The Inter-American Development Bank (IDB) has approved US$450 million of financing to initiate an Energy Efficiency Green Bond Facility in the Latin America region.
Earlier this month, the Green Climate Fund (GCF), which channels investment for climate initiatives from public and private sectors, announced that the IDB programme would receive up to $217 million in additional funding.
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The new green bond facility aims to support Latin American and Caribbean countries in achieving their INDC commitments, the carbon reduction pledges being made by countries ahead of next week's COP21 climate talks in Paris. Mexico will implement the programme first, followed by the Dominican Republic, Jamaica, and Colombia. The programme will also contribute to the development of capital markets in the region.
IDB’s loan of up to $400 million is complemented by a loan of up to $50 million from the China Co-Financing Fund, which will be administered by the IDB, in relation to the first use of the green bond facility in Mexico.
The facility provides an alternative funding mechanism through the issuance of green asset-backed securities (ABS), in order to encourage environmentally responsible investments.
Amal-Lee Amin, IDB’s climate change and sustainability division chief, said: “The approval of this programme furthers our commitment to supporting Latin American and Caribbean countries in the implementation of their proposed Intended Nationally Determined Contributions (INDCs). Tapping into domestic capital markets for refinancing of energy efficiency is key for increasing scale of investment for de-carbonization over the medium and longer term.”
Gema Sacristan, IDB’s financial markets division chief, added: “This private sector program stands out for its innovative financial approach, involving small and medium enterprises and the potential mobilisation through capital markets of funds from different institutional investors such as pension funds and insurance companies.”
IDB plans to double its climate financing by 2018 through both public and private investments.
