Finance
Multilateral banks are key to financing the fight against global warming. Here is how they work
As climate change leads to a seemingly endless stream of weather disasters around the world, countries are struggling to adapt to the new reality. Preparing to better withstand hurricanes, floods, heat waves, droughts and wildfires will take hundreds of billions of dollars.
And then there is confronting the root cause of climate change—the burning of fossil fuels like coal, gasoline and oil—by transitioning to clean energies like wind and solar.
That will take trillions of dollars.
Enter climate finance, a general term that means different things to different people but boils down to: paying for projects to adapt to and combat the cause of climate change. Financing related to climate change is especially important for developing countries, which don’t have the same resources or access to credit that rich countries do.
International mega banks, funded by taxpayer dollars, are the biggest, fastest-growing source of climate finance for the developing world. Called multilateral development banks because they get contributions from various countries, there are only a handful of these banks in the world, the World Bank the largest among them.
How these banks allocate resources are some of the weightiest decisions made in defining how poorer nations can respond to climate change. They were a key reason why, in 2022, the world met a goal countries had set in 2009 to supply developing nations with $100 billion annually to address climate change.
At the annual U.N. climate conference that opens Monday in Azerbaijan, global leaders are expected to discuss how to generate trillions of dollars for climate finance in the years to come. The nonprofit research group Climate Policy Initiative estimates the world needs about five times the current annual amount of climate financing to limit warming to 1.5 C (2.7 degrees F) since the late 1800s. Currently, global average temperatures are about 1.3 C (2.3 degrees F) higher.
A new goal needs to reach higher and hold institutions and governments accountable to their promises, said Tim Hirschel-Burns, an expert at Boston University’s Global Development Policy Center.
“The core of it is getting a goal that is going to catalyze the actions that fills the really significant climate finance gap that developing countries face, which is much bigger than $100 billion,” he said.
As the international community has come to accept the reality of climate change, the debate has shifted to the question of where the money to fund the energy transition will come from, said Dharshan Wignarajah, director of Climate Policy Initiative’s London-based office.
“The question is not ‘are we going to transition?’, but ‘how quickly can we engineer the transition?’” said Wignarajah, who helped lead the climate talks, called the Conference of Parties, when the United Kingdom was host in 2021. “That has forced finance to be ever-more prominent at the COP discussions, because ultimately it comes down to who pays.”
FILE – People examine the damage at an area badly affected by a flash flood in Tanah Datar, West Sumatra, Indonesia, May 13, 2024. (AP Photo/Ali Nayaka, File)
Developing countries most dependent on multilateral banks
Developing nations are much more reliant on these banks for financing climate projects than industrialized countries.
In the U.S. and Canada, commercial banks and corporations provided funding for more than half of climate-friendly projects in 2022, according to Climate Policy Initiative. In sub-Saharan Africa, those private lenders only accounted for 7%.
This is because it is harder for developing countries to get low interest rates.
“If you’re Kenya, and you want to borrow from private lenders, they might charge you 10% interest rates because your credit rating isn’t very good,” Hirschel-Burns said.
But the multilateral banks have better credit ratings than many countries do. For example, the International Development Association — an arm of the World Bank and the top international aid provider to Kenya — has the highest possible rating from Moody’s Investor Service, while Kenya itself has a junk rating.
The banks borrow money with that better rating, then lend to developing countries in turn, offering a more reasonable rate than governments could get if they borrowed directly from private lenders.
Some bank projects work against climate goals
The multilateral banks’ development goals are wide-ranging. They seek to improve people’s health and the environment, expand energy access and end poverty. Addressing energy access has meant the banks have provided billions of dollars for fossil fuel power plants, according to an AP analysis, though their policies have improved and fewer such projects have been funded in recent years.
Investment in fossil fuels continues to rise worldwide, reaching $1.1 trillion in 2024, according to the International Energy Agency. And multilateral banks continue to rank among the biggest funders of fossil fuel-prolonging projects, helping to “lock in a high-carbon pathway” for countries, according to a report by the Clean Air Fund, which lobbies for the funding of projects to improve air quality.
“This is development aid we’re talking about, and it should be assisting countries to leapfrog,” said Jane Burston, CEO of the Clean Air Fund, referring to the idea that developing countries could industrialize with renewable energies and skip over development that rich nations historically made with fossil fuels.
