Photo: IADB

IDB announces “one-stop shop” for NDC finance in Latin America and the Caribbean

07/11/2016

The Inter-American Development Bank Group (IDB Group) has announced “NDC Invest”, an integrated support platform designed to spur  transformation of Paris pledges into investment plans and pipelines of bankable projects.
We talked to Amal Lee Amin, Division Chief at the IDB’s Climate Change Division, to get the background to the Bank’s approach to supporting its client countries with their Paris implementation strategies.

Note: The IDB Group comprises the Inter-American Development Bank (IDB of the Bank) and the Inter-American Investment Corporation (IIC). The IDB works with public and private sector clients in the Latin America and Caribbean region (LAC), providing long-term lending, policy advice and technical assistance support. The relatively recently formed IIC works to support sustainable businesses and projects through investment alongside the private sector.


“Presently, access to climate finance and related resources by countries can be very complex. We want to provide clients with a comprehensive but also a fairly simple package of support that will be customised to needs identified in the early work we do with them” – Amal Lee Amin

At its annual meeting held in the Bahamas in April 2016, the IDB Group (see box) confirmed its commitment to double its financing of projects designed to combat or reduce the effects of climate change by 2020. This step change would see climate-related finance then forming some 30 percent of the Group’s total portfolio.

Shortly after this announcement, the IDB launched a major request for proposals (RFP) from consultants to provide capacity building support to its 26 client countries around Latin America and the Caribbean.

This RFP was crafted to support the NDC Programmer, one of four main pillars of NDC Invest, with its focus on translating NDCs into investment plans and programmes that can attract finance. There are three other pillars that together create an integrated platform that tactically aligns existing Bank programmes and methodologies with new NDC-specific initiatives for country support.

amal-lee-amin
Dr Amal Lee Amin. Photo courtesy of WGES.ae

“There are two key objectives behind NDC Invest,” says Amal Lee Amin, head of the climate change division at the Bank. “Externally, we want to provide a coherent and accessible one-stop shop for countries. Presently, access to climate finance and related resources by countries can be very complex. We want to provide clients with a comprehensive but also a fairly simple package of support that will be customised to needs identified in the early work we do with them. Internally, it’s about how we align existing activities and resources, including country strategies and programming, with new ones that we develop in response to countries’ needs so that they are all aligned with the country’s NDC. In addition to the programmatic aspects, our role as Climate Change Division with responsibility for mainstreaming, is to work with operational teams to access and use relevant concessional resources that are needed to help ensure transformational impact.”

An approach built from a wide range of perspectives

The roots of the approach that Amin’s team is spearheading can be found in her extensive experience in climate finance, which has given her a wide range of perspectives on the challenges and possible solutions. Her entry into the field was as a student of Environmental Science, culminating in a PhD on drivers for change within the electricity industry of developing countries and policies for commercialisation of renewable energy. These themes, she says – of the relationships between policy change and finance in developing economies – have continued to be central in her career and to her outlook.

In the decade or so leading up to her taking up her present role at the IDB, Amin had several roles in the development of the UK Government’s policy on climate change and sustainable energy. This included heading a new team at the UK’s Environment Department, working with developing countries on climate change agendas driven by the UK’s G8 and EU presidencies at the time, including the G8’s “Plus 5” (China, Brazil, Mexico, India, South Africa). In her role at the Department for Energy and Climate Change from 2010/11, she led government thinking on the establishment of the UK’s Green Investment Bank, which opened for business in 2012. This role, she says, “really allowed me to engage with a range of private sector players, from project developers to pension funds and asset managers, and understand how public finance could best complement public policy and mobilise them and their resources.”

In a spell at the IDB between these UK government roles, from 2008/10, she was heavily involved in the establishment of the Climate Investment Funds and the Bank’s role as an implementing entity for these Funds.

Finally, before taking up her present role, she joined the think tank E3G, where from 2011-15 she led the establishment of their International Climate Finance programme. “Although I had really enjoyed my time on the Green Investment Bank,” she says, “my passion is the developing world and work to deliver these countries sustainable development within the context of climate change.” While at E3G, she worked with China and countries in Latin America (including Peru, Colombia and Chile), Asia and Africa to design financing strategies for low carbon pathways. She has also been a member of the Private Sector Advisor Group to the Green Climate Fund.

From these years at the interfaces of finance, policy and climate change, Amin sees two key requirements if changes are to be made that really achieve transformation of economies to a low carbon future. These are strong leadership by responsible government departments and a well-designed, programmatic approach towards investments involving public and private sector actors and interventions. Both are of central relevance for successful NDC implementation.

Leadership and a programmatic approach are key

“There is no cookie cutter solution. The first step is to precisely identify the barriers or constraints to transformation which are encountered in the economy, and then to design technical and financial interventions to address these alongside or before making investments in projects.”

The main interlocutors for development finance institutions such as the IDB tend to be finance and planning ministries, and Amin sees this continuing to be the case with the NDCs. The programmatic approach she sees as essential was developed in the course of establishing the Climate Investment Funds, which, alongside investments in projects, provided technical assistance for institutional capacity development. Amin says that the leadership component starts with ministries of finance or planning creating strong engagement with stakeholders – including other ministries, the private sector and civil society – to identify how the concessional resources available can have the best effect. “There is no cookie cutter solution,” she says. “The first step is to precisely identify the barriers or constraints to transformation which are encountered in the economy, and then to design technical and financial interventions to address these alongside or before making investments in projects.” These barriers could include institutional capacity development, policy reform or prototyping new financial instruments or business models to reduce perceptions of risk by the private sector.

