At the Petersberg Climate Dialogue in April, the IMF Managing Director, Kristalina Georgieva, was unequivocal about the need for a green recovery, which she described as a bridge towards a more resilient future.Ms. Georgieva stressed that the decisions made now will shape our economies and societies and the future of humanity given the climate crisis.Among the three tools she highlighted for the recovery are the promotion of green finance and green bonds, which can help to mobilize private sector finance for sustainable infrastructure projects.
To reduce the threat of a global depression investment in sustainable infrastructure are critical
Sustainable infrastructure can play a vital role to reduce the threat of a global depression and help ensure a sustainable recovery. This path can help to create quality jobs, attract investment and improve public services, while tackling the overlapping ecological, social and climate crises.In Latin America, there has been some progress on prioritizing sustainable infrastructure such as renewable energy, sanitation and public transport systems, but the region is still far away from mainstreaming these projects.The OECD estimates that USD 6.3 trillion of investment in infrastructure globally is needed every year between 2016 and 2030 to meet global development needs. An additional USD 600 billion will make these investments climate compatible, a relatively small increase considering the gains in growth, productivity and well-being.To meet Latin America and the Caribbean’s growing demand for quality public services and infrastructure, which are sustainable and climate-friendly, investments need to increase by at least 2% of regional GDP. This is roughly USD 250 billion per year, which requires a considerable fiscal effort and increase in the participation of the private sector.How to unlock greater private sector investment in sustainable infrastructure
In a new report by the IDB in collaboration with South Pole and Sitawi, we look at the effectiveness of existing public and private sector investment vehicles and regulation for investments in infrastructure through capital markets.It demonstrates that the region has not yet embraced capital market tools to drive the shift to sustainable infrastructure. Even if these instruments are driven by market-led initiatives, a crucial next step is to support regulators to stimulate sustainable infrastructure investment.To boost sustainable infrastructure investments, we identify key steps including stimulating innovation in and adapting existing regulation and investment vehicles by developing green, social and sustainable labels for types of instruments other than bonds. There is also a need to create incentives as targeted risk mitigation mechanisms (e.g. currency risk mitigation, first-loss provisions, viability gaps, and liquidity facilities) and labeling standards for issuances of sustainable infrastructure capital market instruments.This report builds upon the IDB’s framework on sustainable infrastructure, which promotes decision-making on infrastructure that is economically, financially, socially, environmentally and institutionally sustainable. We suggest that establishing a regionally accepted sustainable infrastructure taxonomy relevant for all stakeholders of the infrastructure ecosystem would further stimulate such investments.This can help boost the nascent participation of the private sector in the transition to net-zero emission and climate resilient economies.In Latin America, financial sectors have responded in a variety of different ways to this transition. The report evaluates the actions taken by the six major capital markets in Latin America (Argentina, Brazil, Chile, Colombia, Mexico and Peru) and the effectiveness of existing public and private sector investments vehicles in infrastructure projects.The report confirms that bank financing plays a key role in the region and catalogues 55 different instruments across the 6 countries, which show that capital market instruments are improving and expanding. These instruments have emerged in a general lack of government regulation dedicated to infrastructure investment. To improve the situation, we find three key regional recommendations that can apply to countries under different approaches:Stimulate participation of investors by adapting regulation to promote involvement of institutional investors including pension funds.
There is a need to differentiate sustainable and regular assets through labels.
Re-design and innovate with investment vehicles.