“It’s baffling why development assistance is being given to something that continues to make people unhealthy as well as harms the planet,” she added.
FILE – James Tshuma, a farmer in Mangwe district in southwestern Zimbabwe, stands in the middle of his dried up crop field amid a drought, in Zimbabwe, March, 22, 2024. (AP Photo/Tsvangirayi Mukwazhi, File)
Seemingly contradictory actions can be seen in a loan made by an arm of the World Bank, the International Bank for Reconstruction and Development. It loaned $105 million toward rehabilitating coal plants in India, with their last loans toward the project going out in 2018, according to an Associated Press analysis of data from the Organization for Economic Cooperation and Development.
Coal spews carbon pollution, contributing to climate change and creating breathing problems for people who are exposed. However, the improvements made coal plants more efficient and reduced their greenhouse gas emissions, according to project documents.
The Clean Air Fund’s report estimated the World Bank provided $2.7 billion in “fossil fuel prolonging finance” between 2018 and 2022. During that time, the bank also loaned about 32 times the amount for renewables as they did for non-renewables in India, including $120 million for rooftop solar.
“Renewable energy support is always our first choice as we work to provide access to electricity to the nearly 700 million people who still cannot power their homes, schools, hospitals, and businesses,” a World Bank spokesperson said in a statement.
The bank’s policies still “selectively support natural gas as a transition fuel” if its research shows the project is low risk to the climate, the spokesperson said. The bank’s recent policies require rigorous vetting for every project to make sure its investments reduce climate impacts.
The World Bank delivered $42.6 billion in climate finance in its most recent fiscal year, a 10% increase from the year before. And at the most recent COP, the bank promised nearly half of its lending will soon go toward climate finance.
In Vietnam, about half of power generation comes from fossil fuels, primarily coal power. The Asian Development Bank loaned about $900 million on coal in Vietnam, with their spending on the fossil fuel in the country ending in 2017. The bank’s updated climate policies “will not support coal mining, processing, storage, and transportation, nor any new coal-fired power generation,” the bank said in a statement. The bank put $9.8 billion toward climate finance in 2023, and aims to finance $100 billion in climate-friendly projects between 2019 and 2030.
The country’s biggest growth area for energy is in wind. The Global Energy Monitor ranks Vietnam seventh in the world in planned wind power. And the Asian Development Bank committed about $60 million in loans toward wind energy in Vietnam between 2021 and 2022.
FILE – Residents rescue kittens from the roof of a flooded home in Cobija, Bolivia, Feb. 28, 2024. (AP Photo/Juan Karita, File)
The banks have made broad commitments in recent years to align with the landmark 2015 Paris Agreement. But those promises leave pathways open to continue funding fossil fuels, said Bronwen Tucker, global public finance co-manager at Oil Change International.
According to the green group’s monitoring of the banks’ commitments, all nine of the major banks tracked can fund gas projects in at least some cases. Rich countries should step in and fill the trillions of dollars in need for climate action with donations to less developed countries “to avoid climate breakdown and save lives,” Tucker said.
“The MDBs can’t be climate bankers if they are still fossil bankers,” she said. “Relying on banks that are locking in fossil fuels and the worst-ever debt crisis is not working.”
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The Associated Press’ climate and environmental coverage receives financial support from multiple private foundations. AP is solely responsible for all content. Find AP’s standards for working with philanthropies, a list of supporters and funded coverage areas at AP.org.
Background
India is home to the world’s largest livestock population of 536.76 million, which produces 25% of the world’s milk1. This increase in livestock population leads to increased methane emissions, primarily from enteric fermentation and manure management. As a result, livestock contributes to 58% (BUR 4, 2020) of India’s agricultural methane footprint. However, unlike crop-based emissions, livestock methane is diffuse, biologically driven, and more complex to measure and manage, making it less visible within existing climate finance frameworks.
Current research and policy discussions indicate that while technical mitigation solutions exist through feed improvements and manure management, evidence of their effectiveness in maintaining dairy productivity, animal health, and protecting farmers’ incomes is scattered. This leads to heightened risk perceptions among dairy producers when considering methane mitigation measures. Furthermore, even where the evidence is compelling, the fragmentation of dairy producers precludes their aggregation. Additionally, there is a lack of robust, affordable, and scalable monitoring, reporting, and verification (MRV) systems at the grassroots level. These barriers prevent the development of a clear, scalable, and financeable pipeline of livestock methane abatement in India.
