Latin America. Public development banks (BDPs) in Latin America and the Caribbean see the climate transition as a financial opportunity, but they face obstacles, such as a lack of long-term financing and low client awareness of investment options, according to a new survey.
Conducted by the European Investment Bank (EIB) and the Latin American Association of Development Finance Institutions (ALIDE), the survey also revealed that the lack of knowledge on green investments and climate change adaptation among clients and BDPs represents a barrier to scaling up green projects in the two regions.
The survey covers 28 BOPs in Latin America and the Caribbean and was conducted to assess how they are supporting the green transition in the region.
"Latin America and the Caribbean are increasingly experiencing the effects of climate change," said EIB Vice-President Ambroise Fayolle. "The EIB-ALIDE survey shows that public development banks have an important role to play in increasing lending, raising awareness and catalyzing private investment in green projects. We are committed to working closely with the BDPs, the countries of the region and the European Commission to support the green transition and strengthen the climate resilience of Latin American and Caribbean countries."
According to the survey, 55% of BDPs say that inadequate knowledge about green investments by clients and the low priority they place on investments in climate adaptation are key barriers to scaling up green investments. Similarly, 45% of BDPs see customers' lack of knowledge about green finance opportunities as a hindrance.
At the same time, BDPs identify internal constraints related to the lack of standardised metrics to measure climate risks in the industry (45%) and their own lack of technical expertise and knowledge on green investments and tools (36%) as factors hindering green investments. Limited access to long-term capital to match the horizon of climate investments also represents a significant challenge for BDPs (18%).
"In Latin America and the Caribbean, the green transition is both an urgent challenge and a great opportunity. Our public development banks are ready to support this change, but they need greater access to long-term financing, technical expertise, and international cooperation to scale up green investments. At ALIDE, we believe that strengthening these capacities is key to fostering sustainable development and building climate resilience across the region," said ALIDE Secretary General Edgardo Álvarez.
The survey found that 93% of BDPs see the climate transition as an opportunity rather than a risk, and that 77% integrate international climate-related standards, such as the United Nations Sustainable Development Goals or the Paris Agreement, into their practices. However, 74% of BOPs plan to reduce lending to sectors of the economy exposed to climate risks, according to the survey.
The joint EIB and ALIDE survey was carried out between January and February 2024 and involved 28 DBPs from 15 countries in Latin America and the Caribbean. Participants represent about 50% of the total assets of BDPs in the region. The exhibition includes development banks at the national and regional levels.
Climate risks
To assess climate risks at the country level, the EIB has developed a methodology to map both physical and transition risks. These risks are reflected in the EIB's climate risk scores by country. Caribbean countries are among the most affected in the world by the impacts of climate change and are the most affected in terms of damage from acute threats such as storms and hurricanes.
Countries in South America are more exposed to the impacts of climate change on agriculture. Nations such as Guyana, Bolivia, Paraguay and Ecuador have a large part of their economies dedicated to agriculture (about or more than 10% of gross domestic product). This proportion is not negligible in larger countries (between 5% and 10% of GDP in Brazil, Argentina and Colombia). Central American countries also face threats to their agriculture, especially Nicaragua, Honduras, and Guatemala, where agriculture accounts for about or more than 10% of their GDP.
According to the survey, BDPs are exposed to climate risks; 40% say that in 2023 alone, extreme weather events damaged their physical assets, such as branches and bank headquarters. Similarly, 59% of BDPs reported that these same events have also contributed to the deterioration in the asset quality of their portfolios. Of those affected, 46% of BDPs identify micro, small and medium-sized enterprises as the most affected borrowers, followed by intermediated loans (31%), infrastructure loans (15%) and corporate loans (8%).
