Latin America: IDB backs energy efficiency green bonds

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The Inter-American Development Bank (IDB) has approved financing to establish a regional Energy Efficiency Green Bond Facility program.

The IDB has provided $217 million to the program – one of eight projects worldwide that the development bank is funding in the first round of allocations recently announced by the United Nations’ Green Climate Fund (GCF).

“This private sector program stands out for its innovative financial approach, involving small and medium enterprises and the potential mobilization through capital markets of funds from different institutional investors such as pension funds and insurance companies,” said Gema Sacristan, chief of IDB’s Financial Markets Division.

The program provides an alternative financing mechanism for energy efficiency projects through the issuance of green asset-backed securities (ABS). It will also contribute to the development of capital markets in the region. The program will introduce green ABS following the Green Bond Principles standards aimed at fostering socially and environmentally responsible investments.

Amal-Lee Amin, chief of IDB’s Climate Change and Sustainability Division, said the approval of the program furthered the development bank’s commitment to supporting Latin American and Caribbean countries in the implementation of their own financial contributions. “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.”

Mexico will be the first country to implement this program, followed by the Dominican Republic, Jamaica and Colombia. The IDB’s loan of up to $400 million will be complemented by a loan of up to $50 million from the China Co-Financing Fund, administered by the IDB in connection with the first utilization of the facility in Mexico.

The IDB announced in October its intention to double its climate financing by 2018 through both public and private sector investments.