvals to the Accredited Entity. This will enhance flexibility and allow agile responses to fast-changing market circumstances and related funding alternatives

Discover revolutionary finance approaches and improve useful resource effectivity

• Pursue revolutionary devices with the non-public sector taking a number one position, supported by efficient partnerships between VCEFs and MDBs. This may increasingly embody utilizing grants and/or concessional finance from VCEFs to allow the supply of ensures, catalytic fairness financing and different revolutionary financing instruments, the place acceptable. This could guarantee additionality and minimal concessionality, taking inventory of the MDBs constraints.
• Develop revolutionary partnerships between VCEFs and MDBs to extend the monetary leverage of VCEF sources directed towards the general public sector. This might embody VCEFs investing in new monetary devices created by MDBs, similar to ensures and hybrid capital.

Cut back fragmentation within the provision of TA

• VCEFs and MDBs ought to arrange long-term local weather finance TA applications centered on data switch in session with NDBs. These applications needs to be outfitted with sustained funding for long-term TA and capability constructing to assist institutional and technical improvement inside NDBs.

Maximize the influence of undertaking preparation assist

• VCEFs and MDBs, with NDBs’ assist, ought to create a streamlined pathway from undertaking preparation assist to undertaking financing to make sure invaluable pipeline alternatives transfer towards implementation, additionally by means of joint VCEF-MDB-NDB PPF applications.
• The place related, NDBs needs to be leveraged to develop a pipeline of bankable tasks. This might be aided by means of concessional undertaking preparation assist from VCEFs and MDBs, with the assist of nationwide governments, wanting first to present services.