June / 26 / 2017
June / 27 / 2017
Governments have a number of tools available to meet the challenge of achieving sustainable development goals and climate mitigation objectives. Coherent domestic policy frameworks will be critical to creating an enabling environment for and help drive low-carbon, climate-resilient investments. Domestic institutions will also need to play a key role in enabling the shift to sustainable, low-carbon investments. National Development Banks (NDBs) have a privileged position in their local markets, strong knowledge of and long-standing relationships with the local private sector, a good understanding of local barriers to investment, and opportunities and vast experience in long-term investment financing. In this context, a number of NDBs have been playing a key role scaling up private financing for climate change mitigation projects through the intermediation of international and national public climate finance in their respective local credit markets.
Green Banks are a recent arrival on the financial institution scene, having emerged in the past five-seven years. Green Banks are publicly capitalized entities established specifically to facilitate private investment into domestic low-carbon, climate-resilient infrastructure and other green sectors such as water and waste management. In the countries in which Green Banks have been established, (i) there were identifiable gaps in financing for clean energy projects/enterprises that were not being supplied by existing public or private institutions; and (ii) there was a policy mandate to cost effectively scale up investment to meet climate imperatives and (in some cases) broader economic development goals. Though Green Banks differ amongst each other in terms of size, governance structure (e.g. certain Green Banks exist as divisions within larger institutions), missions, and tools, they all share a core set of functions and characteristics that are critical to increasing investment in green infrastructure. Some of these functions are like those undertaken by NDBs, such as working with the private sector and using public finance, risk mitigation, and transaction-enabling interventions to “crowd in” private investment. Yet, Green Banks are pioneering other interventions that can be instructive to NDBs in the region.
In Latin America, there is a varied and rich ecosystem of NDBs. As part of their broader development programs, many NDBs are playing a key role in developing innovative green financial instruments to scale up private investments needed to transition economies to low carbon and improve their resilience to climate impacts. Indeed, some NDBs in Latin America are world-leading pioneers and major players in mobilizing sustainable and low-carbon investment. These NDBs as well as others that have more recently become involved in the space may find elements of the “Green Bank” model useful and relevant, even in light of the differences between them and currently operating Green Banks.
The “Green Bank” model is a free-standing, dedicated green fund or an embedded specialist “green team” of investment professionals with a segregated pool of green capital. In currently operating Green Banks, this model allows for their use of risk-mitigating and transaction-enabling interventions which have proved successful for leveraging private capital and creating new markets. Elements of the model could be useful to NDBs and other institutions to sharpen NDC implementation and meet the need to leverage increasing amounts of private capital over time. In turn, the innovative approaches and best practices of Latin American NDBs can help inform activities at existing Green Banks.
This event is organized by the Connectivity, Markets and Finance Division (CMF) and the Climate Change & Sustainable Development Sector of the Inter-American Development Bank (IDB) in cooperation with the National Bank for Public Works and Services (BANOBRAS), the Organization for Economic Co-operation and Development (OECD), the Green Bank Network (GBN), and the Latin American Association of Development Financing Institutions (ALIDE).
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