Can development banks step up to the challenge of sustainable development?

The great planetary challenges, be it the climate, loss of nature or human solidarity, call for concerted actions at all levels, on a scale commensurate with the problems. Yet, this transformative change, which requires mobilising actors across the board, cannot be achieved overnight. A transitional period will be needed to allow the actors to build socio-economic models attuned to this vision. While multilateralism is struggling to meet these challenges, public development banks – whether operating at sub-national, national, regional or international level – can cooperate and contribute to the search for economic and social models that hold promise for the future.

Building on their dual role as a provider of public funding and an enabler to leverage private finance, Public Development Banks (PDBs) need to acquire the tools and indicators to help them select and support low-carbon initiatives as a priority. They need to put in place “sustainable development analytical tools” allowing them to select operations on the basis of criteria other than purely financial ones and, where necessary, propose long-term loans for high-impact operations. They must also ensure that none of their financing is likely to encourage activities at odds with the attainment of the Sustainable Development Goals, particularly those on climate and nature.

This policy paper explores the reasons why development banks can play a leading role in promoting the transition to sustainable development. It proposes five recommendations for decision-makers in order to help build the conditions for a successful transition. 

  • Streamline into financing decisions the imperative need to transition towards low-carbon, resilient and equitable socio-economic models, which assumes that each development bank acquire the necessary analytical tools and stand accountable for the impacts of its financing. 
  • Mobilise, encourage and draw on the private sector such that all stakeholders reach convergence on sustainable development. There is little point in a PDB refusing to finance a highly emissive or environmentally harmful project if another player then goes on to fund it. This mission is probably one of the most ambitious that the development banks can set themselves
  • Use development banks to channel funds for transition purposes into projects, programmes and concrete actions forming part of national trajectories, consistent with the international agreements signed by governments.
  • Support the emergence of responsible demand, given that the banks themselves are not the originators of projects. The environmental or social value of a policy, strategy or operation is the primary responsibility of the project sponsors themselves. 
  • Build a global and inclusive coalition of development banks, focused on the sustainable development transition and able to interconnect with other actors. Moving beyond isolated actions is crucial to tackling problems of global proportions. The world needs to have possible solutions in view as well as actors capable of embodying new forms of collective action, bolstering multilateralism, to give a breath of optimism and a positive momentum around sustainability.

Marodon R. (2020) "Can development banks step up to the challenge of sustainable development?" FERDI Working paper P272, October