Greening Development Banks 2023

Greening National
INTERNATIONAL DE VELOPMENT IN FOCUS
Development
Financial Institutions
Trends, Lessons Learned, and
Ways Forward
Emma Dalhuijsen, Eva Gutierrez, Tatsiana Kliatskova,

Rachel Mok, and Martijn Gert Jan Regelink
I N T E R N AT I O N A L D E V E L O P M E N T I N F O C U S
Greening National
Development
Financial Institutions
Trends, Lessons Learned, and Ways Forward
EMMA DALHUIJSEN, EVA GUTIERREZ, TATSIANA KLIATSKOVA,

R ACHEL MOK, AND MARTIJN GERT JAN REGELINK
© 2023 International Bank for Reconstruction and Development / The World Bank
1818 H Street, NW, Washington, DC 20433
Telephone: 202-473-1000; Internet: www.worldbank.org
Some rights reserved
1 2 3 4 26 25 24 23
Books in this series are published to communicate the results of World Bank research, analysis, and
operational experience with the least possible delay. The extent of language editing varies from book to book.
This work is a product of the staff of The World Bank with external contributions. The findings,
interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World
Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not
guarantee the accuracy, completeness, or currency of the data included in this work and does not assume
responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the
use of or failure to use the information, methods, processes, or conclusions set forth. The boundaries, colors,
denominations, and other information shown on any map in this work do not imply any judgment on the part
of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such
boundaries.
Nothing herein shall constitute or be construed or considered to be a limitation upon or waiver of the
privileges and immunities of The World Bank, all of which are specifically reserved.
Rights and Permissions
This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO)
http://creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are
free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following
conditions:
Attribution—Please cite the work as follows: Dalhuijsen, Emma, Eva Gutierrez, Tatsiana Kliatskova,
Rachel Mok, and Martijn Gert Jan Regelink. 2023. Greening National Development Financial Institutions:
Trends, Lessons Learned, and Ways Forward. International Development in Focus. Washington, DC:
World Bank. doi:10.1596/978-1-4648-2031-1. License: Creative Commons Attribution CC BY 3.0 IGO
Translations—If you create a translation of this work, please add the following disclaimer along with the
attribution: This translation was not created by The World Bank and should not be considered an official
World Bank translation. The World Bank shall not be liable for any content or error in this translation.
Adaptations—If you create an adaptation of this work, please add the following disclaimer along with the
attribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed in the
adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by
The World Bank.
Third-party content—The World Bank does not necessarily own each component of the content contained
within the work. The World Bank therefore does not warrant that the use of any third-party-owned
individual component or part contained in the work will not infringe on the rights of those third parties.
The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a
component of the work, it is your responsibility to determine whether permission is needed for that re-use
and to obtain permission from the copyright owner. Examples of components can include, but are not
limited to, tables, figures, or images.
All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group,
1818 H Street, NW, Washington, DC 20433 USA; e-mail: [email protected].
ISBN: 978-1-4648-2031-1
DOI: 10.1596/978-1-4648-2031-1
Cover photo: © gonin / iStock image no. 975728788. Used with permission; further permission required for
reuse.
Cover design: Debra Naylor / Naylor Design Inc.
Contents
Foreword v
Acknowledgments vii
About the Authors ix
Executive Summary xi
Glossary xvii
Abbreviations xix
CHAPTER 1 Introduction 1
Background 1
National development financial institutions 2
Analysis for this publication 4
Notes 5
Bibliography 5
CHAPTER 2 Landscape of NDFIs 7

Summary 7
Background 7
Core activities 7
Countries and regions 9
Missions and mandates 9
Note 10
Bibliography 10
CHAPTER 3 State and Trends of Greening NDFIs 11

Background 11
Governance and strategy 11
Green financing sources and uses 14
C&E financial risk management 20
C&E disclosures and reporting 23
Notes 25
Bibliography 26
CHAPTER 4 Toolkits for Greening NDFIs 27

Background 27
Governance and strategy 27
Green financing sources and uses 30
C&E financial risk management 37
C&E disclosures and reporting 40
Notes 40
Bibliography 41
iii
iv | Greening National Development Financial Institutions
CHAPTER 5 Conclusions and Key Recommendations 43

Background 43
Current status of green objectives 43
Factors impeding scaling up green financing 44
Working toward green objectives 44
MDB support for NDFIs 46
Note 47
Bibliography 47
APPENDIX A Characteristics of NDFIs, from Survey Responses 49
APPENDIX B NDFI Case Studies 55
Boxes
3.1 Good NDFI practices on governance and strategy 13
3.2 Good NDFI practices on green financing sources and uses 18
3.3 Good NDFI practices for C&E risk management 22
3.4 Good NDFI practices on C&E disclosures and reporting 25
4.1 Paris Alignment and net-zero transition plans 28
4.2 Examples of NDFI green MSME products 31
4.3 Facilitating climate action by SOEs 34
4.4 NDFIs’ role in scaling up finance for adaptation and resilience 36
4.5 Opportunities for NDFIs to leverage carbon markets to enable private
investments 37
Figures
ES.1 Key results of NDFI survey xii
ES.2 Overview of key recommendations for NDFIs, authorities, and development
partners xiv
1.1 Modules of assessment of NDFI C&E practices 3
2.1 NDFI funding sources and services 8
2.2 Distribution of NDFIs 9
3.1 NDFIs show a high-level commitment to the green agenda 12
3.2 NDFI climate financing sources and regional distribution, global annual
averages, 2019−20 15
3.3 NDFIs’ survey responses on green financing practices 16
3.4 Survey responses on C&E risk management practices 21
3.5 Tracking NDFIs’ green financing 24
B.1 FIRA’s Institutional Program, 2020–24 56
Tables
4.1 Potential approaches to address barriers to stimulating green investments
from the private sector 32
5.1 Overview of key policy toolkits to green NDFIs 45
A.1 “Greening NDFIs” questionnaire 50
A.2 List of NDFIs surveyed 53
Foreword
Global pursuit of climate and environmental (C&E) objectives will require

trillions of dollars of investment over the next decade. However, many countries,
particularly low- and middle-income nations, are grappling with significant
fiscal and economic constraints in the aftermath of pandemic-related d isruptions
to economic and social activity.
In this context, National Development Financial Institutions (NDFIs) are
vital actors in mobilizing needed financing from private sources to meet
countries’ pressing needs. These financial institutions, typically state owned
and driven by socioeconomic objectives, guide country development plans
and policies. With their substantial assets—amounting to over US$19 trillion
and accounting for more than 10 percent of global investments annually,
NDFIs have the scale and influence to play a transformative role, especially
in low- and middle-income countries, where public actors provide 60 per-
cent of total climate financing, almost half by NDFIs.
NDFIs, when managed efficiently, can help overcome market barriers and
mobilize private-sector financing for green investment, including through the
provision of long-term financing, as well as innovative structuring of blended
finance and credit enhancements. NDFIs can address existing market gaps by
helping with structuring and co-financing long-term, high-risk projects and
with surmounting obstacles such as extended payback periods and perceived
project risk, particularly for projects in which social returns exceed financial
returns. NDFIs have also helped create markets through transaction demonstra-
tion effects, having been the first issuers of green bonds in many countries. This
unique position makes them effective in mobilizing finance from public and pri-
vate investors for priority goals.
Like other financial institutions, NDFIs also face risks from climate change
and environmental concerns in their investments and lending. Thus, they are
aware of the importance of following emerging guidance on C&E risk
management and disclosures from financial-sector supervisors and standard
setters. NDFIs are also familiar with the application of environmental safeguards
to limit negative impacts of their operations and can be an effective advocate for
wider application of these good practices throughout emerging-market financial
systems.
v
vi | Greening National Development Financial Institutions
The World Bank Group stands ready to support NDFIs through funding and
technical assistance to strengthen their governance and risk management while
working closely with governments to create the preconditions for NDFIs to
catalyze private funding for climate. This report is part of this effort. It offers a
comprehensive analysis of the current trends and policy actions required to
expand the “green” role of NDFIs. Drawing on a survey of 22 NDFIs from diverse
regions and income levels, as well as in-depth case studies of selected institu-
tions, the report presents recommendations to enhance the efficiency, effective-
ness, and environmental impact of their investments. It also emphasizes the
importance of pipeline preparation and private capital mobilization to boost
green financing.
We look forward to working with these financial institutions to apply the
lessons from this report, expand C&E investments, and move closer to the scale
of public and private funding required to reverse climate change.
Jean Pesme
Global Director of Finance
Finance, Competitiveness, and Innovation Global Practice
World Bank
Acknowledgments
This publication is a product of the World Bank’s Finance, Competitiveness, and

Innovation Global Practice with financial support from the Global Program on
Sustainability and the Climate Support Facility. This work was prepared by
Emma Dalhuijsen, senior financial sector specialist; Eva Gutierrez, lead
financial economist; Tatsiana Kliatskova, financial sector economist; Rachel
Mok, financial sector specialist; and Martijn Gert Jan Regelink, senior financial
sector specialist, all of the World Bank. Pablo Saavedra, vice president, Equitable
Growth, Finance, and Institutions; Jean Pesme, global director of finance; and
Loic Chiquier, senior adviser, provided overall guidance. The team thanks
Christina Ann Davis for editorial support and Datapage for design and layout
assistance.
The team would like to thank senior officials of the National Development
Financial Institutions who participated in the survey. We are also very grateful
to senior officials of the Fideicomisos Instituidos en Relación con la Agricultura
(FIRA, in Mexico), the Korea Development Bank (in the Republic of Korea),
Türkiye Sinai Kalkinma Bankasi (in Türkiye), and the Development Bank of
Southern Africa (in South Africa) who shared their data and insights with us for
in-depth case studies.
We are grateful for the substantive feedback received from the peer
reviewers—Louise Gardiner, Africa coordinator, Sustainable Banking and
Finance Network, International Finance Corporation; Thomas Michael Kerr,
lead climate change specialist, World Bank; Rodrigo Pereira Porto, financial
sector consultant, World Bank; and Angel Manuel O’Dogherty Madrazo, general
director of sectoral intelligence, FIRA. The team also benefited from review and
insights from country teams and the World Bank Country Management Units
covering the countries mentioned in this publication. Any errors or omissions in
the data or interpretations are attributable solely to the authors of the work.
vii
About the Authors
Emma Dalhuijsen is a senior financial sector specialist at the World Bank,

advising governments and central banks on the development of green financing
markets and the integration of climate and environmental (C&E) financial risks
into supervisory frameworks and financial regulation. Prior to the World Bank,
she worked at the Bank of England, coordinating its supervisory response to
climate risk, and at the Dutch Central Bank. She also is a board member of
ElleSolaire, a social enterprise supporting women’s empowerment through
clean energy entrepreneurship. Emma has an MSc in economic history from the
London School of Economics and a BSc in economics and BA in history from the
University of Amsterdam.
Eva Gutierrez is a lead financial economist in the Latin America and the
Caribbean Region of the World Bank. She has worked on state-owned bank
reform in more than 20 countries through advisory and lending operations,
including Brazil, Colombia, Ecuador, Mexico, Turkmenistan, Uzbekistan, and
Viet Nam. She developed the guidance note to assess performance of State-
Owned Financial Institutions, part of the World Bank Integrated State-Owned
Framework, and the guidance note to evaluate the role of the state in the provi-
sion of financial services in the context of the Financial Sector Assessment
Program, implemented by the International Monetary Fund (IMF) and the
World Bank. She has led the World Bank Community of Practice for State-
Owned Enterprises. She is leading projects supporting the development of a
sustainable finance taxonomy and formulation for environmental, social, and
governance guidelines for commercial banks in Mexico. She has published arti-
cles on various financial topics, including development bank reform and the
resolution of state-owned banks and cooperative banks. Prior to joining the
World Bank, she worked at the IMF, with a focus on macrofinancial issues.
Eva has a PhD in economics from Boston University, a master’s degree in finan-
cial economics from the Center for Monetary and Financial Studies, Madrid, and
a bachelor’s degree in economics from the Universidad de Murcia in Murcia,
Spain.
Tatsiana Kliatskova is a financial sector economist in the South Asia Finance,

Competitiveness, and Innovation Global Practice of the World Bank. Prior to
ix
x | Greening National Development Financial Institutions
joining the World Bank, she was a research fellow at the Deutsche Bundesbank
and a research associate at DIW Berlin. Her main research and policy interests
include the role of the state in development and finance, bank regulation and
supervision, and capital markets development. Tatsiana has a PhD in economics
from the Free University of Berlin, Germany, and a master’s degree in economic
policy from the Central European University in Budapest, Hungary.
Rachel Mok is a financial sector specialist for the Southern and Eastern Africa
Unit of the World Bank, where she primarily develops technical assistance pro-
grams, operations, and policy diagnostics related to greening countries’ financial
systems. Examples of her work include developing approaches to deepen green
financing (for example, in the context of greening National Development Banks,
developing green financing instruments such as labeled bonds or loans, and
stimulating the private and financial sector’s engagement in carbon markets)
and working with central banks and financial regulators to enhance the assess-
ment and management of climate-related financial risks. In addition, she has
supported the development of the World Bank’s corporate strategy on climate
finance, which aims to identify ways in which the International Finance
Corporation, the Multilateral Investment Guarantee Agency, and the World
Bank could work together to scale up climate finance for client countries. She
also works on programs related to carbon pricing and carbon markets, including
through the Partnership for Market Implementation, Networked for Carbon
Markets initiative, and Invest for Climate programs. Rachel has an MSc in envi-
ronmental technology from Imperial College London and a BSc in geography
with economics from the London School of Economics and Political Science,
United Kingdom.
Martijn Gert Jan Regelink is a senior financial sector specialist in the Finance,
Competitiveness, and Innovation Global Practice of the World Bank. He leads
the World Bank’s advisory services on C&E risks for the financial sector, provid-
ing policy advice to regulators and supervisors around the world. In addition, he
represents the World Bank in the Network for Greening the Financial System
and Financial Stability Board working groups on climate risk. Previous experi-
ence includes working as a strategy adviser to the board of the Dutch Central
Bank, where he spearheaded the bank’s inaugural program focusing on climate
risks. Martijn has an MSc in international economics and business and an MA in
international relations and organizations, both from Groningen University,
the Netherlands.
Executive Summary
National Development Financial Institutions (NDFIs) are crucial for mobilizing

the required financing, including from private sources, to reach countries’
climate and environmental (C&E) objectives. Funding needed to achieve
countries’ C&E goals is in the trillions of dollars. At the same time, many
countries are also facing significant fiscal and economic constraints. Low-
income and middle-income countries (LICs and MICs), other than China, need
an estimated US$783 billion per year in additional investments for climate action
through 2030 (World Bank 2023). NDFIs have the scale to play an essential role
in mobilizing the required financing from public and private sources toward
C&E goals.
NDFIs are well positioned to overcome market barriers associated with green
investments and catalyze private-sector financing. NDFIs, when adequately
managed, can address market failures and create new markets. Compared to pri-
vate investors, NDFIs have a stronger appetite for financing long-term, high-risk
investments and can thus overcome market barriers associated with green
investments, such as long payback periods and high perceived project risk.
NDFIs have the tools to support private capital mobilization through de-risking
instruments and blended financing. Moreover, NDFIs can enable private capital
mobilization by supporting the generation of a green project pipeline and
through demonstration transactions that stimulate market creation. Given the
limited capacity of governments to scale up C&E financing owing to current fis-
cal conditions, NDFIs’ role in mobilizing private financing will be critical to clos-
ing the C&E financing gaps.
At the same time, NDFIs must manage the risks that climate and other envi-
ronmental concerns present to their investment and lending operations. NDFIs,
like other financial institutions (FIs), are exposed to the impacts of physical
risks—financial risks stemming from the effects of climate change, environmen-
tal degradation, and loss of nature on the economy—as well as transition risks
originating from the realignment of economies with C&E goals. In addition, lack
of compliance with good C&E practices and regulations can affect the financial
performance of assets or result in reputational risks for the institution. Moving
forward, NDFIs should respond to emerging guidance set by financial-sector
supervisors and standard setters to better manage and disclose C&E risks at the
institutional, project, and portfolio levels.
xi
xii | Greening National Development Financial Institutions
The main purpose of this publication is to take stock of the current trends and
recommend policy actions for “greening” NDFIs. The report identifies key steps
NDFIs can take to catalyze finance toward countries’ C&E objectives and man-
age C&E risks. The assessment of NDFIs’ C&E practices is based on a review of
key elements of NDFI operations and their institutional setup. It draws from the
results of a survey conducted by the World Bank of greening practices within
NDFIs based in countries in a range of regions and income levels,1 as well as on
in-depth case studies of four NDFIs:
1. Fideicomisos Instituidos en Relación con la Agricultura (FIRA, in Mexico),
2. Korea Development Bank (KDB, in the Republic of Korea),
3. Türkiye Sinai Kalkinma Bankasi (TSKB, in Türkiye), and
4. Development Bank of Southern Africa (DBSA, in South Africa).
Results of a survey of NDFIs (refer to figure ES.1) conducted by the World

Bank show that the majority of NDFIs have adopted green goals in their strategy
and governance and that a few have set specific targets linked to Paris Agreement
or other climate commitments. More than 80 percent of the survey respondents
have set green objectives and prepared strategies to green their portfolios, often
accommodated within the existing development mission and strategy of the
institution. About two-thirds of respondents have made public pledges or com-
mitments to align with international or national climate goals. However, only a
few institutions have set specific targets or disclosed their contributions to C&E
targets such as the Paris Agreement’s Nationally Determined Contributions
(NDCs). The majority of surveyed NDFIs have set green financing targets and
excluded financing of some nongreen projects. Over half of the surveyed NDFIs
have incorporated environmental and social considerations into their gover-
nance arrangements, often supported by specific policies and strategies, and
many have created dedicated units or high-level committees to address C&E
topics.
NDFIs are leading players in public climate finance, but the share of green
assets in their portfolio remains low, with limited adaptation financing and
FIGURE ES.1
Key results of NDFI survey
NDFIs report on C&E risks

Survey questions
NDFIs assess the impact of C&E

financial risks in their portfolio
NDFIs have specific green

financing targets
NDFIs have C&E objectives

in their mission or mandate
0 20 40 60 80 100
Percentage of responses
Yes No
Source: Figure original to this publication and based on self-reporting by 22 NDFIs.

Note: C&E = climate and environmental; NDFI = National Development Financial Institution.
Executive Summary | xiii
rivate capital mobilization. NDFIs provide around 22 percent of total global

p
climate financing and the majority of public climate finance, especially in
LICs and MICs.2 However, although NDFIs are critical players in public cli-
mate financing, the share of green assets in their credit portfolios is still rela-
tively low, with most survey respondents reporting green assets of less than
20 percent of credit portfolios, or 14 percent on average. For the few surveyed
institutions that monitor climate adaptation and mitigation finance, climate
finance is strongly biased toward mitigation, mainly through direct lending,
with limited exposure to climate adaptation. Only a handful of the surveyed
NDFIs target and track the mobilization of private capital, including through
co-financing with other FIs. Surveyed NDFIs use green and sustainability-
linked debt instruments to fund their green ambitions. However, use of these
instruments remains limited. Perceived challenges by NDFIs to scaling up
green financing include an unsupportive policy environment, a funding gap,
and lack of knowledge and awareness of C&E issues on both the clients’ and
NDFIs’ sides.
Moreover, C&E risk management and disclosure practices are still nascent.
So far, surveyed NDFIs have been introducing C&E risks mainly through the
lens of environmental and social risk management systems. Institutions assess
these risks at the loan origination level with a focus on the impacts of loans and
investments on C&E factors, instead of the financial risks. Although these
systems are still basic in many cases, the majority of the surveyed NDFIs have
developed some definition or classification system for green projects. At the
same time, most NDFIs are not assessing and managing exposures to C&E
financial risks at the portfolio and balance sheet levels or integrating this
information into strategy and governance arrangements. Lack of data,
standardized methodologies, and technical capacity are cited as critical
challenges to mainstream C&E risk management practices. Moreover, while
some of the surveyed NDFIs have public sustainability reports, C&E financial
disclosures in line with international guidance are mainly absent.
NDFIs can take various actions to boost green financing, including through
private capital mobilization, and to improve the management and disclosure of
C&E risks (refer to figure ES.2).
• NDFIs should introduce internal governance and strategy arrangements

to support the prioritization of green objectives and ensure stakeholder
coordination. Governance arrangements should include strong board
involvement and coordination mechanisms. A strategy should cover the com-
plete set of activities across green financing and C&E risk dimensions. It
should also communicate clear targets, including the targeted share of green
assets. The strategies could consider broader contextual priorities set out by
the NDCs and align with global agendas around the Paris Agreement. NDFIs
should also build the required expertise across the organization by leveraging
international and national networks.
• To increase green financing, pipeline preparation and private capital
mobilization should take center stage. NDFIs can support the enabling
environment for private capital through the development of bankable proj-
ects using technical assistance, market education, standardization of applica-
tion procedures, and the creation of project preparation facilities. Improved
access to international concessional climate funds can further support NDFIs
to finance their ambitions. Where possible, NDFIs should explore using more
xiv | Greening National Development Financial Institutions
innovative instruments (beyond direct lending activities) to catalyze private

finance. This includes increasing focus on blended and equity financing, as
well as scaling up the use and piloting of innovative green instruments, such
as sustainability-linked bonds and loans to incentivize green performance.
NDFIs should also expand their offerings in critical development areas that
generate important global or domestic public goods, such as adaptation and
nature-based financing.
• A better and more systemic understanding of C&E financial risks is an
important first step to informing C&E risk management practices. NDFIs
should adopt comprehensive C&E risk management approaches that con-
sider C&E risks from both the impact and the financial risk angles—that is,
FIGURE ES.2
Overview of key recommendations for NDFIs, authorities, and development partners
National Development Financial Institutions
• Develop an internal strategy for • Support the development of

C&E risk management and bankable C&E projects
green finance • Design financial instruments to
• Develop an internal governance stimulate private investments
framework to deliver on the • Improve access to concessional
strategy funds and grants
Governance Green
• Deepen green finance and
and strategy financing
carbon markets
• Implement climate finance– • Conduct a C&E risk assessment

tracking methodologies, Disclosure and C&E risk • Improve C&E data aggregation
including tracking private reporting management and internal reporting framework
finance mobilization
• Build internal capacity to assess
• Enhance disclosure and C&E risks
reporting on C&E risks
• Integrate C&E risks into existing
risk management frameworks
National governments and World Bank Group and other international

financial regulators development partners
• Create the enabling policy environment for • Provide technical assistance to improve NDFIs’
greening NDFIs C&E practices
• Enhance NDFIs’ access to multilateral funding • Provide funding to green NDFI operations and
and international capital markets pilot new green products
• Align NDFIs’ mandates and missions with C&E • Provide technical assistance to government and
objectives regulators to create enabling policy environment
• Provide support to governments (and NDFIs) to
enhance NDFIs’ overall corporate governance
Source: Figure original to this publication.

Executive Summary | xv
covering potential risks generated by the institutions, as well as financial risks

to their balance sheets. NDFIs could conduct exposure and forward-looking
assessments, including more advanced tools such as scenario analysis and
stress testing, to better understand the impact and materiality of C&E finan-
cial risks on NDFIs’ credit and investment portfolios. These efforts should be
supported by harmonizing and obtaining relevant data. Based on initial find-
ings of the risk assessment, NDFIs could integrate C&E risks into their risk
management process, internal control frameworks, and capital and liquidity
adequacy assessment processes.
• NDFIs should enhance their C&E disclosure and reporting practices,
which is an important means to facilitate communication with clients,
beneficiaries, and other stakeholders. Disclosures should build on Task Force
on Climate-Related Financial Disclosures (TCFD) guidance and International
Sustainability Standards Board (ISSB) guidance. Equally, NDFIs should aim
to improve the quality, transparency, and consistency of green financing
tracking methodologies, including methodologies that track the amount of
private finance mobilized.
Governments, financial-sector regulators, and Multilateral Development

