The Asian Development Bank (ADB) has announced a significant expansion in its climate-related lending capacity, facilitated by sovereign guarantees from the United States and Japan. This pioneering initiative will increase ADB’s financial resources by up to $7.2 billion, marking the first-ever application of sovereign guarantees to support climate finance.
Under this new arrangement, the U.S. will guarantee up to $1 billion of existing loans from ADB, while Japan will underwrite $600 million. These sovereign guarantees will enable ADB to extend additional funding to climate-focused projects, enhancing its ability to support sustainable development efforts across the region without the need for politically challenging capital increases from donor countries. This initiative aligns with ADB’s strategic target to allocate $100 billion in climate-related lending between 2019 and 2030.
The additional lending capacity generated by these guarantees will be deployed over the next five years, with the guarantees themselves set to remain in place for 25 years. One of the first projects to benefit from this enhanced funding is a sustainable aviation fuel initiative in Pakistan, which will receive half of its required $90 million through this new financing structure.
This announcement comes in advance of the U.N. COP29 climate summit in Baku, Azerbaijan, where increasing climate finance will be a central topic of discussion. ADB has been working closely with other multilateral development banks (MDBs), including the World Bank and the European Investment Bank, to share its experiences and collaborate on expanding the use of sovereign guarantees for climate financing.
While sovereign guarantees have traditionally been used to support sectors such as education, their introduction in the realm of climate finance is a significant step toward addressing the growing demand for sustainable investment. The World Bank has also launched a platform for climate-related guarantees and aims to double its guarantee-backed funding by 2030.
As the global need for climate financing grows, with developing nations requiring over $2 trillion annually to transition to clean energy and adapt to climate impacts, ADB’s new strategy provides a scalable model for mobilizing the necessary resources. This approach demonstrates the potential of development banks and private investors working together to address the financing gap for climate action.
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