A group of eight multilateral development banks and development finance institutions have teamed up to launch a task force to accelerate sustainability-linked finance through approaches like debt-for-nature swaps.
The announcement was made at COP28 in Dubai Monday, with the Inter-American Development Bank (IDB) and the US International Development Finance Corporation taking the lead.
“By strengthening our collaboration with multilateral development banks and other stakeholders, we are looking to scale up and enhance the impact of climate and nature finance,” Ilan Goldfajn, IDB president, said in an announcement.
Debt-for-nature swaps and sustainability-linked loans have emerged over the past couple of years as a way to allow the world’s poorest nations to address the triple crises of debt, nature loss, and climate change.
Several swap deals have been announced, including for Ecuador, Barbados, and Gabon.
The institutions participating in the initiative acknowledged that developing countries are facing elevated debt and debt service burdens, and that the scope and scale of the problem makes it critical to raise more funds.
“The participants intend to collaborate to scale climate and nature-linked financing by sovereigns and other public sector entities by improving access and affordability of credit enhancement instruments,” a joint statement said.
A taskforce will be set up in January to consider mechanisms and actions that will help scaling up such funding. The taskforce will be designed during the Dubai COP, with think-tank NatureFinance to act as its secretariat.
In addition to the abovementioned organisations, the joint statement was also signed by the French Development Agency AFD, the Asian Development Bank, the African Development Bank, the European Investment Bank, the Green Climate Fund, and the Global Environment Facility.
The World Bank has expressed interest, a press release also said.
As well, several major insurance companies and the Vulnerable Twenty Group issued letters of support for the effort.
“Sustainability-linked sovereign financing offers innovative solutions for vulnerable countries facing the triple crises; climate shocks, biodiversity loss, and debt crisis, it does so by using credit enhancement mechanisms to lower borrowing costs and attract private investment,” said Bogolo Kenewendo, Africa director and special advisor to the UN Climte Change High-Level Champions.
The GEF, the world’s biggest financer of environmental activities, said the initiative had significant potential to help poor countries better protect their natural resources.
“The GEF sees great promise in this partnership with multilateral development banks, development finance institutions, and international organizations – together we can provide credit enhancements at scale and to all countries interested,” said GEF CEO Carlos Manuel Rodriguez.
“Doing so is critical to underpinning action that can restore the health of our planet.”
By Stian Reklev in Dubai – stian@carbon-pulse.com
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