Explainer-Why are multilateral development banks under pressure to reform?​

By Simon Jessop

BELEM, Brazil (Reuters) -The World Bank and other multilateral development banks (MDBs) are under pressure to offer more help to poor countries being hammered by energy challenges and climate disasters. Here is what you need to know:

WHAT ARE DEVELOPMENT BANKS AND WHAT DO THEY DO?

These banks – which can be domestic or international – are largely funded by national budgets to help tackle development challenges through technical assistance, grants and low-cost loans.

They might focus on a single goal, such as subsidizing housing or helping farmers through hard times. However many of the international, or “multilateral”, development banks like the World Bank or African Development Bank have broad mandates along the lines of alleviating poverty or driving economic growth.  

With typically high credit ratings, these banks can take a long-term view on investment potential and offer more favorable loan terms even at higher risk. This is important for developing countries with less access to capital markets. 

WHY ARE THEY BEING ASKED TO REFORM?

Basically, countries want the MDBs to move faster and offer more in financing for efforts to help countries cut greenhouse gas emissions and prepare for higher sea levels, hotter days and other challenges that come with a warmer atmosphere.

MDBs play a key role in distributing climate finance – particularly for climate-adaptation projects that may have no clear monetary return on investment beyond the potential to save lives.

But these banks have moved far less money than what U.N. experts say is needed. Last year, MDBs distributed a record $137 billion in climate finance, with nearly 40% of that going to rich countries and only 30% to adaptation projects.

A U.N. report last week said developing countries would need more than twice that amount – or $310 billion by 2035 for adaptation alone.

For all climate finance, including clean energy projects that bring down carbon emissions, experts estimate the yearly bill will soon be in the trillions.

Many hope the reforms will also draw more private investment to MDB-backed projects. Last year, the banks helped to mobilize another $132 billion from the private sector for climate action.

WHAT'S LIKELY TO HAPPEN AT COP30?

Countries at the COP30 summit will be under pressure to show progress on growing climate finance beyond what’s been committed. Because countries finance these banks and have officials who sit on the boards, they play a key role in deciding the pace and direction of reform.

On Monday, a group of the largest MDBs issued a statement reaffirming their commitment to "accelerate and scale" support for countries, including guidelines for attracting more private money into nature investments.

Many of the groups also detailed new deals in developing countries, including a pledge on Tuesday by the European Investment Bank of $350 million to boost women-led businesses and renewables in the Amazon region.

WHAT HAS THE WORLD BANK DONE SO FAR?

The Washington-based World Bank, central to reform efforts, is considering a series of changes as part of a so-called Evolution Roadmap toward increasing lending capacity and speeding up approvals.

Some ideas include making sustainability and resilience criteria for lending, or prioritizing projects aimed at securing essential public goods.

The bank’s reform effort has been complicated this year by its biggest shareholder, as the United States pushes back on the bank’s remit including climate action and calls for a refocusing on poverty reduction and economic development.

(Reporting by Simon Jessop; Editing by Katy Daigle and David Gregorio)