This paper is part of a research project analyzing climate risk considerations of global financial institutions led by Stacy Swann, Executive in Residence and Professor at American University’s Kogod School of Business.
Development Financial Institutions (DFIs) are financial institutions specifically established to support sustainable economic development through targeted lending and investment to public sector entities, such as sovereign countries, states, and state-owned entities, or in some cases, private sector companies and projects. We have studied DFIs as a part of a larger research initiative led by American University’s Professor Stacy Swann, to understand how these institutions approach climate considerations in their investment decision-making process given their unique mandate to support sustainable economic development. Our objectives with this research are (1) to gain insights into the role of these types of investors in addressing climate change challenges and (2) to provide recommendations for DFIs to better integrate climate considerations into their investment practices.
DFIs are comprised of National Development Banks (NBDs), Bilateral Development Banks (BDBs), and Multilateral Development Banks (MDBs). NDBs focus on financing projects within a respective state to support economic growth. They are usually capitalized and owned by national governments. BDBs are also capitalized by national governments but have a specific focus on bilateral cooperation and economic development in developing countries and emerging markets. Lastly, MDBs are supranational institutions established and owned by multiple governments. These shareholders also define the specific mandate and purpose of the MDB (EIB).
A 2021 report from the Columbia Center on Sustainable Investment (CCSI) counted over 450 NDBs and BDBs in 2020, totaling over $8 trillion of collective assets with over $2 trillion of annual funding (CCSI 2021, p. 5). In comparison, the 30 functioning MDBs held approximately $2.5 trillion in assets in the same period (Bazbauers et al. 2021 CCSI 2021, p. 13).