The Involvement of National Development Banks Promoting Sustainable Finance

Abstract

The need to take action to mitigate the effects of climate change is widely recognized by governments and economic actors around the world. Likewise, an awar eness of a more holistic approach to financing poli cy goals, so that all social, economic, and environmen tal aspects receive adequate consideration, has bee n on the rise, too. The UN sustainable development goals (SD Gs) combined with the European Green Deal objective s have themselves induced a major funding challenge, which is now aggravated by the COVID crisis and the war in Ukraine. Development finance and investment are strongly needed. In the public finance sector, besides European institutions and national governments, nat ional development banks (NDBs) play an important ro le in providing funds and implementing development and investment programmes. By using public and private funds, they are actively involved in financing infr astructure projects as well as they are acting as h olding fund managers or financial intermediaries for different financial instruments such as investment platforms or EU funded financial instruments. The paper assesses the compliance of European natio nal development banks with sustainability requireme nts by exploring their strategic objectives and investm ent activities. The aim of the paper is to examine whether and how the contradiction between stimulating growt h and maintaining a sustainable fiscal strategy can be resolved. The new obligations stemming from the EU Taxonomy rules and the weight of national developme nt banks in investments and specifically in infrastruc ture finance gives particular relevance to the enqu iry. European National Development Banks satisfy a wide range of specific missions to address market failur es. They can be clustered based on the basis of the dur ation of their operations, the financial market sit uation and level of economic development in their country as w ell as the sustainable development index. The level of commitment the government makes to green growth and of the influence it holds over the bank has been observed to correlate with bank’s contribution to s ustainable finance. The results of the analysis of their various management and investment areas show that the inves tments they currently finance are to a large extent harmonized with the sustainable finance requirement s and regulations of the European taxonomy. Meanwhi le, their mandates and the wider context of national de velopment strategies continue to provide strong inc entives for sustainable finance.