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Behind the construction of a bridge, a school or a water containment infrastructure there is often imperceptible logistics, but with a material result: the procurement of materials, the drawing up of plans and, above all, the financing for the construction. execution of the works. CAF-Development Bank of Latin America and the Caribbean believes that everything – or at least most – of this process must be linked to a vision of sustainability, as a clear way to address the growing emission of greenhouse gases.
One of the measures they take is to offer advice to their shareholders, from around twenty countries in the region, to use sustainable materials, consider the patterns of the surrounding ecosystems and use the solutions that nature already offers. However, this represents a challenging change of vision in a region overexposed to climate change and that accumulates a debt of inequality and poverty that fights the priorities of the States.
The entity has set the goal of doubling 40% of its portfolio (about 25 billion dollars) of green investment by 2026. That is, it will be linked to the mitigation of greenhouse gases and placed in renewable energy projects, protection of deforested areas, decarbonized production processes and sustainable mobility. It will also focus on strengthening an adaptation and resilience agenda that includes risk management of natural disasters and the consequences on the daily lives of communities.
To this end, it has strengthened a range of financial products and services that range from loans that reward the greenest projects, with discounts and bonuses and technical assistance for the structuring of green bonds or the creation of insurance against environmental attacks.
All this architecture, also addressed by other development banks such as the IDB or the World Bank, represents a fundamental and critical part of achieving the sustainability objectives of Latin America and the Caribbean, especially considering that the precariousness of investment in containment projects the climate footprint is high. For Alicia Montalvo, climate action and positive biodiversity manager at CAF, it is an emerging and challenging agenda.
“There are many challenges when talking about transition, because there is a significant problem of poverty in the region that must be addressed. And transitions take time,” he explains in an interview with América Futura. “You cannot change your energy matrices overnight, the first thing is to make sure that the population has energy,” she emphasizes. “This whole look is a process that is taking place right now. The good news is that it has been put on the agenda of international financial institutions,” she adds.
The vicious circle of the Latin American climate
Despite being one of the regions with the least pollution, Latin America is extremely vulnerable to the impacts of climate change, in part due to its dependence on nature, agricultural production and raw materials.
2023 was the warmest year ever recorded in Latin America and the Caribbean, according to data processed by the World Meteorological Organization. That additional 1.39º (from the reference period between 1961-1990) translated into extreme natural events such as the powerful Hurricane Otis in Acapulco, Mexico, or the torrential rains and fatal landslides in São Sebastião, Brazil. This, added to the unusually high temperatures in bodies of water and severe and intense droughts throughout the continent, is disrupting economic cycles and creating a vicious cycle: climate change generates soil degradation, forcing producers to deforest. new extensions of forest, which in turn generates greater emissions, fueling climate change.
In this context, CAF’s role is to try to give a new economic meaning to its climate action. Thus, they work on different fronts, such as optimizing their loans so that they can be cheaper, improving their technical advice to align the construction of hospitals or schools and exploring international initiatives that involve the G20 countries to create resource flows oriented to nations. that are most vulnerable and generally have the least fiscal space. It is a correlation that is repeated throughout the region: populations that have smaller budgets also have the worst infrastructure, leaving them more compromised by climate risks.
“Inequity is a contributing factor to the risk of climate change, because curiously it is always the most vulnerable communities, the ones that suffer the most,” highlights the CAF biodiversity manager.
Paying for environmental services
Along this path, the development bank also collaborates with the ministries and finance secretariats of the continent in the development of green financial taxonomies, instruments dedicated to creating an inventory and guide so that financial institutions, such as banks or fintechs, (public and private) understand what a green investment is and how best to allocate resources from their portfolios to these purposes. Until now, Colombia, Chile, Mexico and Argentina have developed their own taxonomies in order to encourage, upstream, the allocation of public resources with a sustainable vision, and downstream, the creation of credits for the purchase of electric vehicles, green real estate construction or solar panels for homes.
In other trenches, the bank is exploring novel models of environmental assets such as Special Drawing Rights (SDR), created by the International Monetary Fund (IMF) as international reserve assets that can be exchanged and relocated to the climate agenda. It has also made its first green bond operations, such as a placement that they advised in Bolivia, recently, while they are approaching blue bonds for the oceans or biodiversity certificates, linked to the number of hectares protected by a project.
“If a community decides to protect an area that is threatened by agriculture and, instead of cutting down the trees, takes care of them, as well as the fauna, a value must be given to the services that this protection generates, in terms of quality.” of air, protection of natural barriers. That is an ecosystem service and it must be monetized. How do you give it that value? That is the difficulty of the certificates, but if it is done, it can be sold to large corporations,” explains Montalvo.
“There are those who say that we cannot monetize nature. But, in the end, these communities are generating services for everyone. What is certain is that it must be done with great rigor (…) and we are beginning to work on it: on giving value to nature. Our ancestors were clear about it, but later it became an intangible asset. People have to know what happens if they destroy the mangrove: fishing is lost, protection from rising seas. And that’s worth it,” he concludes.
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