The Government of India has actively supported dairy development and livestock health through various schemes and programs introduced by the Department of Animal Husbandry and Dairying. At the same time, livestock systems in India are deeply embedded within rural livelihoods and socio-economic structures, making the sector a critical component of rural resilience. Consequently, interventions must be context-aware and farmer-centric, with a strong focus on livelihood security and alignment with local values and practices.
With this background, CPI is organizing a roundtable to explore how livestock methane can transition from a technically understood challenge to actionable opportunities on the ground, including both animal feed and manure management. The forum would bring together dairy producer organizations, nodal agencies, think tanks, ecosystem enablers, and financial institutions. It will deliberate upon possible projectized solutions and accompanying financing mechanisms that could be scaled up to address the twin objectives of methane abatement and farmers’ income security.
1
By Samira Mensah, Head of Analytics & Research Africa, S&P Global Ratings
Efficient capital markets can transform Africa’s limited domestic financial assets into investments that spur economic growth. By connecting institutional investors, pension funds and foreign investors, capital markets enhance economic development by increasing the availability of funding for long-term projects.
Efficient domestic capital markets can not only address governments’ significant funding gaps but can also ensure that critical infrastructure developments—such as transportation, energy and telecommunications—are adequately financed, ultimately driving economic growth and employment. Supported by transparent and comparable risk frameworks, efficient domestic capital markets can build confidence among domestic and foreign investors and enhance resilience during periods of global risk aversion.
In our view, African capital markets currently lack two key building blocks.
In our view, African capital markets currently lack two key building blocks. Firstly, with limited exceptions, regulatory frameworks generally lag the International Organization of Securities Commissions’ (IOSCO’s) global standards, which cover listing standards on securities exchanges, development of digital market infrastructure and improvements in the timeliness and transparency of regulatory disclosures of issuers’ financial results, including environmental, social and governance (ESG) factors and green-finance taxonomies.
Some countries, such as South Africa, Kenya, Morocco and Mauritius, are more advanced than others. The misalignment of regulatory frameworks with international norms stems from the gap between adoption and implementation through legislation, which deters international and local investment.
Secondly, the absence of standardized risk assessments leads to information gaps and limits investor participation in primary and secondary bond markets. Credit benchmarks—such as sovereign-yield curves, credit ratings and market-implied risk measures—can help in this regard. They distill complex financial, macroeconomic and institutional information into consistent and comparable signals.
As such, these benchmarks provide a standardized framework for assessing creditworthiness, supporting consistent credit analysis and facilitating decision-making based on transparent and comparable data. They are relevant to investment vehicles with specific investment mandates and may influence the availability of capital, which is crucial for infrastructure projects.
Capital markets can spur economic growth
Capital markets can play a central role in turning domestic savings into productive investments. This is particularly the case in Africa, where development needs are high and incomes are rising from a low base. Additionally, innovative financial technologies, such as fintech platforms, attract more small savings—including money sent home by migrants—that can also fund investments. However, mobilizing domestic savings for investments in local economies remains a significant challenge because many transactions are in cash and outside the financial system.
According to the Africa Finance Corporation (AFC), African sovereign-wealth funds, pension funds, insurers, central banks and commercial banks hold an estimated US$4 trillion in financial assets, representing 130 percent of Africa’s gross domestic product (GDP) in 2025. Long-term institutional capital accounts for $1.1 trillion of the $4 trillion, while African sovereign-wealth funds manage only about $145 billion in assets under management (AUM)—less than 1 percent of global sovereign-wealth funds’ AUM.
Although banking assets comprise the majority of financial assets, they are typically short-term, and banks rely on customer deposits to fund lending activities. This underscores the mismatch between banks’ short-term funding profiles and the economy’s long-term financing needs, particularly in underdeveloped financial systems.
South Africa holds the largest share of Africa’s financial assets, followed by Egypt and Nigeria. South Africa contributes 20-25 percent to Africa’s financial assets. This reflects the country’s outsized role within the continent’s savings pools, its large and mature pension system and its highly developed banking sector. We estimate that the South African banking sector’s assets amount to nearly 100 percent of GDP, while nonbank financial institutions—including pension and insurance funds—account for close to 120 percent of GDP.
Smaller economies that are important regional financial hubs—such as Morocco, Mauritius and Kenya—also play a meaningful role. Aggregate financial assets represent 80 percent to more than 200 percent of these economies’ respective GDPs. Yet a significant portion of this capital does not flow into long-term productive investments.
