Through a new initiative, the International Finance Corporation (IFC) will work with financial institutions in four countries to mobilise private sector financing for climate mitigation and adaptation projects and help align financial-sector strategies with the targets of the Paris Climate Agreement.
The programme, Scaling Up Climate Finance through the Financial Sector, is designed to increase climate lending by participating banks in Egypt, Mexico, the Philippines, and South Africa to 30% of their portfolios by 2030, while reducing exposure to coal.
The first phase of the initiative will be funded by the International Climate Initiative (IKI) of Germany’s Federal Ministry of the Environment, Nature Conservation and Nuclear Safety, or BMU.
“The banking sector is critical to raising the capital necessary to address the climate emergency and achieve the ambitious goals of the Paris Agreement,” said Paulo de Bolle, global director of IFC’s Financial Institutions Group.”
“This initiative will provide valuable technical assistance that helps banks deliver more capital for climate-friendly projects—reducing their own climate risks, curbing emissions, and financing green infrastructure,” De Bolle added.
Scaling up climate finance
To achieve its objectives, the programme will partner with the World Bank and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, to develop conducive regulatory frameworks and create an appropriate market environment for climate lending, climate risk management, and climate finance.
A 2016 IFC study found a $23 trillion opportunity for 21 countries to implement their Nationally Determined Contributions (NDCs) under the Paris Agreement in sectors such as renewable energy, energy efficiency, green buildings, and transport. IFC estimates that the banking sector must increase the share of climate lending on its loan books from 7% to 30% over the next decade to catalyse the funding needed for these opportunities.
In addition to helping banks increase their climate lending, the Scaling Up Climate Finance through the Financial Sector initiative is expected to provide financial institutions with new tools to identify, manage, and reduce the climate and carbon-related risks in their portfolios.
It will also allow banks to better integrate green finance strategies—such as green bonds—into their funding plans, supporting the growth of domestic capital markets financing for climate business.