Author Description

National Development Financial Institutions (NDFIs) are crucial in mobilizing financing, including from private sector, to reach countries' climate and environmental (C&E) objectives. NDFIs--often state-owned FIs with a socioeconomic objective--hold close to $19 trillion in assets and represent more than 10 percent of global investments annually. When adequately managed, they can address market failures and create new markets. At the same time, NDFIs need to manage the C&E risks present to their investment and lending operations. This report takes stock of the current trends and recommends policy actions for greening NDFIs, distilling insights from a survey of 22 NDFIs with broad geographical and income-level coverage, as well as in-depth case studies of 4 NDFIs. The report recommends that NDFIs introduce governance arrangements and formulate a strategy that is aligned with country C&E goals and includes quantitative green finance targets. NDFIs need to mobilize private capital through the development of bankable projects using technical assistance, market education, standardization of procedures, and the creation of project preparation facilities. They should use blended finance and pilot and scale up innovative green instruments. At the same time, NDFIs should adopt a comprehensive C&E risk management framework covering potential environmental and climate risks generated by the institutions, as well as financial risks to their balance sheets arising from C&E factors. Exposure assessments and stress testing would help better understand the impact and materiality of C&E financial risks on NDFI portfolios and inform internal capital and liquidity adequacy assessment processes. Finally, NDFIs should enhance their C&E disclosure and reporting practices in line with guidance from the Task Force on Climate-Related Financial Disclosures (TCFD) as well as forthcoming disclosure guidance from the International Sustainability Standards Board (ISSB). As NDFIs scale up C&E ope