IDB - Inter-American Development Bank

10/25/2024 | News release | Distributed by Public on 10/25/2024 15:30

Taxonomy Matters: Climate Finance


This article is part of the Taxonomy Matters series, where we share definitions from our knowledge taxonomy along with a set of related knowledge products. In this edition, the term is climate finance.

Within the United Nations Framework Convention on Climate Change (UNFCCC), it is defined as "local, national or transnational financing-drawn from public, private and alternative sources of financing-that seeks to support mitigation and adaptation actions that will address climate change."

Climate finance has become a fundamental pillar in the fight against climate change, especially as nations prepare to face current environmental challenges. In 2023, multilateral development banks (MDBs) reached a historic milestone by mobilizing a total of US$125 billion for climate action globally, marking a significant increase compared to previous years. The IDB Group announced that its climate finance in Latin America and the Caribbean totaled US$7.5 billion, with a commitment to triple this amount in the next decade. This effort is crucial for climate change mitigation as well as climate change adaptation.

With this in mind, below we have compiled a selection of datasets and publications, related to these objectives. For crafting the description of several of these knowledge products, we used the generative AI functionality of the IDB Publications Catalog where indicated.

Data

IDB Climate Finance 2018 (updated 2024)

This dataset contains information beginning in in 2018. It is focuses on climate finance, which includes all development activities carried out by the public and private sectors that reduce greenhouse gas (GHG) emissions and thus mitigate climate change, and/or that reduce vulnerability to climate change and contribute to an adaptation process. The dataset has been updated, most recently in 2024, to include subsequent climate finance information in line with the recurring Joint Report on Multilateral Development Banks' Climate Finance. The available dataset contains information from the IDB and IDB Lab.

Publications

Climate Finance Strategies: Analysis of International Experiences

Climate financial strategies identify barriers to financing, such as counterproductive incentives, insufficient regulation, lack of investment objectives, misalignment of visions, and information asymmetries about sustainable activities. By 2023, in Latin America, 75% of countries already have a strategy or are in the process of developing one. In fact, during the first half of 2023, the Regional Climate Change Platform of Ministries of Economy, and Finance, with the Technical Secretariat of the IDB, analyzed cases from 16 countries to identify best practices in the design and implementation of these strategies.

This analysis examines the benefits of designing and implementing climate finance strategies, providing information, policy recommendations, and lessons based on experiences from Latin America and the Caribbean (LAC) and internationally. These strategies improve policy recommendations and their effectiveness going forward, and guide public and private finances to achieve mitigation goals and address adaptation challenges.

Integrating Climate Action into Public Financial Management: Lessons from Paraguay and Costa Rica

The document highlights how to structure an effective action plan using the improvements proposed by the Public Financial Management for Climate Change (PEFA-Climate) assessment methodology. It presents two cases of applying the PEFA-Climate methodology in the Ministries of Finance of Paraguay and Costa Rica. Both countries have made significant improvements in their public financial management standards and systems and are incorporating the climate dimension into their reforms. Integrating climate action into public financial management is a complex challenge that requires an orderly approach and a medium-term perspective. This publication concludes by emphasizing the importance of including the climate module in PEFA assessments to ensure that the modernization of public financial management integrates the climate dimension into all its regulations and processes.

Toward Resilient, Decarbonized Public Investment: Practices for Integrating Climate Action into Public Investment Management

Here is a summary of this work generated by the AI functionality of our Publications Catalog:

The document emphasizes the critical need to integrate climate action into public investment management. It highlights the challenges public investments face in addressing climate and transition risks, stressing the importance of incorporating climate action into planning, resource allocation, and project implementation to enhance resilience to climate events and transition to decarbonized economies. The publication also discusses economic and fiscal risks related to extreme climate events, the necessity of a just energy transition, and the redirection of resources towards resilient, low-carbon infrastructure. It also outlines strategies to improve investment efficiency, access financial resources, and create portfolios with positive climate impacts.

Additionally, the document proposes interventions such as national adaptation strategies, climate finance strategies, integrating climate risks into investment management, using the shadow price of carbon, applying green investment taxonomies, and prioritizing resilient, low-carbon investments. Recommendations for public investment management officials are also provided in the document.

Nature-based Solutions in Latin America and the Caribbean: Financing Mechanisms for Regional Replication

Here is a summary of this work generated by the AI functionality of our Publications Catalog:

The report delves into leveraging nature-based solutions (NBS) to tackle infrastructure needs and climate challenges in the region. It explores innovative financing methods to attract private capital for NBS projects, aiming to close the investment gap and expedite sustainable economic growth. It underscores the benefits of NBS such as cost savings, resilience enhancement, and community protection, while stressing the necessity for new financing models to combine traditional funding sources with increasing private sector investments. The document outlines five key strategies including green bonds, blended finance, policy frameworks, insurance policies, and endowment funds to address unmet NBS investment needs in the region, supporting economic recovery, inclusive development, and climate change mitigation. Additionally, the report offers recommendations for replication, highlighting the significance of partnerships, scientific evidence, governance, funding diversification, and policies to advance NBS adoption and investment, aiming to inspire stakeholders to contribute to a more sustainable and resilient future for Latin America and the Caribbean.

Visit the IDB Publications Catalog for more research related to climate finance:

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