Greening National Development Banks

Lead author: Stephany Griffith-Jones, professor of Practice for Financing Sustainable Development at SOAS University of London and former vice president at Central Bank of Chile; coauthored with Javiera Petersen, doctoral student at the Institute for Innovation and Public Purpose, University College London, and former undersecretariat of Economy and Small Businesses for Chile 

National development banks (NDBs) have played a pivotal economic role across countries. As the climate crisis becomes more acute, an increasing number of NDBs have incorporated strategies to help finance investment and catalyze market creation in the transition to a resilient, net zero economy.  

This paper examines the institutional design of NDBs and how they should be adapted to best support green development goals. Specifically, it looks at how four key design variables—mandate, governance, instruments, and funding structure—should be configured and, where necessary, adapted to support this transformation. These variables are not independent; their effectiveness depends on how well they interact with and reinforce one another and how well they work within the broader economic and institutional context in which each NDB operates. 

Our analysis yields three conclusions. First, common features cut across all institutions, with even more commonalities among banks in similar economic and market conditions. Experience, know-how, and exchange are often relevant across institutions, regardless of country circumstances. Second, the traditional tools of development banking—patient capital, risk tolerance, long-horizon public finance—are well suited to this task. What is needed is not reinvention but adaptation: patience in instrument design but urgency in the pace and ambition of deployment and a focus on lessons learned about how banks have been effective at catalyzing new markets and private investment. Finally, the relationship of the four design variables is circular rather than sequential: Good governance reinforces mandate credibility and improves instrument effectiveness while a clear mandate and well-designed instruments give governance structures the operational content they need to function. Sufficient loss-absorbing capital and repayable funding sources make mandates, governance, and instruments more effective.  

This circularity is perhaps the central lesson: All four variables must be designed together, not in isolation, and all four should remain dynamic as the green transformation itself evolves.