As climate change led to a seemingly endless stream of weather disasters across the world, countries are struggling to adapt to the new reality. Preparing to better withstand hurricanes, floods, heat waves, droughts and wildfires will cost hundreds of billions of dollars.

And then we need to tackle the root cause of climate change – the burning of fossil fuels like coal, gas and oil – by switching to clean energy like wind and solar.

It will cost billions of dollars.

Enter climate finance, a term for how to finance projects aimed at adapting to and combating the cause of climate change. This is particularly important for developing countries, which do not have the same resources or access to credit as rich countries.

International megabanks, funded by taxpayers’ money, are the largest and fastest growing source of climate finance for the developing world. Called multilateral development banks because they receive contributions from various countries, there are only a handful of these banks in the world, with the World Bank being the largest among them.

Banks were a key reason why, in 2022, the world reached the goal that countries set in 2009: providing developing countries with $100 billion a year to fight climate change .

At the annual United Nations climate conference that opens Monday in Azerbaijan, world leaders are expected to discuss how to generate billions of dollars for climate finance. The non-profit research group The Climate Policy Initiative estimates global needs about five times the current annual amount of climate finance to limit warming to 1.5°C (2.7 degrees F) since the late 1800s. Currently, globally average temperatures are about 1.3 C (2.3 degrees F) warmer.

A new goal must go higher and hold institutions and governments accountable to their promises, said Tim Hirschel-Burns, an expert at Boston University’s Global Development Policy Center.

“The key is to get a target that is going to catalyze actions that will close the really significant climate finance gap,” he said.

The debate has also shifted to the question of where the money will come from, said Dharshan Wignarajah, director of the Climate Policy Initiative’s London office.

“Ultimately it’s about who pays,” said Wignarajah, who helped lead climate negotiations convened by the Conference of the Parties when the UK hosted it in 2021. This has forced finance to play an increasingly important role in COP discussions. .”

It’s because it’s more difficult for developing countries to obtain low interest rates.

“If you are in Kenya and you want to borrow from private lenders, they might charge you 10% interest rates because your credit score is not very good,” Hirschel-Burns said.

But multilateral banks have better credit ratings than many countries. For example, the International Development Association – an arm of the World Bank and the main provider of international aid to Kenya – has the highest possible rating from Moody’s Investor Servicewhile Kenya itself is classified as undesirable.

Banks borrow money with this better rating, then lend in turn to developing countries, offering a more reasonable rate than governments could get if they borrowed directly from private lenders.

Some banking projects go against climate objectives

The development of multilateral banks aims to improve the health of populations and the environment, expand access to energy and end poverty. That means banks have also provided billions of dollars for fossil fuel power plants, according to an AP analysis, even though their policies have improved and fewer such projects have been financed in recent years.

Fossil fuel investments continue to rise globally, reaching $1.1 trillion in 2024, according to the International Energy Agency. And multilateral banks continue to be among the largest financiers of projects extending fossil fuels, helping to “lock in a high-carbon trajectory” for countries. according to a Clean Air Fund reportwhich campaigns for the financing of projects aimed at improving air quality.

“This should help countries take a leap forward,” said Jane Burston, CEO of the Clean Air Fund, referring to the idea that developing countries could industrialize through renewable energy and ignore the development that rich countries have historically achieved with fossil fuels.

“It is baffling why development aid is given to something that continues to make people unhealthy and harm the planet,” she added.

However, improvements have made coal-fired power plants more efficient and reduced their greenhouse gas emissions, according to project documents.

The Clean Air Fund report estimates that the World Bank provided $2.7 billion in “financing to prolong fossil fuels” between 2018 and 2022. During that time, the bank also lent about 32 times more for renewable energy .

“Supporting renewable energy is always our first choice as we work to provide access to electricity,” a World Bank spokesperson said in a statement.

The bank’s policies continue to “selectively support natural gas as a transition fuel” if its research shows the project poses low climate risk, the spokesperson said. The bank’s recent policies require that each project be reviewed to ensure its investments reduce climate impacts.

The World Bank dedicated $42.6 billion to climate finance in its most recent financial year, an increase of 10% from the previous year. And during the last COP, the bank promised that almost half of its loans would soon be devoted to climate financing.

In Vietnam, around half of electricity production comes from fossil fuels, mainly coal. The Asian Development Bank has lent about $900 million for coal purchases in Vietnam, and its spending on fossil fuels in the country will end in 2017. The bank’s updated climate policies “will not support extraction, processing, storage and transportation of coal, nor any new coal.” electricity generation from fossil fuels,” he said in a statement. The bank has invested $9.8 billion in climate finance in 2023 and aims to finance $100 billion in climate-friendly projects between 2019 and 2030.

The country’s largest area of ​​energy growth is wind energy. Global Energy Monitor ranks Vietnam seventh in the world in planned wind power. And the Asian Development Bank has committed around $60 million in wind energy loans to Vietnam between 2021 and 2022.

Banks have made broad commitments in recent years to align with the historic Paris Agreement of 2015. But those pledges leave the way open to continue financing fossil fuels, said Bronwen Tucker, co-head of global public finance at Oil Change International.

According to the group’s monitoring of bank commitmentsthe nine major banks monitored can finance gas projects in at least some cases.

“The MDBs cannot be climate bankers if they remain fossil bankers,” she declared. “Relying on banks focused on fossil fuels and the worst debt crisis ever doesn’t work. »

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