Eight prominent international organizations and development finance institutions have come together during COP28 to announce a collaborative initiative aimed at amplifying financial instruments for sustainable climate and nature-linked sovereign financing.
The joint declaration, unveiled at the annual U.N. climate summit, reflects a concerted effort to explore diverse financial solutions, leveraging private sector capital through mechanisms like debt swaps and green or sustainability-linked bonds.
The coalition comprises the Agence Française de Développement (AFD), the Asian Development Bank (ADB), the African Development Bank (AfDB), the European Investment Bank (EIB), the Green Climate Fund (GCF), the Global Environment Facility (GEF), the Inter-American Development Bank (IDB), and the United States International Development Finance Corporation (DFC). Together, they are establishing a task force, led by the IDB and DFC, to oversee and facilitate the group’s mission.
DFC CEO Scott Nathan emphasized the collaborative nature of the initiative, stating, “The climate crisis cannot be addressed by any one organization operating in isolation. This joint declaration and task force solidifies our commitment to better cooperate on nature-linked financing. We need to be working together, building off proven models, to deliver concrete solutions to this challenge.”
IDB President Ilan Goldfajn highlighted the significance of innovative finance in addressing the critical juncture the world faces, stating, “We are at a critical juncture where innovative finance will be vital in helping countries access the needed resources.”
The coalition aims to bolster climate and nature-linked financing by enhancing access to mechanisms that mitigate credit risks for investors in sovereign debt instruments. This includes credit enhancement instruments such as full or partial credit guarantees, credit insurance, and political risk insurance (PRI).
Sustainability-linked financing, a key focus of the collaboration, aims to create incentives for scaling and deepening the impact of climate and nature financing.
This involves defining ambitious goals, implementing robust strategies, and enhancing operational mechanisms to mobilize private sector resources. The collaborative effort seeks to position these financial solutions as relevant and accessible funding sources for developing country sovereigns and public sector entities.
The joint declaration builds on the extensive work of DFC and IDB in the debt-for-nature conservation space. DFC has provided nearly $2 billion in political risk insurance (PRI) over the past 18 months to support debt-for-nature conservation transactions.
The IDB, during the same period, has approved US$585 million in partial credit guarantees, mobilizing more than US$700 million from other development partners and generating approximately US$500 million in savings for marine conservation.
Recognizing the elevated debt burdens facing developing countries, particularly hindering their ability to meet global climate and nature commitments, this collaborative effort aims to improve the efficacy of sustainability-linked financing.
The coalition represents a significant step towards achieving climate and nature goals while fostering financial sustainability for developing nations.
