Multilateral Development Banks Fall Short in Safeguarding Green Hydrogen Projects

17.03.2026

Multilateral development banks have emerged as major financiers of green hydrogen production in emerging markets and developing countries. However, a new study published in The Journal of Environment & Development finds that their approach to managing environmental and social risks often falls short. Despite the existence of sustainability frameworks, the research shows that critical risks—such as biodiversity loss, water scarcity, and community displacement—are inadequately addressed, calling into question the sector’s ability to deliver on its climate and development promises.

Effective governance is critical for unlocking the benefits of green hydrogen for both importing and exporting nations.

Industrialised countries are largely relying on imports from countries in the Global South to secure their future supply of green hydrogen. Since private ﬁnanciers often perceive hydrogen projects as highly risky, most projects are currently being financed by multilateral development banks. The mandate of multilateral development banks includes ensuring that these investments contribute to sustainable development in the exporting countries. “Green hydrogen could help developing countries increase export revenues and reduce energy poverty, but only if it is developed fairly. This means, for example, that banks must ensure that projects foster local job creation and capacity development”, says study author Lai Yee Choy of the Research Institute for Sustainability (RIFS). With her study, she wanted to find out how effectively the banks are delivering on their mandate.

Current policies lack hydrogen-specific criteria

Choy focused on seven green hydrogen projects in developing countries that are financed by multilateral development banks and operate within established environmental and social policy frameworks and have comprehensive, publicly available documentation. Five banks satisfy these criteria: the World Bank, the International Finance Corporation, the European Investment Bank, the European Bank for Reconstruction and Development, and the Inter American Development Bank.

For her analysis, Choy categorized 20 environmental and social risk areas, such as land use, indigenous rights, and air and water pollution. She then evaluated the effectiveness of current guidelines, including environmental and social standards and project-specific policies, in mitigating these risks. Her key conclusion: Current sustainability policies, originally crafted for conventional energy projects, lack hydrogen‑specific criteria needed to manage its unique water, supply‑chain, emissions and land‑use risks. This leaves a critical policy gap.

Consistent standards reduce uncertainty for borrowers

According to Choy’s analysis, current due diligence tools are well structured and successfully capture many traditional environmental and social risks, yet they are not fully adequate for the emerging, technology specific challenges of green hydrogen projects. “Given the expected expansion of green hydrogen investment, the banks may benefit from developing dedicated environmental and social standards for hydrogen projects, including: risk categories, mitigation requirements, procedural steps with regard to stakeholder engagement, grievance handling and monitoring, and enforcement mechanisms”, says Choy. Consistent standards reduce uncertainty for borrowers, and strengthen risk management for emerging hydrogen technologies.

Choy sees even more need for improvement with regard to economic impacts on local communities in host countries, which currently receive significantly less attention than environmental and social considerations. This oversight risks widening disparities between countries that export and import green hydrogen, calling for a stronger focus on fair access to jobs and resources.

Failure to meet standards should be penalized

The study also finds that the banks tend to prioritize policies that measure or minimize risks, but rarely implement policies that require specific mitigation actions. “This means that the banks usually ask borrowers to measure and try to reduce impacts, but they seldom require them to meet firm, verifiable performance thresholds or to provide reactive compensation and/or offsets for residual impacts —yet those ‘hard’ requirements are exactly what is needed to protect high impact risks”, explains Choy. Although all banks have systems in place for addressing complaints, their guidelines do not specify penalties for failing to meet their own standards, suggesting an enforcement gap. Choy concludes that multilateral development banks should move toward clearer normative commitments and equitable burden-sharing. By closing the governance gaps, the banks can help to maximize the benefits of green hydrogen development for global climate goals and the economic development of both importing and producing countries.

Choy, L. Y. (2026). Evaluating Multilateral Development Banks’ Environmental and Social Policies for Green Hydrogen Projects: A Content Analysis. The journal of environment and development.
https://doi.org/10.1177/10704965261418543