Banks (MDBs), including the World Bank, have an essential role in supporting
the greening of NDFIs. Governments and other financial-sector authorities have
a crucial role in shaping the enabling environment for greening NDFIs. This
involves several key actions, such as developing ambitious national C&E targets,
integrating NDFIs into the implementation of NDCs, establishing supportive
legislation and policies (for example, carbon pricing and sector regulations), as
well as developing financial-sector policies and regulations (for example, a green
taxonomy or prudential regulations). Governments can incentivize further
integration of C&E considerations into NDFIs’ mandates, strategies, business
models, and investment targets. The World Bank and other MDBs could provide
targeted support through
• Technical assistance for NDFIs to build their capacity on C&E risk manage-
ment and green financing,
• Funding to NDFIs that are looking to green their operations, and
• Support to authorities to create the enabling environment for greening
NDFIs.
As NDFIs scale up operations to meet green financing needs, it is essential to

enhance NDFIs’ efficiency and effectiveness by ensuring that they are effectively
managed and properly supervised. To improve efficiency, governments could
incentivize the greening of state-owned NDFIs by integrating C&E and private
capital mobilization considerations into NDFIs’ mandates or missions and align-
ing incentives throughout the institution by using effective shareholder func-
tions. NDFIs should maintain financial sustainability, beyond subsidies, limiting
the scope of subsidized lending with a view to avoiding crowding out the private
sector, fostering innovation, and reducing incentives for corruption. Financial
supervisory authorities should ensure that NDFIs are properly supervised and
operate on a level playing field related to prudential regulations and competi-
tion. In cases where the environment is not supportive of NDFI effectiveness, it
may be advisable to operate in a second tier through other financial
intermediaries.
xvi | Greening National Development Financial Institutions
NOTES
1. The results of the survey cover responses from 22 NDFIs accounting for about 9 percent of
global NDFI assets. Although the results of the survey are not necessarily representative
for the whole universe of NDFIs, they are used to showcase the best practices of NDFIs in
developing and pursuing a green agenda.
2. According to the Climate Policy Initiative, the average climate finance provided by NDFIs
in 2019–2020 was US$145 billion, or 22 percent of total climate financing, representing the
majority of public climate financing in that period (CPI 2022).
BIBLIOGRAPHY
CPI (Climate Policy Initiative). 2022. Global Landscape of Climate Finance: A Decade of Data.
https://www.climatepolicyinitiative.org/wp-content/uploads/2022/10/Global-Landscape
-of-Climate-Finance-A-Decade-of-Data.pdf
World Bank. 2022. What You Need to Know about Net Zero. Washington, DC: World Bank.
https://www.worldbank.org/en/news/feature/2022/05/23/what-you-need-to-know
-about-net-zero#:~:text=Technically%2C%20global%20net%20zero%20will,be%20
released%20into%20the%20atmosphere.
World Bank. 2023. Spending Needs to Address Selected Global Challenge. Background note for
the Evolution Roadmap. Unpublished.
Glossary
Climate adaptation and resilience is a response to global warming that seeks to

reduce the vulnerability of social and biological systems to the impact of climate
change.
Climate finance is all lending and investments drawn from public, private, and
alternative sources to support mitigation and adaptation actions that will address
climate change.
Climate mitigation consists of actions to limit the magnitude or rate of long-

term global warming and its related effects.
Climate physical risks are (financial) risks resulting from the physical impacts
of climate change. This could include acute hazards (that is, event-driven haz-
ards, including more frequent and intense extreme events such as cyclones or
heat waves) and chronic hazards (that is, long-term changes in climate patterns,
such as temperature rise).
Climate risk is a broad term capturing climate physical and transition risks.
Climate scenario analysis explores potential climate risk outcomes. By examin-

ing a wide range of scenarios, this approach can help explain uncertainties and
estimate tail risks.
Climate stress testing is applying scenario analysis to evaluate the resiliency of

the financial sector or individual institutions to shocks caused by the effects of
severe but plausible climate scenarios. Stress tests for climate risks are typically
explorative in nature and have so far not been used as pass/fail exercises or to
increase capital requirements for financial institutions (FIs).
Climate transition risks are (financial) risks that can result from the process of
adjustment toward a lower-carbon and more circular economy, prompted, for
example, by changes in climate and environmental policy, technology, market,
and consumer sentiment.
Environmental risks cover climate physical risks, transition risks, and non-
climate change–related environmental risks such as local air pollution and loss
of biodiversity.
xvii
xviii | Greening National Development Financial Institutions
Financial institutions (FIs) are financial-sector firms, including banks, pension

funds, insurance companies, asset managers, brokerage firms, and investment
dealers.
Green financing includes all lending and investments that contribute to climate
mitigation, adaptation, and resilience and to other environmental objectives,
including biodiversity management.
Greening the financial system is the role of all actors in the financial sector in
mobilizing investments and lending toward green goals and managing
climate-related and environmental risks.
Greenwashing is the practice of marketing financial products as green when in

fact they do not meet climate-related or environmental standards.
National Development Financial Institutions (NDFIs) are any type of finan-

cial institution that a national government fully or partially owns or controls and
that has been given an explicit legal mandate to reach socioeconomic goals in a
region, sector, or market segment. Development Banks are the largest NDFIs,
but other institutions, such as public credit guarantee funds, public trust funds,
or public credit agencies, are included under the NDFI definition.
Nationally Determined Contributions (NDCs) are a central element for imple-

menting the Paris Agreement and represent a country government’s plan for
national climate actions, including climate-related targets, policies, and
measures.
Net-zero greenhouse gas (GHG) emissions will be achieved globally when

human-caused GHG emissions have been reduced to the absolute minimum
levels feasible and any remaining “residual emissions” are balanced by an equiv-
alent quantity of permanent anthropogenic removals so that they cannot be
released into the atmosphere. The term anthropogenic removal refers to the
withdrawal of GHGs from the atmosphere through deliberate human activities,
for instance, by technological solutions (direct air capture and storage) or by
natural solutions (land restoration and improved forest management).
Paris Agreement is a legally binding international treaty on climate change that

was adopted by 196 Parties at COP (Conference of the Parties) 21 in Paris on
December 12, 2015, and entered into force on November 4, 2016.
Public authorities cover government ministries or government agencies, as well

as supervisors and central banks. This report targets financial policymakers (for
example, ministries of finance, central banks, and financial regulators and
supervisors).
Sustainable finance includes all lending and investment that contributes to

environmental, social, and governance (ESG) or other sustainable development–
related goals.
Abbreviations
AFD Agence Française de Développement

BCBS Basel Committee on Banking Supervision
BNDES Brazilian Development Bank
C&E climate and environmental
CFF Climate Finance Facility
CPI Climate Policy Initiative
DB Development Bank
DBSA Development Bank of Southern Africa (South Africa)
DFI Development Financial Institution
E&S environmental and social
EIB European Investment Bank
ERET TSKB Environmental and Social Risk Evaluation Tool
ESG environmental, social, and governance
ESRM environmental and social risk management
ESS environmental and social standards
FI financial institution
FIRA Fideicomisos Instituidos en Relación con la Agricultura
(Mexico)
GCF Global Climate Fund
GDP gross domestic product
GEF Global Environmental Facility
GHG greenhouse gas
HIC high-income country
IADB Inter-American Development Bank
IC investment concept
IDFC International Development Finance Club
IFC International Finance Corporation
IFO International Financial Organization
ISDA Integrated Sustainable Development Approach
ISSB International Sustainability Standards Board
KDB Korea Development Bank (the Republic of Korea)
KFW Kreditanstalt für Wiederaufbau (Germany)
LIC low-income country
xix
xx | Greening National Development Financial Institutions
LMIC lower-middle-income country

MDB Multilateral Development Bank
MIC middle-income country
MSME micro, small, and medium enterprise
NDB National Development Bank
NDC Nationally Determined Contribution (per Paris Agreement)
NDFI National Development Financial Institution
SARAS Sistema de Administracion de Riesgos Ambientales y Sociales
(FIRA)
SDG Sustainable Development Goal (per United Nations)
SOE State-Owned Enterprise
SOFI State-Owned Financial Institution
TCFD Task Force on Climate-Related Financial Disclosures
TNFD Taskforce on Nature-Related Financial Disclosures
TSKB Türkiye Sinai Kalkinma Bankasi
UMIC upper-middle-income country
UN United Nations
UNDP United Nations Development Programme
UNEP United Nations Environment Programme
€ euro
US$ US dollars
₩ won
1 Introduction
BACKGROUND
Funding needed to reach countries’ climate and environmental (C&E) objectives

is in the trillions of dollars at a time when many countries face significant fiscal
and economic constraints. Low-income and middle-income countries (LICs and
MICs), other than China, need an estimated US$783 billion per year in additional
investments for climate action—to recover education and investment losses from
the pandemic and to address conflict and fragility—through 2030 (World Bank
2023). Investment needs could increase sharply if interventions are delayed,
spending is inefficient, or policies are inadequate (Rozenberg and Fay 2019).
Green financing can improve long-term fiscal sustainability and resilience, as
well as enhance countries’ competitiveness and growth; however, the large fund-
ing needs for C&E action come at a time when many countries are facing broader
development challenges. Slowing growth, rising food and energy prices, high
levels of public and private debt, and growing fiscal constraints are exacerbated
by rising interest rates globally, the persistence of the COVID-19 pandemic, and
the impact of the war in Ukraine (World Bank 2022b). Under such circum-
stances, LICs and MICs face difficult trade-offs between competing investment
needs and are struggling to mobilize public and private resources required for
their climate, environmental, and development priorities.
Recognition is growing that C&E physical and transition risks could
negatively affect countries’ economies and financial sectors. Physical risks
stem from the short- and long-term effects of climate change, environmental
degradation, and natural disasters such as sea level rise, droughts, floods, and
hurricanes. Transition risks originate from efforts to mitigate climate change
and improve environmental conditions by greening the economy, which may
create economic adjustment costs in a broad range of sectors. One estimate
suggests that insufficient action on climate change could cost the global
economy US$178 trillion by 2070, almost double the current global gross
domestic product (GDP) (Deloitte 2022; World Bank 2022c). At the same time,
climate change and other factors are leading to irreversible, nonlinear impacts
on biodiversity and ecosystem services. Estimates suggest that this issue could
lead to a reduction in GDP of more than 10 percent in LICs and MICs in 2030
1
2 | Greening National Development Financial Institutions
(Johnson et al. 2021). These impacts could, in turn, adversely impact the
financial sector if they are not anticipated by financial institutions (FIs).
To respond to these risks, an increasing number of central banks and supervi-
sors have begun to reform their supervisory framework to encourage FIs to bet-
ter assess, disclose, and manage C&E risks. Standard-setting bodies are also
starting to introduce guidance and principles to promote a common understand-
ing around how climate-related financial risks can be effectively managed.1
This report aims to take stock of the current trends and recommends policy
actions for “greening” National Development Financial Institutions (NDFIs).2
By examining the current state and trends across different dimensions, as dis-
cussed later, this publication aims to identify steps that NDFIs could take to cat-
alyze finance toward countries’ C&E objectives and to manage C&E risks. It also
identifies priority actions that country governments, Multilateral Development
Banks (MDBs) (including the World Bank), and financial regulators could take
to create an enabling environment for greening NDFIs.
NATIONAL DEVELOPMENT FINANCIAL INSTITUTIONS
NDFIs are well positioned to play an essential role in mobilizing the required
financing toward countries’ C&E objectives. The collective scale of NDFI assets
(close to US$19 trillion) significantly exceeds that of the multilateral system, and
NDFI financing activities represent over 10 percent of global investments
annually.3
In this context, NDFIs could play an important role in addressing C&E chal-
lenges. First, the involvement of NDFIs in the provision of green financing can
be justified by their role in addressing market failures, including those arising
from externalities that result in underfunding of projects with large social
returns, such as green projects (Levy-Yeyati, Micco, and Panizza 2004). Thus,
NDFIs often fulfill development objectives by financing projects that the pri-
vate sector is unwilling or unable to finance—for example, in such underserved
sectors as agriculture and micro, small, and medium enterprises (de la Torre,
Gozzi, and Schmukler 2007; Gutierrez et al. 2011; Hainz and Hakenes 2012;
World Bank 2012). Furthermore, as compared to private investors, NDFIs usu-
ally have a stronger appetite for financing long-term, high-risk investments and
can thus address critical market barriers associated with green investments,
such as long payback periods and high perceived project risks.
Second, NDFIs can have considerable influence on a country’s development
and investment plans and policies owing to their proximity to policymakers,
local markets, and international development finance. Third, NDFIs can crowd
in private investment for green activities by developing innovative approaches
such as blended financing, co-financing, and de-risking instruments. Finally,
NDFIs can also play a role in creating private capital to enable environmental
projects by building a track record on green investments and acting as a first
mover in financing demonstration projects at the early stages of market
development. NDFIs can also provide technical assistance and capacity building
at all stages of project development.
As with any other FIs, NDFIs must properly identify and manage the risks
that C&E factors pose to their portfolios. As such, NDFIs should consider C&E
risks beyond the lens of environmental and social risk management (ESRM) sys-
tems—that is, assessing environmental and social risks at the loan origination
Introduction | 3
level with a focus on the impacts of loans and investments on C&E factors—and
also consider the financial risks C&E factors pose to their balance sheets. C&E
risks include physical risks—that is, financial risks stemming from the effects of
climate change, environmental degradation, and loss of nature on the economy—
as well as transition risks originating from the realignment of economies with
C&E goals. In addition, lack of compliance with good C&E practices and regula-
tions can affect the financial performance of assets or result in reputational risks
for the institution.
There is wide recognition of the role of NDFIs in the attainment of green objec-
tives, despite concerns over state ownership of these entities. Main concerns
include, for example, crowding out private investments, inefficient management of
resources, creating competition with commercial banks, and supporting the objec-
tives of political elites, rather than addressing sustainable development objectives.
Despite these concerns, 74 new NDFIs were established during the period 2010–
20. The European Commission and the United Nations have expressed strong sup-
port for NDFIs (Gutierrez and Kliatskova 2021), with the G20 (Group of Twenty)
and the World Bank similarly recognizing the important role of public develop-
ment banks toward the achievement of the United Nations Sustainable
Development Goals (SDGs) and the Paris Agreement (World Bank 2022a).
The conceptual framework for the assessment of NDFIs’ C&E practices is
based on the review of key elements of NDFI operations and their institutional
setup. The framework is based on the World Bank State-Owned Financial
Institution (SOFI) diagnostics,4 which includes three pillars: functional, eco-
nomic, and operational. The functional pillar assesses the mandate or mission of
the institution, its operations, and its alignment between operations and man-
date. The economic and financial assessment pillar examines the economic and
financial performance of the SOFI. Finally, the operational assessment pillar
evaluates the adequacy of the legal and oversight framework, corporate gover-
nance, risk management practices, and monitoring and evaluation practices.
For the evaluation of NDFI C&E practices, this report focuses on the
functional assessment aspects (mandate or mission and operations) and the
operational aspects, excluding the legal and regulatory framework under which
the institutions operate.5 The key elements of the assessment include the
following modules (refer to figure 1.1):
FIGURE 1.1
Modules of assessment of NDFI C&E practices
Green governance and strategy
Green financing sources and uses
C&E risk management
C&E disclosures and reporting
Source: Figure original to this publication.

• Green governance and strategy: Addressing C&E risks and opportunities

requires the boards and senior management of NDFIs to be committed and
engaged. This module assesses NDFIs’ strategies, internal organization and
governance structures, and allocation of adequate resources to effectively
integrate C&E considerations into NDFIs’ operations.
• Green financing sources and uses: This module focuses on NDFIs’ support
of investments critical for achieving a country’s C&E objectives. In addition,
it assesses NDFIs’ role in catalyzing private finance toward C&E actions
through blended financing or co-financing, credit enhancements, and
de-risking instruments (for example, guarantees). Finally, the module exam-
ines NDFIs’ ability to leverage different mechanisms to ensure that they have
sufficient funding to support green investments, including accessing national
and international climate funds and engaging in green financing markets
(for example, by issuing green bonds).
• C&E risk management: NDFIs can use various techniques to identify, assess,
and manage C&E risks. Beyond approaches used in ESRM systems, tools for
identifying and assessing C&E financial risks include surveys, interviews,
exposure analysis, scenario analysis, and stress testing.
• C&E disclosures and reporting: This module examines NDFIs’ application
of green definitions and taxonomy frameworks to determine what activities
contribute to C&E objectives and enhancement of C&E disclosure and
reporting in line with international standards. These approaches are used
by NDFIs to enhance market transparency and understanding of C&E
risks and opportunities.
The role of NDFIs in the green and broader sustainability agenda is getting
increasing attention, with several guidance notes and reports on the topic
having recently been developed. For example, the United Nations Development
Programme (UNDP) has published a paper on the role of public development
banks in scaling up sustainable finance (UNDP 2022).6 The International
Development Finance Club (IDFC), with support from the Institute for
Climate Economics (I4CE) and the New Climate Institute, has developed an
operationalizing framework, which includes a set of principles and tools for
aligning NDFIs’ financial flows with the Paris Agreement (Lütkehermöller
et al. 2021). In addition, the Inter-American Development Bank has developed
a guidebook for National Development Banks (NDBs) on climate risk, which
provides a roadmap for integrating climate risks into NDBs’ lending strategies
and portfolio management (IADB 2021).
ANALYSIS FOR THIS PUBLICATION
The analysis for this publication builds on existing analytical work, a qualitative
survey, and interviews with a selection of NDFIs. It builds on the wealth of
research that has already been conducted to identify priority actions for green-
ing NDFIs as well as on a survey conducted by the World Bank in January 2022.
The survey includes questions on (a) NDFIs’ high-level commitments to the
green agenda; (b) provision and tracking of green financing; (c) sources of fund-
ing, including access to green funding; (d) management of C&E risks; and
(e) challenges and aspirations for greening the NDFIs (further details on the
Introduction | 5
survey methodology is provided in appendix A). The responses were received

from 22 NDFIs, with wide geographical and income-level coverage. The distri-
bution of the 22 NDFIs by income level is as follows: 3 are from high-income,
13 are from upper-middle-income, 4 are from lower-middle-income, and 2 are
from low-income countries. By region of operation, 8 NDFIs are based in Latin
America, 4 are in Europe and Central Asia, 5 are in East Asia and the Pacific, 3 are
in Sub-Saharan Africa, and 2 are in South Asia.
In addition, in-depth interviews were conducted with 4 NDFIs to identify
good practices. Interviewed NDFIs include the Fideicomisos Instituidos en
Relación con la Agricultura (Mexico), the Korea Development Bank, the Türkiye
Sinai Kalkinma Bankasi, and the Development Bank of Southern Africa (South
Africa), focusing on the four pillars described in the conceptual framework.
NOTES
1. Notably, the Basel Committee on Banking Supervision recently issued principles for the
effective management and supervision of climate-related financial risks, which provides an
important baseline for banks’ and supervisors’ practices related to climate risks.
2. This publication defines NDFIs as any type of financial institution that a national govern-
ment fully or partially owns or controls and that has been given an explicit legal mandate
to reach socioeconomic goals in a region, sector, or market segment. Development Banks
are the largest NDFIs, but there are other institutions—such as public credit guarantee
funds, public trust funds, or public credit agencies—that are included under this definition.
3. This number is based on the Institute of New Structural Economics and Agence Française
de Développement Public Developments Bank Database (November 2022).
4. The SOFI diagnostic is conducted in the context of the Integrated State-Owned Enterprise
Diagnostic, the Financial Sector Assessment Program, or on a stand-alone basis at the level
of the SOFI sector or individual institutions.
5. Assessment of NDFIs’ financial performance and economic impact of their green activities
is beyond the scope of this publication, which focuses on reviewing NDFI institutional
arrangements for green financing. The financial performance assessment would involve
assessing profitability in relation to the risk assumed, including climate risks. Evaluating
the economic impact of green activities involves assessing contribution to climate goals.
The assessment, however, covers whether institutions have systems in place to measure
and monitor climate risks in their portfolios and whether they track reduction in carbon
emissions. Similarly, the publication does not review the C&E legal framework of the coun-
tries in which NDFIs operate or the extent to which the prudential regulatory framework
includes environmental or climate considerations. However, the publication covers NDFIs
practices to address C&E effects.
6. Based on interviews and consultations, UNDP’s report assessed (a) the role of public devel-
opment banks in scaling financing toward SDGs, (b) the good practices that banks have
already developed, and (c) how national and international actors, including MDBs and the
United Nations, can support this agenda.
BIBLIOGRAPHY
de la Torre, A., J. C. Gozzi, and S. L. Schmukler. 2007. Innovative Experiences in Access to Finance:
Market-Friendly Roles for the Visible Hand? Washington, DC: Latin American Development
Forum, World Bank.
Deloitte. 2022. The Turning Point. Washington, DC: Deloitte, UNDP, World Bank, and IADB.
Gutierrez, E., and T. Kliatskova. 2021. National Development FIs: Trends, Crisis Response
Activities, and Lessons Learned. Washington, DC: World Bank.
Gutierrez, E., H. P. Rudolph, T. Homa, and E. Bianco Beneit. 2011. “Development Banks: Role
and Mechanisms to Increase Their Efficiency.” Policy Research Working Paper WPS 5729,
World Bank, Washington, DC.
Hainz, C., and H. Hakenes. 2012. “The Politician and His Banker—How to Efficiently Grant
State Aid.” Journal of Public Economics 96 (1–2): 218–25.
IADB (Inter-American Development Bank). 2021. A Guidebook for National Development Banks
on Climate Risk.
Johnson, J., G. Ruta, U. Baldos, R. Cervigni, S. Chonabayashi, E. Corong, O. Gavryliuk, J. Gerber,
T. Hertel, C. Nootenboom, and S. Polasky. 2021. The Economic Case for Nature: A Global
Earth-Economy Model to Assess Development Policy Pathways. Washington, DC: World Bank.
Levy-Yeyati, E. L., A. Micco, and U. Panizza. 2004. “Should the Government Be in the Banking
Business? The Role of State-Owned and Development Banks.” Working Paper 517, Inter-
American Development Bank, Washington, DC.
Lütkehermöller, K., A. Kachi, A. Pauthier, and I. Cochran. 2021. Operationalizing Framework on
Aligning with the Paris Agreement. Washington, DC: Climate Institute.
Rozenberg, J., and M. Fay. 2019. Beyond the Gap: How Countries Can Afford the Infrastructure
They Need While Protecting the Planet. Washington, DC: World Bank.
UNDP (United Nations Development Programme). 2022. The Role of Public Development Banks
in Scaling Up Sustainable Finance. New York: UNDP.
World Bank. 2012. Global Financial Development Report 2013: Rethinking the Role of the State in
Finance. Washington, DC: World Bank.
World Bank. 2022a. Achieving Climate and Development Goals: The Financing Question.
Washington, DC: World Bank.
World Bank. 2022b. The Food and Energy Crisis: Weathering the Storm. Washington, DC:
World Bank.
World Bank. 2022c. GDP (current US$). Databank. Washington, DC: World Bank.
World Bank. 2023. Spending Needs to Address Selected Global Challenge: Background Note for
the Evolution Roadmap. Unpublished manuscript.
2 Landscape of NDFIs
SUMMARY
National Development Financial Institutions (NDFIs) are highly diverse in size,

financial performance, development objectives, business models, funding
arrangements, and governance practices. The roles that NDFIs can play in the
green transition differ widely and largely depend on their specific structure and
scope. This chapter provides an overview of the landscape of NDFIs, presenting
a general description of their growth trends, key challenges faced by them, and
how they may differ by funding source, structure, and mandate across regions.
BACKGROUND
NDFIs cover a variety of financial institutions (FIs) that are typically state-
owned and have a socioeconomic objective. NDFIs have a policy objective that is
closely related to the economic development of a country or given sector.
Although they may not technically be FIs by country definitions, NDFIs have
their own balance sheets independent from the government that typically owns
them.1 Development Financial Institutions (DFIs) include Development Banks
(DBs), nonbank institutions that provide credit for developmental purposes
(for example, the Fideicomisos Instituidos en Relación con la Agricultura [FIRA]
in Mexico or Caisse des Dépôts in France), and partial credit guarantee funds.
DBs are DFIs with a banking license, which allows them to collect retail or
wholesale deposits and provide credit. National DBs are the most common type
of DFIs, which is why these terms are sometimes used interchangeably.
CORE ACTIVITIES
NDFIs’ core activity is lending, and the majority rely on international capital
markets for funding. According to the World Bank 2017 survey, the most common
source of funding is issuing debt in international capital markets (85 percent), fol-
lowed by borrowing from other FIs (84 percent), offering official development
7
assistance (77 percent), and issuing debt in local debt markets (75 percent; refer
to figure 2.1a) (World Bank 2018). The primary activity of NDFIs is lending, with
10 percent focused exclusively on wholesale loans, 40 percent providing only
retail loans, and 50 percent providing a combination of the two. About half of
NDFIs provide loans at subsidized rates, which are funded through cheaper
lines of credit from donors, budget transfers from the governments, and, to a
lesser extent, cross-subsidization from profitable business lines. Apart from
credit, NDFIs also offer loan guarantees (55 percent), private equity and venture
capital (47 percent), and deposit accounts (44 percent; refer to figure 2.1b).
FIGURE 2.1
NDFI funding sources and services
a. Sources of funding
Issuing debt in international debt markets 85

Borrowing from other financial institutions 84
Official development assistance 77
Issuing debt in local debt markets 75
Participation at the local interbank market 56
Deposits from government agencies 46
Deposits from general public 31
Direct budget transfers 29
0 10 20 30 40 50 60 70 80 90
Percentage of respondents
b. Financial products and services
Loan guarantees 55
Private equity 47
Deposit accounts 44
Money transfers 34
Leasing 34
Corporate bond issuance 30
Savings accounts 29
Forex trading 28
E-banking 28
Mobile banking 23
ODA loans 23
Trust services 22
Environment initiatives 22
Factoring 22
Agent banking 20
Securitization 18
IPO and M&A services 16
Derivatives trading 14
Debt collection 12
Microinsurance 10
Property/asset selling 5
0 10 20 30 40 50 60
Percentage of respondents
Source: World Bank 2018.

Note: IPO = initial public offering; M&A = mergers and acquisitions; NDFI = National Development
Financial Institution; ODA = official development assistance.
Landscape of NDFIs | 9
COUNTRIES AND REGIONS
High-income countries (HICs) and upper-middle-income countries (UMICs)

alone account for about two-thirds of NDFIs (refer to figure 2.2). Far fewer
NDFIs exist in low-income countries (LICs) than in HICs, UMICs, and lower-
middle-income countries (LMICs) (refer to figure 2.2a). This fact may be because
of difficulties in raising funds for NDFIs (including in capital markets), as well as
poor institutional capacity to establish and operate NDFIs. The small market
size of LICs may also reduce the need to establish many specialized NDFIs. As
shown in figure 2.2b, the largest concentration of national and subnational
NDFIs is in the Europe and Central Asia region (102 NDFIs, or 22 percent of total
NDFIs). This is followed by East Asia and Pacific (18 percent), Sub-Saharan
Africa (17 percent), and Latin America and the Caribbean (17 percent).
MISSIONS AND MANDATES
About 33 percent of NDFIs have a broad mission of supporting economic and

social development. In low-income economies, more than half of the NDFIs
FIGURE 2.2
Distribution of NDFIs
a. Distribution by income group b. Distribution by region
160 120
139 102
140 100
123
120 114 81
Number of NDFIs
Number of NDFIs
80 76 76
100
80 60
60 40 28 26
40 32 19
20
20
0 0
HICs UMICs LMICs LICs ECA EAP SSA LAC MENA SAR NA
c. Distribution of national NDFIs by their mandate, by income group
100
80
Percentage
60
40
20
0
HICs UMICs LMICs LICs
General Agriculture Micro, small, and medium enterprises
Export or import Housing Local NA
Source: Data based on Xu et al. (2021).

