Leveraging opportunity: Key milestones and progress of the IDB Group

Since the signing of the Paris Agreement, the IDB Group has approved more than $20 billion in Climate Finance and built substantial knowledge on long-term decarbonization and resilience. We have also offered a broad range of technical support options to member countries and clients for furthering their action on climate change (see Figure 2). 

Our record of accomplishment, knowledge, and financial products fostering climate innovation, has helped us identify new avenues for more climate action. Ongoing operations that assist the economic recovery of countries already include green job promotion and support for re-skilling and up-skilling, in ways leading to economic diversification. Our technical assistance is also developing to span the design of climate-resilient social transfers, incentives for the development of sustainable livelihoods, progressive fiscal policies, and approaches for ecosystem services’ valuation.

Our work on Paris Alignment leverages our ongoing contributions to net-zero and climate-resilient pathways on two key fronts: i) Flagship initiatives by the IDB Group in the LAC region that provide models for decarbonization, which can be replicated and/or scaled-up; ii) Innovative solutions and financing structures to catalytically mobilize private capital.  

I. Flagship climate initiatives in the LAC region

We are supporting countries and clients to identify the specific policies, regulations, and investments required to fulfill their climate change commitments. Some of our efforts include:

The development of a Platform for Ministries of Finance, to ensure climate becomes part and parcel of public investment decision. , a request of our member countries. We are working with countries to shape the platform around their specific needs and challenges. Emerging topics include green finance, taxation and climate risk, and sustainable infrastructure and the private sector. We expect to launch the platform soon after COP26.

Assistance provided to the Government of Chile in designing a national Climate Change Financing Strategy with three pillars, short-term priorities, links to agendas on financial instruments, private sector involvement, and policy, including the design of the LTS.

Approval of the Decarbonization Policy-based Loan in Costa Rica, a first of its kind from a development institution.

Support for the updating of Peru’s National Strategy on Climate Change by 2050, which incorporates a vision of carbon neutrality and long-term adaptation.

In Colombia, in addition to collaborating with the Ministry of Finance to develop a Climate Change Fiscal Strategy, the IDB Group is supporting a sustainable climate-resilient economic recovery through two main initiatives. First, by providing $600 million in finance for the Program for Sustainable and Resilient Growth, which has leveraged an additional $600 million in donor funds

IDB Invest has worked on several initiatives to include improving our offer to clients of green financial products with the ability, for example to de-risk climate investments, if clients commit to long terms net zero strategies and managing climate risks, following the TCFD recommendations. As such, financial products are complemented with climate advisory services, through which we have delivered knowledge and training on topics such as strategies to define corporate sustainability policy; tools for GHG accounting; portfolio studies for climate segmentation and design of new business lines; capacity-building on measuring ESG risk, and green frameworks, among others.

Figure 2. IDB Group's ongoing support for climate action in LAC

Note: The IDB is in the process of initiating support for LTS development with approximately three more countries in the region, and more demand is foreseen.

II. Innovative solutions and financing structures

The IDB Group is constantly seeking to innovate in terms of the value proposition of financial products offered to countries and clients, with the aim of increasing climate action. Examples include:

Ongoing contributions to the creation of thematic bonds market, including green bonds as a new asset class for a wide range of issuers both in the public and private sector. This has provided a decisive push to the development of the green and thematic bond market – the IDB Group has backed 30% of the issuance of green and sustainable bonds in LAC, helping finance green assets, primarily renewable energy, across the region

In this regard, we are announcing during COP 26 the first ever Blue Bond in LAC and the 4th in the world. This bond, with a nominal amount of US$37.45, will provide long-term finance to eligible projects promoting the sustainable use of water resources for economic growth, improved livelihoods, and jobs, as well as ocean ecosystem health.

We are continuing in our work to increase capacity among Ministries of Finance to issue sovereign green bonds.

The IDB Group has provided technical cooperation to 40+ National Development Banks (NDBs), crowding-in around 400 commercial banks, and 27 capital market operations, leveraging more than $3 billion of IDB resources with an estimated support of $450 million of international Climate Finance. By the same token, IDB Invest has financed 45+ commercial banks and funds in the last years, across 16 countries in the region, providing from 2016 to date $820 million, and mobilization of private sector capital close to two times that amount, with an estimated impact of reducing an estimated of 42 million tons of CO2 equivalent per year.

Through blended concessional finance, the IDB Group has helped crowd in private sector investments that would otherwise not be available to finance projects with high development impact. These funds have re-balanced risk-reward profiles for pioneering investments and enabled them to happen. To date, we have leveraged $5 billion of external investment, unlocking low carbon and climate resilient investments in the region.

For every dollar of blended finance, the IDB Group is leveraging between 9-10 dollars towards climate.

IDB Invest has increased its private sector adaptation finance tenfold between 2017 and 2020, thus diversifying its Climate Finance away from typical renewable energy projects. We now have a specific team tasked with identifying, testing, replicating, and scaling successful private sector adaptation models. At the same time, we are formulating an action plan that further supports this vision.

The Accelerator Fund (ACL), which is focused on accelerating NDC investments, is one exceptional example of how relatively small amounts of grant funding deployed early can greatly improve the case to unlock the mobilization of large-scale finance for projects aligned with country-level climate goals. This Trust Fund was created in 2016, as a specific fund to target pre-feasibility assistance to accelerate investments. A recent evaluation of this ACL Trust Fund has shown that the overall effectiveness assessment at a portfolio and project level is particularly high when it comes to leveraging additional resources for projects during their pre-investment stages, with a combined leverage of $16.5 billion mobilized and unlocked. This is nearly 1,200 times the amount invested by the ACL funds. Even without considering unlocked markets (which amount to over 85% of the additional leveraged resources), this represents a ratio of $74 of mobilized resources for every dollar invested by the donors.

Green rebates are a potential new source of financial innovation that the IDB Group is currently designing and piloting. These would consist of a discount given on the lending spread attached to IDB’s financial products, awarded to countries or clients that achieve verifiable climate, disaster risk management, and biodiversity performance indicators at the project level. New pricing incentives such as this one will introduce versatility to our financial offering, reduce the risk of climate innovation, and further accelerate climate action in our region.

New pricing incentives, such as “green rebates” given to countries and clients that achieve sustainability performance indicators, are currently being tested at the IDB Group as part of our forward-looking approach to achieving flexible access to finance for climate innovation.