The Asian Development Bank (ADB) is set to increase its climate-related lending by up to $7.2 billion, thanks to sovereign guarantees from the United States and Japan. This groundbreaking move marks a significant step in scaling up financing for climate projects, allowing ADB to provide more support to developing nations facing climate change challenges.
“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,” said Jacob Sorensen, director of partner funds at ADB.
The guarantees—$1 billion from the U.S. and $600 million from Japan—will back existing ADB loans, freeing up additional funds for climate initiatives. This innovative financing arrangement will run for 25 years and be rolled out over the next five years, offering significant leverage for new climate-related projects.
Key Project: Sustainable Aviation Fuel in Pakistan
One of the first beneficiaries of this new funding mechanism is a sustainable aviation fuel (SAF) project in Pakistan, which will use cooking oil to produce jet fuel. The $90 million initiative will see 50% of its funding covered through ADB’s newly expanded lending capabilities. This project is part of a growing trend to reduce carbon emissions in aviation, a sector under increasing pressure to decarbonize.
A Strategic Global Financing Push
The move comes at a critical time, with COP29 in Baku, Azerbaijan, just around the corner. Global leaders are expected to ramp up efforts to meet climate goals, and ADB’s new financing structure could help demonstrate how multilateral development banks (MDBs) can play a leading role in scaling up investments to meet developing countries’ climate needs.
Globally, developing nations may need upwards of $2 trillion annually by 2030 to transition to clean energy and adapt to climate impacts. With political uncertainties clouding future climate finance discussions—particularly in the wake of the recent U.S. election results—the U.S. and Japan’s backing could pave the way for other major economies to step up.
Broader Implications for Climate Financing
This initiative aligns with a broader global push to strengthen climate financing mechanisms. ADB’s collaboration with institutions like the World Bank and European Investment Bank (EIB) is helping to refine the model, with other development banks looking to replicate the success of these guarantees.
“We have been extensively in consultation with multiple other MDBs,” Sorensen said, emphasizing the shared learning across global institutions. These new guarantee structures mirror the World Bank’s efforts to consolidate investments, aiming to double its guarantees to over $20 billion annually by 2030, further bolstering efforts to address climate change.
A New Era of Climate Finance
This move could signify a broader shift in the global approach to climate financing, where development banks are positioned to serve as critical intermediaries between public funds and private investment. As the climate crisis deepens, these institutions will be key in providing financing for high-impact projects, accelerating the global transition to a low-carbon future.
With this expanded capacity and new financing tools, ADB is setting the stage for more ambitious climate projects and showcasing how collaboration between nations can enhance climate resilience worldwide.