In several countries, the economic effects of financial assets are muted because large shares are either invested in government securities or placed offshore. For example, the bank-sovereign nexus remains particularly high in Egypt and Kenya, where government securities account for 30-60 percent of banking assets. This contributes to crowding out private investments and increases fiscal-financial linkages. Pension funds are further constrained by specific investment mandates. We understand that only 5 percent of their assets are allocated to alternative investments.
Capital allocation rules could channel domestic savings into real sectors
Regulations across various jurisdictions permit pension funds and sovereign-wealth funds to invest abroad, albeit to varying degrees. For instance, South Africa, which holds the largest share of the continent’s institutional savings, allows its pension funds to invest up to 45 percent offshore, while Nigeria’s regulatory framework limits pension funds’ aggregate offshore exposure to 20-25 percent.
While this facilitates diversification, it also means that a significant portion of domestic savings is invested in fixed-income securities outside Africa, thereby curbing the potential for local economic development. Similarly, when African sovereign-wealth funds invest internationally, their portfolios tend to be diversified away from African assets, further diluting the potential developmental benefits of domestic savings.
Intra-African investment remains limited
However, existing cross-border banking and investment activity points to significant untapped potential. Pan-African banks are important for regional financial connectivity, but their cross-border activities are limited by risk-return considerations, leaving significant potential for greater mobilization of long-term investment. These banking groups’ networks facilitate payments, trade settlement and sovereign financing, but remain only partially leveraged for long-term investment mobilization.
For example, Moroccan banking groups have built extensive footprints across francophone West and Central Africa but their assets outside Morocco account for less than 10 percent of their consolidated assets. Although Nigerian and Kenyan banks support trade finance and corporate lending across regional trade corridors, their home markets hold the lion’s share of their consolidated assets.
Cross-border institutional capital flows remain modest. Pension funds and insurers largely invest domestically—often in government securities—or allocate savings offshore. This reflects regulatory fragmentation, currency risks, shallow capital markets and limited regional investment-vehicle opportunities. Joint investments in infrastructure, productive sectors and regional value chains remain low.
The African Continental Free Trade Area (AfCFTA) aims at deepening financial integration. By seeking to expand intra-African trade and regional value chains, the AfCFTA aims to increase demand for cross-border financing, risk-sharing and long-term capital. This, however, will require more regional capital-market integrations, harmonized regulations and co-investment platforms that pool African savings.
Leveraging existing pan-African banking networks, regional bond markets, infrastructure funds and blended-finance vehicles could redirect Africa’s capital toward continental growth. This could, in turn, reduce reliance on external financing and strengthen the links between domestic savings and productive investments under the AfCFTA framework.
The catalytic role of MLIs in capital mobilization
Multilateral lending institutions (MLIs) can mobilize long-term funding, provide credit enhancement and support the introduction of new financing structures. To improve capital efficiency and preserve lending capacity, several MLIs have increasingly used balance-sheet optimization tools in recent years, including portfolio risk-sharing and originate-to-distribute-type arrangements.
More broadly, MLIs’ engagement extends beyond direct financing to include policy support, institutional and capacity-building development and infrastructure. These measures may support longer-term improvements in market functioning and economic integration.
Afreximbank’s (African Export–Import Bank’s) push to implement the Pan-African Payment and Settlement System (PAPSS) aims to accelerate regional trade integration under the AfCFTA. The PAPSS seeks to facilitate cross-border settlements in local currencies and reduce trade costs, while the Africa Trade Gateway plans to ease cross-border trade and payment flows. The benefits of these platforms for intraregional trade and transaction costs will likely emerge gradually.
Even so, structural constraints remain. In particular, the limited availability of first-loss concessional capital and uneven risk appetite in the private sector continue to constrain the scale and pace at which blended-finance solutions can be deployed. Although MLIs’ continent-wide initiatives could support the gradual expansion of public-private partnerships and risk-sharing structures, their effectiveness will likely depend on sustained policy support, transaction standardization and stable macro-financial conditions.
Strengthening Africa’s capital markets
We believe the development of capital markets is crucial for the growth of African economies and their private sectors.