Note: EAP = East Asia and Pacific; ECA = Europe and Central Asia; HIC = high-income country; LAC = Latin
America and the Caribbean; LIC = low-income country; LMIC = lower-middle-income country; MENA = Middle
East and North Africa; NA = North America; NDFI = National Development Financial Institution; SAR = South Asia;
SSA = Sub-Saharan Africa; UMIC = upper-middle-income country.
have a general mandate, whereas NDFIs in HICs have more specific mandates,
in part because these countries have more than one NDFI (refer to figure 2.2c).
Many NDFIs in HICs, UMICs, and LMICs have a focused mandate to support
micro, small, and medium enterprises and entrepreneurship, reaching
49 percent of all NDFIs in high-income economies. In contrast, agriculture
banks are much more prevalent in low-income economies.
NOTE
1. Most NDFIs are government-owned; however, there are some private NDFIs, such as
Türkiye Sinai Kalkinma Bankasi (TSKB) in Türkiye or the Green Investment Bank in the
United Kingdom, that were created as public development institutions and subsequently
were privatized without changing their green focus.
BIBLIOGRAPHY
Xu, Jiajun, Régis Marodon, Xinshun Ru, Xiaomeng Ren, and Xinyue Wu. 2021. “What Are
Public Development Banks and Development Financing Institutions?—Qualification
Criteria, Stylized Facts and Development Trends.” China Economic Quarterly International
1(4): 271–94. Public Development Banks and Development Financing Institutions Database;
http://www.dfidatabase.pku.edu.cn/.
World Bank. 2018. 2017 Survey of National Development Banks. Washington, DC: World Bank.
3 State and Trends of
Greening NDFIs
BACKGROUND
To identify lessons learned and best practices of greening National Development

Financial Institutions (NDFIs), the World Bank launched a survey in January
2022, as well as conducted in-depth interviews. Responses to the survey were
received from 22 NDFIs, with wide geographical and income-level coverage.
Appendix A describes the survey methodology.1 The in-depth interviews were
conducted with four NDFIs:
1. Fideicomisos Instituidos en Relación con la Agricultura (FIRA, Mexico),
2. Korea Development Bank (KDB, the Republic of Korea),
3. Türkiye Sinai Kalkinma Bankasi (TSKB, Türkiye), and
4. Development Bank of Southern Africa (DBSA, South Africa).
Appendix B provides more details about the case studies. The assessment frame-
work and recommendations focused on the following:
• Integration of climate and environmental (C&E) considerations into NDFIs’

governance and strategies,
• Mobilization of financing toward C&E objectives,
• C&E risk management practices, and
• C&E disclosures and reporting.
GOVERNANCE AND STRATEGY
Good governance and strategy are key to NDFIs’ prioritizing their actions to
support C&E objectives and facilitate coordination across different stakehold-
ers, including national and subnational policymakers and sector participants.
A good strategy and governance framework should have clearly defined objec-
tives that are in line with country C&E objectives, specify the roles and respon-
sibilities to achieve different objectives, and describe actions to be taken by
different actors to ensure the strategy’s adequate implementation.
11
Over 80 percent of the NDFIs surveyed have adopted green objectives, and
73 percent are contributing to the implementation of the Paris Agreement’s
Nationally Determined Contribution (NDC) targets. Over 80 percent of respon-
dents have set green objectives or prepared a strategy to green their portfolio
(refer to figure 3.1). In many cases, green objectives are reflected in the institu-
tion’s mission and strategy, being accommodated within the previously existing
legal mandate.
Green strategies sometimes focus on reducing the NDFIs’ own carbon foot-
print in addition to greening their portfolio (refer to the FIRA case study in
appendix B). In most cases, the strategies are published. Seventy-seven percent
of respondents reported having made public pledges or commitments to align
their activities with international or national climate goals and to be involved in
the implementation of the country’s NDCs. However, only a few institutions
(including the Brazilian Development Bank [BNDES], TSKB, and Kreditanstalt
für Wiederaufbau [KFW]) have set targets or disclosed their contributions to
NDCs. For example, BNDES has an NDC Panel and discloses its contribution to
the Brazilian NDCs online. In addition, KFW has committed to a carbon-neutral
portfolio by 2050. Alignment with national climate goals is often supported by
adopting a sustainable strategy, being accredited by the Global Climate Fund
(GCF), or developing green financing facilities.
The majority of the NDFIs examined have specific green financing targets
and exclude from their portfolio the financing of some nongreen projects or sec-
tors. Of the 22 NDFIs surveyed, 15 have green financing targets. Some institu-
tions target the number of transactions for climate objectives or the United
Nations Sustainable Development Goals (SDGs), whereas others aim to increase
green financing in absolute terms, in the percentage of new commitments, or in
the share of green assets in their portfolio. In addition, some institutions target a
reduction in financing of polluting sectors, such as fossil fuels; 13 NDFIs reported
that they exclude financing of specific nongreen or nonsustainable projects from
their portfolio. Most respondents point to exclusion lists of activities in line with
national regulations or international standards (for example, KFW refers to the
International Finance Corporation [IFC] exclusion list; Banco de Inversión y
FIGURE 3.1
NDFIs show a high-level commitment to the green agenda
Mandate and/or mission includes green,

climate, or environmental objectives
Strategy is prepared to green portfolio
Public pledges were made to align

activities with climate-related and
environmental goals
Institution is involved in the
implementation of the country’s NDC
0 20 40 60 80 100
Percentage
Yes No
Source: Figure original to this publication based on World Bank data.

Note: NDC = Nationally Determined Contribution; NDFI = National Development Financial Institution.
State and Trends of Greening NDFIs | 13
Comercio Exterior refers to the World Bank and Inter-American Development

Bank exclusion lists). A few institutions do not have exclusion lists but instead
point to the prohibition against funding coal mining or coal-generated energy
(for example, TSKB, KDB, and the Industrial Bank of Korea [IBK]). NDFIs oper-
ating through financial intermediaries (second tier) often impose their green
financing targets on other financial institutions (FIs). Furthermore, some NDFIs
already have binding targets, whereas others impose targets for green financing
to be achieved in the future. Some reported that they have more than achieved
their green targets.
More than half of NDFIs incorporate C&E considerations into their gover-
nance arrangements. The majority have created dedicated units and high-level
committees to address C&E topics, often supported by the approval of specific
policies and strategies. Thirteen NDFIs incorporate C&E considerations into
their governance arrangements. Six did not provide details or refer to the adop-
tion of C&E-related policies implemented by the existing institutional units. The
remaining respondents referred to the creation of either specific units assessing
and managing the environmental and social impacts of projects and providing
sustainable finance or of high-level committees and director positions focused
on C&E or sustainability issues more broadly. Examples of good NDFI practices
on governance and strategy are presented in box 3.1.
BOX 3.1
Good NDFI practices on governance and strategy

NDFIs rarely have C&E–related goals explicitly their mandates may give them more legitimacy and
included in their mandates. For example, FIRA’s man- clout to make progress on these topics.
date is “to promote, until it is well established, an Institutions with green or sustainability strategies
inclusive, sustainable and productive agri-food and often set green financing targets and track green
rural sector.” KDB’s mandate is to support the coun- financing. FIRA developed a taxonomy to label
try’s sustainable growth. Similarly, TSKB’s mission green financing products, and DBSA uses the
focuses on inclusive and sustainable development, and International Development Finance Club taxonomy.
DBSA’s Act refers to financing sustainable develop- KDB developed a sustainable framework aligned with
ment projects and programs. international standards, and TSKB tracks financing
Lack of an explicit legal mandate has not pre- linked to climate and SDGs. KDB’s aim is to increase
vented NDFIs from incorporating C&E consider- the share of green financing to 16.8 percent of its total
ations into their operations or from developing annual financing by 2030. TSKB has set a target of a
strategies to green their portfolios. FIRA has devel- 60 percent share of C&E-focused or SDG-linked loans
oped a sustainability strategy with three pillars that in the total portfolio by 2025.
(a) aim to avoid environmental harm, (b) finance Some institutions have created high-level com-
green projects, and (c) catalyze support for green mittees in charge of the development and implemen-
financing. KDB’s green financing strategy’s goal is to tation of C&E policies. For example, BNDES has a
support the government’s NDC and 2050 carbon Sustainability Committee linked to the bank’s
neutrality target. TSKB published the Combating Executive Board, which is the main forum for dis-
Climate Change and Adaptation Policy in June 2020. cussing C&E considerations. Its board of directors
In 2021, DBSA approved the Just Transition has a subcommittee dealing with ESG aspects. In
Investment Framework to become a net-zero bank addition, the bank has assigned a director responsi-
by 2050. KDB and TSKB have also phased out their ble for the subject in the institution, a sustainability
investments in coal-powered energy. NDFIs have team in the strategic planning division, and an envi-
indicated that formal inclusion of green objectives in ronment department.
continued
Box 3.1, continued
In addition, IBK has established its ESG commit- that indicates that the higher decision-making bodies
tee as the top decision-making organization under of financial institutions should be involved in C&E
the board of directors, which regularly reviews and issues. FIRA has also created a high-level working
makes resolutions for risk, opportunities, and strate- group that comprises all the different areas in the
gies related to climate change based on international bank involved in climate issues. Finally, TSKB’s sus-
standards. Furthermore, the higher decision-making tainability strategy, vision and goals, and climate-
body of FIRA, the Technical Committee, has become related risks and opportunities are addressed by the
involved in environmental issues, reflecting its sign- Sustainability Committee with the active participa-
ing of the Sustainability Protocol of the Mexican Bank tion of the board of directors and the Executive
Association, which includes a governance principle Committee.
Note: BNDES = Brazilian Development Bank; C&E = climate and environmental; DBSA = Development Bank of Southern Africa (South Africa);
ESG = environmental, social, and governance; FIRA = Fideicomisos Instituidos en Relación con la Agricultura (Mexico); IBK = Industrial Bank
of Korea (the Republic of Korea); KDB = Korea Development Bank (the Republic of Korea); NDC = Nationally Determined Contribution;
NDFI = National Development Financial Institution; SDG = Sustainable Development Goal; TSKB = Türkiye Sinai Kalkinma Bankasi.
GREEN FINANCING SOURCES AND USES
Countries face a significant financing gap in reaching their climate goals. The
first batch of Country Climate and Development Reports from the World Bank
found that the financing needed for climate action across the 24 countries
analyzed will average 1.4 percent of gross domestic product (GDP) by 2030.
However, large differences exist across country income classes: 1.1 percent of
GDP, on average, in upper-middle-income countries, increasing to 5.1 percent
in lower-middle-income countries and 8 percent in low-income countries
(LICs) (World Bank 2023). These data suggest that climate-development
financing needs are a significantly larger percentage of GDP in countries that
have contributed the least to global warming and where access to capital
markets and private capital is more limited.
NDFIs, which could help close this financing gap, have an important position
in the domestic financing landscape given their proximity to policymakers,
local markets, and international development finance. They are also unique in
that they can potentially deploy affordable, flexible, and risk-tolerant funding
tailored to country context, thus addressing key market barriers that impede
private investments for climate action.
NDFIs are already leading players in climate financing, especially in LICs and
middle-income countries (MICs). According to the Climate Policy Initiative
(CPI), the annual average climate financing provided by NDFIs in 2019–20 was
US$145 billion, or 22 percent of total climate financing, representing the major-
ity of public climate financing during that period (refer to figure 3.2a).2 This sit-
uation is especially true for LICs and MICs, where more than 60 percent of
annual average 2019–20 climate financing was provided by public actors, led by
NDFIs (45 percent), state-owned FIs (17 percent), and multilateral Development
Financial Institutions (DFIs) (17 percent). By regional distribution, the East Asia
and Pacific region (75 percent; refer to figure 3.2b) receives the most climate
financing from NDFIs by far. The annual average flows tagged to adaptation in
FIGURE 3.2
NDFI climate financing sources and regional distribution, global annual averages, 2019−20
a. Climate financing, by source b. Distribution of climate financing, by region
40 38 80 75.3
36
35 70
30 60
25 50
Percentage
Percentage
22
20 19 40
15 30
19.7
10 20
5
5 4 10
1 1 0 2.8 0.6 0.2 1.3
0 0 0.1 0.1
0 0
s
rs
FIs
ts
FIs
FIs
er
pe
da
ro d
ia
ica
ia
th Am frica d
al
n
nd
nd
cifi
Eu an
A n
bb n
on
to
en
As
an
h
So pe
an ean
io
na
ro
lD
lD
lD
rri a a
r
Ot
Af
fu
fu
es
Pa
at
ce
m
gi
rn sia
La orth ast
Eu
h
a
a
na
Ca eric
nv
or
ut
Ce d C
sre
rn
ic
rO
er
er
ste l A
d
N eE
at
ra
rn
tio
bl
rp
ve
li
lat
at
an
m
an
he
ha
Ea ntra
te
Pu
na
Co
dl
til
Na
Go
Bi
cli
Tr
ia
es
Sa
Ot
id
ul
tio
US
tin
As
e
W
M
M
al
b-
tu
er
st
Su
sti
at
Ea
In
til
ul
M
Source: Climate Policy Initiative (CPI 2022).

Note: DFI = Development Financial Institution; NDFI = National Development Financial Institution.
LICs and MICs in 2019–20 were about US$44 billion (that is, approximately
10 percent of total climate financing flows).3 Almost all adaptation financing
tracked to LICs and MICs was provided by public actors (98 percent), such as
multilateral DFIs (37 percent of public adaptation finance in LICs and MICs)
and national DFIs (34 percent).4
Nevertheless, the survey results suggest that the share of green assets in
NDFIs’ credit portfolios is still relatively low (approximately 14 percent, on aver-
age), and the majority of investment is in climate mitigation projects. The share
of green assets differs substantially between institutions. Of the 12 surveyed
NDFIs that reported the share of their credit portfolio in green assets, 7 have a
modest share of green assets below 10 percent, 4 have a share of green assets
between 10 percent and 25 percent, and in only 1 does the share of green assets
exceed 50 percent of the total portfolio (refer to figure 3.3a).
Most of the NDFIs do not distinguish between financing for climate adap-
tation and that for climate mitigation. Some NDFIs are, however, developing
methodologies to identify what could be considered climate adaptation and
mitigation financing. The NDFIs with mitigation and adaptation projects have
a share of their portfolio in adaptation that is substantially lower than that for
mitigation. In addition, some NDFIs provide financing exclusively for mitiga-
tion purposes. The bias toward mitigation investments is further evidenced in
other studies, such as that of the International Development Finance Club
(IDFC), which suggests that US$146 billion of the US$185 billion in green
financing provided by IDFC members in 2020 was dedicated to climate miti-
gation (IDFC 2021). CPI data similarly show that approximately 89 percent of
climate financing from NDFIs is dedicated to climate mitigation (CPI 2022).
The survey results also suggest that NDFI’s green financing is concentrated
in selected sectors, with the majority in the power, agriculture, transport, and
industry sectors (refer to figure 3.3b). Of the 22 NDFIs surveyed, 17 provide
FIGURE 3.3
NDFIs’ survey responses on green financing practices
a. Percentage of green assets b. Main sectors supported with
in credit portfolio C&E objectives
60
Power
50
Agriculture
40 Transport
Percentage
35 Industry
20 Land use
Infrastructure
10
Building
0
0 5 10 15 20
ND 1
ND 2
ND 3
ND 4
ND 5
ND 6
ND 7
ND 8
ND I 9
ND 10
ND 11
12
FI
FI
FI
FI
FI
FI
FI
FI
F
Number of banks
FI
FI
ND
FI
c. Green financing trends d. Sources of funding

Institution has access
Institution has to national and/or
specific green international capital
financing targets markets
Institution issued
Institution excludes a green bond
financing to specific
(nongreen) projects Institution issued a
sustainability-linked
bond
Institution tracks the
Institution is accredited
level of mobilized
by international
private finance
climate funds
0 20 40 60 80 100 0 20 40 60 80 100
Percentage Percentage
Yes No Yes No
e. Challenges in scaling up financing for C&E objectives
Lack of effective public policies and regulations, including green

taxonomy and reporting standards
Attracting capital for high-risk projects, funding gap
Lack of knowledge and awareness on clients' side
Lack of innovative financial instruments for climate-related projects
Lack of knowledge in Fls, including on carbon trading and risks
Technical difficulties in evaluating projects
Lack of bankable projects and possibly low profitability of the projects
Lack of incentives, including subsidies to fossil fuels
Expensive green technologies, benefits realized in the long term
0 2 4 6 8 10 12 14
Number of NDFIs

Note: Panel a shows the results for 12 NDFIs that provided responses to this survey question. C&E = climate and environmental; FI = financial
institution; NDFI = National Development Financial Institution.
financing to renewable energy projects, such as hydropower and solar projects.

NDFIs also finance sustainable transport (10 NDFIs), including electric and
alternative-fuel vehicles, as well as sustainable agriculture and farming (10
NDFIs). Some institutions also provide financing for green infrastructure proj-
ects, water efficiency, waste management, and pollution prevention, as well as
sustainable tourism.
NDFIs’ main clients range from national and subnational governments to
large corporations, including state-owned enterprises. In addition, some NDFIs
provide financing to micro, small, and medium enterprises (MSMEs), farmers
and small agri-producers, and entrepreneurs and individuals. The banks that
provide second-tier lending provide financing to the above-mentioned groups
via other bank and nonbank FIs.
The survey and stakeholder consultations found that NDFIs use a wide
range of FIs to channel green financing. The most widely used instrument to
provide green financing is lending. NDFIs provide first- and second-tier lend-
ing, with short- to long-term loans and credit lines.5 Less than 25 percent of
institutions reported providing concessional climate financing, although this
figure may be underrepresented. Only four institutions reported pricing as
part of their portfolio at concessional terms, and the subsidy applied to more
than half of the portfolio in only one case. Three institutions indicated that the
information was not available, and others did not consider the concessional
financing received.
Some NDFIs provide credit guarantees to finance green projects, and
some also issue grants, particularly to underserved segments. Less widely
used instruments include equity investment financing, venture financing,
and project structuring. Apart from financial products, some NDFIs provide
technical assistance and advisory services to help clients green their
activities.
Some NDFIs mobilize private financing for green projects, but more could be
done. A few institutions also established mechanisms to track and monitor how
much private financing was mobilized (refer to figure 3.3c). In addition, for some
NDFI projects, contribution from the private sector is mandatory at some per-
centage of the project value. However, the focus on private finance mobilization
seems limited, and its potential is largely unexplored. Several NDFIs also collab-
orate with subnational development banks to channel financing to the local
level. In addition, NDFIs sometimes have requirements to co-finance projects
with other FIs (for example, Mexican NDFIs have co-financing requirements for
renewable-energy projects).
Eighteen out of 22 NDFIs have access to international or national capital mar-
kets, but the use of green debt instruments has not yet been mainstreamed (refer
to figure 3.3d). Only half of the respondents have issued a green bond, and less
than a quarter have issued a sustainability-linked bond. Nevertheless, it is
important to note that, in several cases, NDFIs were first movers in green bond
issuance. For example, Nacional Financiera issued the first Mexican green bond
in 2015 (and was the first in Latin America to have climate bond certification).
Less than 40 percent have accreditation to access international climate funds
such as the GCF. Many NDFIs do not use the resources even if they are accred-
ited. Examples of good practices on sources and uses for green financing are
presented in box 3.2.
The key challenge to scaling up financing for C&E objectives is the lack of
effective public policies and regulations. Thirteen of 20 banks indicated that the
BOX 3.2
Good NDFI practices on green financing sources and uses

Some NDFIs have developed specialized programs and DBSA has launched the Climate Finance Facility,
products for financing of C&E objectives and priori- which focuses on blended finance mechanisms and
tized projects that are not commercially viable. For credit enhancements, such as subordinated debt and
example, FIRA has developed the Pro-Sostenible tenor extensions.
Program, which provides an interest rate subsidy (cash NDFIs also provide nonfinancial support to bor-
back) to final borrowers of sustainable projects using rowers in relation to green financing. For example, the
donor funding. The Energy Efficiency Program pro- PROINFOR Program, administered by FIRA, sup-
vides a technological guarantee, paying the difference ports small forest producers with technical assistance
between estimated and realized savings from the adop- to adopt sustainable production practices. In addition,
tion of energy-efficient technologies. TSKB is currently TSKB via Escarus (TSKB Sustainability Consultancy)
developing various thematic credit lines (projects) with provides technical assistance and consultancy ser-
topics related to the circular economy, green deal pro- vices, such as thematic bond issuances, to its clients.
motion, climate change adaptation, and employment Finally, DBSA provides project preparation support to
creation via green growth. KDB has targeted projects further facilitate the development of green bankable
that are not commercially viable, such as early-stage projects.
investments in nascent technology solutions (for exam- NDFIs often catalyze development of local green
ple, carbon capture and storage, green hydrogen). financing markets by raising the profile and demon-
NDFIs, often in collaboration with other national strating the feasibility of green bonds with potential
entities, provide credit enhancement mechanisms issuers. For example, KDB was a first mover in a
for green financing. For example, the National Forest green bond market in the Republic of Korea that
Fund and the Credit Guarantee Fund for the Efficient currently accounts for ₩3.7 trillion (equivalent to
Use of Water, co-administered by FIRA, offer credit US$3 billion) of green bonds issued up to March
guarantees to financial intermediaries, with a higher 2022. KDB further bolsters the private sector’s par-
guarantee for sustainable projects (65 percent ver- ticipation in the labeled bond market by arranging,
sus the standard 40−50 percent guarantee) at no underwriting, and investing in green and sustainable
additional cost. Moreover, KDB utilizes funding bonds. KDB has issued three primary collateralized
from the Green Climate Fund to cover first losses of bond obligations backed by privately placed ESG
private sector green investments. KDB also lowers bonds issued by MSMEs that back corporate capital
interest rates for certain green projects to increase investments in green projects, extending the reach
the attractiveness of these investments. Finally, to MSMEs and private placements.
Note: C&E = climate and environmental; DBSA = Development Bank of Southern Africa (South Africa); ESG = environmental, social, and
governance; FIRA = Fideicomisos Instituidos en Relación con la Agricultura (Mexico); KDB = Korea Development Bank (the Republic of Korea);
MSME = micro, small, and m
edium enterprise; NDFI = National Development Financial Institution; TSKB = Türkiye Sinai Kalkinma Bankasi.
lack of an enabling policy environment is a major barrier to attracting public and

private capital for climate projects. For example, enabling policies can include a
common green taxonomy, as well as disclosure and reporting standards, that
allows for transparent identification and monitoring of green financing flows.
Strengthening national climate strategies and legislation are also required to sig-
nal the government’s long-term commitment to the climate agenda. In addition,
policies that encourage public-private partnerships are important to encourage
collaboration on green investments between NDFIs and the private sector.
Funding gaps, particularly in LICs and MICs, are another challenge NDFIs
face. Eight NDFIs indicated that it is difficult to attract capital for high-risk,
long-term projects; many NDFIs have limited access to funding because their
local capital markets are underdeveloped, and they have no access to interna-
tional capital markets. Accessing concessional financing from global financing
mechanisms such as the GCF is a long process, with provisions that can be chal-
lenging to implement. In addition, this issue exposes banks to the risk of foreign
exchange rates and requires implementing costly hedging mechanisms.
Furthermore, available patient capital (for example, equity funds, private angels)
is lacking for green projects. Some NDFIs indicated that financial incentives in
the form of government guarantees might be useful to address funding gaps.
Several NDFIs indicated that the lack of knowledge and awareness of C&E
issues is a further challenge. NDFIs revealed that they have limited knowledge
and competences on topics related to green financing, such as project structur-
ing, financing instruments, carbon trading, and evaluation of C&E risks, and
require capacity building, specialized training, and knowledge sharing to be
more aware of international best practices. In addition, clients often lack aware-
ness and knowledge, according to seven NDFIs surveyed. MSMEs and the gen-
eral population generally are unaware of key issues such as environmental
problems or energy-saving benefits, which hampers demand. Awareness and
promotional campaigns can help create demand for green technologies.
Moreover, some companies, especially MSMEs, have limited knowledge and
lack the technical personnel to implement green projects.
Several other barriers exist to scaling up green financing, including project
complexities and cost, a lack of incentives, and tailored financial solutions. Some
NDFIs indicated that costs for project preparation and implementation are high
(refer to figure 3.3e). Therefore, high real and perceived implementation costs
might further suppress demand. Identification and technical evaluation of green
projects at the preparation stage often is costly, requires specialized skills, and is
compounded by the lack of transparent information and data. Supervision and
impact evaluation of such projects is also more costly than that for other projects.
In addition, green projects (for example, hydropower, biodiversity) are long
term by nature and have a high risk, with their benefits realized only after project
completion. Smaller-scale projects that have greater sustainability value often
have a lower internal rate of return, as well as complex, costly transactions and
institutional arrangements. These additional costs put green projects at a disad-
vantage, decreasing the willingness of the private sector to provide financing.
Some NDFIs also highlighted the lack of incentives, such as economic, finan-
cial, and legal, to provide financing to green projects. In some countries, subsi-
dies for fossil fuels can set negative economic incentives for climate mitigation
projects (for example, renewable energy). Seven NDFIs highlighted the impor-
tance of developing innovative financial instruments (such as blended financing)
or de-risking instruments (such as guarantees) that are specifically customized
for climate-related and environmental projects.
The surveyed NDFIs identified several priorities for scaling up financing to
meet C&E objectives in the next 1–5 years. The NDFIs plan to focus on obtaining
access to funding to finance green projects, such as improving access to conces-
sional resources, including from the GCF; mobilizing private financing; and tap-
ping into the labeled bond market. Several NDFIs are working to set up
partnerships and collaborations and to coordinate with key stakeholders and
potential funding agencies to scale green financing efforts.
In addition, NDFIs also plan to enhance demand for green projects by raising
awareness through building campaigns and educating clients, as well as by
bringing to the market new financial products targeting certain groups of
customers and projects. For example, BNDES aims to scale BNDES environmen-
tal, social, and governance (ESG) credit, which provides a discount on funding to
borrowers attaining certain sustainability-linked objectives. Some institutions
mentioned the need to engage with borrowers to reduce their carbon footprint.
C&E FINANCIAL RISK MANAGEMENT
C&E risk management practices in the financial sector have evolved substan-
tially over the past decade. An increasing number of central banks and regulators
are taking action globally to address the impacts of C&E physical and transition
risks on the stability of FIs and their financial systems. Standard-setting bodies,
as well as the Network of Central Banks and Supervisors for Greening the
Financial System, have started to issue guidance for regulators and FIs on how to
manage C&E risks, including a recent set of principles for the banking sector
issued by the Basel Committee on Banking Supervision (BCBS).
In response to this guidance, FIs have begun to integrate climate and, in some
cases, broader environmental financial risks into their risk management frame-
works and strategies. This approach is different from the environmental and
social risk management (ESRM) assessments that NDFIs and other institutions
have historically conducted to consider the impact of their financing activities
on environmental and social issues.
The following section considers C&E risks primarily from the financial risk
angle, given that a well-established foundation for ESRM already exists.6
Although ESRM primarily looks at the external impact of operations, in certain
cases, this examination could also translate into financial risks (primarily credit
risk) or reputational risks. Sometimes the two approaches are part of one broad
C&E risk management framework.
In general, our survey (see figure 3.4) suggests that the integration of C&E
financial risks in NDFIs’ strategies is limited. The consideration of these risks
generally is not incorporated into long-term organizational strategies. Even
though nearly three-quarters of the NDFIs indicated that they have integrated
some C&E considerations into their strategy, these considerations are often
high level (from a general sustainability perspective) rather than a more in-depth
analysis of the impact of long-term C&E financial risks on their business.
NDFIs recognize the relevance of C&E financial risks for their business mod-
els, but, in most cases, they do not expect them to materialize in the short term.
Nearly all (86 percent) of the NDFIs surveyed expect that C&E financial risks
will affect their business model. However, these NDFIs stated that these risks
are generally not expected to materialize over the short term, although several
NDFIs—most of which are involved in the agriculture sector—indicated that
some risks are already becoming apparent. For example, institutions cited the
impact of climate-related weather events on farmers’ ability to repay their debts.
Other NDFIs noted the impact of changes in precipitation patterns, which trig-
gered financial losses and restructurings for hydropower projects. Depending on
the nature and scope of their business models, some NDFIs (for example, those
that focus on the agriculture sector) expect climate physical risks to be the main
source of risk, whereas other NDFIs (for example, those that focus on fossil fuel
industries) indicate that climate transition would be the main source of risk to
their business models if they do not adapt to market and regulatory develop-
ments that support the low-carbon transition.
FIGURE 3.4
Survey responses on C&E risk management practices
Institution expects that climate-related and
environmental financial risks will affect its business model
Institution has assessed the impact of climate-related
and environmental financial risks on its portfolio
Institution has integrated the consideration of
climate-related and environmental financial risk
into its governance arrangements
Strategy incorporates climate-related and
environmental financial risk considerations
Climate-related and environmental financial risk
is embedded in risk management framework
Institution conducts scenario analysis or stress testing to
assess climate-related and environmental financial risk
Institution reports on climate-related and
environmental risk
Institution uses specific targets, tools, or metrics to
assess climate-related and environmental financial risk
Institution has a system to administer and
manage environmental risks created by its portfolio
0 20 40 60 80 100
Percentage

