• The Asian Development Bank (ADB) will increase climate-related lending by up to $7.2 billion, supported by the first-ever sovereign guarantees from the U.S. and Japan.
• The U.S. will guarantee up to $1 billion, while Japan will back $600 million of existing ADB loans, unlocking capacity for more climate project financing.
• A key beneficiary of this funding is a sustainable aviation fuel project in Pakistan, with half of its $90 million cost covered by the ADB’s scheme.

The Asian Development Bank (ADB) is set to expand its climate-related lending by $7.2 billion, thanks to sovereign guarantees from the United States and Japan. This move, unprecedented in climate finance, allows ADB to increase its lending capacity by reallocating risk from existing loans.

“The structure is a fantastic way of extending a multilateral development bank’s (MDB) lending capacity without going through the politically difficult situation of a general capital increase,” said Jacob Sorensen, director of partner funds at ADB, to Reuters.

This strategic approach comes as global attention shifts to COP29 in Baku, Azerbaijan, where nations aim to scale up climate finance for developing countries. With the recent U.S. election results adding uncertainty, pressure mounts on other major players like Europe and China to step up.

Sovereign Backing Details:

Under the new arrangement, the U.S. will guarantee up to $1 billion and Japan $600 million of ADB’s current loans. This guarantees ADB the financial flexibility to support new climate projects. The guarantees will span 25 years, while the lending they enable will be rolled out over the next five years.

Project Beneficiaries:

One of the notable projects set to receive funding is a sustainable aviation fuel initiative in Pakistan, which aims to produce jet fuel from cooking oil. The project, valued at $90 million, will see approximately 50% funded through ADB’s new scheme. The deal is expected to be finalized on November 20.

Sorensen emphasized that ADB has been sharing insights and collaborating with institutions like the World Bank and European Investment Bank to promote similar strategies. “We have been extensively in consultation with multiple other MDBs,” he added.

Global Financing Push:

With climate impacts escalating, developing nations may need over $2 trillion annually by 2030 to transition to clean energy and adapt to changing climate conditions. Rich nations hope COP29’s outcomes will shift more financial responsibility to development banks and private investors, creating a sustainable pool of climate financing.

Expansion and Lessons:

The guarantee mechanism echoes earlier efforts by public lenders to support climate-focused third-party investments. For example, the World Bank’s recent platform consolidates guarantees for investments, aiming to double its annual guarantee figures to over $20 billion by 2030.

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“Having guaranteed more than $10 billion through the programme in 2023, we’re seeing strong momentum,” said Axel van Trotsenburg, senior managing director at the World Bank.

As these collaborative models expand, they signal a shift in the global approach to climate financing, empowering development banks to act as pivotal players in addressing climate challenges.

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