International Finance Corporation (IFC) is set to crank up climate financing in Latin America by 50% in the coming years following a similar increase during fiscal 2023, a senior told LatinFinance on Friday.
“This is my commitment. We don’t have an alternative. This is a major objective for us in the region,” said Alfonso Garcia Mora, IFC’s vice-president for Latin America and the Caribbean (LAC) as well as Europe.
IFC’s climate-related portfolio in the region reached $5.1 billion in the 12 months ending June 30. “And 55% of what we invested in Latin America was climate finance,” he said.
The development lender, which is the private-sector funding arm of the World Bank, delivered $1.8 billion of funding from its own account in climate finance and mobilized $3.3 billion from other investors.
Garcia Mora said, however, that the current involvement of the private sector is below par.
“Eighty per cent of what is required in terms of investment needs to come from the private sector. The liquidity exists in the system, but we need to channel it through climate finance,” he said, adding that IFC wants to help close the gap between climate project needs and investors.
Climate change has already inflicted economic damage in the region, and more work must be done on adaptation, not just mitigation, according to IFC.
“We estimate that in the past 20 years, LAC has lost approximately 1.7% of GDP every year due to weather-related disasters. Every year, 1.7% of GDP. And between 2.5 million and 6 million could live in extreme poverty in LAC by 2030 as a result of the impact of climate change. So we do not only need to continue working on mitigation and reducing emissions, we also need to work on adaptation,” Garcia Mora said.
BLENDED FINANCE
The IFC official said countries around the world need to promote renewable energy, remove fossil fuel subsidies while attracting capital to projects using solutions such as blended finance, which can be structured as debt, equity, risk-sharing or guarantee products with different rates or tenors.
“There is a clear need to use blended finance to review the perceived risk in more unknown markets where you are entering something new. We need blended finance to do that, because blended finance can leverage a lot of money. In our view, for each dollar we use in blended finance, we can multiply by seven the volume of private capital coming to investments. So we need to use those to co-invest to de-risk in these countries where the risk is higher and those sectors that are less explored, and therefore have more barriers of entry,” Garcia Mora said.
Meanwhile, IFC said Sunday that it signed an agreement with the government of Barbados to enable bring in private capital to develop the country’s first utility-scale onshore wind farm. The $80 million project will be majority owned and controlled by the private sector and will have a power capacity of 30-50 MW, the lender said in a statement on Sunday.
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