Finance in Common: Building collaboration, bridging the finance gap

With just seven years left to meet the Sustainable Development Goals, it is clear that the international financial system must dramatically accelerate its ability to foster global development.

The alarming escalation of the climate crisis, along with social and economic shocks produced by the pandemic and the war in Ukraine, have stalled progress to a point where we risk missing many of the 2030 SDG targets.

This has brought new urgency to the effort to reform the international financial architecture. The Summit for a New Global Financing Pact, held in Paris in June, laid a road map for these reforms, and the upcoming Finance in Common Summit — or FiCS — in Cartagena, Colombia, aims to start implementing them.

“We’re at a critical juncture both in the Latin America region and globally, where the scale of development challenges demands a much greater mobilization capacity among public development banks,” said Susana Cordeiro Guerra, manager of the institutions for development sector at the Inter-American Development Bank, an event co-host. Cordeiro Guerra spoke to Devex about how FiCS can help to advance this agenda.

This conversation has been edited for length and clarity.

What is Finance in Common and why is it important?

Finance in Common is a global coalition of public development banks, or PDBs, that are working to achieve greater impact through better coordination and alignment to meet commitments under the Paris Agreement and the SDGs.

There are more than 520 PDBs globally. They manage $23 trillion in assets and provide over $2.7 trillion in development financing each year. That scale gives this coalition an unmatched capacity to leverage public and private finance to address market failures and foster sustainable development. The PDBs provide equity, long-term financing, guarantees, and risk mitigation instruments in sectors and regions where private financing is insufficient. And this is particularly valuable at a time when many governments are fiscally constrained.

What can we expect from the Finance in Common Summit in September, and how will it help advance previous initiatives?

This fourth edition of FiCS has been organized around three priority areas that face severe financing gaps. These are small- and medium-sized enterprises and financial inclusion, climate change and biodiversity, and sustainable infrastructure. There will also be a broad discussion of the institutional reforms that PDBs need to adopt in order to better address these challenges.

This is a pragmatic agenda that will highlight innovations that have shown results in the field, in order to foster collaboration and improve institutional capabilities so that we can do more together. There will be a particular emphasis on how we can leverage financial instruments, knowledge products, and technical assistance to meet the specific needs of countries and regions.

Since we already have broad agreement on the road map for reform, discussions in Cartagena will focus on the “nuts and bolts” of adapting and scaling relevant financial instruments. We know that the PDBs can play a catalytic role in closing the estimated $5.3 trillion financing gap to meet the SDG and Paris Agreement goals, but the pressure is on us to deliver concrete steps.

What influenced the decision to host this year’s FiCS in Latin America and highlight work done in the region?

Latin America and the Caribbean has emerged as a dynamic laboratory for designing new financial models and instruments to meet this challenge. The region’s countries have pioneered initiatives in mobile banking, digital payment, sustainability-linked bonds, and debt-for-nature swaps. These approaches are applicable around the world.

Our region has a total of 87 PDBs in 26 countries, many of which have successful experiences to share with the global community. PBDs in Argentina, Brazil, Colombia, El Salvador, Paraguay, Peru, and Mexico have pioneered instruments such as energy-saving insurance, contingent grants, technological innovation facilities, and result-based loans. I think the FiCS secretariat chose Cartagena with the expectation that these experiences can be adapted to the needs of other regions as well.

The strong commitment of the Latin American Association of Public Development Banks — ALIDE — to mobilize PDBs in LAC was also an important factor for the FiCS secretariat to select the region to host this year’s edition, which naturally would have led to IDB’s involvement in supporting the event, given our historic strategic bond with ALIDE.

How does FiCS build on the Summit for a New Global Financing Pact in June?

The summit in France allowed us to achieve a common understanding of the problems we face and to draft a shared road map for advancing several workstreams in Cartagena.

One of these workstreams consists of developing a common framework for alignment on the SDGs. This includes agreeing on tools to assess environmental, social, and governance risks, along with consistent guidance and monitoring of sustainable-investment decisions.

A second workstream is about improving the responsiveness and adaptability of financial instruments to climate change and natural disasters. The IDB is helping to lead this workstream with the support of several partners. At FiCS, we will share our experience with no-cost crisis-resilient debt clauses, which allow governments to postpone principal payments when a natural disaster strikes, and we will explore how PDBs can implement and scale these solutions.

A third FiCs workstream builds on the New Global Financing Pact and seeks to better align PDBs with the goals outlined in the Paris Agreement. PDBs must be at the forefront of making financial markets more sustainable and this is a key step towards that goal.

What do you hope this year’s FiCS will achieve?

Our goal in Cartagena is to leverage our financial instruments and technical capacity to build new alliances and replicate proven financial innovations across the globe. For example, the IDB has collaborated with CORFO — Chile’s PDB — to structure a $400 million loan to develop a de-risking facility to boost Chile’s private investment to the green hydrogen industry. This is the kind of breakthrough that could help other emerging economies to advance their decarbonization efforts.

At FiCS we will also be launching an initiative to globalize the Green Bond Transparency Platform, which is currently focused on LAC debt markets. As a tool that harmonizes green-bond reporting, it’s emblematic of how Latin America and the Caribbean can contribute to the global climate agenda.

I hope that delegates will leave Cartagena with stronger partnerships and a clear sense of how their own countries can harness these ideas in the near term. The summit is a critical opportunity to take concrete steps to achieve higher resource mobilization and development effectiveness.

What do you hope this and future summits achieve in the long term?

I think Finance in Common is a powerful coalition because it unites multilaterals, PDBs, the private sector, academia, and civil society organizations around a common goal. Each of these actors brings national experience and insight, but today we face difficulties that demand radically improved forms of collective action. We simply can’t solve these problems individually, and time is running out for us to learn what works and turn it into global public goods. That is why collaboration is at the heart of FiCS.

In addition to mobilizing more financing toward the SDGs, we also need to transform how we measure impact and the development effectiveness of our work. ­ We need to move from a traditional paradigm where measurement is seen as an ex-post effort to one where it enables us to continually build better institutions, boost local capability, and guide the design of future programs. The FiCS is an ideal place to advance this shift.

I urge everyone who cares about these agendas to participate in the summit, which will be in hybrid format. They can register to participate online at FinanceinCommon2023.com.