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This policy brief examines the supply and demand side barriers to financing climate-smart urban infrastructure, focusing on the role of National Development Banks (NDBs). It introduces a 12-dimension 'City Maturity Model' to help city officials improve their strategic, financial, and operational capacities to attract green investment. The brief highlights that while NDBs are well-positioned as intermediaries, only 4% of Public Development Banks are specifically mandated to finance local governments. It provides recommendations for city officials to engage national policymakers, strengthen revenue capture, and build technical expertise, supported by case studies from Cape Town, Chefchaouen, and Belo Horizonte.

The policy brief argues that National Development Banks (NDBs) are ideal intermediaries for scaling climate-smart urban infrastructure due to their local knowledge, yet few are currently mandated to finance local governments or green projects. The research introduces an NDB Maturity Model consisting of 12 dimensions across strategic, financial, business, and operational parameters to standardize the assessment of NDB capacity. It identifies key barriers including unspecific mandates, lack of sectoral expertise, and insufficient capitalization. The document recommends that International Financial Institutions (IFIs) support NDBs by providing project preparation facilities, technical assistance, and access to innovative capital and de-risking instruments to catalyze private investment.

The document argues that National Development Banks (NDBs) are ideally positioned to bridge the financing gap for climate-smart urban infrastructure due to their local knowledge and proximity to cities. However, it notes that only 4% of Public Development Banks are specifically mandated to finance local governments. The research identifies barriers across policy, institutional, and financial levels—such as restrictive legal structures, lack of bankable project pipelines, and insufficient capitalization. To address these, the authors introduce an 'NDB Maturity Model' consisting of twelve dimensions across strategic, financial, business, and operational parameters. The brief recommends that national ministers update NDB mandates to include climate focus, reassess legal structures to allow for higher risk and longer tenors, and integrate NDBs into national climate goals and infrastructure strategies. A case study on Indonesia's PT SMI and the 'SDG Indonesia One' platform is provided as an example of using blended finance to implement SDG-oriented infrastructure projects.

This policy brief examines the supply and demand barriers preventing National Development Banks (NDBs) from financing green urban infrastructure. It introduces a 12-dimension 'maturity model' across strategic, financial, business, and operational parameters to help NDBs optimize their capacity. The brief argues that while NDBs are ideally positioned as intermediaries, few have the specific mandates or capitalization required to support local governments, necessitating coordinated action from national governments and development finance institutions.

The document argues that National Development Banks (NDBs), which hold over USD 5 trillion in assets, are uniquely positioned to close the urban climate investment gap due to their domestic expertise and ability to provide local currency financing. However, their impact is limited by narrow mandates, a lack of bankable project pipelines, and insufficient internal capacity to assess climate risks. To enhance their role, the brief recommends that NDBs strengthen their climate mandates, seek accreditation from multilateral funds like the Green Climate Fund, and deploy risk-mitigation instruments such as guarantees to catalyze private investment. It also emphasizes the need for national governments to improve the financial creditworthiness of cities and integrate NDBs into the planning of Nationally Determined Contributions (NDCs).

The document outlines the role of blended finance in mobilizing commercial capital for sustainable development goals, emphasizing the need for DFOs to anchor these activities in local contexts. It recommends that DFOs develop explicit local context policies, align investments with national development strategies, and deepen partnerships with local financial institutions. Additionally, it highlights the critical need to increase local currency financing and develop cost-effective foreign exchange solutions to mitigate risks for international investors.

The GCF's Private Sector Facility (PSF) aims to green the financial systems of developing countries by addressing capacity, market, and policy barriers. The GCF utilizes three primary pillars: providing concessional financing and project preparation grants, implementing policy-level interventions through its Readiness Programme, and conducting outreach through partnerships with global networks. The document highlights the critical role of central banks as regulators and the importance of local financial institutions (LFIs) in reaching micro, small, and medium enterprises (MSMEs) and households. Case studies from Mongolia, Ghana, and West Africa demonstrate the use of on-lending models and risk-sharing instruments to scale up renewable energy and climate-resilient agriculture.

The research identifies a sustainable infrastructure investment gap of USD 18-36 trillion in developing countries, with critical needs in power generation, transport, and water. It analyzes the roles of various public finance actors—including bilateral aid agencies, multilateral development banks (MDBs), and national development banks (NDBs)—highlighting a systemic mismatch where the largest mitigation potentials in upper-middle-income countries lack access to concessional finance. The paper argues for a shift from project-specific finance to financial system development and the scaling of blended finance and risk-mitigation instruments to crowd in private capital.

