We CAN do better, starting with significant reforms at the international financial institutions that oversee sovereign debt restructuring. Investing in communities and the ecosystems that support them is ambitious, but possible ... and the only way to ensure a livable planet, together.

I wrote Chapter 4, on the business-as-usual vicious cycle between sovereign debt, government austerity, commodity dependence, deforestation, rising climate change vulnerability, and more expensive sovereign debt.

I've been entrenched in thinking about the impacts on EMDEs (FX, bond ratings, debt sustainability) so this is out of my wheelhouse a bit ... but here's the yield curve for between announcement and "pause" ... it got increasingly more inverted ("yippy") as the week went on.

In short: the world cannot rely solely on private capital for a just energy transition. In 2025 DFIs & ECAs have a chance to "dig in" and grow into their role as market leaders, patient capital providers, and norm setters for sustainable, inclusive transition mineral supply chains.

FIN

Finally, at COP30 this year Brazil & Colombia will bring a new minerals traceability initiative up for a vote. If it passes it will need international support to be robust and viable. PDFIs – especially MDBs – would be wise to engage and support it.

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Fourth, the World Bank “evolution roadmap” envisions extending concessional finance to middle-income countries. This may allow for expanding mineral policy support to include TM exporters, which are applying limited resources to managing new and expanding industries with high risks.

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Third, the IFC Performance Standards review is this year, without an IEG evaluation of current standards’ efficacy. The IFC may face pressure to weaken its standards for expediency. This review will impact not only IFC but other DFIs & ECAs that copy their standards. They must remain strong.

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Second, the US DFC – a newcomer to the field with strong ESRM policies on paper – comes up for reauthorization in 2025. It’s continuation or expansion, with strong commitments to sustainability, inclusion and transparency, could be hugely beneficial to guiding the sector.

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2025 has 5 major chances for DFIs & ECAs to engage for sustainable & inclusive TM supply chains. First, China’s NFRA is expected to publish KPIs for its Green Finance Guidelines. These should be actionable and verifiable, particularly on community consultation and grievance mechanisms.

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The other way DFIs & ECAs support sustainable & inclusive TM supply chains is through long-term strategy support: JETPs and World Bank Country Climate & Development Reports. But specific ESRM strategy is absent from JETPs and only appears in 9 CCDRs:

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DFIs & ECAs also need empowered partners – national environmental and social ministries– to oversee investors. Thus, MDBs policy support. This is crucial for LICs (blue in this image), but it hasn’t reached the MICs that export TMs yet (red in this image). There are no purple countries here.

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Interviews with staff at other DFIs & ECAs indicate that even with strong ESRM on the books, it’s not easy to apply IFC Performance Standards or other frameworks to this new and growing sector. Without traceability, for example, how can they apply standards to clients’ suppliers?

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Chinese DFIs – CDB & CHEXIM, which support Chinese investors overseas as well as other sovereign governments with minerals SOEs – haven’t yet built out strong environmental & social risk management (ESRM) practices. Recent reforms are promising, but haven’t resulted in KPIs for banks yet.

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This is a story about development finance, but especially a story about China. Chinese imports from LAC, Africa and developing Asia are just 4% of all trade, but 40% of trade in raw transition minerals (TM) and 52% of raw TMs that haven’t yet met their growth projections for climate needs.

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