- Greater long-term financing and technical capacity are key to increasing green finance in Latin America and Caribbean, according to new survey of their public development banks.
- Climate-change impacts on agriculture sector pose significant risks to Latin America, survey on role of PDBs in green transition finds.
Public development banks (PDBs) in Latin America and the Caribbean regard the climate transition as a financial opportunity but they face obstacles including a lack of long-term financing and insufficient awareness by clients of investment options, according to a new survey. Carried out by the European Investment Bank (EIB) and the Latin American Association of Development Financing Institutions (ALIDE), the survey also found that a lack of know how of green investment and climate change adaptation among clients and PDBs represented a barrier to scaling up green projects in the two regions.
The survey, released today, covers 28 PDBs in Latin America and the Caribbean and was conducted to assess how they are supporting the green transition across the region.
“Latin America and the Caribbean are increasingly experiencing the effects of climate change,” said EIB Vice-President Ambroise Fayolle. “The EIB-ALIDE survey shows that public development banks have an important role in increasing lending, raising awareness and catalysing private investment for green projects. We are committed to working closely with PDBs, countries in the region and the European Commission to support the green transition and strengthen the climate resilience of Latin American and Caribbean countries.”
According to the survey, 55% of PDBs say that inadequate green investment know-how by clients and the low priority they give to climate-adaptation investments are key barriers to scaling up green investments. Similarly, 45% of PDBs regard clients’ unawareness of green finance opportunities as an obstacle.
At the same time, PDBs identify internal limitations related to the lack of standardised metrics to measure climate risks in the industry (45%) and their own lack of technical expertise and green investment know-how and tools (36%) as hampering green investments. Limited access to long-term capital to match the long-term horizon of climate investments is also a significant challenge for PDBs (18%).
“In Latin America and the Caribbean, the green transition is both a pressing challenge and a significant opportunity. Our public development banks stand ready to support this shift, but they require greater access to long-term financing and technical expertise and international cooperation to scale up green investments. At ALIDE, we believe strengthening these capacities is key to fostering sustainable development and building climate resilience across the region,” highlighted ALIDE’s secretary general, Edgardo Alvarez.
The survey found that 93% of PDBs view the climate transition as an opportunity rather than a risk and that 77% integrate climate-related international standards such as the United Nations’ Sustainable Development Goals or the Paris Climate Agreement into their practices. However, 74% of PDBs plan to reduce lending to sectors of the economy that are exposed to climate risks, according to the survey.
The joint EIB-ALIDE survey was carried out between January and February 2024 and involved the participation of 28 PDBs from 15 Latin America and Caribbean countries. The participants represent close to 50% of the total assets of PDBs in the region. The sample includes development banks at the national and regional levels.
Climate risks
To assess climate risk at country level, the EIB has developed a methodology to map both physical and transition risks. These risks are reflected in the EIB climate risk country scores. Caribbean countries are among the most affected in the world by the impacts of climate change and are the most affected in terms of damages deriving from acute threats such as storms and hurricanes.
South American countries are more exposed to the impacts of climate change on agriculture. Nations such as Guyana, Bolivia, Paraguay and Ecuador have a high share of their economies devoted to agriculture (close to or exceeding 10% of gross domestic product). This share is non-negligible in bigger states as well (between 5% and 10% of GDP in Brazil, Argentina and Colombia). Central American countries also face threats to their agriculture. This is especially so for Nicaragua, Honduras and Guatemala, where agriculture represents around or more than 10% of their GDP.
According to the survey, PDBs are exposed to climate risks, with 40% saying that in 2023 alone extreme weather events damaged their physical assets such as bank branches and headquarters. Similarly, 59% of PDBs reported that these same events have also contributed to a deterioration of their portfolios’ asset quality. Out of those impacted, 46% of the PDBs identify micro, small and medium-sized enterprises as the most affected borrowers, followed by intermediated lending (31%), infrastructure lending (15%) and corporate lending (8%).
EIB at COP16
The EIB delegation will be led by Vice-President Ambroise Fayolle. For interview requests with members of the EIB delegation please get in touch with the press contact below. Find out more about EIB at the United Nations Biodiversity Conference here.
Background information
The European Investment Bank (EIB) is the long-term lending institution of the European Union owned by its Member States. It is active in more than 160 countries and makes long-term finance available for sound investment in order to contribute towards EU policy goals.
EIB Global is the EIB Group’s specialised arm dedicated to increasing the impact of international partnerships and development finance. EIB Global is designed to foster strong, focused partnership within Team Europe, alongside fellow development finance institutions, and civil society. EIB Global brings the Group closer to local people, companies and institutions through our offices across the world.
The EIB has been providing economic support for projects in Latin America since 1993 and in the Caribbean since 1978, facilitating long-term investment with favourable conditions and providing the technical support needed to ensure that these projects deliver positive social, economic and environmental results. The EIB local presence in Latin America and the Caribbean comprises 4 offices Bogota, Brasilia, Barbados and Santo Domingo. Since the EIB began operating in Latin America, it has provided total financing of around €14 billion to support more than 160 projects in 15 countries in the region, and more than €2 billion across 24 countries in the Caribbean.
ALIDE is the community of financial institutions that create development banking solutions to drive progress in Latin America and the Caribbean. With over 80 members, ALIDE strives to advance the transformation toward green banking and promote good financial practices among its members. The Association is also a founding member of the World Federation of Development Financing Institutions (WFDFI).