Note: C&E = climate and environmental.
Many NDFIs consider only how their activities impact C&E factors, often as
part of ESRM, and do not yet consider how C&E risks translate into financial
risks for their own investment and credit portfolio. Less than half of the NDFIs
surveyed demonstrate an understanding of the classification of C&E physical
and transition risks or their transmission channels to existing categories of pru-
dential financial risk, primarily credit risk. Many institutions see these risks
exclusively through the ESRM lens. Ninety percent of the NDFIs have a system
in place to assess and manage environmental risks from the impact perspective.
This system often is combined with that for social risks as part of broader ESRM
systems. In this context, several institutions mentioned the application of envi-
ronmental safeguards or alignment with, for example, the IFC’s Environmental
and Social Performance Standards. Therefore, environmental risk is considered
more likely at the point of loan origination (considering adverse environmental
impacts) rather than at the portfolio level.
Although awareness of the potential implications of C&E financial risks
seems high, less than half of the surveyed NDFIs have started assessing the expo-
sure of their portfolio to these risks. Several NDFIs mentioned that they have
assessed these risks as part of their ESRM system, although this system may use
a different methodology than that for a prudential financial risk assessment.
C&E risk assessment methodologies that were mentioned are so far primarily
focused on high-level sectoral or geographical exposure assessments or the car-
bon footprint of the portfolio (for example, refer to the TSKB and DBSA case
studies in appendix B for an illustration of risk assessment methodologies).
Only a quarter of NDFIs have started more advanced stress-testing or sce-
nario analysis exercises. However, many institutions indicated that they are
looking to develop these capabilities soon, ideally with financial and technical
support from multilateral and development partners in this area. Some institu-
tions have set a minimum threshold for assessing these risks, conducting analy-
ses only when exposures exceed a certain value. Moving forward, a top priority
for the surveyed NDFIs is to develop methodologies and processes for integrat-
ing C&E risks into the loan evaluation, internal rating, loan allocation, and mon-
itoring processes, which may allow NDFIs to also strengthen the identification,
monitoring, and management of institutional exposure to potential C&E risks on
a portfolio basis.
Less than half of the surveyed NDFIs provided details on the integration of
C&E financial risks into their governance arrangements. Governance structures
are mostly related to the broader ESRM framework, with less consideration of
how C&E risks are being embedded into (credit) risk committee structures.
Governance often is different for banks with an agricultural focus, for which cli-
mate considerations are more formally embedded in risk management struc-
tures or processes.
Knowledge of relevant international standards and frameworks is low. Most
notably, NDFIs have limited awareness of the BCBS Principles on climate risks,
which are set to be the international baseline standard for addressing climate-
related risks in corporate governance, internal controls, risk management,
monitoring and reporting, and scenario analysis. Only one NDFI mentioned that
these principles are informing the integration of climate risk into its own
frameworks and activities. Examples of good NDFI practices for C&E risk
management are provided in box 3.3.
Lack of data and standardized methodologies were identified as key challenges
hindering NDFIs’ ability to mainstream C&E risk management practices. So far,
BOX 3.3
Good NDFI practices for C&E risk management

The case studies in appendix B demonstrate an can be an effective mechanism for institutions to test
increasing awareness of the urgency and relevance of relevant approaches and develop capacity.
C&E financial risks to institutions’ portfolios and Despite globally recognized data challenges related
business models. NDFIs have a solid grasp of physical to measuring Scope 3 emissions, TSKB has taken the
and transition risk concepts, whereas they focus on ambitious step to calculate and publish the Scope 3
the impact angle of broader ESRM. emissions of companies it has financed that operate in
A diversity in approaches exists, with the four carbon-intensive industries. Furthermore, TSKB
NDFI case studies showcasing different innovations identifies climate-related risks in its portfolio through
and good practices. These encouraging developments a sector-based heat map that will be used as a basis for
could provide an example for other NDFIs looking to the development of more advanced scenario analysis
develop their capabilities on C&E financial risks. For and stress-testing approaches that are currently under
example, FIRA participated in several pilots, includ- development.
ing in a drought stress-testing tool to assess the impli- Particularly noteworthy is the innovative approach
cations for the risk profile of its loan portfolio and in a KDB has developed to set a capital buffer for transi-
study to identify physical risks in its credit portfolio tion risk within its 2022 risk management framework.
based on climate models and scenarios of the The capital buffer was established by calculating a
Intergovernmental Panel on Climate Change. Pilots stressed climate probability of default based on a
continued
Box 3.3, continued
transition risk stress test using the Network for development of its own internal carbon footprinting
Greening the Financial System scenario to achieve tool to assess its counterparties. Also recognizing that
net-zero by 2050. building up further internal capabilities for the assess-
On the impact side, DBSA has systematically ment of C&E financial risks is key, DBSA is engaging
embedded the consideration of environmental risks with numerous relevant networks to develop the
across all stages of the loan life cycle. This includes the required expertise.
Note: C&E = climate and environmental; DBSA = Development Bank of Southern Africa (South Africa); ESRM = environmental and social
risk m
anagement; FIRA = Fideicomisos Instituidos en Relación con la Agricultura (Mexico); KDB = Korea Development Bank (the Republic of
Korea); NDFI = National D
evelopment Financial Institution; TSKB = Türkiye Sinai Kalkinma Bankasi.
little risk quantification has occurred. NDFIs cited the lack of reliable and
high-quality data as a key reason for climate change not being part of their risk
management processes. This issue also includes the difficulty of incorporating
qualitative data into risk assessment models. One main difficulty in measuring
climate risks is that historical data are not reliable indicators for future risks and
can weaken predictability. The absence of standards or a harmonized approach to
assess C&E financial risk constitutes another barrier to developing an approach to
address this risk. Disclosure and reporting standards will also be vital to provide
the transparency and information needed to identify, assess, and price the risk.
Other commonly cited challenges are the limited capacity and technical
skills within the institution. Several NDFIs highlighted that they have limited
internal know-how to allow them to properly address C&E risks, and that
risk analyses, including stress testing and scenario analysis, are particularly
challenging. Nonconducive regulatory frameworks, or uncertainties about the
regulatory direction or emerging regulations, also can impact the assessment
of C&E financial risks.
C&E DISCLOSURES AND REPORTING
Adequate disclosure and reporting are needed to help NDFIs understand, price,
and manage C&E risks and green financing opportunities in their portfolios and
operations. A growing number of countries have introduced climate and ESG
disclosure and reporting requirements for financial and nonfinancial entities.
The International Financial Reporting Standards’ International Sustainability
Standards Board is also in the process of developing a global baseline for
sustainability-related disclosure standards, with the goal of providing investors
with information about companies’ ESG risks and opportunities. Beyond regula-
tory requirements, many companies already are enhancing their climate or ESG
disclosures based on the recommendations of voluntary initiatives such as the
Financial Stability Board’s Task Force on Climate-Related Financial Disclosures
(TCFD) and the Carbon Disclosure Project.
At the same time, several countries have developed green and sustainable tax-
onomies to uniformly determine what economic activities can be considered
environmentally and socially sustainable. A taxonomy can perform a variety of
functions, including support financial actors to make informed decisions on sus-

tainable investments, facilitate reliable and comparable disclosures, and provide
a consistent way to track what green activities are being financed.
C&E disclosure practices are still at a nascent stage. Some of the surveyed
NDFIs have public sustainability reports, but most of these reports do not explic-
itly cover C&E financial risks. While one-third of the surveyed NDFIs report on
C&E financial risks, only one has issued a formal disclosure in line with the
TCFD (see the TSKB case study in appendix B). However, several institutions
indicated that they are planning to issue TCFD disclosures in the future.
Few NDFIs use tools or metrics to assess the risks related to C&E issues.
Some mentioned that they are using greenhouse gas (GHG)–related metrics to
assess the carbon sensitivity of their portfolio, although they are not yet plan-
ning to publicly disclose this information. Most NDFIs are not collecting spe-
cific data to assess C&E financial risks. The main data to inform assessments is
related to GHG emissions to advise transition risk analyses, but data are also
collected from external parties such as meteorological institutes to support the
physical risk assessment.
NDFIs use different classification systems to identify green projects, and
many do not disclose green financing volumes publicly, which creates
challenges in tracking the amount of green financing provided. Approximately
80 percent of the surveyed NDFIs indicate that they have developed a
classification system to identify green projects (refer to figure 3.5). However,
these methodologies can vary significantly. Some NDFIs use classification
systems developed internationally (for example, IDFC) to identify green projects.
Others have developed internal tagging criteria using national or subnational
taxonomies. While some banks tag their projects or loans as “green,” others use
alternative tagging, such as “SDG projects,” “NDC projects,” and “environment
protection projects” (see case studies in appendix B).
For NDFIs without a tagging system in place, work has been kick-started
to develop a classification system; however, these frameworks remain works
in progress. Based on the developed classification systems, approximately
70 percent of the surveyed NDFIs measure green financing volumes in their
portfolio (refer to figure 3.5). Some measure their green financing volumes
based on the sources of funds only, possibly underestimating their total
green portfolio. Although some NDFIs track their green financing portfolio
regularly (monthly, yearly), others perform only one-time assessments.
FIGURE 3.5
Tracking NDFIs’ green financing
Institution uses a dassification

system to tag/identify green projects
Institution tracks green financing

volumes
0 20 40 60 80 100
Percentage
Yes No

Note: NDFI = National Development Financial Institution.
BOX 3.4
Good NDFI practices on C&E disclosures and reporting

NDFIs often use internationally recognized method- NDFIs disclose their climate-related risks to some
ologies as well as technical assistance from interna- extent, with many aiming to start reporting in line
tional organizations to develop their green reporting with TCFD recommendations. In 2021, TSKB issued
methodologies. For example, DBSA has recently com- its first climate risk report prepared in line with TCFD
pleted a “Green Deep Dive” to obtain a more detailed recommendations that are good practices for report-
understanding of its loan book using the methodology ing. KDB has published annual reports on its imple-
of the IDFC. FIRA has developed its taxonomy to mentation of the Equator Principles since 2018 in
track green financing volumes and is now in the pro- which they disclose their ESRM processes and proj-
cess of developing a methodology to identify what ects’ exposure to environmental and social risks. FIRA
could be considered climate adaptation financing reports all sustainability-related information in the
with the support of the Agence Française de “Memorias de Sostenibilidad,” following the Global
Développement. Standards for Sustainability Reporting.
Note: C&E = climate and environmental; DBSA = Development Bank of Southern Africa (South Africa); ESRM = environmental and social
risk management; FIRA = Fideicomisos Instituidos en Relación con la Agricultura (Mexico); IDFC = International Development Finance
Club; KDB = Korea Development Bank (the Republic of Korea); NDFI = National Development Financial Institution; TCFD = Task Force on
Climate-Related Financial Disclosures; TSKB = Türkiye Sinai Kalkinma Bankasi.
Furthermore, many NDFIs do not disclose their green financing volumes

publicly. Examples of good NDFI practices on C&E disclosures and reporting
are reported in box 3.4.
NOTES
1. The results are not necessarily representative for the whole universe of NDFIs, as
development financial institutions that did not participate in the survey might be less
active in the green financing space. Instead, the results are used to showcase the best
practices of NDFIs in developing and pursuing a green agenda.
2. According to CPI (2022), NDFIs are defined as institutions that are owned by a single coun-
try and that direct financing domestically. CPI’s data source for NDFIs is based on surveys,
NDFIs’ annual reports or websites, and external sources such as Convergence,
BloombergNEF, and the Organisation for Economic Co-operation and Development.
Further details on CPI’s data collection approach can be found in CPI’s methodology note
(CPI 2022).
3. In the reference data set from CPI (2022), the Republic of Korea and Japan are included in
the East Asia and Pacific region. In the absence of more granular data for these countries,
we use LICs and MICs to mean East Asia and Pacific (including Korea and Japan), Eastern
Europe and Central Asia, Latin America and Caribbean, Middle East and North Africa,
Sub-Saharan Africa, and South Asia. The financing flows to LICs and MICs are, therefore,
overestimated, as they include flows to Korea and Japan.
4. Adaptation financing is difficult to track because of a lack of widely accepted and consis-
tent definitions and because funds earmarked for adaptation often are internalized as con-
tingencies or risk management expenses by public and private sector actors.
5. First-tier lending is directly to the final borrower (that is, business or individual). Second-
tier lending is provided to financial intermediaries to later lend to the final borrowers.
6. This includes through the International Finance Corporation’s Environmental and Social
Performance Standards, World Bank Environmental and Social Safeguard Policies, the
Equator Principles, and NDFIs’ internal ESRM policies and standards.
BIBLIOGRAPHY
Washington, DC: CPI.
IDFC (International Development Finance Club). 2021. IDFC Green Finance Mapping Report
2021. Paris, France: IDFC.
World Bank. 2023. What You Need to Know about How CCDRs Estimate Climate Finance Needs.
4 Toolkits for Greening
NDFIs
BACKGROUND
The toolkits described in this chapter highlight the range of approaches that
National Development Financial Institutions (NDFIs) could take to promote
green financing and to manage climate and environmental (C&E) risks. These
toolkits are high level, so the implementation of these practical recommenda-
tions may differ depending on the local context. For example, the actions taken
may depend on an NDFI’s level of expertise and commitment to C&E issues,
as well as the nature and scope of its business model.
In some cases, it may be more effective to apply different toolkits together in
a package. In other cases, NDFIs may prefer a phased approach, starting with a
selected toolkit. In addition, whether NDFIs can successfully green their
operations may depend on factors that are beyond their control.
GOVERNANCE AND STRATEGY
NDFIs should develop an internal strategy to identify key priorities for manag-
ing C&E opportunities and risks, modifying institutional mandates or missions
as necessary. Developing an institutional strategy to address C&E issues is essen-
tial for NDFIs to initiate their green transformation. Incorporating green objec-
tives explicitly in institutional mandates can be useful, but that task typically
requires legal modification, and most mandates appear broad enough to accom-
modate green strategies in the institutional mission.
For green financing, NDFIs should develop a detailed internal strategy to
illustrate how they intend to support the implementation of the government’s
C&E objectives.1 For C&E risk, the strategy should consider different risk assess-
ment approaches, including, where relevant, forward-looking assessments such
as scenario analysis and stress testing to build a solid understanding of how C&E
physical and transition risks can translate into financial risks.
Furthermore, an approach to reduce projects’ negative C&E impacts that
could ultimately undermine those projects’ financial performance should be
considered (which often is part of NDFIs’ environmental and social risk
27
management [ESRM] systems; refer to the “C&E Financial Risk Management”

section later in this chapter for further details) (IADB 2021). Actions should also
include a strategy on capacity building that includes quantitative targets (for
example, in relation to the amount or share of green assets in credit and invest-
ment portfolios, as well as the carbon footprint from Scope 1, 2, and 3 greenhouse
gas [GHG] emissions),2 clear milestones, and monitoring and evaluation indica-
tors to ensure that practical actions are taken to address key priorities for man-
aging C&E risks and opportunities. Strategies could consider explicit alignment
with the agenda around the Paris Agreement (refer to box 4.1).
BOX 4.1
Paris Alignment and net-zero transition plans

A growing number of FIs are committing to align their assess and disclose GHG emissions associated
lending and investment decisions with the Paris with financing activities.
Agreement or other climate goals. Several initiatives, • Target-setting usually involves setting quantita-
such as the GFANZ and the Net-Zero Banking tive emission reduction targets using global guid-
Alliance, have been established to help FIs transition ance such as the Science-Based Targets Initiative
toward net-zero. Major commercial banks and MDBs (n.d.).d
(including the World Bank) have also made commit- • Steering involves adjusting FIs’ lending and
ments related to net-zero or the Paris Alignment.a investment portfolios in line with the agreed tar-
In addition, supervisors around the world get. Several tools have been developed to support
(including in the United States, Japan, the European this process. For example, the Paris Agreement
Union, and the United Kingdom) are exploring their Capital Transition Assessment tool (Climate
role in guiding the development of FIs’ transition Scenario Analysis Program, n.d.) can be used to
plans. Evaluating and monitoring the risks arising assess whether investment or lending portfolios
from plan misalignment can feed into the supervisory are in line with a variety of climate scenarios.e
review process and the assessment of transition risks. • Tracking progress usually involves developing a
As the momentum is growing, FIs’ approaches to transition plan, which allows FIs to anticipate
net-zero or the Paris Alignment are heterogeneous; no the transition and prepare for adjustments
common definition exists for what it means to achieve to their business models. The plan should
either. However, both generally entail developing include a detailed multiyear roadmap with
approaches to reduce GHG emissions in FIs’ lending clear targets and actions (Grantham Research
and investment portfolios to align with pathways to Institute 2022). Initiatives such as the GFANZ
net-zero by the middle of this century (UNEP FI n.d.).b and the Net-Zero Banking Alliance have been
Paris Alignment may also include objectives related to established to support this process. To ensure
adaptation and resilience. Even though these integrity and credibility, the transition plan
approaches are diverse, several common elements can should include (a) a definition of the current
apply to FIs’ approaches for both (Coalition of Finance emission baseline (business-as-usual s cenario);
Ministers for Climate Action 2021; GFANZ 2022; (b) commitment to reduce Scope 1, 2, or 3
World Resources Institute 2021): emissions at entry; and (c) interim targets
(as relevant). Ideally, institutional processes for
• Data collection usually involves collecting data
quality assurance should also be set up and may
on portfolio-wide emissions to inform FIs’
involve ex ante validation of the transition plan,
targets, transition plans, and client engage-
including baseline and targets. Reporting on
ment. The Partnership for Carbon Accounting
and independent verification of progress during
Financials (n.d.)c was developed to help FIs
continued
Toolkits for Greening NDFIs | 29
Box 4.1, continued
plan implementation and target achievement sufficient data to track and measure targets, and the
could be considered. wide range of methods being used to operationalize
the concept and its commitments. Methods are also
FIs aiming to align lending and investment portfo-
not easily comparable and can lead to different
lios with the Paris Agreement are confronted with
outcomes, allowing room for interpretation and,
many challenges, including the lack of a clear defini-
therefore, “greenwashing.”
tion of Paris Alignment and net-zero, a lack of
Note: FI = financial institution; GFANZ = Glasgow Financial Alliance for Net Zero; GHG = greenhouse gas; MDB = Multilateral
Development Bank.
a. The World Bank has committed to align all its financing operations with the goals of the Paris Agreement in its Climate Change
Action Plan 2021–25. The Paris Alignment of these new financing flows is the most comprehensive institutional undertaking ever done
by the World Bank to reconcile development and climate. The World Bank is on track to align 100 percent of new operations, starting
from July 1, 2023. For the Multilateral Investment Guarantee Agency, 85 percent of new operations will be aligned starting July 1, 2023,
and 100 percent from July 1, 2025. This work is part of a broader MDB vision to align financing flows with the objectives of the Paris
Agreement.
b. The Net-Zero Banking Alliance defines net-zero/Paris Alignment as the transition of all operational and attributable GHG emissions
from lending and investment portfolios to align with pathways to net-zero by the middle of this century, or sooner, including carbon
dioxide emissions reaching net-zero by 2050 at the latest, consistent with a maximum temperature rise of 1.5°C above preindustrial levels
by 2100.
c. https://carbonaccountingfinancials.com/.
d. https://sciencebasedtargets.org/.
e. https://2degrees-investing.org/resource/pacta/
Moreover, NDFIs should consider their role in addressing greenwashing

practices, providing an example to the financial sector, and should include sup-
port for the development of relevant standards and policies to reduce the poten-
tial for market actors to make unsubstantiated claims about the demonstrated
environmental merits of their products and services. The strategy should be
endorsed by NDFIs’ boards of directors or senior management to ensure
accountability. NDFIs could consider launching the internal strategy publicly to
lead by example and demonstrate their commitment to the agenda.
Equally important is for NDFIs to develop the appropriate governance
framework for delivering on the internal strategy. Well-informed
decision-making and coordination at every level (including municipal and
local levels) are important to ensure the effectiveness of greening NDFIs. For
this reason, NDFIs should develop an appropriate internal governance frame-
work to make informed decisions on how C&E risks and opportunities are
managed. This work may involve, for example, ensuring that a board represen-
tative is responsible for monitoring and managing C&E risks and opportuni-
ties. Securing board support at an early stage is important to demonstrate
commitment to and leadership for the agenda. Relevant committees and
departments should also be identified to ensure role clarity and responsibili-
ties for implementing the internal strategy. It may also involve establishing a
specific department or a cross-functional working group to coordinate and
implement C&E-related decisions and priorities. In some cases, it may be help-
ful to adjust the NDFIs’ formal mandate to explicitly include elements related
to C&E, although this is not a prerequisite for greening NDFIs’ operations
(refer to box 3.1 on good practices on governance and strategy).
NDFIs should leverage international and national networks to build the

required expertise on green financing, C&E risk management, and disclosure
and reporting. A wide range of initiatives are supporting the agenda to green
NDFIs. As noted in the introduction, several guidance notes have already been
developed, including by the Inter-American Development Bank, the United
Nations Development Programme, and the International Development
Finance Club. NDFIs could leverage these international resources and net-
works to develop capacity-building programs on key topics. At the same time,
NDFIs should strengthen collaboration with public authorities to ensure that
its internal strategy is fully aligned with a country’s C&E objectives. Engagement
with authorities may also be important to support specific policy agendas (for
example, developing a project pipeline; see further details in the following
section, “Green Financing Sources and Uses”).
Concerns exist that focusing on C&E activities by NDFIs possibly can affect
financing flows to other underserved segments, such as small businesses; how-
ever, such a focus can also present opportunities. Micro, small, and medium
enterprises (MSMEs) account for a large share of firms and employment in
many countries. Most MSMEs operate in the services industry in sectors with
relatively low emissions, such as retail commerce, hospitality, repairs, and per-
sonal or enterprise services. However, MSMEs in the manufacturing sector
that are integrated into value chains face growing pressure to green their oper-
ations, as analysis of the greenness of large firms turns its focus to Scope
3 emissions (that is, emissions through firms’ value chain). Although MSME
clients increasingly pay attention to firms’ green credentials, MSMEs often
need their cash flow for purposes other than green investments and are unsure
how to start on their green journey. At the same time, MSMEs face challenges
with access to credit due to lack of physical collateral, weaker balance sheets,
and lack of credit history.
For those reasons and also for their socioeconomic importance, MSMEs are
typically a priority sector for NDFIs. However, NDFIs’ focus on green activities
could further hamper MSMEs’ access to credit. Requirements for NDFI borrow-
ers to report their emissions or obtain green certifications can present challenges
for MSMEs. However, NDFI green operations can also provide MSMEs with
equity or loans in new green technologies that can enhance productivity and
increase cash flows, as well as advisory services to green small businesses (refer
to box 4.2). Development of financial solutions to fund investments that increase
MSME adaptation to climate finance is an area of opportunity.
GREEN FINANCING SOURCES AND USES
Pipeline development and project preparation for green projects are critical to
ensure capital flows to priority sectors for C&E objectives. The lack of an ade-
quate, bankable project pipeline is often cited as a key challenge to scaling up
green financing—sometimes even more challenging than access to the financ-
ing itself. NDFIs have a role to play in identifying and developing bankable
green projects.
First, building on their expertise, stakeholder connections, and understand-
ing of the local context, NDFIs could provide technical assistance to support
project preparation, especially in sectors in which green investment is needed
the most. Second, market education could be provided to project developers and
BOX 4.2
Examples of NDFI green MSME products

Nacional Financiera in Mexico has operated the Brasil will offer its clients packages that integrate
Massive Business Eco-Credit Program for more than financing with support to access carbon markets
a decade. Through this program, Nacional Financiera through a “one-stop shop.” This program will pro-
offers a credit line to the Energy Savings Trust Fund, vide Brazilian firms—small and midsize companies
which in turn provides credits to the final in particular—with an accessible, end-to-end service
beneficiaries. Financing is offered at preferential starting from measuring their carbon footprint to
rates, and credit repayments are made through generating returns from high-integrity carbon
electricity billing. Electricity savings are used for loan credits.
repayment without affecting the firm’s cash flow, Bpifrance Ecotechnologies provides equity and
while the involvement of the electricity company in convertible loans to innovative MSMEs active in
the loan collection through the electricity billing carbon-free renewable energies and green chemistry,
reduces the MSME credit risk that traditionally as well as in the circular economy (waste recovery,
impedes access to investment loans. ecodesign of products, and industrial ecology). They
Banco do Brasil, a state-owned commercial bank invest in tickets from €2 million to €10 million,
with the mission to support sustainable economic systematically seeking co-investment with private
development in Brazil, will begin offering sustainability- players in the logic of a wise investor.
linked loans to companies committed to reducing To help MSMEs begin their green transition,
their carbon footprint through their value chain NDFIs can offer a variety of nonfinancial products.
under a recently approved World Bank project. The The Strategic Banking Corporation of Ireland offers
initiative also includes a US$98 million pilot Climate MSMEs vouchers for green audits. Bpifrance offers a
Debt Fund, which is expected to leverage private free information technology self-diagnosis, called
capital to expand sustainability-linked finance in the “The Climatomètre,” to help firms assess their climate
broader economy. Under the program, Banco do maturity, as well as consulting services.
Note: MSME = micro, small, and medium enterprise; NDFI = National Development Financial Institution.
financiers to raise awareness of investment opportunities, for example, through

sector studies or outreach programs. Third, NDFIs could simplify the process of
developing projects through standardization. For example, this work may
include standardizing project documents to minimize the need for extensive
negotiations and providing a common set of service providers (such as technical
and insurance advisers) to achieve bulk discounts and lower fees. It may also
involve offering commercial co-financing on a programmatic basis to facilitate
investment at scale. By standardizing processes at the country and program lev-
els, these approaches enable competitive tendering, faster delivery, and lower
prices. Finally, NDFIs could also mobilize private funds toward project prepara-
tion by co-investing with institutions such as the International Finance
Corporation (IFC) and other green-oriented investors in project preparation
facilities. Private investors participating in those facilities have the option to
recover those costs by participating in a project’s debt and equity financing.
Mobilizing private financing for green projects should be a primary objec-
tive for NDFIs; mandates and mission statements should incorporate refer-
ences to crowding in private sector finance to meet C&E goals. Focusing on
crowding in private sector finance promotes leverage and efficient use of NDFI
resources and does not preclude them from providing credit directly to
borrowers but encourages them to shift their focus toward co-financing and
risk-sharing mechanisms (Gutierrez and Kliatskova 2021). Having a clear
understanding of market barriers will allow NDFIs to develop innovative
financing approaches tailored to the local context and to leverage their areas of
expertise, as well as to manage the challenges (refer also to table 4.1). Beyond
the private sector, NDFIs should also explore ways to engage with State-
Owned Enterprises (SOEs), which are important players in both the climate
mitigation and adaptation agenda. Box 4.3 provides further details on how
NDFIs can facilitate SOEs’ climate action.
TABLE 4.1 Potential approaches to address barriers to stimulating green investments from the private sector
MARKET BARRIER APPROACHES TO ADDRESS THE BARRIER
Perceived high riskiness of green projects: • Co-investment, including subordination: If a project can secure financing for
Significant real or perceived riskiness of green only a portion of its costs, NDFIs can provide gap financing to help close the
projects increases the cost of capital and deal. These instruments can have different structures, terms, and tenors. Taking
prevents projects from moving forward. For a subordinated position in the capital stack and providing first-loss capital
example, offtake and credit risks can lead to structures can further mitigate the risks and effectively mobilize additional
high underwriting costs for clean energy and funding sources.
energy-efficiency projects. Construction risk, • Credit enhancements, including guarantees, insurance, first-loss capital, and
particularly for nascent technologies with a loan-loss reserves: In addition to de-risking projects, credit enhancements can
limited track record, can lead to a shortage of help investors gain experience in lesser-known sectors, build their internal
capital in the project development phase. capacity, and shape their risk perception (for example, refer to McKinsey and
Co. 2016). Guarantees are flexible instruments that can be tailored to different
circumstances and types of risk. Loan-loss reserve funds can be structured in
different ways to have a similar crowding-in effect—for example, by providing
first- or second-loss provisions to increase private sector risk sharing.
• Capital market access: NDFIs can help connect local and international capital
markets with projects that are beyond the high-risk development phase. These
operational projects can offer competitive risk-adjusted returns and may be
more suitable to meet institutional investors’ risk appetite. For EMDEs, access to
local capital markets can help avoid the need for expensive currency hedging
products. Increasing local investor participation can build confidence in the
market and increase overall willingness to invest.
• Equity investments: NDFIs could consider expanding their equity investments
to capture the upside potential of projects, which, in turn, could help finance
other NDFI investments. Taking equity positions may increase the NDFI’s
influence on the company’s transition pathway (ODI 2020). Equity investments
could be done through public-private green equity funds, with NDFIs acting as
anchor investors, mobilizing private funds toward green equity investments,
and developing capital markets.
High up-front financing costs, high t ransaction • Co-investment and loan syndication: To alleviate the up-front capital
costs, and long payback periods: Green projects requirement, NDFIs could co-invest with private investors, potentially taking a
(for example, renewable energy, energy subordinate position, to provide further risk mitigation. Through loan
efficiency) often require a significant up-front syndication, NDFIs can add value by structuring deals and acting as facilitator
capital investment and have long maturity between project developers and investors.
profiles. The transaction costs of these invest- • Credit enhancements, such as guarantees, insurance, and loan-loss reserves:
ments are also generally higher in EMDEs (for NDFIs can provide credit enhancements by offering longer maturities,
example, due to lack of institutional capacity or differentiated pricing structure, or more favorable debt repayment schedules.
lack of a regulatory enabling environment). • Refinancing: NDFIs can provide refinancing to recycle more expensive capital
These factors could increase the cost for during the high-risk construction stage to less expensive capital at the
investors to identify, assess, and manage these operational stage, when cash flows are steady.
projects.
continued
TABLE 4.1, continued

