Tool is the first of its kind among multilateral development banks

The Inter-American Development Bank (IDB) has become the first multilateral development bank to offer a financing tool that rewards countries for achieving nature and climate objectives.

The Biodiversity and Climate-Linked Mechanism for Ambition (IDB CLIMA), currently in the pilot phase, will provide the borrower with a discount when nature and climate objectives of selected loan projects are met. The discount is provided in the form of a grant, in the amount of 5% of the loan’s principal.

To be eligible, the loan project must also include financing to strengthen the capacity of national systems for environmental measurement, reporting and verification (MRV), and goals in this area must also be met to unlock the discount. MRV systems are critical for countries to access green and thematic debt markets and mobilize capital at the scale required to robustly address sustainability challenges.

“We are excited to launch IDB CLIMA, a first among our peers. In aligning financial incentives with nature and climate action, this tool maximizes the impact of our development work by also rewarding efforts that will help countries mobilize capital,” said IDB President Ilan Goldfajn.

IDB research shows that higher levels of public and multilateral financing are needed  for countries to meet climate targets. Under the Paris Agreement, countries pledged to begin strengthening their MRV systems by 2024.

A total of up to $1 billion in loans from the Bank’s Ordinary Capital will be provided for up to 10 projects chosen for the pilot phase of IDB CLIMA. Selected projects, which will involve national and subnational entities and financial intermediaries, will also receive non-reimbursable technical assistance and a dedicated support team.

The projects will be chosen based on geographical diversity, the state of the country’s green-transition journey and the country’s environmental challenges. They will also represent varying institutional capacities and levels readiness for market access, which will help test IDB CLIMA’s ability to support the full range of IDB borrowers.