For decades Public Development Banks (PDBs) were known for focusing on infrastructure and development investments. However, this seems to be changing, as PDBs have started to engage in financing the transition towards a low-carbon economy. Prominent examples of PDBs are the development banks of France (AFD), Germany’s KfW or the China Development Bank. Now what would happen if all these development banks joined forces?
This is exactly what we are about to find out. This month, a new and important summit of financial actors convened to simultaneously address the Covid-19 crisis, fight climate change and achieve the United Nations' Sustainable Development Goals (SDG). Taking place online during the Paris Peace Forum, the Finance in Common Summit brought together for the first time the world’s 450 PDBs. This community is a force to be reckoned with since together they have a combined $11.2 trillion in assets and undertake investments of $2.3 trillion every year as shown in our Chart of the Week. These sums represent about 10% of all investment loans granted by public or private institutions each year.
Thus, when this group commits itself to aligning its strategies, business processes and lending rules with the Paris Climate Convention and the Sustainable Development Goals, it is a serious undertaking and should excite climate activists.
The newly formed PDB Club is truly an international network. Among the 450 members, 29% are located in Asia, followed by Europe (23%), Latin America (22%) and Africa (21%). However, their financial clout is concentrated. The top 50 PDBs represent 90% of total assets. In a sense, their coalition reflects the establishment of the "Network for Greening the Financial System" in 2017, which has grown from its eight founding members to 75 central banks and 13 supervisory authorities from around the world.
“Just as a small but growing number of central banks have become signatories to the Principles for Responsible Investment (PRI), it would be a good next step to be adopted by the PDBs as well,” argues Michael Lewis, Head of ESG Thematic Research at DWS. “Signing up to the PRI would then formalize what the PDBs have set out to do this month, namely integrating ESG principles into their investment practices.”
* in 2018
Source: Finance in Common: Building resilience for people and planet as of 11/2020