According to new research from the Climate Policy Initiative, following two years of fast expansion, climate finance from public development banks, or PDBs, sharply reversed course in 2023, falling to roughly $177 billion from $243 billion the year before.

Despite growing climate concerns and hopes for public funding to speed up low-emissions development, the fall came after a spike between 2020 and 2022.

According to the paper, the slump was caused in part by reduced institutional capacity, increased capital costs, and shrinking public fiscal space.

According to the report’s principal author, Neil Chin, “Climate finance momentum has waxed and waned, and current levels remain insufficient to safeguard development pathways.”

PDBs are essential for funding climate adaptation and mitigation, particularly in developing nations where private capital is still scarce.

However, the study discovered that these organisations’ climate funding flows are still erratic and far below what is required to achieve the world’s development and climate goals. According to the report, many PDBs have increased their climate ambition in the ten years since the Paris Agreement was signed by incorporating climate targets into their operational models.

Up from 28% in 2020, 45% of tracked PDBs have pledged to integrate their financing and operations with the Paris Agreement by 2025.

However, the data shows that after 2022, the rate of new climate commitment announcements has significantly decreased.

In recent years, the PDB ecosystem has seen a decrease in new promises pertaining to emissions mitigation, climate investment targets, and Paris alignment.

“The broader ecosystem is not keeping up with ambitious institutions that are still pursuing stronger action,” Chin stated.

CPI monitors climate commitments across 170 PDBs, which together account for nearly all public development banking activity globally and contain nearly $21.9 trillion in assets.

The research stated that despite small improvements, institutions’ levels of climate ambition are still unequal. According to the report, the provision of climate finance is dominated by a small number of very dedicated banks.

PDBs with high or substantial climate ambition invested over $1.8 trillion in climate finance between 2017 and 2023.

In comparison, during the same time period, banks with little to no climate commitments contributed only $33.6 billion.

Even though the combined assets of lower-ambition institutions are greater than those of their higher-ambition counterparts, the gap still exists.

“Large segments of the market risk being left behind unless banks are brought into climate finance efforts with limited and minimal ambition,” Chin stated.

High aspirations Climate projects in a wider variety of industries, including energy systems, transportation, buildings, land use, and water infrastructure, were also funded by PDBs.

This broad breadth, according to the paper, helps provide the foundation for more comprehensive low-carbon and climate-resilient growth. According to the research, Brazil was a unique instance of a public development bank that quickly raised its climate ambition in a matter of years.

After missing official climate pledges, a number of Brazilian national and subnational development banks have since made Paris alignment obligations since 2020.

Stronger national climate legislation, more funding for renewable energy and land use, and increasing international cooperation all accompanied this change.

According to Chin, “rapid increases in climate ambition can result from favourable enabling conditions.”

As reinforcing factors, the research cited Brazil’s COP30 chairmanship, the introduction of a national sustainable finance taxonomy, and increasing multilateral engagement.

However, CPI warned that in the global PDB scene, such advancements are still the exception rather than the rule.