Rewards Results on Nature and Climate
The Biodiversity and Climate-Linked Mechanism for Ambition (IDB CLIMA) is a results-based pilot program approach that rewards countries that invest in the needed capacities to access concessional financing from thematic and green debt markets at a scale that is compatible with national nature and climate commitments. IDB CLIMA is built around the Green Transition Framework, an approach that considers specific national sector capacities to define ambitious, realistic objectives.
With the IDB CLIMA Pilot Program, we became the first to design a systematized, institution-wide mechanism to test a novel and ambitious approach to reward investments in biodiversity and climate 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 nature and climate 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 transparency and results-driven biodiversity and climate action at the appropriate scale, prioritizing development effectiveness. 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, with a focus on meeting a country’s environmental commitments. 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 they offer. To fully benefit from these markets, borrowers must set ambitious environmental targets (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, based on the Climate Ambition Mechanism, is triggered upon achieving the targets across the three key performance indicators outlined below:
Measure the investment loan’s environmental effects. The achievement of this KPI helps demonstrate how a sector can mainstream nature and climate considerations into its public investments.
Measure improvements in the sector’s ownership and its capacity to incorporate nature and climate considerations into its investments. This contributes to a bottom-up approach that facilitates the achievement of national biodiversity and climate commitments through sufficient policies and investments.
Measure the borrower’s improvements to their impact measurement reporting and verification (MRV) systems. This increases compliance with international reporting standards, including those of the International Capital Market Association and the U.N.’s Enhanced Transparency Framework.
Measure the investment loan’s environmental effects. The achievement of this KPI helps demonstrate how a sector can mainstream nature and climate considerations into its public investments.
Measure improvements in the sector’s ownership and its capacity to incorporate nature and climate considerations into its investments. This contributes to a bottom-up approach that facilitates the achievement of national biodiversity and climate commitments through sufficient policies and investments.
Measure the borrower’s improvements to their impact measurement reporting and verification (MRV) systems. This increases compliance with international reporting standards, including those of the International Capital Market Association and the U.N.’s Enhanced Transparency Framework.
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.
In addition, IDB CLIMA Pilot Projects must reflect a combined biodiversity and climate finance amount equal to at least 60 percent of total investments.
The Green Transition 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 GTF 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.
Supporting Countries in the Transition to Low-Carbon Climate-Resilient Economies
A holistic umbrella program for the region's sustainable development that aims to collaborate on forest conservation and climate action, offering economic alternatives to improve people's quality of life.
Protecting nature means protecting us from climate change. Investing in nature pays off.