Why BRICS multilateralism matters

The New Development Bank pioneers alternative climate financing for emerging economies

Ten years ago, in July 2016, the New Development Bank — barely a year into operations in Shanghai — issued its first bond.

Without excessive global fanfare, the BRICS-led NDB pushed the envelope of innovation from the outset, by denominating these bonds in the Chinese renminbi, not in US dollars. Also, they were green bonds, dedicated to raising capital for projects with positive environmental or climate benefits, and the bonds were sold on Shanghai's interbank bond market, also known as the onshore panda bond market, rather than in New York or London.

The fact that the NDB's first capital market transaction was a green renminbi bond issued in China's onshore bond market in 2016 went relatively unnoticed outside of the BRICS. So did the bank's 2015 commitment to sustainable infrastructure and sustainable development. A decade later, the NDB has expanded its role in both global climate finance and local currency innovation.

Renminbi-denominated panda bonds were the bank's single largest funding instrument last year. On the lending side, it was confirmed at the NDB's 11th Annual Meeting in Moscow in May that the share of the bank's projects financed in local currencies had reached 30 percent. Furthermore, in its latest General Strategy for 2027-31, the bank has set a target to increase the share of local currency financing to more than 45 percent by 2031. As NDB President Dilma Rousseff stated in Moscow, "local currency financing will remain a strategic priority" for the bank.

The NDB is particularly keen to promote local currency lending because it reduces foreign exchange risk for sovereign borrowers as they won't have to repay their loans in dollars. As climate change reshapes economies and the stakes are especially high for Global South countries, the NDB leadership sees local currency green finance as useful for financing long-term sustainable infrastructure, renewable energy, sustainable urbanization projects, green technology and climate friendly investments, as well as for sovereign risk management.

By 2025, in line with its 2022-26 strategy, the NDB had contributed 40 percent of its financing to climate and sustainable infrastructure projects, often in partnership with national development institutions of the member countries. The BRICS local currency green finance agenda stands out in a world where other traditional powers are no longer talking about climate resilience, withdrawing from multilateralism and cutting their development assistance.

In contrast, the BRICS nations have not abandoned the climate agenda. They have added the pursuit of local currency use to help strengthen the member countries' domestic financial markets, and to protect the NDB's borrowers from the risk of currency fluctuations, by reducing dependence on the US dollar and Western financial institutions.

For Global South countries, removing the currency mismatch for solar grids, wind farms and sustainable mass transit projects — where US dollar financing has often turned sound projects into debt distress — is a structural shift worth unpacking.

Analysts and researchers across Africa, Asia, and Latin America and the Caribbean view US dollar-based borrowing and dollar-dominated global capital markets as an obstacle to mobilizing the trillions of dollars in green finance that developing countries need for the global green transition and climate recovery. Green infrastructure and technology projects generate revenues locally in national currencies, but local capital markets tend to be shallow, and these governments have to borrow in hard currency, primarily US dollars, in order to access international climate funds.

Vulnerability arises when local currencies depreciate or the US dollar strengthens, and the real cost of servicing the debt spikes. As a result, developing countries and emerging market economies are pressured to look for alternative financing options to fund their green transitions.

Across the Global South, there is growing interest in the potential for renminbi-denominated bonds as a gateway to China's sustainable finance market — one of the world's largest, and increasingly accessible to foreign issuers.

Egypt was the first African nation to issue a renminbi-denominated sustainable bond in China's onshore market in 2023, followed by Hungary, Indonesia, and Kazakhstan, which have issued green panda bonds. The United Kingdom, Dubai and Hong Kong Special Administrative Region have also sold and listed renminbi green bonds in their respective bond markets.

The demand for such local currency green finance is further reflected in the growing interest in the NDB's local currency green bonds, which are aimed at securing lower-cost, lower-risk, scalable finance for its climate-friendly and green projects.

In a world experiencing great uncertainty, worsening climate crises, and major transformations, the NDB should expand the scale of its local currency green financing for decarbonization, emissions reduction, sustainable infrastructure, recycling and community-led restoration projects.

The BRICS+ grouping should not miss the opportunity to broaden its membership, deepen its partnerships across the Global South, and remain open to cooperation with developed countries willing to work together for the global good.

The author is an associate professor of political economy at the Department of Politics and the Faculty of Graduate Studies and the director of the Global China Research Lab at York University, Canada.

The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.