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Transitioning to greener and sustainable economies will need innovative new financial instruments for the optimal use of capital, writes the executive-president of CAF, the Development Bank of Latin America.

Far from being among the top greenhouse gas emitters today, there are many reasons why the Latin America and the Caribbean region needs to be at the centre of action to combat climate change and global warming. Home to half of the planet’s biodiversity and 57% of all remaining primary forests, it is undoubtedly one of the most challenged by current and future climate risks: shifting precipitation patterns, the melting of Andean glaciers, and the rise in sea and acidic levels in the Pacific and Atlantic Oceans are just part of a long list of events.

These effects will have direct consequences on regional economies that even before the pandemic were slowing down, and that after Covid-19 will be weaker, poorer and more indebted. Faced with this reality, the commitment to green growth appears the safest and most sensible bet for the wellbeing of Latin Americans.

We need to make the most of the inevitable transition to cleaner economies that the world is experiencing and that will gather speed in the coming decades. In Latin America, this has to be done by accelerating energy transition, strengthening reforestation and forest recovery, and supporting industries with better financial conditions to reduce their carbon footprint. These efforts need to consider technology as a key instrument in the protection of the region’s natural resources and ecosystems.

How much will it cost?

The financial needs of green growth are overwhelming, but some mechanisms can bring us closer to them. Globally, we need to double investments in energy projects – to $5tn by 2030 – to meet the challenge of being carbon-neutral by 2050, according to the International Energy Agency. In parallel, according to the UN Environment Programme, we will need to invest $8.1tn by 2050 to protect natural ecosystems and biodiversity.

Despite the magnitude of the challenges, Latin America and the Caribbean has the potential to redirect its course

In 2019, green financing in Latin America reached almost $8bn, but the gap of finance needed for adaptation to climate change was $110bn. The region continues to depend heavily on fossil fuels, while maintaining production and services systems with low levels of modernisation and intensive use of natural resources.

It is essential to adopt new financial instruments that allow optimal use of capital, as well as to strengthen current sources of green financing in capital markets. In this sense, multilateral banks will play an important role in catalysing additional investments and offering investors the security they often need to make large disbursements. The road to green growth also involves connecting with local actors such as national development banks and commercial banks.

Clearing a green path

Despite the magnitude of the challenges, Latin America and the Caribbean has the potential to redirect its course. We at CAF – Development Bank of Latin America have put forward an agenda to become the green bank of Latin America. This green agenda is based on aligning economic sectors to draw guidelines that redirect their planning framework towards social responsibility, environmental sustainability and a development approach that is low in greenhouse gas emissions and is climate change-resilient.

Under this approach, we seek to generate a competitive financial offering as well as technical solutions that will allow Latin America to become a prominent player in global climate action. This can be achieved through the mobilisation of resources to finance environmental, forestry, water, climate, waste management, energy efficiency and sustainable agriculture projects. Our commitment will be reflected in our yearly approval of green financing operations projections, from 26% in 2020 to an estimated 40% in 2026.

We want to help Latin America and the Caribbean to become one of the most successful emerging regions in global geopolitics, especially concerning climate action. That is why we must strive to preserve ecosystems as valuable to the planet as the Amazon, one of the lungs of the world. It is a vast region that is shared by Bolivia, Brazil, Colombia, Ecuador, Guyana, Peru, Suriname and Venezuela.

During these pandemic times, we have learned the role international agencies and multilateral institutions can play to help overcome a crisis by fulfilling financing needs and co-ordinating different actors’ efforts. Over the coming decades, we need to promote co-operation across the public and private sectors to strengthen climate action, sustainable development, knowledge sharing and a better balance with nature. That is the aim of initiatives such as the Leticia Pact, which apportion great value to promoting the Amazon’s conservation.

We live in a world where there is a gulf between human activity and our planet’s ability to absorb our way of living. Consolidating a regional governance that allows opening the green path of growth is urgent. In Latin America and the Caribbean, recovery and growth must be green, digital and people-centric.

Sergio Díaz-Granados is executive-president of CAF, the Development Bank of Latin America.

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