5.2.4. Financing by Multilateral Development Banks

The Multilateral Development Banks (MDB) have seen technology transfer as part of their mission to encourage development. More recently they started to focus on the challenges of the environment and the specific problems involved in transferring environmental technology. In response many have started to develop a range of initiatives and activities.

In particular, development banks have become aware of the role they can play in helping to mobilise private capital to help meet the needs of sustainable development and the environment, and of the potential to use financial innovation to encourage environmental projects and initiatives. While much of the earlier work they did was sporadic, the private sector arms of the MDBs are now seeking to identify ways they can work with international private capital to help address the environmental and developmental needs and are discussed in Section 5.5.

• The World Bank itself is limited by its charter to only working with governments and quasi government organisations, although it is increasingly developing mechanisms to deal with private and quasi-private sector entities. Its affiliate, the International Finance Corporation (IFC), is most directly involved in private sector investment. However, the World Bank has developed a number of initiatives with the potential to support environmental technology transfer (Asad, 1997) . These include financing a number of environmental lending programmes at domestic financial institutions, which will then lend to industry. An important new World Bank initiative is the proposed US$60-$150 million Prototype Carbon Fund. This vehicle will provide additional finance for CO2 mitigating projects in return for carbon offsets, i.e. the right to transfer the credit for the CO2 saved to the investor. It is expected to have a substantial private sector financing and project execution. The World Bank has also prepared a major environmental strategy for the energy sector called Fuel for Thought.
• The Global Environmental Facility is a financial mechanism that was established prior to the 1992 Earth Summit (see Box 5.2) to provide grant and concessional finance to recipient countries for projects and activities that aim to protect the global environment. There are three official implementing agents, the UNDP, UNEP and the World Bank. The World Bank also acts as trustee of the GEF Trust Fund. The focus of the GEF is on providing incremental funding for projects that would not be viable on the basis of domestic considerations alone. The GEF has supported a growing, but proportionately small number of private sector investment operations. As part of its private sector portfolio, the GEF has made US$110 million in commitments to the IFC for climate change mitigation initiatives. A requirement for funding by the GEF is the demonstration of incremental global environmental benefits. This can be a time consuming and expensive process that increases transaction costs, although these problems are more marked with the Biodiversity Convention than support provided under the FCCC. The Buenos Aires Conference (CoP4) also officially expanded the scope of the GEF, for example, to include adaptation.
• The European Bank for Reconstruction and Development (EBRD), as the newest MDB, is the only one to have sustainable development incorporated in its charter. It is also much more active in working with the private sector than the other regional MDBs. Thus it is not surprising that it has shown a fair amount of leadership in helping to encourage technology transfer. It has built up a large and successful portfolio of loans in areas such as private energy service companies and municipal environmental infrastructure in developing countries. In addition, it has also worked with intermediary banks to educate them on environmental issues and the potential of clean technology.
• Other MDBs, such as the regional development banks (ADB, IDB, AfDB) all play an important role in regional investment, and most have given some attention to issues of sustainable development, in varied ways. The European Investment Bank, while differing in that it is an institution of the European Union (and thus has a limited membership), is also a huge investor with an increasing focus on lending outside the EU, particularly to the Asia-Pacific-Caribbean countries under the Lome Convention, and also to Central and Eastern Europe and the countries of the Mediterranean basin. Its investment programmes, however, have not generally been coordinated with the EU's goals on sustainable development and climate change.
• Various international agencies also harness considerable expenditure. Most notably, the UN Development Programme makes substantial grants in the area of institutional capacity-building. It has also directly supported the development of various financial mechanisms to encourage environmental technology transfer, such as supporting the feasibility work for an environmental venture capital fund.

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