IDB to launch climate facility next year, president says

WASHINGTON — Inter-American Development Bank President Mauricio Claver-Carone intends to launch a bank climate facility by next spring, he told Devex in an interview. “I’ve been here now over two months, and it’s become abundantly clear to me that the IDB has been — for actually its whole existence — has been dependent on other climate facilities for financing projects and things of the sort,” Claver-Carone said. “The IDB does not have its own climate facility. Why? So I asked that question, and no one had a good answer. And now we’re going to create our own climate facility and work with our partners.” He said there is “a whole bunch of enthusiasm” about the project. The bank is at work on the facility, which Claver-Carone wants to launch by the time IDB holds its annual meeting, currently scheduled for March in Colombia. The initiative comes as United Nations Secretary-General Antonio Guterres called for an overhaul of the global climate financing system. He cited the two hurricanes that recently slammed Central America in as many weeks among the litany of reasons why the world must reverse the current “descent towards chaos” caused by climate change. Guterres said all multilateral development banks must commit to aligning their lending to the global net-zero objective. The recent natural disasters, as well as Latin America and the Caribbean’s natural biodiversity — home to the world’s largest tropical rainforest, the Amazon — demonstrate why a regional climate facility is relevant and needed, Claver-Carone said. By 2050, IDB estimates that 2% to 4% of the region’s gross domestic product will be lost to temperature increases, rising sea levels, and changes to rainfall patterns. Countries in Latin America and the Caribbean have made good progress on renewable energy, Claver-Carone said, but addressing pressing climate issues is rarely a budget priority in a region that even before 2020 was struggling with slow economic growth and an unprecedented migration crisis — now only compounded by COVID-19. “The region deserves a lot of credit where it is and the importance it’s given to climate issues. … They want to do so, but obviously when you're in the middle of a crisis, sometimes feeding people gets in the way of having the bigger picture of how you can rebuild,” Claver-Carone said. “There’s a desire to now rebuild in a stronger way, but obviously countries are focused on survival, on feeding people, on providing health care to people. So it doesn’t diminish the will that exists in the region; it’s essentially about walking and chewing gum at the same time.” IDB currently works with several external climate funds, including the Green Climate Fund, where its accredited projects support efforts such as low-emission and climate-resilient agriculture, energy-efficient equipment at small and medium-sized businesses, and climate-resilient reforestation. Other facilities IDB works with include the Global Environment Facility, Climate Investment Funds, and Adaptation Fund. In 2019, IDB climate lending totaled $5 billion — 29% of its approvals, the majority of which went toward mitigation activities. Climate-related financing has doubled over the last 4 years, and the bank has a goal to reach 30% of total lending by the end of 2020. While Claver-Carone calls IDB’s existing environmental, social, and governance standards “the best in class,” the bank could be doing much more in the space if it could finance more climate-friendly and sustainable projects, he said. The bank must also improve its compliance with the Paris climate agreement, the standards of which IDB does not currently meet, Claver-Carone said. The institution did sign on to a 2018 joint framework in which multilateral development banks pledged to work together to align their lending and activities with the global climate accord. Although Latin American and Caribbean countries only account for 12% of global greenhouse gas emissions, on a per capita basis the region contributes more emissions than other lower-income nations such as India and China. The bank expects emissions to increase further in the coming years if regional development trends continue, which will make clean energy projects all the more important. “The IDB does not have its own climate facility. Why? So I asked that question, and no one had a good answer.” --— Mauricio Claver-Carone, president, Inter-American Development Bank Land use change is also a top priority for IDB, due to the quantity of forest land that is converted each year for other purposes, including agriculture. IDB has worked with commercial financial institutions and national development banks on development of green financial products and services, as well as on reducing their environmental impact. Its current climate work also includes helping countries design and implement disaster risk management plans, supporting ministries of finance and planning, and providing knowledge and technical assistance. “We have unique penetration and unique knowledge of countries in the region, including those in the Amazon region,” Claver-Carone said. “There’s a whole lot that we can do there. We’re kind of dependent on some of these global environmental facilities in order to be able to not only do projects and promote good policies in regards to climate in all of these countries, but also to do climate-friendly projects. So we need to have our own facility.” Climate action is a No. 1 priority for the bank’s European shareholders, Claver-Carone said, although they have traditionally been more focused on Africa in their international lending. Climate change is also an area where cooperation between the bank and Joe Biden’s incoming presidential administration in the U.S. could be particularly productive, he said, and he hopes to gain its support for the bank’s climate facility. An accelerating need for climate-related financing is one reason Claver-Carone hopes to get the new administration’s blessing for a capital increase, a proposal that he has laid out for IDB’s board of directors. The bank’s current lending capacity is $12 billion, while Claver-Carone estimates needs in Latin America and the Caribbean to be around $25 billion. Increasing the bank’s lending capacity is “common sense” as it looks to recover from COVID-19 without sacrificing progress on issues like climate, he said. “I don’t want any of the good mid-to-long-term work and any of the 2025, 2030 goals that we’ve set forth to be jeopardized by the crisis we’re facing today,” Claver-Carone said.