Rewarding results on nature and climate
IDB CLIMA is a results-based pilot program approach that rewards countries that invest in the needed capacities to successfully take advantage of concessional finance terms offered by thematic and green debt markets at a scale that is compatible with national environmental commitments. IDB CLIMA is built around a framework that considers specific national sector capacities, readiness levels, and defines ambitious, realistic objectives that must be verifiable.
With the IDB CLIMA Pilot Program, we became the first to design a systematized, institution-wide mechanism to test a novel and ambitious approach that aims to reward investments that truly contribute to national sustainability commitments.
IDB CLIMA emulates the IDB’s groundbreaking work in supporting the design of the world’s first sustainability-linked bond that includes an interest rate abatement if Key Performance Indicators (KPIs) are met. IDB CLIMA provides a 5% rebate on the financing cost upon full achievement and independent verification of three predefined KPI targets, but it does not penalize the borrower if the targets are not met.
IDB CLIMA is designed to incentivize investments in the systems and infrastructures needed to deliver large scale sustainable project pipelines as well as the reporting and transparency systems needed to verify effective delivery of results. The program focuses on prioritizing impact at the needed scale. Successful IDB CLIMA pilot projects will bolster national capacities to develop and issue debt products that can benefit from the advantages offered by green and thematic debt markets, while multiplying nature and climate investments. Other positive spillovers include reinforced transparency frameworks and the capacity to design better evidence-based policies.
The objective of IDB CLIMA goes beyond helping countries access green and thematic debt markets; it is to guarantee that borrowers capitalize on all the benefits these markets offer. To fully benefit from these markets, borrowers must design ambitious environmental interventions (KPI 1), identify the proper policies and expenditures to meet these targets (KPI 2), and be able to report on their progress in a timely manner (KPI 3).
The reward is triggered upon achieving the targets across the three key performance indicators outlined below:
Measure the investment loan’s environmental effects. This KPI measures the transformational environmental impact attained directly through the loan’s resources. This is an “illustrative” KPI that supports the ownership of environmental policy by line ministries and public and private actors. An expected outcome is improved understanding of environmental action by the borrower. These ambitious operations set examples of how to mainstream environmental concerns into their future investments.
Measure improvements by the borrower to achieve ownership of national environmental policy objectives. This KPI contributes to a bottom-up approach that facilitates the achievement of national nature and climate objectives at a larger scale, through future investments. This KPI is systemic in nature and measures steps taken by the borrower to ensure that future investments are designed with a direct alignment with the environmental objectives that a country or private actor has set for itself. An expected outcome is that those targets are incorporated into the borrower’s public investment decision-making process. This helps increase the volume of green investments which enables ministries of finance proceed with the issuance of green debt products, thus aiming for the necessary scale of investments.
Measure improvements by the borrower to measure, report and verify environmental impact. This KPI increases capacities to design, implement and verify environmental impact achieved by investments and policies. This KPI is systemic in nature and measures steps taken by the borrower to increase its contributions to national transparency efforts. Said capacities must be designed/revised in line with international reporting standards, including those of the International Capital Market Association as well as those of the U.N. Framework Convention on Climate Change, and the U.N. Convention on Biological Diversity. An expected outcome is an increase in the quality of the borrower’s relevant environmental data as well as its reporting frequency. These data can then be leveraged by Ministries of Environment to help define environmental policy, and ministries of finance can use them to issue green debt products.
Measure the investment loan’s environmental effects. This KPI measures the transformational environmental impact attained directly through the loan’s resources. This is an “illustrative” KPI that supports the ownership of environmental policy by line ministries and public and private actors. An expected outcome is improved understanding of environmental action by the borrower. These ambitious operations set examples of how to mainstream environmental concerns into their future investments.
Measure improvements by the borrower to achieve ownership of national environmental policy objectives. This KPI contributes to a bottom-up approach that facilitates the achievement of national nature and climate objectives at a larger scale, through future investments. This KPI is systemic in nature and measures steps taken by the borrower to ensure that future investments are designed with a direct alignment with the environmental objectives that a country or private actor has set for itself. An expected outcome is that those targets are incorporated into the borrower’s public investment decision-making process. This helps increase the volume of green investments which enables ministries of finance proceed with the issuance of green debt products, thus aiming for the necessary scale of investments.
Measure improvements by the borrower to measure, report and verify environmental impact. This KPI increases capacities to design, implement and verify environmental impact achieved by investments and policies. This KPI is systemic in nature and measures steps taken by the borrower to increase its contributions to national transparency efforts. Said capacities must be designed/revised in line with international reporting standards, including those of the International Capital Market Association as well as those of the U.N. Framework Convention on Climate Change, and the U.N. Convention on Biological Diversity. An expected outcome is an increase in the quality of the borrower’s relevant environmental data as well as its reporting frequency. These data can then be leveraged by Ministries of Environment to help define environmental policy, and ministries of finance can use them to issue green debt products.
The reward is attained upon an independent verification of results. Once an investment loan operation reaches a disbursement rate of 90%, an independent process verifies KPI target achievement. This independent verification emulates the type of verification that countries must conduct to obtain step-down interest rate rebates from thematic and green debt products.
The Framework is a methodological framework developed by the IDB to assess and classify borrowers’ institutional capacity on a sector-by-sector basis into three levels. The Framework can apply to all borrowers in the region and guides the definition of IDB CLIMA KPI targets, considering effective borrower capacities while increasing ambition.
The IDB CLIMA philosophy is to work alongside borrowers as they initiate their green transition journey and invest in priority areas that will allow them to align their debt strategy with their environmental commitments to benefit from green and thematic debt markets.
All IDB borrowers that access sovereign guaranteed debt are eligible. In its pilot phase, the Pilot Program will only focus on IDB Investment Loans.
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