Small ticket size and disaggregated projects: • Aggregation and warehousing: NDFIs can aggregate small, dissimilar, and
Small and geographically dispersed projects difficult-to-evaluate projects that are not cost-effective to underwrite on their
(for example, residential or small business own. NDFIs could underwrite and warehouse the loans directly, either keeping
energy efficiency projects) are often not them as on-balance-sheet investments or aggregating as an intermediary for
cost-effective for private lenders to underwrite. other investors. Pooling these loans diversifies risk and achieves scale, making
The high transaction cost creates barriers for them more attractive to investors.
small-scale projects to access financing. • Securitization: By pooling projects or transforming illiquid assets into tradable
securities, NDFIs can lower transaction costs and spread the risk, making
projects more attractive for private or institutional investors.
Limited C&E expertise and lack of ability to • Demonstration investment: NDFIs can take on early-stage investments, which
identify and classify projects: Investors, lenders, private investors often shy away from. By developing a track record and
or project developers are often unfamiliar with filling information gaps, NDFIs can build confidence in the market for new
emerging low-carbon technologies and other technologies.
green projects. Wholesale actors may be • Technical assistance: Given NDFIs’ proximity to the government and local
unaware of the opportunities in the markets, NDFIs are well placed to educate local financiers about the investment
green financing market, leading to a disconnect opportunities and risks in green sectors.
between capital supply and demand, as well as • Green credit lines: NDFIs can provide green credit lines to foster lending to
to underinvestment in green technologies. Local green projects through local institutions. Through this process and additional
banks may lack the knowledge to adapt technical assistance, NDFIs could increase local FIs’ awareness and expertise in
underwriting methods, as assessing the green credit products, thus expanding the local green-lending market.
economic viability of green projects requires
specific technical expertise.
Limited consumer understanding: Consumers • Market education: NDFIs can provide training and support to consumers and
may have difficulty perceiving the economic end users to generate demand for public or private support programs
benefits of green projects (for example, energy (for example, specialized lending for home solar).
efficiency and distributed small- and medium- • Customer solutions: NDFIs can ensure that end users face minimal complexity
scale renewable energy projects). This issue when considering a clean-energy solution by developing accessible processes
could reduce interest in taking on associated to connect lending programs to consumers.
public or private support programs (for example,
specialized lending programs for energy
efficiency or home solar).
Regulatory and policy risk: The lack of an • First-loss provisions and loan-loss reserves: NDFIs can reserve capital to cover a
enabling regulatory and policy environment is a certain portion of a project’s losses. A reserve can be in the first-loss or
key challenge for green investments in EMDEs. second-loss position in relation to the lender. This structure assures a lender
Sudden changes to policies and regulations can that some portion of potential losses would be covered or shared by the NDFI.
increase investment uncertainty and reduce • Coordination and technical assistance: NDFIs can function as the bridge
private investors’ appetite for green projects. between local governments and the market and help drive regulatory reforms
that further de-risk green projects and create a more stable, policy-enabling
environment.
Currency risk: Local capital markets often lack • Currency hedge: The costs of hedging products can be high, especially for
the depth to supply the financing needed for countries with a history of unstable exchange rates and high political instability.
green investments, meaning that many projects NDFIs can build on existing models to create cost-effective local hedging
must rely on foreign investment support. Owing facilities, which, in turn, could enable more foreign investment in low-carbon
to macroeconomic instability and other factors, projects.a
EMDEs are often vulnerable to currency
fluctuations. The depreciation of local currencies
could increase the risk for foreign investors,
particularly for capital-intensive projects with
cash flows in local currencies. Conversely,
investments denominated in the euro or dollar
can create risk for local borrowers to service
their debt obligations.
continued
TABLE 4.1, continued

Offtake risk: The creditworthiness of (often • Co-investment through subordination: By providing subordinated financing,
state-owned) utilities in EMDEs is highly NDFIs can effectively provide a buffer for senior private capital, boosting the
unstable. Utilities may fail to meet their attractiveness of the project.
obligations under power-purchase agreements • Credit enhancements, such as guarantees, insurance, and loan-loss reserves:
(that is, purchase the power at the agreed-on Credit enhancements can be designed to backstop power purchase agree-
price), which puts the return for investors and ments. This design can facilitate utility lending in EMDEs and assure lenders
project developers at risk. Debt investors in that losses will be shared.
many countries will price this risk into their
required returns, which reduces the amount of
debt that projects can attract. It can also lead to
an increase in energy prices that are eventually
charged to consumers.
Source: Table original to this publication.
Note: C&E = climate and environmental; EMDE = emerging markets and developing economies; FI = financial institution; NDFI = National Development
Financial Institution.
a. For example, the Currency Exchange Fund (TCX) or Indian Currency Hedging Facility.
BOX 4.3
Facilitating climate action by SOEs

SOEs are critical players in the climate agenda. On government mandates and policy objectives) could
the one hand, SOEs are a major source of GHG limit the effectiveness of marketwide policy
emissions, reflecting some of the main sectors in interventions designed to engage with private
which they operate, such as electricity generation or companies. In addition, significant heterogeneity
utilities. SOEs account for at least 7.49 gigatons of exists among SOEs (for example, level of capacity,
carbon dioxide equivalent (GtCO2 e) annually in mandates, and relationships with governments).
direct (Scope 1) emissions, a which represented NDFIs’ approaches to facilitating SOE climate action
approximately 14 percent of total annual average can include the following, depending on SOE
global GHG emissions between 2010 and 2019.b On governance structure and mandates:
the other hand, SOEs also have a role to play in
• Improving SOEs’ access to financing for low-
adaptation and resilience, because they account for
carbon, climate-resilient activities (for example,
over half of the infrastructure investment in LICs
through concessional loans);
and MICs, including power, water, and transport, all
of which have to increasingly adapt to the impacts of • Investments in supporting public infrastructure
climate change (World Bank 2022). (for example, transmission lines, grid expansion);
NDFIs should provide targeted support to enable • Providing capacity building to improve
SOEs’ low-carbon and climate-resilient transition. SOE climate risk assessments and climate
NDFIs are major financiers of SOEs; therefore, they disclosures; and
are best placed to financially support SOEs’ green • Providing technical and financial support to
investments and encourage sound C&E risk improve SOEs’ ability to attract private climate
management in SOE projects through the application financing (for example, facilitate reforms
of relevant frameworks. Although some of the to improve SOEs’ creditworthiness or long-
approaches suggested in table 4.1 to facilitate private term financial stability and use of de-risking
sector climate action may be applicable to SOEs, instruments such as guarantees) (Benoit, Clark,
typically lower SOE profitability (partly reflecting and Schwarz 2022; World Bank 2022).
Note: C&E = climate and environmental; GHG = greenhouse gas; LIC = low-income country; MIC = middle-income country;
NDFIs = National Development Financial Institutions; SOE = state-owned enterprise.
a. Estimated GHG emission from SOEs is based on data from 300 major SOEs (Clark and Benoit 2022).
b. Total global GHG emissions averaged 54.4 GtCO2e between 2010 and 2019 (UNEP 2022).
NDFIs should also aim to expand their offerings in climate adaptation financ-
ing. Funding for climate adaptation and resilience objectives is challenging and
may require mechanisms different from those for more mainstream green invest-
ments. Although NDFIs are important players in the adaptation space, the relative
financing gap for most countries remains significant as compared with mitigation
financing. NDFIs could contribute to building the business case for adaptation
financing and to enhancing the understanding of private investors and other rele-
vant stakeholders about the potential economic benefits. For example, through
capacity-building and demonstration investments, NDFIs could show the benefits
of financing investments in sectors requiring adaptation financing, such as
climate-resilient agricultural practices or infrastructure (refer to box 4.4).
Similarly, NDFIs can promote greater investment in biodiversity, the conser-
vation and restoration of ecosystem services, and nature-based finance. Given
the importance of nature and ecosystem services for sustainable development,
it is imperative for NDFIs to consider protecting and preserving these services
as part of their activities (for example, refer to IDFC 2022; WWF and The
Biodiversity Consultancy 2021).
NDFIs are well placed to take a more active role in scaling up biodiversity and
nature-positive investments by focusing on investing in projects that enhance or
restore biodiversity, as well as on incorporating nature-based solutions in their
portfolios and strategic decision-making to reduce harm to biodiversity. The
economic benefits of nature-related finance may be significant; however, aware-
ness of these types of investments is generally low. This lack of awareness pro-
vides NDFIs with an important market education role, as well as an incentive to
mainstream biodiversity and nature-based solutions in their portfolios and
investment decision-making processes. NDFIs have several tools that could pro-
vide support by identifying biodiversity-related risks and opportunities. 3
Moreover, NDFIs could provide support to governments to create strategic,
technical, and legal frameworks favorable to biodiversity.
Finally, NDFIs could increase the private sector’s participation in green
financing markets and carbon markets by acting as a first mover and providing
capacity building. In many countries, NDFIs have often acted as the first mover
to issue green bonds, which not only is an effective way to raise capital to finance
green projects, but also can raise the profile of green bonds with other potential
issuers, thus providing an opportunity to deepen the local green bond market.
NDFIs can take similar actions to stimulate interest in other novel markets,
including carbon markets and sustainability-linked instruments, which can be a
source for results-based funding for NDFIs (refer to box 4.5 for further details on
NDFIs’ potential role in carbon markets).
Beyond stimulating green financing instruments and carbon markets, NDFIs
could also increase the private sector’s familiarity with C&E policy instruments,
through technical assistance and piloting activities. For example, in the Republic
of Korea, Korea Development Bank is responsible for piloting the application of
the Korean Green Taxonomy (refer to appendix B).
NDFIs should aim to enhance their access to financing from international
climate funds. Access on concessional terms can be valuable for several reasons.
For example, concessional financing or grants may be required to support a proj-
ect’s preparation to increase its commercial viability. Concessional finance may
also be required for urgent interventions that cannot be delayed without increas-
ing transition costs. In countries transitioning away from fossil fuels, additional
concessional financing is needed for plant retirements and transition.
BOX 4.4
NDFIs’ role in scaling up finance for adaptation and resilience

It is difficult to quantify current levels of adaptation and investments required to meet a country’s adap-
resilience investments from the private sector because tation and resilience needs. The investment
these interventions are often part of larger investment plan should also involve market assessments to
and business activities. In comparison with mitigation identify which projects are—or could become—
projects, adaptation and resilience investments are also commercially viable and which projects do not
harder to define because they can take many forms. meet private sector investment criteria, even
What constitutes “adaptation and resilience” depends when below-market financing and de-risking are
largely on a country’s circumstances. Despite these data offered by NDFIs.
limitations, estimates suggest that current levels of • Support the preparation of “bankable” adapta-
adaptation financing fall far short of needs. According tion projects. Once bankable projects have been
to the Climate Policy Initiative, adaptation finance identified, targeted support could be provided
accounted for only 7.5 percent of climate finance in for project preparation and to help these projects
2019–20, and the majority of tracked adaptation finance enter the market. For example, this support may
came from the public sector (CPI 2022). At the same involve conducting feasibility studies to assess
time, estimates suggest that the economic benefits of a project’s risk and return, mapping cash flows,
investing in adaptation can far outweigh the costs.a and identifying potential funding gaps or where
Adaptation and resilience investments from the NDFI risk mitigation may be required. It may
private sector are lagging for several reasons. For also involve project structuring and coordinating
instance, adaptation benefits tend to be difficult to project financing with relevant investors to close
monetize, have high transaction costs, and generally the transaction.
involve local public goods. Furthermore, low-income • Strengthen financial incentives for private
communities, which are most in need of these types of participation. NDFIs could offer blended finance,
investments, tend to have low access to capital (World credit enhancement, or other targeted measures
Bank 2022). Using NDFIs’ resources to address these to stimulate private investments in adaptation.
challenges could be key to unlocking private invest- These should, however, be designed on a case-
ments and could generate important development by-case basis to address the specific financing
benefits for EMDEs. The following examples demon- challenges of different adaptation and resilience
strate how NDFIs could scale up adaptation and resil- projects.
ience investments:b • Encourage the use of innovative financing mecha-
nisms. Capacity building and technical assistance
• Support the government in long-term adaptation
could be provided to help investors and project
investment planning, building on priorities laid
developers leverage new financing instruments
out in a country’s National Adaptation Plan and
for adaptation and resilience.c
NDC. This support will help identify priority
Note: EMDEs = emerging markets and developing economies; NDC = Nationally Determined Contribution; NDFI = National Development
Financial Institution.
a. For example, the Global Commission on Adaptation estimated that investing US$1.8 trillion globally in five target areas from 2020 to
2030 could produce US$7.1 trillion in total benefits, and spending US$800 million on early-warning systems in developing countries could
reduce climate-related disaster losses by US$3 billion to US$16 billion per year.
b. The examples build on the recommendations from World Bank (2021a).
c. Several examples are offered by the International Institute for Sustainable Development (IISD 2023).
Access to international climate financing is especially important for smaller

NDFIs, particularly those operating in low-income countries with shallow capi-
tal markets and fiscally constrained governments. Given their unique position as
a bridge among international climate financing, the government, and local mar-
kets, NDFIs are well placed to act as an intermediary for blended financing to
BOX 4.5
Opportunities for NDFIs to leverage carbon markets to enable private

investments
Carbon markets are growing as many countries and To stimulate the supply of carbon credits, NDFIs
corporations intend to use carbon credits toward may provide technical assistance to help participating
their climate pledges. Some estimates suggest that firms adopt credible transition plans and targets, as well
carbon markets under the Paris Agreement could as to develop solutions to generate carbon credits. For
grow to US$300 billion per year by 2030 and up to example, this work may involve setting up institutional
US$1 trillion per year by 2050 (IETA and University processes for validating and verifying the quality of
of Maryland 2021). transition plans and targets. It may also involve setting
NDFIs could play an important role in stimulat- guidance and processes to assess the quality and integ-
ing the demand and supply of carbon credits. The rity of carbon credits generated by participating firms.
World Bank is deepening its engagement with NDFIs Although carbon markets could enable investments
to stimulate carbon markets. For example, to stimu- and enhance the viability of climate action, c arbon credit
late demand, the World Bank is supporting NDFIs trading also faces challenges that are partly due to the
and other state-owned FIs in the design of financial fact that they take place within a highly heterogeneous
instruments that leverage carbon markets to raise and fragmented global market. Today, numerous carbon
additional investments and enhance the return credit markets, registries, and exchange platforms coex-
profile for green financing instruments. This work ist globally, each with its own specifications and quality
may involve combining carbon credits with other standards, making it difficult for companies to select
financial instruments, such as grants, labeled options to monetize their carbon credits. The fragmen-
bonds, concessional loans, or guarantees to address tation in carbon credit trading rules and institutions
key b arriers associated with climate investments leads to wide price dispersion, adding uncertainty to the
(Srinivasan et al. 2023). price outlook for carbon credit sellers.
Note: FI = financial institution; NDFI = National Development Financial Institution.
aggregate and optimize the use of different sources of capital (for example, con-
cessional, nonconcessional, and private equity) to maximize the efficiency and
impact of all capital available for green investments.
Despite these potential benefits, accessing international climate funds could
be resource-intensive and complex. For example, strict requirements may exist
for social and environmental safeguards, with which NDFIs must comply to
access these climate funds. To address these challenges, governments and inter-
national partners could provide technical support to help NDFIs comply with
international climate funding requirements.
C&E FINANCIAL RISK MANAGEMENT
NDFIs should introduce holistic, although proportionate, approaches to

address C&E financial risks, drawing on guidance from global principles.
A better and more systemic understanding of C&E financial risks is an import-
ant first step to informing C&E risk management practices. NDFIs should
adopt comprehensive C&E risk management approaches that consider risks
from both the financial risk angle (that is, the financial risks that C&E factors
pose to their portfolios and balance sheets) as well as the impact angle (that is,
covering potential risks generated by their investment and lending practices
and assessments at the loan origination level [often considered as part of
ESRM; also refer to the “C&E Financial Risk Management” section in c hapter 3
for a discussion of the two approaches]). Recognizing the nascency of C&E risk
management practices for many NDFIs, the following discussion prioritizes a
selection of critical steps to enhance current practices related to the consider-
ation of financial risks.
Risk management frameworks can address the impacts and effects of C&E
considerations on project performance as well as on the financial performance
of institutional portfolios. Many NDFIs have already implemented systems to
administer C&E risks at the project level as part of their ESRM systems. In
addition, access to multilateral funds requires application of project safeguard
frameworks as defined by the multilateral community (for example, World
Bank safeguards [World Bank 2017], performance standards [IFC 2012]).
These can focus on mitigating the negative impacts of a C&E project, which, in
turn, could affect that project’s financial performance. Institutions increas-
ingly are applying more comprehensive frameworks that consider C&E risks
and opportunities regardless of funding source. Adopting frameworks to
address the impacts of C&E financial risks on an institution’s balance sheet and
portfolio is an emerging practice.
Global standards can support NDFIs’ adoption of international good prac-
tices for addressing C&E financial risks. Notably, the Basel Committee on
Banking Supervision Principles for Effective Management and Supervision of
Climate-Related Financial Risks (BCBS 2022) has set expectations for banks and
supervisors. These principles describe expectations about how banks should
cover climate risks in governance and strategy, the internal control framework
across different lines of defense (credit origination, risk function, and internal
audit), the risk management process, capital and liquidity adequacy, reporting,
and scenario analysis. In many cases, these principles also can apply to NDFIs,
proportionate to the nature, scale, and complexity of their operations and the
overall level of risk to which they are exposed and are willing to take.
Existing risk management frameworks can help NDFIs integrate C&E risks
into credit or operational risk processes (IADB 2021), as well as into long-term
strategies, governance arrangements, and the risk management frameworks
themselves. NDFIs must assess and estimate the impact of C&E physical and
transition risks on their investment and credit portfolios over the short, medium,
and long term. NDFIs should consider appropriate mitigation mechanisms,
including potential investment limits on exposed sectors.
Forward-looking assessments, such as scenario analysis and stress testing,
can help NDFIs better understand the impact of C&E financial risks on their
credit and investment portfolios. A simplified approach may involve assess-
ing exposure to sectors or regions vulnerable to physical and transition risks
by obtaining data on the sectoral and regional distribution of assets. A more
advanced approach may involve a climate scenario analysis or stress test.4 In
such tests, a variety of climate, economic, and financial models are combined
to estimate the impact of climate scenarios on losses and capital. The scope
and granularity of stress tests depend on available data and models. Climate
risk assessments and stress tests can help identify material risks and provide
insights into various risk channels. Regulators and supervisors may request
using the outcomes of such exercises over time, including in internal capital
and liquidity adequacy assessments. In financial sectors less advanced in

managing C&E risks, NDFIs could act as a first mover by implementing
forward-looking C&E risk assessments to demonstrate the feasibility and
value of such assessments to other private sector financial institutions. Such
assessments could also increase local FIs’ awareness of the impact of local
C&E risk hot spots (for example, high-carbon sectors or flood-prone areas)
on portfolios. Detailed and cutting-edge examples of how to conduct a
climate analysis can be drawn from national regulators (for example, the
European Central Bank and Financiera de Desarrollo Nacional in Colombia),
global entities (such as the Financial Stability Board and the Network for
Greening the Financial System, which also provides scenario inputs) and
work done by multilaterals such as the World Bank and the International
Monetary Fund (for example, refer to ECB 2022; IMF and World Bank 2022;
and World Bank 2021b).
These efforts could be supported by harmonizing and obtaining relevant
data needed for C&E risk assessments. NDFIs should ensure that their data
aggregation capabilities and internal reporting frameworks can monitor mate-
rial C&E-related financial risks. NDFIs should enhance the availability and
quality of data needed to improve risk assessments. For example, NDFIs could
consider collecting more granular data on clients’ GHG emissions (including
data from listed and nonlisted companies) and geospatial data on clients’ oper-
ations (for example, location of main production facilities). Information from
locally available natural-catastrophe models could also improve the physical
risk scenario generation.
NDFIs should further develop their internal capacity to assess and man-
age C&E risks effectively. It will be important for NDFIs to adopt a dynamic
approach and be flexible to adopt new and rapidly evolving practices. C&E
risk assessments should be updated regularly because data availability and
methodologies are rapidly evolving. One critical challenge identified by
NDFIs (see the “C&E Financial Risk Management” section in chapter 3) is
the need for more expertise with and understanding of C&E risks. To address
this gap, tailored capacity-building programs, which could potentially lever-
age support from Multilateral Development Banks or other international
partners, could be provided to build internal knowledge.
Evidence suggests that NDFIs may also be significantly exposed to
nature-related risks, which requires enhanced risk management. The Finance
for Biodiversity Initiative estimates NDFIs’ “dependency risk” (that is, the
share of activities that depend on nature and ecosystem services) to be approx-
imately 40 percent of their total assets. In addition, the “nature at risk” from
lending activities is estimated at US$800 billion annually, which is based on
the value of the potential damage to nature resulting from deforestation and
water use if investments are carried out without effective safeguards to miti-
gate such harm.5 Moreover, many NDFIs do not apply biodiversity safeguards
in investment decisions, relying instead on national environmental impact
assessments that often fall short of international best practices in biodiversity
risk management.
More work may be needed for NDFIs to understand, measure, and manage
the nature-related risks in their portfolios, including their impacts and depen-
dencies on nature. Scaling up finance in nature-based solutions and mainstream-
ing biodiversity considerations across strategies, analysis, and operations will
help reduce dependencies and mitigate these risks.
C&E DISCLOSURES AND REPORTING
NDFIs should enhance their C&E disclosure and reporting practices, which are
important means to facilitate communication with clients, beneficiaries, and
other stakeholders. Building on the Task Force on Climate-Related Financial
Disclosures (TCFD) recommendations, NDFIs should work toward publishing
meaningful disclosures on the implications of C&E risks and opportunities for
their operations, aimed at providing decision-useful, forward-looking informa-
tion that can be included in mainstream financial filings. In particular, NDFIs
should disclose the key C&E risks to which they are exposed; the organization’s
governance around C&E risks and opportunities; the actual and potential
impacts of C&E risks and opportunities on its activities, business model, and
(long-term) strategy; and how the NDFI identifies, assesses, and manages C&E
risks, including the metrics and targets it uses. Disclosure frameworks should
embed the concept of complete materiality (or double materiality), covering the
financial impact of climate-related risks on the one hand and the impact of
banks’ activities on both climate and social factors (inside-out perspective) on
the other.
Furthermore, given the importance of nature-related and biodiversity risks
and finance for NDFIs, they are also encouraged to engage with the Taskforce on
Nature-Related Financial Disclosures (TNFD). The TNFD follows a structure
similar to that of the TCFD and can help NDFIs incorporate nature-related risks
and opportunities into their risk management and strategic planning processes.
Moreover, NDFIs should familiarize themselves with impending global sustain-
ability disclosure standards from the International Sustainability Standards
Board (ISSB), which was set up under the International Financial Reporting
Standards. The ISSB published its global sustainability standards in 2023, which
have implications for NDFIs’ reporting over time.
NDFIs should aim to improve the quality, transparency, and consistency of
green financing–tracking methodologies, including methodologies that track the
amount of private financing mobilized. As noted in the “Green Financing Sources
and Uses” section in chapter 3, NDFIs follow different climate finance−tracking
methodologies, which makes it difficult to track their climate financing. NDFIs
should build internal capacity and introduce formal processes to track their
green financing volumes, which can help assess their progress in achieving their
C&E objectives, and to report this information both internally and externally.
To assess the effectiveness of their green financing, NDFIs can work together
to harmonize climate finance−accounting methodologies, including those
designed to track the amount of private financing mobilized. Methodologies for
tracking climate financing should be aligned with global good practices and
national green taxonomies where relevant.
NOTES
1. In this context, policy and regulatory predictability are key because NDFIs need clarity
about what sectors and technologies are being prioritized to reach countries’ Nationally
Determined Contribution (per the Paris Agreement) and other C&E goals.
2. Scope 1 covers emissions from sources that an organization owns or controls directly.
Scope 2 are emissions that a company causes indirectly when the energy it purchases and
uses is produced. Scope 3 encompasses emissions that are not produced by the company
itself and are not the result of activities from assets owned or controlled by them but rather
are by those for which it is indirectly responsible, up and down its value chain.
3. These tools include the Integrated Biodiversity Assessment Tool; footprinting through
the Biodiversity Footprint Financial Institutions tool; the Global Biodiversity Score; or the
Exploring Natural Capital Opportunities, Risks and Exposure tool.
4. A climate stress test is a forward-looking financial risk assessment consisting of several
steps: (a) the identification of severe but plausible extreme weather scenarios that are tai-
lored to the country context, (b) an assessment of expected economic direct and indirect
impacts by using catastrophe models and adapted macroeconomic modeling frameworks,
and (c) an assessment of financial impacts using financial stress test modeling to translate
economic and financial impacts into financial soundness indicators (for example, capital
adequacy ratio, probability of default).
5. Finance for Biodiversity Initiative (2021). Note that the Finance for Biodiversity Initiative
uses the definition of Public Development Banks, which is slightly narrower than NDFIs.
BIBLIOGRAPHY
BCBS (Basel Committee on Banking Supervision). 2022. Principles for Effective Management
and Supervision of Climate-Related Financial Risks. Basel, Switzerland: BCBS.
Benoit, P., A. Clark, and M. Schwarz. 2022. “Decarbonization in State-Owned Companies:
Lessons from a Comparative Analysis.” Journal of Cleaner Production 355: 131796. https://
doi.org/10.1016/j.jclepro.2022.131796.
Clark, A., and P. Benoit. 2022. Greenhouse Gas Emissions from State-Owned Enterprises:
A Preliminary Inventory. NewYork: Columbia University.
Climate Scenario Analysis Program. n.d. https://2degrees-investing.org/resource/pacta/.
Coalition of Finance Ministers for Climate Action. 2021. Introduction to Commitments and
Measurement Methods for Private Financial Sector Portfolio Alignment with the Paris
Agreement. Washington, DC: Coalition of Finance Ministers for Climate Action.
San Francisco, CA: CPI.
ECB (European Central Bank). 2022. Climate Risk Stress Test. Frankfurt, Germany: ECB.
Finance for Biodiversity Initiative. 2021. Aligning Development Finance with Nature’s Needs
Estimating the Nature-Related Risks of Development Bank Investments. https://www
.naturefinance.net/wp-content/uploads/2022/09/Estimating-the-nature-related-risks-of
-development-bank-investments.pdf.
GFANZ (Glasgow Financial Alliance for Net Zero). 2022. Net-Zero Transition Planning.
New York: GFANZ.
Grantham Research Institute on Climate Change and the Environment. 2022. Net Zero
Transition Plans: A Supervisory Playbook for Prudential Authorities. London, UK: London
School of Economics and Political Science.
Gutierrez, E., and T. Kliatskova. 2021. National Development FIs: Trends, Crisis Response
Activities, and Lessons Learned. Washington, DC: World Bank.
IADB (Inter-American Development Bank). 2021. A Guidebook for National Development Banks
on Climate Risks. Washington, DC: IADB.
IDFC (International Development Finance Club). 2022. Toolbox on Integrating Biodiversity into
Strategies and Operations of Development Finance Institutions. https://www.idfc.org
/wp-content/uploads/2022/06/idfc-toolbox-biodiversity.pdf.
IETA (International Emissions Trading Association) and University of Maryland. 2021. The
Potential Role of Article 6 Compatible Carbon Markets in Reaching Net-Zero. https://
k5x2e9z8.rocketcdn.me/wp-content/uploads/2023/09/IETA_WorkingPaper_ThePotential
RoleofA6CompatibleCarbonMarketsinReachingNetZero_2021.pdf.
IFC (International Finance Corporation). 2012. “Policy on Environmental and Social
Sustainability.” IFC, Washington, DC. https://www.ifc.org/content/dam/ifc/doc/mgrt
/sp-english-2012.pdf.
IISD (International Institute for Sustainable Development). 2023. Innovative Financial