The briefing contends that the current climate finance system is too reliant on international intermediaries and insufficient for achieving Paris Agreement goals. It proposes that national green investment banks (GIBs) provide a replicable model for developing countries to coordinate both foreign and domestic financial flows, reducing dependence on multilateral aid and enhancing national agency over low-carbon transitions.

The report examines how domestic DFIs in Brazil, Mexico, and Chile can mobilize investment for their NDCs. While these institutions committed over US$11 billion in climate finance in 2015, the vast majority (98%) targeted mitigation, primarily in renewable energy, leaving a significant gap in adaptation and urban infrastructure. Key barriers include a lack of long-term low-cost capital, perceived poor risk-adjusted returns, and limited technical capacity to structure complex climate projects. The report recommends that governments provide clearer mandates and that multilateral development banks (MDBs) support NDBs through risk-mitigation instruments, technical assistance, and improved climate finance tracking.

The paper examines two contrasting models for financing clean infrastructure in middle-income countries: Brazil's centralized approach led by the national development bank (BNDES) and India's decentralized system involving various public and private institutions. Through case studies of wind energy projects, the authors find that despite their structural differences, both systems are dominated by public financing and struggle with a lack of true non-recourse project finance and limited financial innovation. Brazil's model effectively supports national industrial goals through local content requirements and centralized auctions but faces risks of crowding out private investment and governance issues. India's model allows for more diverse participants and smoother integration of international development finance but suffers from higher system costs, uneven investment across sectors, and significant revenue risks due to the poor financial health of state-owned power distribution companies (discoms). The report concludes that the effectiveness of these models is heavily dependent on complementary regulatory and policy frameworks rather than the financing structure alone.

Global climate finance plateaued at USD 359 billion in 2012, falling short of investment needs for a 2°C pathway. While private actors provided 62% of the total, a strong domestic preference exists, with 76% of finance spent within the country of origin. Public finance, particularly through Development Finance Institutions (DFIs), remains critical for addressing risk and funding adaptation, though significant knowledge gaps persist in tracking private adaptation and energy efficiency flows.

National development banks (NDBs) are positioned as critical intermediaries to bridge the climate finance gap by leveraging public funds to attract private capital. Due to their local market knowledge and development mandates, NDBs can address both demand-side barriers (pre-investment) and supply-side risks (investment phase). In the LAC region, NDBs possess significant assets and capital, and many are already utilizing a variety of instruments—including Tier 1 and Tier 2 loans, guarantees, and equity—to promote low-carbon development. The report argues that NDBs can achieve leverage factors equal to or greater than multilateral development banks (MDBs) because of their proximity to local financial institutions and ability to manage country-specific risks.

The report analyzes how public resources and well-articulated policies can mitigate risks and costs to attract private capital for green investments. Using case studies from Tunisia, the UK, and Morocco, it demonstrates that targeted public interventions—such as credit guarantees, feed-in tariffs, and concessional lending—can overcome market inertia and perceived risks. It highlights the importance of emerging economies, particularly the role of National Development Banks in China and Brazil, and suggests innovative risk mitigation tools like policy risk insurance and first-loss protection to address gaps in the current financial landscape.

Annual global climate finance flows reached approximately USD 343-385 billion in 2010/2011, with the private sector providing the majority (USD 217-243 billion). While public finance (USD 16-23 billion) acts as a catalyst, total investment remains far below the USD 1 trillion annual requirement projected by the IEA to limit global temperature rise to below 2 degrees Celsius. Mitigation activities, primarily renewable energy and energy efficiency, attracted the bulk of funding (USD 350 billion), while adaptation interventions received USD 12.3-15.8 billion. Emerging economies, particularly China, Brazil, and India, were the largest recipients of mitigation finance, often utilizing domestic resources and National Development Banks.

The Landscape of Climate Finance 2012 estimates that annual global climate finance flows averaged USD 364 billion in 2010/2011, with the private sector providing the majority of funding (USD 217-243 billion). While public finance acted as a catalyst and provided bilateral aid, the total flows remain significantly below the USD 1 trillion annual investment the International Energy Agency projects is necessary to limit global temperature rise to below two degrees Celsius. Mitigation activities, particularly renewable energy and energy efficiency, received the bulk of the funding, with China, Brazil, and India emerging as key recipients. Public intermediaries, including national development banks, played a pivotal role in distributing USD 77 billion and enabling riskier projects through concessional loans and grants.

FAST-Infra is a public-private partnership involving banks, asset managers, governments, and development banks aimed at accelerating private investment in sustainable infrastructure in developing countries. The initiative is developing a sustainable infrastructure labelling system to guide governments, developers, and institutional investors, alongside four pilot market mechanisms: a technology-enabled securitization platform, a global off-take/revenue guarantee provider, an open-sourced managed co-lending portfolio programme, and a sustainable financing facility for national development banks.