The Inter-American Development Bank (IDB) has become the first multilateral development bank to pilot a financing tool that rewards countries for achieving nature and climate goals, it announced Wednesday.
In the newly launched pilot phase of the Biodiversity and Climate-Linked Mechanism for Ambition (IDB Clima), borrowers will get a 5% discount on selected loan projects for meeting goals connected to the Kunming-Montreal Global Biodiversity Framework and the Paris Agreement.
While sustainability-linked loans, sometimes with climate or nature-related performance indicators, are gradually emerging in the private banking market, multilateral development banks have yet to introduce similar mechanisms until now.
“We are excited to launch IDB Clima, a first among our peers. In aligning financial incentives with nature and climate action, this tool maximises the impact of our development work by also rewarding efforts that will help countries mobilise capital,” IDB President Ilan Goldfajn said in a statement.
In the pilot phase, IDB will make available up to $1 billion in loans from its Ordinary Capital for up to 10 projects.
“Selected projects, which will involve national and subnational entities and financial intermediaries, will also receive non-reimbursable technical assistance and a dedicated support team,” the bank said.
“The projects will be chosen based on geographical diversity, the state of the country’s green-transition journey, and the country’s environmental challenges. They will also represent varying institutional capacities and levels readiness for market access, which will help test IDB Clima’s ability to support the full range of IDB borrowers.”
While agreeing the 2015 Paris and 2022 Montreal pacts were milestones in global efforts to address the climate and nature crises, funding for implementation remains a major obstacle for many developing nations.
“To be eligible, the loan project must also include financing to strengthen the capacity of national systems for environmental measurement, reporting, and verification (MRV), and goals in this area must also be met to unlock the discount,” said the bank.
“MRV systems are critical for countries to access green and thematic debt markets and mobilise capital at the scale required to robustly address sustainability challenges.”
Launching IDB Clima will mean the bank is driving the green transition in Latin America and the Caribbean, Gregory Watson, IDB principal specialist on biodiversity and natural capital, climate change and sustainable development, said in a comment on LinkedIn.
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