A member of the World Bank Group, International Finance Corporation (IFC) is currently helping to align financial-sector strategies with the targets of the Paris Climate Agreement.
Through a new initiative launched Wednesday, IFC is working with financial institutions in four countries to mobilise private sector financing for climate mitigation and adaptation projects.
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 percent 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.
Global Director of IFC’s Financial Institutions Group, Paulo de Bolle, says “the banking sector is critical to raising the capital necessary to address the climate emergency and achieve the ambitious goals of the Paris Agreement.
“‘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.”
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 percent to 30 percent over the next decade to catalyze 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.
IFC is however, the largest global development institution focused on the private sector in emerging markets, and working in more than 100 countries, using capital, expertise, and influence to create markets and opportunities in developing countries.
In fiscal year 2020, it invested $22 billion in private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity.