The recent proliferation of green finance facilities by public sector players at the national, subnational, regional and municipal levels is a response to the massive gaps between available funding and demand for funding for climate-friendly projects, and the vital need to mobilize private-sector finance to meet international obligations of the Paris Agreement.
This paper, prepared by Momentus (formerly IFCL) and funded by the Inter-American Development Bank (IDB), examines the relative merits of starting a de novo Green Bank compared to “greening” an existing National Development Bank (NDB). The report opens with a brief analysis of the general problem that demand for financing of green investments exceeds existing supply, including a description of key financial and non-financial barriers to investment. It then presents the question of whether to green existing NDBs or grow a de novo Green Bank, and identifies criteria from institutional, government, and economy-specific perspectives to help inform the decision. Finally, this paper outlines a basic process for how to ‘green’ an NDB, should that path be chosen.
To develop this paper, our team conducted a long review of the strategic green finance work occurring throughout the world in conversation with various NDBs and Development Finance Institutions (DFIs). We also conducted a desk review of existing literature to understand the core issues and the status of green finance amongst NDBs and DFIs. Based on the conclusions developed from our research, we held a workshop at the Green Bank Design Summit in 2019 to gather opinions and information from relevant workshop participants.
With the research conducted, we developed a peer-reviewed paper for IDB discussing approaches to catalyzing private investments through public finance institutions, considerations regarding “build or renovate” design options, the decision-making process to consider prior to choosing the options of “build or renovate”, and case studies highlighting the greening experience of various NDBs in the world.