Why a Fair and Just Transition Approach from MDBs Matters for Effective Climate Action

Undoubtedly, climate change remains an existential threat to human well-being, especially to systems critical to human survival, including water, food, energy, and transport. This is important for resource-dependent and developing economies, particularly those in the global south. For resource-dependent economies, climate change is a matter of economic survival. For developing economies, it is a matter of economic growth and development. For those belonging to both categories, the issue is even more complicated.

Recognizing the need for collective action to avert the catastrophic impacts of climate change, we need to develop a credible path to transition and help finance it. But before we do that, a range of critical questions must be answered for an effective transition to occur: which approaches can be acceptable and deliver impact at scale? Transition by whom? And a transition from what?

So what transition approaches are acceptable and can deliver impact at scale? As their development circumstances differ, what is just to "country A" may not be to "country B." Even the term "just transition" connotes different things to various stakeholders – to the developing nations – does it mean paying more for damages caused by climate change brought upon by others? These approaches will not work. We must accept the discrepancy between the perception of just transition in countries of the north and that of the global south. An imported model of transition is of little use. We need to convince the developing world of the benefits of the home-grown transition.

Transition by whom? Expecting all sectors and industries to transition simultaneously is not practical. However, understanding "who" is transitioning will give us a deeper knowledge of those affected. So long as we keep 'people and communities at the heart of the transition, the policies and decision-making will be better defined.

A transition from what? An abrupt switch would be costly in countries where critical sectors and assets face carbon lock-in. In such instances, immediate efficiency improvement of existing systems could be most practical in the short term with minimal impact on job losses. Subsequently, a longer-term switch to renewable alternatives needs to be pursued.

The role of MDBs in supporting a just transition

Development financing from MDBs can play a catalytic role. As MDBs, we have to respond to our shareholders expectations of delivering on both dimensions of economic development and climate action. MDBs can work with national and regional governments, civil society, and the private sector to support a just transition. Effective MDB engagement could guide these stakeholders and help mobilize critical financing from all avenues and sources, including niche and innovative ones like Islamic financing.

Role of innovative Islamic finance and IsDB in furthering just transition

We believe that sustainable and innovative finance has the potential to mobilize the necessary funds efficiently to achieve the goals of the Paris Agreement and the SDGs. Given its growing global acceptance and enhanced robustness, we call for considering asset-based and Islamic finance modalities as among the potential tools for mobilizing sustainable finance for transition.

For its part, IsDB has recently realigned its strategy in light of the changing global environment and priorities of our diverse 57 members. We are guided by three key strategic priorities for 2023-2025: (i) boosting recovery, (ii) tackling poverty and building resilience, and (iii) driving green economic growth. IsDB will increasingly support its member countries' efforts to pursue development trajectories grounded in green, resilient, and climate-friendly imperatives and make efficient and pragmatic use of their natural resources and human capital to follow a just transition.

In so doing, the IsDB has adopted a Sustainable Finance Framework that seeks to unleash climate-friendly operations by availing financing options tailored to green investments. Recently, IsDB has raised more than US$ 5 billion through the groundbreaking Green and Sustainability Sukuk, offering global investors the opportunity to earn best-in-class returns and make an impact with their investments. Furthermore, these green assets are utilized to back up the issuance of Green Sukuk to sustain the momentum of this "virtuous cycle" of greening the financial system and ultimately play its part in furthering a just transition in member countries.


H.E. Dr. Muhammad Al Jaseer

IsDB President and Group Chairman