Multilateral Climate Finance in Pursuit of Private Capital: How the De-Risking Agenda Is Changing International Organizations

Abstract In the last decade, international financial institutions have advocated that multilateral funding be leveraged to reduce the risk of institutional investors, such as pensions and mutual funds, mobilizing private capital for development and decarbonization. Have international organizations (IOs) that deliver climate finance adopted the de-risking agenda? How is it affecting their work? Through a text analysis of the replenishment documents of five IOs in the climate finance regime, and an assessment of Global Environment Facility (GEF) and Green Climate Fund (GCF) projects, we find that de-risking is reshaping IO activities in three ways. First, the central idea that multilateral climate funding should be used to mobilize institutional investors is widespread across IOs in the climate finance regime. Second, in funding this work, GCF and GEF act as financial advisers to states and domestic banks, erasing the traditional boundary between economic and environmental IOs. Third, when de-risking, IOs often commit multilateral funding to financial institutions to facilitate their lending, rather than to individual mitigation or adaptation projects. This represents a fundamental shift in how multilateral climate funding is spent and raises transparency issues that make it difficult to assess the efficacy of de-risking efforts.