Instruments for Climate Adaptation. Winnipeg, Canada: IISD.
IMF (International Monetary Fund). 2022. Financial Stability Report. Washington, DC: IMF.
IMF (International Monetary Fund) and World Bank. 2022. Bank Stress Testing of Physical Risks
under Climate Change Macro Scenarios: Typhoon Risks to the Philippines. Washington,
DC: IMF.
McKinsey and Co. 2016. Financing Change: How to Mobilize Private Sector Financing for
Sustainable Infrastructure. http://newclimateeconomy.report/2015/wp-content/uploads
/sites/3/2016/01/Financing_change_How_to_mobilize_private-sector_financing_for
_sustainable-_infrastructure.pdf.
ODI (Overseas Development Institute). 2020. Securing Climate Finance through National
Development Banks. London: ODI.
Srinivasan et al. 2023. Leveraging Carbon Markets to Enable Private Investment. OMFIF
Sustainable Policy Institute Blog. https://www.omfif.org/spijournal_winter_23
_world-bank/.
UNEP (United Nations Environment Programme). 2022. Emissions Gap Report 2022: The
Closing Window—Climate Crisis Calls for Rapid Transformation of Societies. Nairobi, Kenya:
UNEP.
UNEP FI (United Nations Environment Programme–Finance Initiative). n.d. Net-Zero Banking
Alliance. https://www.unepfi.org/net-zero-banking/.
World Bank. 2017. “World Bank Environmental and Social Framework.” World Bank,
Washington, DC. https://thedocs.worldbank.org/en/doc/837721522762050108
-0290022018/original /ESFFramework.pdf.
World Bank. 2021a. Enabling Private Investments in Climate Adaptation and Resilience.
World Bank. 2021b. Not-So-Magical Realism: A Climate Stress Test of the Colombian Banking
System. Washington, DC: World Bank.
World Bank. 2021c. World Bank Group Climate Action Plan 2021–2025: Supporting Green,
Resilient, and Inclusive Development. Washington, DC: World Bank. https://www.worldbank
.org/en/publication/paris-alignment.
World Bank. 2022. Achieving Climate and Development Goals: The Financing Question.
World Resources Institute. 2021. How Banks Can Accelerate Net-Zero Emissions Commitments.
Washington, DC: World Resources Institute. https://www.wri.org/insights/ banks
-paris-alignment-net-zero-finance.
WWF and The Biodiversity Consultancy. 2021. Public Development Banks and Biodiversity:
How PDBs Can Align with the Post-2020 Global Biodiversity Framework. Paris: WWF France.
5 Conclusions and Key
Recommendations
BACKGROUND
National Development Financial Institutions (NDFIs) play a key role in the

provision of green financing by mobilizing private capital and fostering the
development of green financing markets. NDFIs are the main providers of
green financing in low-income and middle-income countries (LICs and MICs),
reflecting their capacity to provide long-term funding and support for riskier
projects. Furthermore, NDFIs can catalyze private sector financing through
risk-sharing mechanisms such as co-financing instruments, credit enhance-
ments, or partial credit guarantees. In numerous cases, NDFIs have piloted
innovative green financing products—for example, green bonds (Nacional
Financiera in Mexico) and sustainability-linked loans (Brazilian Development
Bank in Brazil).
In the development of green products, NDFIs can help standardize contracts
and set product standards and specifications. NDFIs can build capacity at
different stages of the project cycle and, in many cases, can provide technical
assistance to clients to green their operations. They can also lead by example in
the development of taxonomies (for example, the Fideicomisos Instituidos en
Relación con la Agricultura [FIRA] in Mexico has developed a taxonomy for
agricultural activities), climate disclosures, and climate and environmental
(C&E) risk management, as well as share the lessons learned from these practices
with private financial institutions.
CURRENT STATUS OF GREEN OBJECTIVES
Results from a World Bank survey indicate that most NDFIs have adopted
green objectives and have incorporated C&E considerations into their opera-
tions, although the operationalization of those objectives can be strengthened.
Most NDFIs surveyed have adopted green objectives, within their existing
legal mandates; however, few have set concrete targets in relation to the Paris
Agreement’s Nationally Determined Contributions (NDCs) objectives. Most
institutions have green financing targets and exclusions for nongreen
activities.
43
Only one-third of NDFIs surveyed have created high-level committees, sus-

tainability directorates, or special units focused on C&E aspects. Only about half
reported their share of green assets, and the average is low, at 14 percent of the
credit portfolio, primarily for mitigation projects. The use of green debt instru-
ments and green fund accreditations is not generalized. Few institutions track
private s ector funding mobilized for green purposes.
FACTORS IMPEDING SCALING UP GREEN FINANCING
NDFIs have identified several factors impeding the scaling up of green financing
activities. The main obstacles include inadequate climate policies, funding gaps,
lack of capacity and awareness of C&E issues both in the financial and real
sectors, and the cost and complexities of green projects.
WORKING TOWARD GREEN OBJECTIVES
NDFIs can take a range of actions in four broad categories to mobilize financing
toward green objectives and manage C&E-related financial risks (refer to table 5.1):
1. Developing the green governance and strategic framework,
2. Scaling up financing to meet C&E objectives,
3. Assessing and managing C&E risks, and
4. Enhancing climate-related disclosures and reporting.
Actions to green NDFIs should be supported by an enabling policy environ-

ment. Establishing ambitious national C&E targets (for example, under the
NDC) and developing legislation and plans to signal the government’s long-term
commitment to the green agenda are important. Policies such as carbon pricing,
sectoral regulations and aligning broader fiscal and economic policies (for
example, removing distortive fossil fuel subsidies to improve the commercial
case for green projects) can further support a policy environment conducive to
green NDFIs. Developing a national green taxonomy can help to ensure a com-
mon understanding of what economic activities can be considered as being
aligned with C&E objectives. For financial sector authorities, it is equally import-
ant to develop the supervisory and regulatory reforms to facilitate the manage-
ment of C&E risks and to develop policy actions to deepen green financing
markets.1
Governments and financial regulators can also support NDFIs to close the
funding gap, particularly in LICs and MICs. Governments could increase the
provision of guarantees to facilitate NDFI access to multilateral funding and
international capital markets for priority green projects, if debt sustainability
considerations permit. Governments and financial regulators can also imple-
ment policies to foster capital market development and long-term finance, pro-
viding NDFIs with more options to leverage their own capital with long-term
funding.
As they scale up operations to meet green financing needs, NDFIs must
enhance their efficiency and ensure effective management and proper supervi-
sion. Regardless of their mandates, NDFIs should focus on complementing the
private sector and crowding in private investors to provide financial solutions to
Conclusions and Key Recommendations | 45
TABLE 5.1 Overview of key policy toolkits to green NDFIs
CATEGORY TOOLKIT OBJECTIVE EXPECTED OUTCOME

Developing the Develop an internal strategy, including Identify short-, medium-, and long-term Align operations and
green quantitative and qualitative targets, clear priorities to manage C&E risks and incentives with the
governance and milestones, and action plans, to address key mobilize green financing. country’s C&E goals,
strategic C&E risks and opportunities and mobilize including NDC and
framework private sector funding for green projects. long-term strategy.
Develop an internal governance framework to Ensure long-term commitment to the
deliver on commitments laid out in the agenda, and define roles and
internal strategy, including making board- responsibilities to ensure that the
level commitments, assigning individual objectives in the internal strategy will be
responsibilities, and integrating C&E risks and met.
opportunities into the institution’s policies
and risk appetite statement.
Scaling up Support the development of a pipeline of Enhance the availability of green projects Improve risk-
financing to bankable projects, including providing that meet private investors’ risk and return adjusted returns of
meet C&E technical assistance, raising awareness, and preferences. green investments,
objectives standardizing approaches and project and catalyze new
preparation facilities. markets for green
growth.
Develop innovative approaches to address Stimulate private sector financing for
market barriers for private sector green climate action.
investments.
Improve access to concessional funds and Ensure availability of funds to support
grants through international climate funds climate investments.
(for example, GCF).
Deepen green financing markets and carbon Ensure the availability of funds to support
markets by actively participating in them or climate investments, and raise the profile
conducting capacity building and piloting. of green financing markets.
Assessing and Adopt risk management frameworks that Enhance the awareness and understanding Enhance the
managing C&E consider C&E risks and opportunities of future C&E risks under different awareness and
risks comprehensively. Conduct forward-looking scenarios. understanding of
assessments to understand how C&E risks C&E risks.
translate into financial risks.
Improve data aggregation capabilities and Improve the granularity and robustness of
internal reporting frameworks to harmonize C&E risk assessments.
and obtain relevant data for C&E risk
assessments.
Build internal capacity to effectively assess Ensure C&E risks are monitored regularly
and manage C&E risks. over time.
Integrate C&E risks into existing risk Ensure adequate measures are in place to
management frameworks. manage the key C&E financial risks that
have been identified through risk
assessments.
Enhancing Implement climate-financing tracking Improve the quality, transparency, and Improve
climate-related methodologies, including those for private consistency of climate finance data. transparency, and
disclosures and financing mobilized through NDFI avoid greenwashing.
reporting investments.
Enhance disclosure of and reporting on C&E Enhance market transparency and the
risks. understanding of C&E risks and
opportunities, in line with international
standards, to guarantee comparable and
consistent information.
Note: C&E = climate and environmental; GCF = Global Climate Fund; NDC = Nationally Determined Contribution; NDFI = National Development Financial
Institution.
identified underserved segments or projects while preserving financial sustain-

ability. A focus on servicing credit-constrained viable borrowers should be key to
closing the financing gap and providing additionality to the private sector, while
ensuring that private sector finance is not crowded out and net economic impact
is maximized.
Although subsidized funding for green projects may be justified by large pos-
itive externalities, the focus on financial sustainability ensures that subsidized
lending will not be the institution’s primary focus, the potential for crowding out
the private sector will be limited, the scope for corruption will be reduced, and
innovation will be fostered. NDFIs should be effectively managed, and the incen-
tives of management and staff should be aligned with institutional objectives
through effective corporate governance, risk management, and mechanisms to
evaluate institutional performance. Financial supervisory authorities should
ensure that NDFIs are properly supervised and operate on a level playing field in
relation to prudential regulations and competition.
In cases in which the environment does not support NDFI effectiveness,
operating in a second tier through other financial intermediaries and raising
funds in international capital markets may be advisable. Experience from FIRA
in Mexico underlines the scope for second-tier institutions to become market
referents for green financing.
To improve efficiency, governments could incentivize the greening of state-
owned NDFIs by integrating C&E and private capital mobilization consider-
ations into NDFIs’ mandates or missions and aligning incentives throughout the
institution through effective shareholding functions. Government agencies
exerting the shareholding function on state-owned NDFIs could further incen-
tivize C&E action by ensuring that mandates or strategies incorporate C&E and
private capital mobilization objectives; by setting key performance indicators
on green investments, NDC contributions, and capital market mobilization; and
for green purposes to be reported to the shareholders and publicly disclosed.
Linking remuneration policies and performance evaluation of management
based on those indicators would further align incentives through the institution
to develop green products and to embed C&E considerations in NDFIs’ opera-
tions. These actions combined, while respecting the operational independence
of the institutions, would prompt NDFIs to meet objectives by developing green
financing products and incorporating C&E into their operations. In some
instances, this course of action may require strengthening the way governments
manage their NDFIs in line with Organisation for Economic Co-operation and
Development guidelines on corporate governance of state-owned enterprises
(OECD 2015).
MDB SUPPORT FOR NDFIs
Based on the key priorities and challenges outlined in this report, the World
Bank and other Multilateral Development Banks (MDBs) can provide targeted
support to NDFIs. First, MDBs can provide funding support—including loans,
investments, and guarantees in local currency denominations—to NDFIs seek-
ing to green their operations and to pilot new green products. In addition, this
assistance can include knowledge sharing and technical assistance for NDFIs to
build their capacity in C&E risk management and green financing, including
support to obtain climate funds accreditation, and to enhance the overall
Conclusions and Key Recommendations | 47
corporate governance in state-owned NDFIs, including support for government

shareholding units. Furthermore, technical assistance is essential for the govern-
ment and financial sector authorities to create an enabling environment for
greening NDFIs, including supportive C&E policies, policies to support capital
market development and green financing, and design and implementation of
government programs to create awareness of C&E issues in the real sector and
incentivize green investments. Finally, MDBs can monitor progress and share
best practices on greening NDFI operations through data collection, research,
and knowledge-sharing platforms.
NOTE
1. For further guidance for financial-sector authorities, see World Bank (2021).
BIBLIOGRAPHY
OECD (Organisation for Economic Co-operation and Development). 2015. OECD Guidelines
on Corporate Governance of State-Owned Enterprises. Paris: OECD Publishing.
World Bank. 2021. Toolkits for Policymakers to Green the Financial System. Washington, DC:
World Bank.
APPENDIX A
Characteristics of NDFIs, from

Survey Responses
BACKGROUND
The World Bank launched a survey on greening National Development Financial

Institutions (NDFIs) in January 2022 with the objective to explore their role in
the green agenda. The survey included questions on the following:
• NDFIs’ high-level commitments to the green agenda;

• Provision and tracking of green financing;
• Sources of funding, including access to green funding;
• Management of climate-related and environmental risks; and
• Challenges and aspirations for greening the NDFIs.
The detailed questions are provided in table A.1.

The survey was sent to 27 NDFIs that are the largest, as measured by their
assets, or that are regional leaders in the climate and environmental agenda. The
selection ensured coverage of different geographical regions and NDFIs’ official
mandates.
SURVEY RESPONSES
Responses were received from 22 NDFIs, with wide geographical and income-
level coverage. Of the 22 NDFIs, the distribution by income level is as follows: 3
are from high-income countries, 13 are from upper-middle-income countries, 4
are from lower-middle-income countries, and 2 are from low-income countries.
Eight NDFIs are from Latin America, 4 are from Europe and Central Asia, 5 are
from East Asia and Pacific, 3 are from Africa, and 2 are from South Asia. Nine do
not have official mandates confined to a specific mission. Others have sector-spe-
cific mandates: 5 in agriculture; 3 in micro, small, and medium enterprises; 2 in
local government; 2 in exports and foreign trade; and 1 in infrastructure (Xu et al.
2021). Together, the surveyed banks account for approximately 9 percent of
global NDFI assets. A list of respondents is presented in table A.2.
INTERPRETING THE RESULTS
When interpreting the survey’s aggregate results, it is worth considering the

drawbacks of the survey’s design. The survey was sent to a preselected group of
large NDFIs. The selection was based on the size of the development financial
49
institution as well as to ensure wide geographic, income-level, and mandate

coverage. In addition, NDFIs were selected based on their activities in pursuing
a green agenda. Therefore, the results are not necessarily representative for the
universe of NDFIs, as other NDFIs might be less active in the green financing
space. Instead, these results can showcase the best practices of NDFIs in devel-
oping and pursuing a green agenda.
TABLE A.1 “Greening NDFIs” questionnaire

MODULE NO. QUESTION RESPONSE DETAILS
1. General 1 Name of your institution
information
2 Does the mandate and/or mission of your institution Yes/No Please provide details.
include green, climate, or environmental objectives?
3 Has your institution developed a strategy to green Yes/No Please provide details.
its portfolio?
4 Has your institution made any public pledges or Yes/No Please provide details.
commitments to align its activities with international
or national climate-related and environmental goals
(for example, Paris Agreement, Nationally
Determined Contributions [NDCs])?
5 Does your institution track green financing volumes Yes/No Please provide details.
across its activities?
6 Does your institution use a classification system to Yes/No Please provide details.
tag/identify green projects and activities?
7 Is your institution involved in the national climate Yes/No Please provide details.
financing process and the implementation of the
country’s NDCs or other broader climate/green
financing policy discussions?
2. G
reen financing 8 Does your institution have specific green financing Yes/No Please provide details.
targets?
9 Does your institution exclude financing for specific Yes/No Please provide details.
(nongreen) projects?
10 What are the share and absolute volumes of green
assets in your credit and investment portfolios? If
possible, please provide a breakdown of climate-
related financing and financing for broader
environmental objectives. Please provide an
estimate if not available or not tracked.
Green assets in credit portfolio Share (%)
Green assets in credit portfolio Total volume
Green assets in investment portfolio Share (%)
Green assets in investment portfolio Total volume
11 What is the absolute volume of financing for climate
mitigation versus climate adaptation projects? What
is the percentage of climate financing that goes
toward mitigation versus toward adaptation? Please
provide an estimate if not available or not tracked.
Total volume of climate mitigation financing Total volume
Percentage of climate financing that goes toward Share (%)
climate mitigation
Total volume of climate adaptation financing Total volume
Percentage of climate financing that goes toward Share (%)
climate adaptation
continued
Characteristics of NDFIs, from Survey Responses | 51
TABLE A.1, continued

12 What are the main sectors that your institution is Please select all that
financing to meet its climate and environmental apply:
objectives? • Power
• Transport
• Building
• Industry
• Land use
• Agriculture
• Other, please specify:
13 Who are the main actors/clients to whom your
institution is providing green financing?
14 To the extent possible, please provide details on
type of financing and financial instruments your
institution employs for green financing objectives.
15 Are you tracking the level of private financing that is Yes/No Please provide details.
mobilized by your financing activities?
16 Are you collaborating with subnational development Yes/No Please provide details.
banks to channel financing to the local level?
17 What are the (3–5) key challenges/barriers to scaling
up financing for climate and environmental
objectives? Please elaborate.
3. S
ources of funding 18 To what national sources of funding do you have
and pricing access?
19 To what international sources of finance do you
have access?
20 Does your institution have access to national and/or Yes/No Please provide details.
international capital markets?
21 Has your institution issued a green bond? Yes/No Please provide details.
22 Has your institution issued a sustainability-linked Yes/No Please provide details.
bond?
23 Is your institution accredited by international climate Yes/No Please provide details.
funds (such as the Green Climate Fund)?
24 What proportion of your climate-related portfolio is
subsidized (that is, priced at below cost of funding,
administration, credit risk, and target return on
capital)?
25 If part of your climate-related portfolio is
subsidized, what is the source of the subsidy (for
example, budgetary subsidies, international climate
funds, multilateral funding, or cross-subsidization
from other portfolio activities)?
continued
TABLE A.1, continued

4. C
limate-related and 26 Does your financial institution expect that climate- Yes/No If yes, please explain
environmental risk related and environmental financial risks will affect how and over what
management its business model (over the short, medium, and time frames. If no,
long term)? please explain why not.
27 Has your institution assessed the impact of climate- Yes/No Please provide details.
related and environmental financial risks on its
portfolio (over the short, medium, and long term)?
28 Has your institution integrated the consideration of Yes/No Please provide details.
climate-related and environmental financial risk into
its governance arrangements?
29 Is your (long-term) strategy incorporating climate- Yes/No Please provide details.
related and environmental financial risk
considerations?
30 Is the consideration of climate-related and Yes/No Please provide details.
environmental financial risk embedded in your risk
management frameworks?
31 Does your institution conduct scenario analysis or Yes/No Please provide details.
stress testing to assess climate-related and
environmental financial risk?
32 Does your institution report on climate-related and Yes/No Please provide details.
environmental risk (for example, in line with the FSB
Task Force on Climate-Related Financial Disclosures
recommendations)?
33 Does your institution use any specific targets, tools, Yes/No Please provide details.
or metrics to assess climate-related and
environmental financial risk?
34 What data are you using to inform your climate risk Please provide any
analysis? specific data gaps you
have identified.
35 What are the (3–5) key challenges in identifying,
assessing, monitoring, managing, and disclosing
climate-related and environmental financial risk?
Please elaborate.
36 Does your institution have a system to administer
and manage environmental risks created by its
portfolio, including through the application of
environmental safeguards?
5. Other issues 37 What are the main actions you plan to undertake for
“greening” your institution in the next 1–5 years
related to
(a) s caling up financing to meet climate and
environmental objectives?
(b) identifying, assessing, monitoring, managing,
and disclosing climate-related and environmental
risks?
38 Are there other relevant issues related to “greening”
your institution that you would like to share?
6. Contact 39 Name of the person(s) responsible for filling out the
information questionnaire
Position
Email
Telephone number
Note: FSB = Financial Stability Board; NDC = Nationally Determined Contribution; NDFI = National Development Financial Institution.
Characteristics of NDFIs, from Survey Responses | 53
TABLE A.2 List of NDFIs surveyed

INCOME LEVEL OF
COUNTRY OF COUNTRY OF
NO. NDFI HEADQUARTERS HEADQUARTERS MANDATE
1 Banco de Inversión y Comercio Exterior Argentina UMIC FLEX
2 Bangladesh Krishi Bank Bangladesh LMIC AGRI
3 Brazilian Development Bank Brazil UMIC FLEX
4 Financiera de Desarrollo Nacional Colombia UMIC LOCAL
5 Corporación Financiera Nacional Ecuador UMIC MSME
6 Kreditanstalt für Wiederaufbau Germany HIC FLEX
7 National Bank for Agriculture and Rural Development India LMIC AGRI
8 PT Sarana Multi Infrastruktur Indonesia LMIC INFRA
9 Industrial Bank of Korea Korea, Rep. HIC MSME
10 Korea Development Bank Korea, Rep. HIC FLEX
11 Nacional Financiera Mexico UMIC MSME
12 Fideicomisos Instituidos en Relación con la Agricultura Mexico UMIC AGRI
13 Banco Nacional de Obras y Servicios Públicos Mexico UMIC LOCAL
14 Banco Nacional de Comercio Exterior Mexico UMIC EXIM
15 Landbank Philippines LMIC AGRI
16 Development Bank of Rwanda Rwanda LIC FLEX
17 Development Bank of Southern Africa South Africa UMIC FLEX
18 Bank for Agriculture and Agricultural Cooperatives Thailand UMIC AGRI
19 Export Credit Bank of Türkiye Türkiye UMIC EXIM
20 Türkiye Sinai Kalkinma Bankasi Türkiye UMIC FLEX
21 Türkiye Kalkinma ve Yatirim Bankasi Türkiye UMIC FLEX
22 Uganda Development Bank Uganda LIC FLEX
Source: Table original to this publication. Data on mandate are from Xu et al. 2021.
Note: Flexible (FLEX) means that official mandates are not confined to a specific mission. If an NDFI’s mandate is not flexible, the mandate is further
classified according to its sectoral or client focus, including rural and agricultural development (AGRI), promoting exports and foreign trade (EXIM),
infrastructure (INFRA), local government (LOCAL), and micro, small, and medium enterprises (MSMEs). HIC = high-income country; LIC = low-income
country; LMIC = lower-middle-income country; NDFI = National Development Financial Institution; UMIC = upper-middle-income country (World Bank
classifications).
BIBLIOGRAPHY
Xu, J., R. Marodon, X. Ru, X. Ren, and X. Wu. 2021. “What Are Public Development Banks and
Development Financing Institutions? Qualification Criteria, Stylized Facts and
Development Trends.” China Economic Quarterly International 1 (4): 271–94.
APPENDIX B
NDFI Case Studies
FIDEICOMISOS INSTITUIDOS EN RELACIÓN CON LA

AGRICULTURA (MEXICO)
This section discusses the Fideicomisos Instituidos en Relación con la

Agricultura (FIRA) in Mexico, including an overview of the institution and its
green strategy and governance, green financing sources and uses, climate and
environmental (C&E) risk management, and climate-related disclosures and
reporting.
Institutional overview
FIRA is composed of four trust funds administered by Banxico, the central bank
of Mexico. FIRA’s main objective is to facilitate and promote greater financing of
agricultural a ctivities by financial institutions, including agribusiness and other
related e conomic activities in rural areas. The institution’s main bylaws do not
mention sustainability or climate-related goals; however, its mission is “to pro-
mote, until it is well established, an inclusive, sustainable, and productive agri-
food and rural sector.”1
FIRA provides loans and credit guarantees to financial institutions (FIs)
operating as second-tier institutions, as well as technical assistance to rural
producers and agricultural financial intermediaries. Approximately 60 percent
of the total agricultural credit in Mexico originated by commercial banks is
supported by FIRA.
Green strategy and governance

FIRA’s Institutional Program 2020–24 considers the National Financing
Program for Development and the United Nations Sustainable Development
Goals (SDGs) to formulate its goals for the period. One goal is to “contribute to
the development of a responsible and sustainable agricultural, forestry, and
fishing sector.”2 To attain that goal, a sustainability strategy was designed with
three basic pillars: to avoid environmental harm, to finance green projects, and
to catalyze support for green financing (refer to figure B.1).
FIRA is not part of Mexico’s formal process to track or make decisions
regarding the Nationally Determined Contributions (NDCs) per the Paris
Agreement, and it does not have a s pecific reduction target assigned. Nevertheless,
FIRA’s activities aim to support the national efforts to reduce greenhouse gases
55
FIGURE B.1
FIRA’s Institutional Program, 2020–24
Priority objectives Sustainability strategy basic pillars
1. Not to harm the environment

Financial inclusion • Reduce FIRA’s environmental footprint
• Environmental and social risks
administration systems
• Participation in sustainability initiatives
Productivity
2. Contribute to the solution
• Project financing
Sustainability of the agricultural sector 3. Involve others

• Green bond issuance
Source: FIRA’s Institutional Program 2020-24, https://www.fira.gob.mx/Nd/Programa Institucional2020.pdf.

