Current state of climate action in Latin America and the Caribbean and a country-specific approach to PA alignment

The urgency of action in the LAC region cannot be overstated. Climate change is already considered one of the major disruptors of agriculture and food systems in Latin America and the Caribbean; the IPCC expects reductions of 6% in the region by 2046–2055 for a group of 11 major global crops. Some of the worst impacts on sustainable development are expected to be felt among those whose livelihood depends on agriculture and the coasts.

This reality makes it so that, despite the socioeconomic setback generated by the COVID crisis, 14 of our borrowing member countries have updated their Nationally Determined Contributions (NDCs) since first submitting to the UNFCCC and, to date, three countries already have Long-Term Strategies (LTS) in place. Yet, the technical and financial needs of LAC countries to transition to decarbonized climate-resilient economies are varied and vast. Investment is needed to decarbonize infrastructure, to halt and reverse deforestation, to develop and implement policies that manage climate risk and ensure the transition is just and inclusive, to manage its extractive sector, and to engage the private sector as a critical actor in climate action.

LAC is ready for ambitious climate action: nine countries have pledged net-zero targets,² and this number is continuously growing. That is why we are actively supporting our clients in the updating of their NDCs and development of LTSs and integrating climate factors in the formulation of country and sector strategies. These are essential country- and client-led processes that will build the roadmaps our region needs for a decarbonized and climate-resilient future.

Given this challenging context, the following are concrete actions the IDB Group is planning to contribute to PA alignment in the LAC region, based on country-specific priorities and needs: 

• Systematic incorporation of long-term decarbonization and climate resilience objectives in sector and country strategies, ensuring they consider transition risks, contributions to a just transition, and tools to address the vulnerability of the country and sector to the impacts of climate change.

• Strengthening of the collaboration between the public and private arms of the IDB Group, in ways that help garner the multi-stakeholder support countries need to trace socially legitimate, technically robust, and financially viable net-zero pathways.

• Increased efforts to provide technical and financial support to governments and private companies, to implement decarbonization technologies and develop decarbonization financing schemes.

• Support activities for ministries of finance and ministries of planning to incorporate sustainability indicators into their decision-making on public expenditures and infrastructure planning. This is key in guiding national budgets toward the implementation of climate commitments as reflected in NDCs and LTSs, and is part of our ongoing work (see final section).

• Enhanced collaboration with the private sector and financial intermediaries, using a bottom-up approach to promote their PA Alignment. IDB Invest has already begun to assist private sector clients in the development of decarbonization financing schemes to help them transition to low-carbon energy and transportation. We will continue to collaborate with MDBs to finalize guidance for operations with financial intermediaries, which will serve as a basis to establish similar collaboration arrangements with them. Together, we expect these approaches to further support clients towards the progressive adoption of PA commitments appropriate to their market segments, stages of maturity, and evolving capacities toward sustainability.

• Support for climate entrepreneurship through IDB Lab, our innovation laboratory where we test, demonstrate, and help scale up the ideas and technologies that help partners accelerate the transition. This work will have a crucial role in testing innovative actions in the areas of biodiversity, resilience, hydrogen, and retraining for the just transition, among others.

• Advancement of an increasingly ambitious knowledge agenda, which incorporates tools and approaches to raise awareness on science-based targets and climate investment trends that will shape the future of LAC markets; strategies to reduce the exposure to climate transition risks and costly stranded assets; to manage the fiscal impacts of decarbonization; and to harness opportunities for the catalytic mobilization of private capital.

The IDB Group has valuable Bank-wide frameworks and good practices to further support our PA alignment agenda with countries. Chief among them is IDB's updated Environmental and Social Policy Framework (ESPF), with a new emphasis on issues related to social inequality, climate change, and ecosystem services. The ESPF also integrates disaster and climate change resilience with the recent Disaster and Climate Risk Assessment Methodology. This methodology is already in use and part of IDB Group's commitment to have 100% of projects with moderate or high disaster and climate change risk analyze risks to identify resilience actions. IDB Invest's recently updated Sustainability Policy, furthers our commitment to applying robust risk management standards in all private sector transactions. Finally, the systematic use of tools like Sustainable Infrastructure Framework, HydroBID, Aquarating, and methodologies including Blue Spot analysis, multiregional integrated economic-environmental models, which we are already promoting in the project design, are central to our efforts of enhancing climate-sensitive and climate-smart projects. 

In support for the PA Alignment agenda, we will rely on our record of accomplishment, knowledge, and financial products and fostering climate innovation to identify new avenues for action. These will include green job promotion, support re-skilling and up-skilling for economic diversification, design climate-resilient social transfers, incentivize sustainable development livelihoods, enact progressive fiscal policy, and ensure the valuation of ecosystem services.

²Argentina, Barbados, Brazil, Chile, Costa Rica, Dominican Republic, Jamaica, Panama, and Uruguay. Source: Climate Watch Net Zero Tracker.