ADB Secures \$7.2 Billion in Climate Funds with Backing from U.S. and Japan

The Asian Development Bank (ADB) is set to expand its climate-related financing by \$7.2 billion, leveraging the first-ever sovereign guarantees from the United States and Japan. This innovative approach aims to increase funding for climate initiatives across the region by shifting risk from existing loans, ultimately expanding ADB’s lending capacity for new climate projects.

The United States will guarantee up to \$1 billion of ADB loans, while Japan will back \$600 million, collectively allowing the bank to channel additional resources into climate projects. These guarantees, which will be in place for 25 years, provide ADB with the ability to support projects over the next five years, significantly increasing its capacity to address pressing environmental challenges.

One prominent beneficiary of this expanded funding is a sustainable aviation fuel initiative in Pakistan. The \$90 million project, which aims to produce jet fuel from cooking oil, will receive half of its funding from ADB’s newly enabled scheme, further demonstrating the potential of development banks to foster innovative climate solutions.

Jacob Sorensen, director of partner funds at ADB, highlighted the significance of this model, describing it as a way for multilateral development banks to extend their lending capabilities without needing politically challenging capital increases. Sorensen also noted ADB’s ongoing collaboration with institutions like the World Bank and European Investment Bank to share lessons and promote similar financial structures.

The expansion of ADB’s climate lending comes at a pivotal time as global attention turns to COP29 in Baku, where developing nations are expected to demand increased climate finance commitments. With escalating climate impacts, the financial needs of these nations are estimated to surpass \$2 trillion annually by 2030. The recent U.S. election outcome has also introduced uncertainties, intensifying calls for other major economies, including Europe and China, to boost their climate financing efforts.

This guarantee-based mechanism aligns with broader efforts by public lenders to enhance climate-focused investments. The World Bank, for example, has successfully consolidated its guarantee offerings, aiming to significantly increase its guarantee capacity by 2030 to support climate investments. Axel van Trotsenburg, senior managing director at the World Bank, noted that the organization has already guaranteed over \$10 billion through similar initiatives this year, indicating strong momentum for such collaborative financing approaches.