Note: FIRA = Fideicomisos Instituidos en Relación con la Agricultura.
(GHGs) and to adapt to the effects of climate change. Also, FIRA is actively
involved in other sustainability-related financial initiatives, such as the United
Nations Global Compact, the Sustainability Committee of the Mexican Bank
Association, and the Consultative Council for Green Finance, all of which sup-
port the NDCs’ goals through its activities.
In 2019, FIRA signed the Sustainability Protocol of the Mexican Bank
Association, which requires that FIs’ higher decision-making bodies are
involved in C&E issues. A working group composed of the heads of the dif-
ferent FIRA departments involved in environmental issues periodically
reports to the Technical Committee, the higher decision-making body at
FIRA.
FIRA sets annual targets for its sustainability portfolio (that is, sustainable
investment concepts [ICs]). For 2022, FIRA’s sustainability target was 14,200
million pesos (approximately US$700 million). FIRA does not have a specialized
exclusion list based on green targets. Nevertheless, in its credit decisions, FIRA
relies on and considers the current national environmental and social (E&S)
legislation.
FIRA plans to continue working with development partners to design sus-
tainable financial products and programs financed in part with green bonds to
improve its taxonomy and climate risk management systems and to obtain better
climate information to use it more actively in its credit processes, as well as to
make it available to the FIs and the producers accredited by those FIs. FIRA will
continue to work to reduce the direct impacts of its activities on the environ-
ment, such as lower energy and water consumption in its offices and reduced
paper consumption, among other activities.

At the end of December 2021, FIRA’s sustainability portfolio amounted to
14,247 million pesos (approx. US$700 million), 35 percent higher than the target
annual amount for the year before. Its sustainable portfolio accounts for
5.9 percent of FIRA’s loan portfolio and, by type of project, is as follows:
NDFI Case Studies | 57
environmentally sustainable agriculture, 80.2 percent; efficient use of water,

6.4 percent; energy efficiency, 3.6 percent; and renewable energy, 9.8 percent.
FIRA has developed a few specialized sustainable financing programs with
the support of several International Financial Organizations (IFOs). Examples
include the following:
• The Pro-Sostenible Program, which provides an interest rate subsidy

(cash back) to final borrowers of sustainable projects using donor funding;
• The Energy Efficiency Program, in which FIRA provides a technological
guarantee, paying the difference between estimated and realized savings
from the adoption of energy-efficient technologies using Green Technology
Fund Resources; and
• The PROINFOR Program, through which FIRA supports FIs’ loans to small
forest producers and provides them with technical assistance so they can
adopt sustainable production practices.
FIRA also has several credit guarantee schemes developed with other national
entities such as the National Forest Fund and the Credit Guarantee Fund for the
Efficient Use of Water. With those public resources, FIRA offers a higher guar-
antee for sustainable projects (65 percent versus the standard 40−50 percent
guarantee) at no additional cost.
FIRA has identified several challenges to be addressed before scaling up
green financing programs with IFOs:
• Lack of common definitions for green projects,

• Multiple objectives for sustainability projects that hamper implementation,
• Lack of homogeneous reporting standards on green benefits,
• Lack of legislation or guidelines on green financing to prevent greenwashing,
and
• High supervision and verification costs of green projects.
FIRA funds itself from its own equity resources, IFOs’ loans, and issues of
s ecurities in the domestic markets. The institution does not receive budgetary
subsidies or funding from the central bank to provide subsidized lending.
FIRA has issued three green bonds (2019, 2020, and 2021) amounting to
8,000 million pesos (US$390 million) supporting more than 1,300 agricultural
projects. Green bonds have been in great demand, but the interest rate has been
about the same as that for more traditional bonds. FIRA has not yet issued
sustainability-linked bonds and is not directly accredited by any international
climate fund. However, the bank has accessed some of the international climate
funds through other IFOs, such as the Inter-American Development Bank
(IADB), Agence Française de Développement (AFD), or Kreditanstalt für
Wiederaufbau (KFW).
C&E risk management

FIRA does not expect that climate considerations will change its business model,
but it recognizes the impact of climate change on agricultural production and
the contribution of agriculture to climate change. FIRA’s credit risk models do
not include climate change considerations, mainly because of a lack of statistical
information. Currently, no targets, tools, or metrics have been specified to assess
C&E financial risks embedded in the risk management framework, and no regu-
lar climate stress testing is conducted.
Nevertheless, FIRA participated in a Drought Stress-Testing Tool study in

2017 to determine how incorporating drought scenarios by FIs has changed risk
perception for their loan portfolios. FIRA also is currently participating in a
study to identify the physical risks in the credit portfolio of FIs in Latin America
using climate models and climate scenarios of the Intergovernmental Panel on
Climate Change reports. Preliminary results identify water scarcity, more fre-
quent droughts, lower agricultural productivity for main crops, and more
extreme and intense climate events as the main risks. These exercises would
help inform the strategy to manage climate-related financial risks.
FIRA’s main challenges in identifying, assessing, monitoring, managing, and
disclosing C&E financial risk include the following:
• Lack of access to information about potential quantitative effects of climate

change,
• A portfolio of many small projects,
• Lack of the proper competencies to assess environmental and climate risks of
the financial projects, and
• Difficulty communicating to the financial intermediaries with whom they
operate and to the small producers and agribusinesses the importance of
climate risks.
FIRA has developed, with the support of the IADB, an E&S risk analysis system
(Sistema de Administracion de Riesgos Ambientales y Sociales [SARAS]) to fac-
tor social and environmental analysis and information into its credit decisions.
SARAS is based on the Equator Principles and the Environmental, Health and
Safety Guidelines of the International Financial Corporation (IFC). SARAS’s
analysis is applied to all loans above US$10 million funded with FIRA’s resources
(in line with the Equator Principles guidelines). An exclusion list for smaller
loans is under consideration. SARAS analysis is based on information collected
from producers.
FIRA does not analyze how institutions to which they lend administer envi-
ronmental, social, and governance (ESG) risks, as the bank believes that the lack
of regulation on the topic does not give it a strong rationale to do so. FIRA has
never rejected a loan for climate reasons, but it has formulated conditions to
address those concerns. However, in some cases, intermediaries have decided to
fund those projects with their own sources.
Climate-related disclosures and reporting

FIRA has developed a taxonomy to track green financing volumes with the
support of the AFD and also has benefited from European Union resources from
the Latin American Investment Facility. The taxonomy identifies 55 ICs that
mitigate the adverse effects of agricultural activities on the environment. The
FIs’ loans supported by FIRA’s resources on those 55 ICs constitute its sustain-
able portfolio, which is classified into four areas: environmentally sustainable
agriculture, water efficiency, energy efficiency, and renewable energy. Among
those, 29 ICs contribute to achieve lower GHG emissions and are part of its
mitigation-financing portfolio. The taxonomy is based on AFD’s sustainable
dimensions.
With AFD support, FIRA is developing a methodology to identify what could
be considered climate adaptation financing. The study has identified 88 ICs with
positive contributions toward achieving a higher climate change adaptation of
agricultural activities. The study also examined whether projects were located
in municipalities considered by the Mexican environmental authorities (the
National Institute of Ecology and Climate Change) to be vulnerable to climate
change. Based on this study’s preliminary results, FIRA’s yearly total volume of
climate adaptation finance is estimated at approximately 7,000 million pesos
(approximately US$350 million). FIRA, as a second-tier institution operating
through FIs by using loans and credit guarantees, tracks the level of private
financing crowded in by its activities, including green activities.
FIRA does not report on C&E risk in line with the Task Force on Climate-
Related Financial Disclosures (TCFD) recommendations. Nevertheless, FIRA
reports all sustainability-related information in the “Memorias de Sostenibilidad,”
a yearly report published by FIRA that follows the Global Standards for
Sustainability Reporting. FIRA’s website has an ESG section. In addition, FIRA
has started reporting using the standards of the Sustainability Accounting
Standards Board, which identify the minimal set of financially material sustain-
ability topics.
KOREA DEVELOPMENT BANK (THE REPUBLIC OF KOREA)
This section discusses the Korea Development Bank (KDB) in the Republic of
Korea, including an overview of the institution and its green strategy and gover-
nance, green financing sources and uses, C&E risk management, and climate-
related disclosures and reporting.
The KDB, which has a core mandate to support Korea’s sustainable growth, is a
fully state-owned bank founded in 1954 to support Korea’s development and
policy agendas. Key priorities include deepening support for small and medium
enterprises and enabling balanced economic development across regions.
Although climate change and environmental protection are not explicit
mandates, both are implicitly covered in KDB’s broader mandate to support the
country’s sustainable growth.

KDB has published several commitments to the green agenda, including pledges
to engage with the private sector to support climate investments and build tech-
nical expertise on key topics such as GHG accounting, climate risk assessments,
and carbon markets. Beyond these broad commitments, KDB has developed an
internal green financing strategy with the goal to support the government’s
NDC and 2050 carbon neutrality target. A key objective of this strategy is to
increase the share of green financing to 16.8 percent of KDB’s total annual
financing by 2030.
In addition, KDB has established guidelines for coal financing and has pub-
lished this information on its website. These guidelines prohibit the institution
from supporting the construction and operation of new coal-fired power plants
(KDB 2019).
KDB also actively participates in international initiatives to demonstrate its
commitment to the green and sustainability agenda. For example, as a founding
member of the International Development Finance Club (IDFC), KDB actively

engages with other financial institutions on key topics related to climate financ-
ing. It also signed the United Nations Global Compact in 2007.
KDB is currently defining its internal governance framework to manage C&E
issues. The Korea Development Bank Act states that KDB’s business operations
include providing funds for the development of the financial industry and
national economy, such as fostering new growth engine industries and facilitat-
ing sustainable growth. KDB does not have a separate ESG-related organization
within its board of directors, but the ESG Planning Department acts as a control
tower for promoting green financing. KDB also has a Sustainability Committee
that enables a bank-wide collaboration and produces detailed action plans for
promoting ESG values and green financing.

KDB leverages the labeled bond market as well as domestic and international
public funding to support green investments. Since 2017, KDB has issued 15 green
bonds and 11 social bonds in the domestic and international market through
March 2022, raising an equivalent of US$6.7 billion, whereas during 2021, it
funded an equivalent of US$2.8 billion through issuing green or social bonds,
representing 5.1 percent of KDB’s total funding that year. In the international
market, KDB issued its first green bond under the 2017 Green Bond Framework,
while the other 9 green bonds were issued under the 2019 Sustainable Bond
Framework (KDB 2022). The proceeds from the green bonds were primarily
leveraged to support renewable energy and clean transport projects, and KDB
reported that these bonds would support the generation of 3,368 GWh of clean
energy and 177,744 electric vehicles annually.
Not only did the issuance of green bonds mobilize the required financing for
green investments, it also has supported the development of the country’s green
financing markets by raising the profile and demonstrating the feasibility of
green bonds with potential issuers. In the domestic market, 3.7 trillion (equiv-
alent to US$3 billion) of green bonds have been issued up to March 2022.
Beyond the labeled bond market, KDB has access to a national climate fund
established by the government as part of supporting the country’s NDC and
2050 carbon neutrality target, as well as the Green Climate Fund (GCF), accred-
ited since 2016. For example, the Climate Action Fund, newly launched in 2021,
has provided 130 billion in the same year for KDB’s new green financing pro-
gram (KDB Net-Zero Program). For the GCF, an accredited entity initially
approved in December 2016 and reaccredited in May 2022, KDB has access to
the GCF funds in pursuit of increasing climate actions in developing and emerg-
ing markets. GCF has recommended that KDB deploy the GCF funds in markets
other than Korea, as the country is considered socioeconomically advanced.
KDB targets green investments in sectors that have a high funding gap but are
key to achieving Korea’s carbon neutrality goal. Beyond the green taxonomy, the
government has developed a set of predefined criteria to identify green invest-
ments that should be prioritized for a Green New Deal. These criteria are now
being used by 4 ministries and 11 public FIs, including KDB, to identify priority
green investments, covering 77 items also related to the green taxonomy. To
avoid crowding out the private sector, investments have targeted projects that
are not commercially viable (for example, early-stage investments in nascent
technology solutions such as carbon capture and storage and green hydrogen).
KDB supports private sector climate action by offering credit enhancements

for green projects, conducting demonstration investments, and increasing the
private sector’s readiness to participate in climate policies. To crowd in private
capital, KDB utilizes funding from the national climate fund to cover first losses
of private sector green investments. KDB also lowers interest rates for certain
green projects to increase the attractiveness of these investments. In addition,
KDB conducts demonstration investments for green projects to build a track
record and increase the private sector’s confidence in investment areas with
which they are less familiar.
Furthermore, KDB bolsters the private sector’s participation in the labeled
bond market by arranging, underwriting, and investing in green and sustainable
bonds. In 2021, for the first time in Korea, KDB issued three primary collateral-
ized bond obligations (P−CBOs) backed by privately placed ESG bonds issued by
micro, small, and medium enterprises (MSMEs). These P−CBO transactions
backed corporate capital investments in green projects and marked a milestone
in an ESG bond market dominated by public offerings from large and public
companies, extending the reach to MSMEs and private placements.
Finally, KDB plays a key role in facilitating the private sector’s participation
in the government’s climate policy instruments. For example, KDB and five
other banks are responsible for piloting the application of the Korean Green
Taxonomy. KDB has also acted as a market maker for a national emissions-
trading plan, with the goal of stimulating market liquidity by simultaneously
selling and buying in the market (International Carbon Action Partnership
ICAP 2019]).
C&E risk management

In January 2017, KDB signed the Equator Principles and established environ-
mental and social risk management (ESRM) policies and guidelines for project
transactions in line with these principles. KDB’s ESRM process follows several
key steps:
1. Identification, to identify relevant projects;
2. Categorization, to categorize projects as low, medium, or high risk;
3. Review, to assess compliance with EP requirements;
4. Financing documentation, to incorporate covenants on the client’s E&S

undertaking into financial documents; and
5. Monitoring and reporting, to validate continued compliance.
KDB has taken initial steps to further integrate climate change into its risk
management framework. ESRM is usually distinct from policies and procedures
to manage climate risks because climate risk management requires forward-
looking assessments, such as scenario analysis or stress testing, to estimate the
future impact of these risks on investment and credit portfolios. KDB has not
yet fully mainstreamed climate risk management practices in line with the
Basel Committee on Banking Supervision (BCBS) Principles on climate risks
(BCBS 2022).
Nonetheless, since 2021, KDB has been working to develop a climate risk
analysis in line with the BCBS recommendations. As a starting point, KDB has
conducted an assessment to evaluate KDB’s exposure to climate transition risks.
An assessment of physical risks has not yet been conducted because KDB
is waiting for supervisory guidance on the topic. Beyond risk assessments,
KDB has also developed an innovative approach to integrate a capital buffer for
transition risks.3
Moving forward, several challenges could limit KDB’s ability to manage
climate risks:
• Data limitations and

• Lack of supervisory guidance on climate scenario analysis and risk
management.
Climate-related disclosure and reporting

KDB is developing an internal framework for tracking and reporting on green
financing. In addition to publishing its green and sustainable bond frameworks
and related impact reports from the first quarter of every year on its website,4
KDB is developing a framework for tracking green financing amounts based on
the National Green Taxonomy. By piloting this taxonomy, KDB has identified
69 economic activities that can be considered green in line with the country’s
carbon neutrality target and other environmental goals (such as water conserva-
tion, biodiversity, and pollution prevention). This work forms the basis for track-
ing green financing and assessing progress toward KDB’s target, which is to
dedicate 16.8 percent of its financing to green investments.
KDB has regular disclosures of E&S risks, but disclosure of climate risks is
limited. KDB has published annual reports on its implementation of the
Equator Principles since 2018. The reports include information on its ESRM
process and projects’ exposure to E&S risks. While detailed disclosure and
reporting on climate risks remains limited, KDB intends to adopt the TCFD
framework by 2024.
TÜRKIYE SINAI KALKINMA BANKASI (TÜRKIYE)
This section discusses the Türkiye Sinai Kalkinma Bankasi (TSKB) in Türkiye,
including an overview of the institution and its green strategy and governance,
green financing sources and uses, C&E risk management, and climate-related
disclosures and reporting.
TSKB, Türkiye’s privately owned development and investment bank, was estab-
lished in 1950 with the support of the World Bank and the Central Bank of
Türkiye. TSKB supports Türkiye’s sustainable growth with corporate banking,
investment banking, and advisory services provided to customers as a first- and
second-tier lender. In the environmental and renewable-energy sectors, the
bank ranks as number one in the number of projects financed in Türkiye. It is
also the leading bank in Türkiye in promoting new initiatives for scaling up green
financing, as well as in establishing governance arrangements and developing
methodologies for C&E risks. In addition, TSKB raises awareness on climate
change via the Green Swan Platform, where it has published “Climate Review”
reports for the past 2 years.5

TSKB’s mission is focused on sustainable development objectives and creating
value for the inclusive and sustainable development of Türkiye through financ-
ing and advisory solutions (TSKB 2022a). TSKB started its sustainability journey
in the 1980s with integrating environmental factors into loan evaluation pro-
cesses. In the 1990s, the bank offered its first loan for environmental projects to
the market, and in the 2000s, it began project financing in renewable energy
(TSKB 2022d). As the concept of sustainability was gaining importance on a
global scale, TSKB established the Environmental Management System in 2005
and the Sustainability Management System in 2012 to shape all business pro-
cesses with a sustainability approach, including evaluating and managing E&S
risks from lending activities and the institution’s operational services (including
maintaining its carbon-neutral banking activities), financing environmental
projects, informing all stakeholders about sustainability issues, and disclosing to
the public information regarding the E&S impact management processes and
value created via the financing activities (TSKB 2022c).
TSKB’s mission is operationalized within the Sustainability Policy adopted in
2012 and updated in 2022. This policy considers the E&S impacts of TSKB’s
activities, including the effects of climate change on economic and social welfare
and growth (TSKB 2022e). In 2021, TSKB enacted the Climate Change Mitigation
and Adaptation Policy to complement the Sustainability Policy to publicly com-
municate the basic principles of climate change. Among other actions, TSKB is
committed to considering mitigation and adaptation to climate change in all its
credit activities and internal operations (TSKB 2022b). This mitigation and
adaptation is addressed in three main pillars within the scope of its Sustainability
Strategy:
1. Supporting Türkiye’s sustainable development model,
2. Playing an active role in tackling climate change, and
3. Contributing to Türkiye’s industrial transition to a low-carbon economy.
C&E considerations are integrated in TSKB’s governance arrangements. TSKB’s

organizational structure for sustainability involves the board of directors and the
Executive Committee and comprises all employees. The board of directors
guides the bank’s operations in line with its sustainability strategy. All sustain-
ability work, including coordination of activities and business plans, is c onducted
by two main pillars:
1. The Sustainability Committee, established in 2014 and consisting of four

members of the board of directors as well as the chief executive officer and
three executive vice presidents, and
2. The Sustainability Management Committee, chaired by the chief executive

officer and led by three executive vice presidents with the heads of working
groups from the departments responsible for rolling out sustainability activi-
ties throughout the bank.
Eleven working groups are under the Management Committee, each addressing
different sustainability areas, including the Climate Risks Working Group estab-
lished in 2020, which consists of three subgroups that work on physical risk,
transition risk, and scenario analysis.
TSKB sets targets for greening its activities. Rather than using green
financing terms, as there is no common green taxonomy in Türkiye yet, there are
parameters such as ratio of SDG-linked loans and ratio of loans contributing to
C&E SDGs. As announced in one of its Climate Risk Reports (TSKB 2021b),
TSKB aims to have a 90-percent share of SDG-linked loans and a 60-percent
share of C&E SDG-linked loans in the total portfolio by 2025.
In addition, TSKB intends to limit the share of power plants generating elec-
tricity from nonrenewable sources to 5 percent. Within the scope of its Climate
Change Mitigation and Adaptation Policy, TSKB has declared it will not finance
greenfield coal-fired thermal power plants and coal-mining investments for elec-
tricity generation. For its direct impact, TSKB aims to reduce its Scope 1 emissions
by 42 percent by 2030 and by 63 percent by 2035. The bank also commits to con-
tinue sourcing 100 percent renewable electricity through 2035 and to have zero
Scope 2 emissions. For Scope 3 emissions, in early 2022 TSKB’s emissions associ-
ated with lending activities were calculated, verified, and published transparently
for the first time in the Turkish financial sector. TSKB has submitted the sci-
ence-based targets to the Science-Based Targets initiative for validation and is run-
ning the procedures for the United Nations (UN) Net-Zero Banking Alliance.
TSKB is committed to aligning its activities with international and national
C&E goals. TSKB plays an active role in national and international initiatives in
the field of sustainability (for example, United Nations Environment Programme
[UNEP] FI, United Nations Global Compact, Global Reporting Initiative, and
IDFC). In 2019, TSKB joined the UNEP FI Principles for Responsible Banking as
a founding signatory as part of its sustainable banking activities.6
In its activities, TSKB considers the objectives and recommendations of the
Paris Agreement, NDCs, and TCFD, among others. For example, the Climate
Change Mitigation and Adaptation Policy announces the setup of targets and
implementation of necessary actions to achieve GHG emissions in line with the
long-term goals of the Paris Agreement. TSKB has set 1.5°C-aligned GHG reduc-
tion targets for Scope 1 emissions for 2030 and 2035, which contribute to the
Paris Agreement’s goals.
Furthermore, TSKB adopted the SDGs of the United Nations in 2015, report-
ing on its direct or indirect contribution to all 17 SDGs. TSKB also supports
climate change–related activities and efforts at high-level global meetings, such
as in the UN Conference of the Parties (2021).
At the national level, TSKB actively participates in forums on sustainability
issues. For example, it is involved in the preparation of the Green Deal Action
Plan of Türkiye by the Ministry of Commerce and other working groups (for
example, Clean Energy, Zero Waste, Sustainable Production, and Consumption)
in their related ministries; in the Sustainability Working Group within the
Banking Regulation and Supervision Authority; with the Sustainability
Committee within the Banks Association of Türkiye; and in workshops on the
Climate Adaptation Action Plan by the Ministry of Environment, Urbanization
and Climate Change. TSKB, along with its sustainability advisory company
Escarus, was also an active member of two subcommittees of the Climate
Council—GHG Reduction and Green Finance and Carbon Pricing—which was
held in February 2022 in Konya. TSKB and Escarus representatives prepared
draft recommendations of the committees with the cooperation of other
participants.
TSKB has identified several challenges to scaling up its green financing:
• The regulatory environment is still under development, and no standardiza-

tion exists for disclosures, taxonomy, data collection, and so forth.
• FIs often face insufficient financial resources. Even though the demand for
resource-efficient investment and renewable-energy projects is high and can
be further increased by properly raising consumer awareness, access to the
long-term funding essential for project and investment finance can be limited.
• The macroeconomic environment is not always conducive for long-term
investment. Fighting climate change, supporting the transition to a carbon-
free economy, and ensuring inclusive social development will continue to be
among TSKB’s strategic priorities in the upcoming years. In this context,
TSKB will continue to cooperate with Development Financial Institutions
(DFIs) to provide long-term thematic funding and to shift its learning curve,
as well as to increase its capacity via technical assistance programs.