We believe the development of capital markets is crucial for the growth of African economies and their private sectors. Unlocking Africa’s abundant funding potential would benefit from establishing effective regulatory regimes that encourage listings without overburdening issuers. Strengthening capital markets by facilitating both debt and equity raisings and listings can broaden market access and deepen market liquidity.
Excluding South Africa, capital markets across Africa remain fragmented and shallow. The Johannesburg Stock Exchange (JSE), the largest African stock exchange by market capitalization, has a total market capitalization of South African rand (ZAR) 24.6 trillion (about US$1.5 trillion)—more than three times South Africa’s GDP. It ranks among the top 20 stock exchanges worldwide.
In contrast, other exchanges are more modest, as their private sectors’ funding profiles rely primarily on bank loans rather than accessing capital markets. Countries such as Nigeria, Egypt, Côte d’Ivoire, Kenya and Morocco have significant domestic financing sources, but these often come at high costs.
Governments largely define these domestic bond markets because they are the largest issuers, and commercial banks are the primary buyers of government bonds. South Africa has the most liquid and diverse bond market, but government securities dominate local-currency issuances (270 percent of GDP).
Countries such as South Africa and Nigeria have introduced reforms to unlock nonbank domestic capital, notably through pension-fund reforms that allow greater capital allocation to alternative assets. Other reforms aim to develop new financing platforms, facilitate green financing and set benchmarks for how capital markets can price climate and infrastructure-related risks.
In 2022, the African Development Bank (AfDB) issued its inaugural local-currency ZAR200-million green bond, which was listed on the JSE. The JSE is advancing sustainability-linked financial instruments and improving ESG disclosures, aligning African capital markets with global best practices.
In 2026, the JSE launched its nature platform and listed Africa’s first nature-linked performance-based bond—a ZAR2.5-billion issuance by FirstRand Bank, one of the country’s top banks. In 2025, the Rwanda Stock Exchange (RSE) launched its Green Exchange Window (GEW), supported by the Luxembourg Stock Exchange (LuxSE).
Collectively, these labeled debt instruments can act as catalysts for blended-finance structures, mobilizing more private capital.
Governments play a vital role in equalizing access to information and developing deep, transparent sovereign-bond markets. Well-established government-bond yield curves in these markets serve as important pricing benchmarks for corporates and the wider economy. This enhances investor confidence and facilitates more informed investment decisions. Ongoing efforts by governments to increase transparency, provide timely information disclosures and maintain robust regulatory oversight will maximize the benefits of sovereign-bond markets.
Clear and credible credit signals further enhance pricing transparency, enabling investors to better assess risk and return. Greater confidence in valuations supports active participation, improves secondary-market liquidity and strengthens price discovery. Over time, this creates a virtuous cycle—whereby increased participation reinforces market efficiency and resilience, ultimately supporting sustainable economic growth in Africa.
Despite structural shortcomings, domestic investors have increasingly stepped in to meet financing needs. Infrastructure projects are now more often financed through domestic local-currency capital markets and financial institutions, including development-finance institutions. We believe that Africa’s economic integration will be intrinsically linked to more developed domestic capital markets.
ABOUT THE AUTHOR
Samira Mensah is Managing Director, Research & Analytics Africa, and Country Head for South Africa at S&P Global Ratings, based in Johannesburg. She leads thought leadership and market outreach initiatives across Africa, with a particular focus on African credit markets and Islamic finance. A frequent speaker at industry conferences and contributor to research publications, Samira recently presented at The Africa We Build Summit in Nairobi.
PROVIDENCE, R.I. (WPRI) — Dozens of workers at Care New England have been laid off due to ongoing financial pressures amid Rhode Island’s “escalating” healthcare funding crisis.
Care New England announced the elimination of more than 30 leadership and non-clinical positions Tuesday, citing unprecedented economic challenges placing a continued strain on hospitals across the state.
According to CNE President and CEO Michael Wagner, the healthcare group has been “aggressively pursuing margin initiatives” in order to offset a $20 million budget deficit.
“Current financial conditions have made additional cost-saving measures unavoidable, but decisions like these that affect our workforce are especially difficult because they impact valued employees, colleagues, and the patients and communities we serve,” Wagner said in a press release.
He pointed to rising labor and supply costs, the increasing need to provide uncompensated care, low Medicaid reimbursement rates, as well as proposed federal changes that threaten uninsured Rhode Islanders as the primary reason for the system “restructuring.”
CNE said it will “work closely” with affected employees, offering resources and assistance.
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