How to Become Sustainable Finance ‘Influencers’?

Securing financing requires considering the impossible. To achieve the Sustainable Development Goals (SDGs) in Latin America and the Caribbean, this also means using an innovative approach to achieve alliances with the private sector.

Since the U.N. launched the Sustainable Development Goals (SDGs) in 2015, significant but insufficient steps have been taken to achieve them. The difficulty of obtaining funds holds a special place among the obstacles faced by the SDGs.

According to U.N. calculations, an additional $2.5 billion would be needed every year and this could only be achieved if all the organizations involved provided their maximum support. This means that money is needed and, above all, the right projects must be connected with suitable investors to develop sustainable initiatives.

At IDB Invest, we are striving to remedy these deficiencies and contribute to achieving the SDGs in Latin America and the Caribbean through alliances with the private sector. How does this work? For starters, we do this by providing our own resources to mobilize investments for innovative development projects supported by sustainable and scalable business models.

To use a contemporary analogy, this means acting as a finance “influencer,” helping to raise financing that would otherwise be difficult if not impossible to obtain.

The financing method

We know this is a difficult task because investors’ interests often collide with their lack of experience in this field, with persistent political risks in some of the region’s countries, and with the threat that climate change entails.

One of the tools we use is mixed financing, which consists of leading operations with the participation of our network of donors and partners who share IDB Invest’s commitment in America and the Caribbean and who work and co-finance with us in order to achieve common objectives. Donors’ funds, combined with our own capital, allow us to grant concessional financing, which offers increased payment facilities to the borrowers, and we combine this with capital under commercial terms.

We are particularly proud of various mixed financing projects because they include new and innovative business models. An example is the project carried out by Itelecom in various municipalities of Chile consisting of the use of high efficiency LED technology in street lighting. Another initiative, called Ejido Verde, will make it possible to plant 1,250 hectares with native resin pine species in the Mexican state of Michoacán.

Itelecom is financed with an IDB Invest loan for $7 million and two donor co-loans, one from the Canadian Climate Fund and the other from the Clean Technology Fund, contributing $7 million and $4.5 million, respectively. In Ejido Verde, its promotors have received a financing package from IDB Invest and the Global Environment Facility (GEF) amounting to two million dollars.

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Mobilization as a solution

A second solution we make available to our clients is the mobilization of resources directed to the creation or improvement of sustainable infrastructures, which represent one of the major deficiencies in Latin America and the Caribbean, so much so that getting up to speed would require investing $7 billion between 2016 and 2030, 40 percent more than in the previous 15 years.

For this purpose, IDB Invest provides long-term capital when the market does not do so on its own initiative or is only willing to do so under terms that our clients cannot undertake.

For this reason, we encourage institutional investors (commercial banks, insurers, investment funds, pension funds) to channel their money toward infrastructures, under the umbrella of IDB Invest. We contribute experience, solid relationships with the region’s countries, and the confidence that our high credit rating provides.

One case of this type is La Jacinta, the first photovoltaic solar plant in Uruguay, which will contribute to diversification of the electricity supply from renewable sources and for which total financing of $93 million was obtained.

IDB Invest structured a B bond, which was the first international solar bond in Latin America and the (non-sovereign) bond with the longest term in the Uruguayan market (25 years), with the collaboration of Invenergy, one of the world’s most important investors in renewable energy.

The package also included a mixed financing loan from the Canadian Climate Fund for the Private Sector in the Americas (C2F). This loan was restructured to help the bond achieve an investment grade rating, fundamentally so that it would be accepted and purchased in the market.

Mixed financing and the mobilization of investments for infrastructures are two formulas targeting a single purpose: to ensure that Latin America and the Caribbean make a quantitative and qualitative leap in the development of sustainable projects. And we act as sustainable finance influencers to overcome the challenges along the path to the SDGs.■

LEARN HOW IDB INVEST CAN OFFER YOU SOLUTIONS HERE.