WASHINGTON, CMC – Germany’s Federal Ministry for Economic Affairs and Climate Action (BMWK) has pledged EUR 20 million (One Euro=US$1.29 cents) 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 IDB said the facility aims to help public development banks evaluate their portfolios, integrate climate and socio-environmental risks into decision-making processes, promote increased green lending, and facilitate access to climate and capital markets finance.
“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,” said IDB President Ilan Goldfajn.
The Parliamentary State Secretary at the German Federal Ministry for Economic Affairs and Climate Action, Stefan Wenzel, said transforming the financial sector is critical for aligning financial flows with the goals of the Paris Agreement and that performance-based payments are an essential 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 specific green indicators.
“These loans are supposed to have a catalytic effect on private capital. By this new, innovative mechanism, we make further progress on mobilizing private finance and aligning financial flows with the Paris Agreement goals, ”Wenzel said.
The IDB recalled that the just concluded UN Conference on Climate Change (COP28) in Dubai noted that financial sector mobilization and sustainable financial sector practices are critical to addressing climate change.
“In this context, the facility includes mechanisms like issuing green bonds and implementing innovative sustainability-linked fund structures and instruments.”
The IDB said that this contribution is part of BMWK’s International Climate Initiative (IKI) and aims to support public development banks 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.”
”It said that the facility also foresees the introduction of an innovative performance-based payments mechanism, which incentivizes the banks 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 one billion US dollars.
Beneficiaries of this facility also include members of the Green Coalition, launched at the Amazon Summit on August 7, 2023, in the context of the Amazonia Forever program.
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