IDB and Germany Launch New Facility to Support Climate Action in Public Development Banks in Latin America and the Caribbean

The new “Latin America and the Caribbean Facility for Greening Public Development Banks and the Financial Sector” will help public banks in the region to align their operations with the Paris Agreement goals.

WASHINGTON – Germany’s Federal Ministry for Economic Affairs and Climate Action (BMWK), pledged EUR 20 million in grants to the Inter-American Development Bank (IDB) to establish the “Latin America and the Caribbean Facility for Greening Public Development Banks and the Financial Sector.”

The facility’s purpose is to help Public Development Banks (PDBs) evaluate their portfolios, integrate climate and socioenvironmental risks into decision-making processes, promote increased green lending, and facilitate access to climate and capital markets finance. As the most recent UN conference of parties on climate (COP28) highlighted, financial sector mobilization and sustainable financial sector practices are critical to address climate change. In this context, the facility includes mechanisms like issuing green bonds and implementing innovative sustainability-linked fund structures and instruments.

This contribution is part of BMWK’s International Climate Initiative (IKI) and aims to support PDBs in Latin America and the Caribbean in formulating institution-wide strategies that are consistent with the mitigation and adaptation goals of the Paris Agreement. Such strategies will promote the greening of the public financial sector by enhancing institutional capabilities and focusing on environmental, social, and climate considerations.

The facility also foresees the introduction of an innovative performance-based payments mechanism, which incentivizes PDBs to increase their portfolio share aligned with the Paris Agreement objectives. The facility will also catalyze and mobilize private climate funding. It is expected to leverage more than US$1 billion.

Beneficiaries of this facility also include members of the Green Coalition, which was launched at the Amazon Summit on August 7, 2023, in the context of the Amazonia Forever program.

Quotes

Ilan Goldfajn, President of the IDB, said, “We are delighted to partner with the German government to launch this facility that will enable public development banks in our region to align their operations with the Paris Agreement and contribute to climate action. By providing technical assistance, financial incentives, and access to green finance, this facility aims to transform the public financial sector into a powerful engine for low-carbon and climate-resilient development.”

Stefan Wenzel, Parliamentary State Secretary at the German Federal Ministry for Economic Affairs and Climate Action, said, “Transforming the financial sector is key for aligning financial flows with the goals of the Paris Agreement. Performance-Based Payments are an important instrument to achieve systematic change. We therefore intend a contribution of EUR 20 million to IDB, which will function as an incentive as it will enable IDB to hand out subsidized loans, if public banks achieve certain green indicators. These loans are supposed to have a catalytic effect for private capital. By this new, innovative mechanism, we make further progress on mobilizing private finance and aligning financial flows with the Paris Agreement goals.”

Related content

• LAC Green Finance Program
  
  A joint effort by the IDB and BMWK that helps National Development Banks (NDBs) create and promote green financial tools for private investments in energy efficiency and sustainable projects. It has mobilized since 2016 additional donors such as SECO, Danish Energy Agency, NDF, GCF and the Ministry of Foreign Affairs of Sweden.
  
  
• IDB and Germany
  
  Learn more about how the IDB and Germany are working together.

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