Currently, TSKB does not publicly disclose volumes of green assets; it also does
not track climate adaptation financing. Via lending activities, the bank mainly
supports seven SDGs, including combating and adapting to climate change. The
share of SDG-linked loans has reached 93 percent of total loans. Loans linked to
C&E SDGs account for 61 percent of loans, and these have contributed to a
reduction of 12.2 million tons of CO2 emissions per year (TSKB 2021b). In its loan
portfolio, power generation has the largest share, at 39.7 percent, with renewable
energy—mostly wind, geothermal, solar, and biogas or biomass resources—
accounting for 89 percent of the power generation portfolio.
TSKB offers several financial products for green financing: conventional
loans (working-capital loans, longer-term loans), project finance loans, and
second-tier (or APEX) loans or thematic on-lending to other FIs. In addition,
the bank provides technical assistance and consultancy services to its clients
via Escarus (TSKB Sustainability Consultancy), for example, on thematic
bond i ssuances. As of the end of 2021, the share of investment loans within
the total loan portfolio narrowed to 62 percent, while the share of
working-capital and APEX loans reached 32 percent and 6 percent, respec-
tively. The increase in working-capital loans was associated with addressing
the liquidity needs of MSMEs adversely affected by the COVID-19
pandemic.
In addition, TSKB recently introduced an SDG-linked lease certificate in line
with its green transformation efforts in capital markets. TSKB plans to further
develop various thematic credit lines (projects) with themes related to the circu-
lar economy, the promotion of green deals, climate change adaptation, and the
creation of employment via green growth.
TSKB utilizes domestic and international funding sources, with ESG-linked
funding reaching 80 percent in total liabilities. Although TSKB does not accept
deposits, it does borrow from domestic and international money and loan mar-
kets, international capital markets, and international FIs and DFIs. Eighty-nine
percent of the liabilities consist of foreign-exchange liabilities, with the majority
of these being medium- and long-term funds obtained from abroad in foreign
currency, including under the guarantee of the Ministry of Treasury and Finance.
DFI funding is instrumental for extending long-term, reliable financing to eligi-
ble projects. In 2021, 100 percent of international borrowing was ESG-focused.
In addition, TSKB is listed at Borsa Istanbul with a market value reaching
US$308 million in 2021.
Funding through DFI accounts for 67 percent of TSKB’s funding structure.
TSKB works closely with the World Bank, IFC, the European Investment Bank
(EIB), the Asian Infrastructure Investment Bank, AFD, KFW, the Japan Bank for
International Cooperation, the China Development Bank, the European Bank
for Reconstruction and Development, and others.
TSKB has demonstrated leadership in issuing green or sustainable bonds
since 2016. TSKB had three green or sustainable bond issuances, for a total of
US$1.05 billion. The first bond issuance was in 2016, followed by a sustainable
subordinated bond issuance in 2017 and a sustainable bond issuance in 2021.
Funds obtained through bonds are used to finance green and social projects in
line with the Sustainable Finance Framework. TSKB submits an Impact Report
to its investors annually to provide them with insight into the effects of the proj-
ects financed through the funds from the bond issuances. In addition, apart from
sustainable bilateral borrowing agreements, TSKB funding includes syndicated
loans tied to an ESG rating and sustainability performance criteria. In 2021, the
syndicated loans were linked to sustainability criteria, namely the gender pay
gap, an exit from coal financing, and COVID-19 financing themes.
C&E risk management

TSKB expects that C&E risks will affect its business model and defines climate
risks and opportunities from the internationally recognized perspective of phys-
ical and transition risks. TSKB examines direct (focuses on the effects of climate
change from TSKB’s operations and activities) and indirect (focuses on the
effects of climate change from TSKB’s products and services, as well as its loan
portfolio) risks and opportunities, having metrics and targets for both. For exam-
ple, TSKB monitors its Scope 1, 2, and 3 emissions and measures its electricity,
natural gas, water, and paper consumption, as well as the amount of its glass,
plastic, and paper waste. TSKB has calculated Scope 3 emissions of companies
that are financed by the bank and operate in carbon-intensive industries (for
example, nonrenewable power generation, cement, iron, and steel).7 These loans
accounted for 7.5 percent of TSKB’s 2021 year-end portfolio, where the emis-
sions calculated accounted for nearly 70 percent of the whole loan book. For
indirect impact, TSKB monitors the following key performance indicators: the
number of renewable energy projects funded, the total installed capacity of
renewable-energy projects funded, its share in Türkiye’s renewable energy, the
contribution to the reduction of CO2 emissions, the share of electricity genera-
tion in the loan portfolio, the share of renewable and nonrenewable energy in the
electricity generation portfolio, and the share of sustainability-themed loans.
Climate-related risks and opportunities are identified in the short, medium,
and long term; their effects on the organization’s activities, strategy, and finan-
cial structure are analyzed, and actionable plans are prepared. Since 2005, TSKB
has been quantifying the E&S risks inherent in every project as well as from its
own operations. TSKB identifies impacts and manages risks from its own opera-
tions via the International Organization for Standardization (ISO) 14001
Environmental Management System certification. The bank aims to reduce
emissions every year and has been offsetting its carbon footprint for remaining
emissions since 2009 through buying Gold Standard carbon certificates.
TSKB evaluates and manages E&S impacts from its lending operations using
its Environmental and Social Risk Evaluation Tool (ERET), applied to all proj-
ects since 2007. ERET rates projects on 5 criteria under 35 headings.8 The bank
also considers the GHG emissions and energy and resource efficiency dimen-
sions of its financed projects. The results of such evaluations are considered in
the project assessment, financing, and investment-monitoring processes.
Customers then take measures to prevent or mitigate negative E&S impacts as
well as draft Environmental and social management Plans. TSKB’s Engineering
Team, which also includes a social specialist, regularly monitors the perfor-
mance of clients in managing the E&S impacts, in line with the E&S Action Plans.
TSKB’s assessment of physical and transition risks arising from climate
change and their integration into all loan processes are ongoing. In addition to
ERET, in 2022, TSKB developed an in-house assessment tool for measuring the
physical and transition risks in financed projects and companies and introduced
mitigation plans for these risks in the loan allocation process. The work allows
TSKB to be aware of these risks at an early stage to mitigate the climate-related
credit risk and negative substantive financial impacts. This tool is currently
integrated into TSKB’s credit evaluation criteria, and the evaluation results are
submitted to the Credit Committee. TSKB plans to integrate climate change–
related risks into its loan evaluation, allocation, and monitoring processes by the
end of 2023.
The bank evaluates the impact of climate change on its portfolio, with sce-
nario analysis and stress testing currently under development. Climate-related
risks are identified through a sector-based heat map that will be used as a basis
for scenario analysis and stress testing. In 2020, 69 percent of the cash loan port-
folio was identified as being at high or medium risk in terms of physical risk and
38 percent in terms of transition risk.9 In addition, TSKB uses case studies for
sectors that are prevalent in its portfolio and are vulnerable to climate change
(for example, hydroelectric power plants for physical risk, the cement industry
for transition risk).
Scenario analysis and stress testing are still works in progress, and methodol-
ogies are to be further developed, with a more detailed assessment of asset resil-
ience against climate risks planned. Scenario analysis and stress-testing tools
will be used to identify the potential consequences of climate-related risks and
opportunities under different time constraints and conditions, with the results
included in business processes and strategic planning. The Scenario Analysis
Subworking Group uses different scenario analyses prepared by respectable
institutions (such as the International Energy Agency, Intergovernmental Panel
on Climate Change, and World Resources Institute) to further evaluate and inte-
grate the results into their climate risk scenario analysis. In addition, TSKB
focuses on the targets Türkiye develops in its climate policies. The main difficul-
ties faced are data availability and the current use of methodologies that do not
allow historical data to inform the future, therefore weakening the predictability
of climate risks.

TSKB monitors and classifies its portfolio using taxonomy based on sector
and theme. Although a national taxonomy is planned to be developed by the
end of 2023, TSKB uses its own taxonomy, with 11 sectors identified for loan
tagging: renewable electricity generation; nonrenewable electricity generation;
electricity power distribution; natural gas distribution; agriculture and livestock;
the manufacturing industry; the service sector; finance; construction and con-
tracting; retail; and telecommunications, information technology, and media.10
Some sectors are also divided into subsectors.
TSKB monitors its green portfolio and provides disclosures in line with
TCFD. TSKB’s sustainability reporting practice started in 2009 and has evolved
into integrated reporting in 2016. Since 2018, TSKB has illustrated its strategy,
targets, performance, value creation plan, and impacts driven by its operations
via its Integrated Annual Reports, which are verified by an auditor. The bank
publicly discloses information on climate-related risks. In 2021, and for the first
time in the Turkish financial sector, TSKB issued its first climate risk report pre-
pared in line with TCFD recommendations. The bank also discloses its practices
and initiatives annually via the Carbon Disclosure Project reports.
DEVELOPMENT BANK OF SOUTHERN AFRICA

(SOUTH AFRICA)
This section discusses the Development Bank of Southern Africa (DBSA) in

South Africa, including an overview of the institution and its green strategy
and governance, green financing sources and uses, C&E risk management, and
climate-related disclosures and reporting.
DBSA, a leading DFI in Africa, was established in 1983 and is wholly owned by
the government of South Africa. DBSA’s mandate is to promote economic growth
and regional integration for sustainable development projects in South Africa,
the Southern African Development Community, and Sub-Saharan Africa. The
bank does this work by mobilizing funding for projects that build sustainable
infrastructure across the continent.
DBSA is mandated to invest predominantly in South Africa, with 40 percent
of its investment book geared toward infrastructure in the rest of Africa. The
client base includes municipalities, the private sector, state-owned enterprises,
sovereigns, and public-private partnerships.
Green governance and strategy

Several frameworks and strategies are guiding DBSA’s activities in green financ-
ing. In 2021, DBSA approved the Just Transition Investment Framework to
guide the bank’s approach to support the drive to becoming greener. This frame-
work will support institutional activities for a Just Transition in alignment with
the Paris Agreement as part of its pathway to becoming net-zero by 2050. The
framework also informs DBSA’s Integrated Sustainable Development Approach
(ISDA). The objective of developing an integrated approach is to mainstream
green initiatives across the bank to ensure that it meets global good practice
standards across all sectors and financing activities, including using a mandatory
assessment throughout the investment approval process and utilizing enhanced
appraisal methodologies and tools, such as E&S safeguards.
With its “Statement on Net-Zero,” DBSA publicly announced in 2021 its com-
mitment to playing an active role in a Just Transition that achieves net-zero
emissions by 2050. This statement is an important signal to showcase DBSA’s
aim to support the financing of the implementation of global, regional, and
national initiatives related to the low-carbon transition.11 For example, this work
includes alignment with South Africa’s NDC through the implementation of
dedicated climate programs.12
Several governance arrangements and committees are in place to support
DBSA’s C&E objectives. Through its governance structures, including the
board of directors (and its subcommittees), Investment Committee, and the
Infrastructure Delivery and Knowledge Committee, DBSA ensures that C&E
factors are considered in investment decisions. A clear commitment has been
made from the top, a key factor to support DBSA in delivering on its climate and
green financing commitments. Overall, the number of full-time staff directly
responsible for implementing DBSA’s green and climate-financing activities, as
well as C&E risk management, has been enhanced.
To further support the agenda, DBSA has established a dedicated Climate and
Environmental Finance Unit that provides dedicated advisory, investment, and
implementation support to access funds from climate-financing mechanisms
such as the Global Environment Facility (GEF), GCF, and so forth. The accredi-
tation with GEF and GCF allows DBSA to leverage its funds to support its C&E
objectives. Partnership with the various C&E−financing mechanisms further
helps the bank benchmark and improve, among other aspects, its fiduciary duty
and environmental and social standards (ESS). frameworks against international
standards. The ESG Unit is responsible for undertaking E&S due diligence, mon-
itoring, policy, and framework development as well as supporting the develop-
ment and implementation of the bank’s ISDA.
Other related technical committees include the Just Transition Strategy
Committee and the Social and Ethics Committee, which ensure adequate report-
ing on environmental indicators and effective application of DBSA’s ESS.
Moreover, several internal climate and ESG-related-training and capacity-
building programs are upskilling DBSA staff to enhance effective ISDA
implementation.

In 2018, DBSA set a target of at least 30 percent of all its investments contributing
to climate goals. This percentage is subdivided into a 70-percent target for miti-
gation and a 30-percent target for adaptation. DBSA is currently reviewing the
targets in the Just Transition Investment Framework’s development and expects
that new and more ambitious targets will be set as part of the review process.
The development of climate-financing targets enables DBSA to define its
commitments toward national and international climate change policies and
communicate its intentions to its shareholders and stakeholders. Moreover, all
DBSA climate programs are designed to crowd in private investment for low-
carbon energy and clean water infrastructure, using limited public funds. For
example, the Climate Finance Facility (CFF) target is to reach an overall portfo-
lio private finance leverage ratio of 1:5.
DBSA has been tracking its green financing volumes for the past 5 years and
recently has completed a green deep dive to obtain a more detailed understand-
ing of its loan book. The green deep dive used the IDFC taxonomy to determine
the portion of the DBSA portfolio that is carbon-intensive, green, or uncatego-

rized. This study will be used to plan the Just Transition Strategy and targets, as
well as to monitor the bank’s portfolio composition.
Most of DBSA’s green loans are for climate mitigation projects, mainly in
renewable energy. DBSA is also actively financing energy-efficiency projects to
support emissions reductions throughout Southern Africa. A small portion of
the green loans is directed toward financing climate adaptation projects, point-
ing to the challenges in finding bankable adaptation projects. Other green proj-
ects are related to water, waste, biodiversity, and agriculture.
DBSA can draw on numerous sources of national and international funding
for its C&E activities. National funding sources include commitments from
South Africa’s National Treasury and various national climate programs. At the
international level, DBSA has received support and credit lines from different
Multilateral Development Banks, including the World Bank and the EIB, as well
as bilateral partners. DBSA was accredited by the GEF in 2021 and has been
reaccredited by the GCF for a second term until October 2027.
To complement these financing sources, DBSA entered the green bond
market in 2021. DBSA’s first green bond was issued in 2021 through a private
placement. This €200 million bond was supported by the AFD and is structured
in alignment with DBSA’s Green Bond Framework.13 The proceeds of this first
issuance were used mainly for financing and refinancing renewable-energy
projects. This green bond was externally verified and contributed to proving the
business case for renewables in the region. A second green bond was also
launched in 2021, again issued through a private placement. The proceeds of the
US$210 million issuance were used to refinance renewable-energy generation
and transmission projects, in addition to adding to DBSA’s pool of liquidity for
future green power generation projects. DBSA is currently developing an
integrated Sustainability Bond Framework, which aims to guide the issuance of
both sustainability and sustainability-linked bonds in the future.
Different instruments are offered to support scaling up green financing,
including credit enhancements and grants. Supported by the GCF, DBSA
launched the CFF, a lending facility designed to increase climate-related invest-
ment in Southern Africa by addressing market barriers and focusing on blended
finance mechanisms and credit enhancements, such as subordinated debt and
tenor extensions. CFF is the first private sector climate-financing facility in
Africa using a “green bank model,” with the aim to de-risk and increase the
bankability of climate projects to crowd in private sector investment. Also
supported by the GCF, the Embedded Generation Investment Programme offers
a credit support mechanism that enables funding of embedded-generation
renewable-energy projects through the provision of risk capital for projects
implemented by private sector entities and local municipalities.
Besides financial instruments, DBSA provides project preparation support to
further facilitate the development of green bankable projects and climate
programs. Through its accreditation with the GCF, DBSA can access project
preparation funding to build a pipeline of projects. The GCF Project Preparation
Facility Grant helps the bank undertake various project preparation activities—
including feasibility studies, ESG studies, and advisory services—to support
financial structuring. To date, DBSA has successfully used Project Preparation
Facility Grant support from the GCF to design innovative climate programs,
including energy efficiency, municipal solid waste, and water reuse programs.
DBSA cites several interlinking challenges inhibiting the scaling up of green

financing:
• Reporting requirements for green projects can be onerous, requiring

sufficient capacity to effectively monitor these projects and presenting a
significant barrier if reporting and the level of capacity for similar nongreen
projects is not needed.
• Pipeline development and the bankability of projects are key issues empha-
sizing the need for more support at the project preparation stage. Even where
de-risking instruments are available, projects may not be bankable owing to a
lack of capacity and expertise to develop bankable projects.
• Seeking accreditation and subsequently accessing concessional financing
from the global climate finance mechanisms of the United Nations Framework
Convention on Climate Change is a long, cumbersome process, with require-
ments that can be challenging to implement practically, leaving green
financing opportunities untapped. Mobilizing finance for climate adaptation
from these mechanisms is challenging, especially in the absence of readily
available climate data. Furthermore, the lack of lending options using local
currency with these mechanisms can result in risks due to exposure to high
foreign exchange rates and costly hedging structures, further complicating
program implementation.
C&E risk management

DBSA has a strong E&S management system. Impact-related E&S risk assess-
ments are a core component of DBSA’s project appraisal, negotiation, disburse-
ment, and monitoring processes. In 2021, DBSA formalized its environmental
appraisal framework for project assessments. This framework entails a sound
and detailed approach to assess environmental risks throughout the due
diligence process, with work ongoing to also integrate biodiversity frame-
works. The appraisal framework now also considers how climate-related risks
can impact lending activities. High-risk projects are required to undergo a
more detailed assessment and provide associated target and metrics
monitoring.
Further work is planned to integrate the consideration of C&E financial risks
into DBSA’s activities. The institution demonstrates awareness of the potential
impacts of climate-related risks on its business operations, identifying the phys-
ical and transition risks to which it could be exposed, as well as the potential
associated reputational risks. Standardization and formalization of the consider-
ation of C&E financial risks has been identified as one priority under the ISDA.
To manage and mitigate climate risk more effectively, DBSA is working to inte-
grate climate risk into the existing Environmental and Social Management
System and Development Results Reporting Framework. The institution also is
considering the incorporation of climate-related risks and vulnerabilities into
the deal-pricing process.
To support the development of internal and external capacity and integrate
climate- and nature-related risks, vulnerabilities, and opportunities into its
systems, DBSA is engaging with its partner DFIs and external stakeholders. One
key challenge is the availability of information on development results and base-
line data required to monitor and mitigate C&E risks and vulnerabilities.

Although DBSA is seeking alignment with TCFD recommendations, it has not
yet issued its own climate-related disclosure. However, DBSA is reviewing
its existing Climate Change Policy Framework and developing a new toolkit
to promote TCFD and other global standards. The intention is to develop
more standardized disclosure and reporting practices that are better aligned
with TCFD and to support the integration of climate risk into DBSA’s activities
more broadly.
Green financing reporting and tracking are based on DBSA’s Development
Results Reporting Framework. This framework is aligned with international
good practice and covers the TCFD, the Taskforce on Nature-Related Financial
Disclosures, and the National Treasury’s green financing taxonomy, as well as
the reporting requirements of partners and funders. DBSA also has used the
IDFC taxonomy to classify projects under sectors and subsectors. This
classification includes climate adaptation, mitigation, and other environmental
activities. The latter includes projects related to water, biodiversity, and
integrated waste management that promote the green economy and sustainability
but have no significant or direct climate adaptation or mitigation objectives or
co-b enefits. DBSA has developed the Development Results Reporting
Framework, a flexible, responsive tool to enable the bank to effectively report on
its development and impact results, including green financing, SDGs, climate,
gender, and other sustainability reporting requirements.
NOTES
1. See the mission statement on FIRA’s website: https://www.fira.gob.mx/Nd/Vision

MisionValores.jsp.
2. See FIRA’s Institutional Program 2020-24: https://www.fira.gob.mx/Nd/Programa
Institucional2020.pdf.
3. KDB has set aside 0.7 trillion as a capital buffer for transition risks as part of its 2022 risk
management framework. The capital buffer was established based on a transition risk
stress test that estimated the probability of default under the Net-Zero 2050 scenario of the
Network of Central Banks and Supervisors for Greening the Financial System framework.
4. The impact reports include detailed information on the functions and impact of the green
bonds (for example, type of green projects supported, amount disbursed, and estimated
tons of CO2 reduced) (for example, refer to KDB 2022).
5. TSKB (Türkiye Sinai Kalkinma Bankasi) Research Reports. https://www.tskb.com.tr/en
/research-reports/economic-research/climate-review.
6. TSKB initiated carbon-neutral banking practice in 2008 and became a signatory to the
IDFC Climate Declaration in 2015, to the UNEP FI Principles for Responsible Banking in
2019, and to the Sustainable and Resilient Global Recovery and Biodiversity Declarations in
2020.
7. Refer to TSKB (2021b, 79).
8. The model rates electricity consumption, water consumption, and GHG emission levels to
measure the impact of projects on climate change and their contribution to adaptation.
9. Refer to TSKB (2021a).
10. Refer to TSKB (2021a).
11. See DBSA’s Statement on Net Zero: https://www.dbsa.org/press-releases/dbsa-statement
-net-zero.
12. These programs include the Climate Finance Facility (CFF), Embedded Generation
Investment Program, and Water Reuse Programs. The CFF focuses on specific climate
investment opportunities based on a country’s needs and sectoral priorities. The program
aims to align and adapt its investment focus in accordance with the primary mitigation and
adaption interventions outlined in the respective NDCs for each target country.
13. The Green Bond Framework received a Second Party Opinion Statement from Carbon
Trust assessing its alignment with the Green Bond Principles (see evaluation report:
https://www.dbsa.org/sites/default/files/media/documents/2021-03/Evaluation%20
of%20the%20DBSA%20Green%20Bond%20Framework%20and%20Green%20Bond
.pdf ).
BIBLIOGRAPHY
BCBS (Basel Committee on Banking Supervision). 2022. Principles for the Effective Management
and Supervision of Climate-Related Financial Risks. Basel, Switzerland: BCBS. https://www
.bis.org/bcbs/publ/d532.pdf.
ICAP (International Carbon Action Partnership). 2019. Korea Names “Market Makers” to
Increase Liquidity. Berlin, Germany: ICAP. https://icapcarbonaction.com/es/node/641.
KDB (Korea Development Bank). 2019. Guidelines for Coal Financing. https://www.kdb.co.kr
/CHGLIR05N00.act?_mnuId=IHIHEN0028&JEX_LANG=EN.
KDB (Korea Development Bank). 2022. Investor Newsletter. https://www.kdb.co.kr
/CHGLIR05N00.act?_mnuId=IHIHEN0028&JEX_LANG=EN.
TSKB (Türkiye Sinai Kalkinma Bankasi). 2021a. Climate Risk Report on Task Force on Climate-
Related Financial Disclosures. https://www.tskb.com.tr/i/assets/document/pdf
/TCFD-eng-2021-05-24.pdf.
TSKB (Türkiye Sinai Kalkinma Bankasi). 2021b. Impact Oriented Sustainable Development:
TSKB Integrated Annual Report 2021. https://www.tskb.com.tr/uploads/file/tskb-2021
-integrated-report.pdf.
TSKB (Türkiye Sinai Kalkinma Bankasi). 2022a. “About Us.” https://www.tskb.com.tr/en
/about-us.
TSKB (Türkiye Sinai Kalkinma Bankasi). 2022b. Climate Change Mitigation and Adaptation
Policy. https://www.tskb.com.tr/i / assets/document/pdf/TSKB%20Climate%20
Change%20Mitigation%20and%20Adaptation%20Policy.pdf.
TSKB (Türkiye Sinai Kalkinma Bankasi). 2022c. “Sustainability Management System.” https://
www.tskb.com.tr/en/services/sustainable - banking/strategy-and-management
/sustainability-management-system.
TSKB (Türkiye Sinai Kalkinma Bankasi). 2022d. “Sustainable Banking.” https://www.tskb.com
.tr/en/services/sustainable-banking.
TSKB (Türkiye Sinai Kalkinma Bankasi). 2022e. “Sustainability Policy.” https://www.tskb.com
.tr/en/services/sustainable-banking/our-policy/tskb-sustainability-policy.
ECO-AUDIT
Environmental Benefits Statement
The World Bank Group is committed to reducing its environmental foot-

print. In support of this commitment, we leverage electronic publishing
options and print-on-demand technology, which is located in regional hubs
worldwide. Together, these initiatives enable print runs to be lowered and
shipping distances decreased, resulting in reduced paper consumption, chem-
ical use, greenhouse gas emissions, and waste.
We follow the recommended standards for paper use set by the Green
Press Initiative. The majority of our books are printed on Forest Stewardship
Council (FSC)–certified paper, with nearly all containing 50–100 percent
recycled content. The recycled fiber in our book paper is either unbleached
or bleached using totally chlorine-free (TCF), processed chlorine–free (PCF),
or enhanced elemental c hlorine–free (EECF) processes.
More information about the Bank’s environmental philosophy can be
found at http://www.worldbank.org/corporateresponsibility.
N ational Development Financial Institutions (NDFIs) are crucial for mobilizing
the required financing, including from private sources, to reach countries’
climate and environmental (C&E) objectives. Funding needed to achieve
countries’ C&E goals is in the trillions of dollars, with many countries also
facing significant fiscal and economic constraints. NDFIs are well positioned to
overcome the market barriers associated with green investments and catalyze
private-sector financing.
The main purpose of Greening National Development Financial Institutions:
Trends, Lessons Learned, and Ways Forward is to examine the current trends
and recommend policy actions for “greening” NDFIs. This report identifies key
steps NDFIs can take to catalyze finance toward countries’ C&E objectives and
manage C&E risks. The assessment of NDFIs’ C&E practices is based on a review
of key elements of NDFI operations and their institutional setup. The work
draws from the results of a survey conducted by the World Bank of greening
practices within NDFIs based in countries in a range of regions and income
levels, as well as on in-depth case studies of four NDFIs: Los Fideicomisos
Instituidos en Relación con la Agricultura, Korea Development Bank,
Türkiye Sinai Kalkinma Bankasi, and Development Bank of Southern Africa.
ISBN 978-1-4648-2031-1
SKU 212031

Greening Development Banks 2023

Uploaded by

Copyright:

Available Formats

Greening Development Banks 2023

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Greening Development Banks 2023

Uploaded by

Copyright:

Available Formats

Greening National

INTERNATIONAL DE VELOPMENT IN FOCUS

Emma Dalhuijsen, Eva Gutierrez, Tatsiana Kliatskova,

EMMA DALHUIJSEN, EVA GUTIERREZ, TATSIANA KLIATSKOVA,

Some rights reserved

Rights and Permissions

CHAPTER 2 Landscape of NDFIs 7

CHAPTER 3 State and Trends of Greening NDFIs 11

CHAPTER 4 Toolkits for Greening NDFIs 27

CHAPTER 5 Conclusions and Key Recommendations 43

APPENDIX A Characteristics of NDFIs, from Survey Responses 49

APPENDIX B NDFI Case Studies 55

Global pursuit of climate and environmental (C&E) objectives will require

This publication is a product of the World Bank’s Finance, Competitiveness, and

Emma Dalhuijsen is a senior financial sector specialist at the World Bank,

Tatsiana Kliatskova is a financial sector economist in the South Asia Finance,

National Development Financial Institutions (NDFIs) are crucial for mobilizing

1. Fideicomisos Instituidos en Relación con la Agricultura (FIRA, in Mexico),

2. Korea Development Bank (KDB, in the Republic of Korea),

3. Türkiye Sinai Kalkinma Bankasi (TSKB, in Türkiye), and

4. Development Bank of Southern Africa (DBSA, in South Africa).

Results of a survey of NDFIs (refer to figure ES.1) conducted by the World

NDFIs report on C&E risks

NDFIs assess the impact of C&E

NDFIs have specific green

NDFIs have C&E objectives

Source: Figure original to this publication and based on self-reporting by 22 NDFIs.

­ rivate capital mobilization. NDFIs provide around 22 percent of total global

• NDFIs should introduce internal governance and strategy arrangements

innovative instruments (beyond direct lending activities) to catalyze private

National Development Financial Institutions

• Develop an internal strategy for • Support the development of

• Implement climate finance– • Conduct a C&E risk assessment

National governments and World Bank Group and other international

Source: Figure original to this publication.

covering potential risks generated by the institutions, as well as financial risks

Governments, financial-sector regulators, and Multilateral Development

As NDFIs scale up operations to meet green financing needs, it is essential to

Climate adaptation and resilience is a response to global warming that seeks to

Climate mitigation consists of actions to limit the magnitude or rate of long-

Climate scenario analysis explores potential climate risk outcomes. By examin-

Climate stress testing is applying scenario analysis to evaluate the resiliency of

Financial institutions (FIs) are financial-sector firms, including banks, pension

Greenwashing is the practice of marketing financial products as green when in

National Development Financial Institutions (NDFIs) are any type of finan-

Nationally Determined Contributions (NDCs) are a central element for imple-

Net-zero greenhouse gas (GHG) emissions will be achieved globally when

Paris Agreement is a legally binding international treaty on climate change that

Public authorities cover government ministries or government agencies, as well

Sustainable finance includes all lending and investment that contributes to

AFD Agence Française de Développement

LMIC lower-middle-income country

Funding needed to reach countries’ climate and environmental (C&E) objectives

NATIONAL DEVELOPMENT FINANCIAL INSTITUTIONS

Green governance and strategy

Green financing sources and uses

C&E risk management

C&E disclosures and reporting

Source: Figure original to this publication.

• Green governance and strategy: Addressing C&E risks and opportunities

rivate capital mobilization. NDFIs provide around 22 percent of total global