Utilising Sovereign Wealth Funds For Climate Finance: A Strategic Approach To Enhance Mdbs’ Role In The Green Sustainable Transition

This policy brief (PB) underscores the urgent need for funds to address the global challenge of climate and environmental crisis, advocating the use of sovereign wealth funds (SWF) as a stable source of funding for Multilateral Development Banks (MDBs). Recognizing the climate crisis as a global issue that experience to date shows will not be adequately addressed through conventional market mechanisms, nor one that individual ‘climate-friendly’ microenterprise initiatives backed by microcredit can resolve, the PB emphasizes the role ofMDBs in acting across borders. It highlights the efficacy of MDBs and suggests leveraging international organizations to complement public resources with private capital, particularly for the Global South, which occupies a subordinate position in the global financial system. The PB proposes a coordinated approach to sustainable policymaking, instrumentalizing MDBs to go beyond narrow social agendas and induce broader structural change. Given the crisis’s transnational nature, MDBs are uniquely positioned to implement policies that transcend national boundaries, promoting sustainable practices globally. The PB also advocates for the strategic use of SWF to ensure stable and continuous funding. This approach assumes strong national and subnational state intervention in each country that involves coordinated effort with MDBs” actions to not only mitigate risks but also actively drive public policy, especially when directing resources to Global South countries. Considering that SWF portfolios are mostly allocated in the Global North, the creation of mechanisms could be part of the solution for rebalancing capital flows. The PB recommends utilizing revenues from current high oil and/or mineral production to finance the sustainable green transition, underscoring the need for MDBs to respond robustly, cross-border, to the pressing crises.