Because the CIFs were substantial in size, they were able to demonstrate how this combination of investment and capacity support, aligned with investment from the private sector, could achieve real transformation at a sectoral or economy-wide level.

Four pillars …

These lessons underlie the design of NDC Invest, which has four interlinked components. In addition to the NDC Programmer is the NDC Pipeline Accelerator, NDC Market Booster and NDC Finance Mobilizer. They can work vertically (i.e. in sequence) but also laterally (i.e. supporting each other in various configurations). However used, they aim to increase the accessibility by countries to a range of technical and financial resources that meet differing needs.

The NDC Programmer is perhaps the most “bespoke” element, as it will seek to identify needs and gaps and thereafter potential resources to fill them. The Programmer process will also identify projects that can be financed early or that have high development value and are therefore likely to attract concessional support from sources such as the IDB. The balance between those objectives will likely depend on how far advanced the country is in integrating its country NDC within the broader development and local policy context. Where a country is well advanced, there may be little need for institutional development and it may be possible to move quickly towards generating investable pipeline. Where that is not the case, then the early focus may need to be more on capacity building and investment readiness.

“We have now the challenge to accelerate and scale up implementation to meet the Paris objectives. NDC Invest builds on what we have learnt through previous experience and aims to reduce some of the challenges countries face with accessing climate finance.”

… Speedy access

Amin says that the Programmer has been designed to allow countries to draw down quickly on the resources they need. Underlying it will be a panel of consultants able to provide support in areas from analysis of entry barriers at the sector level, to policy and legal analysis, to assessing financing needs and opportunities, to assisting with capacity for measurement, reporting and validation (MRV). These consultants will also be able to provide support in analysing needs and opportunities in different sectors such as energy, transport, forestry, waste, etc, in order to identify priority investments in these sectors.

Another important element in the initial planning for NDC implementation will be institutional arrangements. The Programmer will be able to offer support, for example, in terms of how inter-ministerial networks can be developed, how policy alignment is achieved between different ministry agendas and how potential conflict with other development goals such as the SDGs are resolved. The consultant panel approach will avoid the need for separate RFPs as each country steps up to use the NDC Programmer.

For countries which are relatively advanced in the low carbon transition, the Programmer will also offer the scope to identify mitigation sectors where they may be able to be more ambitious in terms of future NDC submissions, the first of which are due in 2020. Once the country’s NDC Investment Plan has been developed under the Programmer, the other modules of NDC Invest come into play.

The Pipeline Accelerator’s function is to concentrate resources on projects that have been identified as investable, but which require often significant “upstream” work in order to bring them to market. Amin believes that the main use of the Accelerator at the outset will be by sustainable infrastructure projects, where there may be significant ground work preparation to be done in terms of planning, PPP design as well as studies and assessments required to integrate sustainability at the project preparation phase. Accelerator support will thus likely include significant elements of grant-based technical assistance.

The results of such technical assistance will be shared through existing frameworks such as the LEDS / LAC partnership and a new NDC Partnership due to be announced at the Morocco COP.

“The Market Booster is mainly something we already have,” says Amin, “but can be aligned with the NDCs.” She cites, for example, existing bilateral trust funds the Bank operates, such as Energy Efficiency and Climate Smart Agriculture trust funds and activities such as PROADAPT of the Multilateral Investment Fund (MIF). These provide grant resources for SMEs and other market actors important for greening supply-chains and creating local private sector solutions. “The Booster will help develop the domestic markets needed to ensure the success of countries’ NDCs. For example, if a country’s Investment Plan identifies climate smart agriculture as a priority sector, then it can be directed to the relevant trust funds.”

The Finance Mobilizer will be based on the Bank’s experience of accessing concessional resources to provide credit enhancement or risk-mitigation. These resources may be available from internal trust funds that focus on particular sectors, for example energy efficiency, or from international resources such as the Green Climate Fund. Amin notes that NDC Invest is a joint operation with the Group’s Inter-American Investment Corporation. “Where a project is basically in the private sector, then IIC would lead on it. Where it’s a hybrid needing some longer term or concessional finance, or where it is instigated by the client country, then the Bank and the IIC will work in partnership on it.”

The acceleration phase begins …

“We hope partners will like the integrated nature of our approach.”

Amin looks forward to engaging closely with client countries and other multilateral development banks on NDC Invest and to seeing how different approaches can work in practise. “We have now the challenge to accelerate and scale up implementation to meet the Paris objectives. NDC Invest builds on what we have learnt through previous experience and aims to reduce some of the challenges countries face with accessing climate finance. We hope partners will like the integrated nature of our approach and the way it builds on learnings from initiatives like the Climate Investment Funds, and on what we already have going on but can be re-purposed now the NDCs are a reality.”

… As climate action is mainstreamed at the IDB

Reflecting on the wider context within which NDC Invest is positioned, Amin notes the immediate impact which the commitment to double climate financed activities by 2020 has had within the Bank generally. “There’s huge attention both within the Bank and the Corporation on how we deliver that commitment. This is something really new and significant, how we are mainstreaming climate change into all the activities of the Bank. This approach now influences the way we approach our country strategies and view our pipeline.” For example, she notes, all potential projects will be screened for climate risk and climate resiliency opportunities, with the aim of identifying these opportunities before projects even enter the formal financing pipeline. Similarly, there is a lot of institutional capacity building underway within the Bank to train staff on the climate agenda set by Paris.”

In terms of her own team’s role, she also sees a pattern repeating itself from her first spell at the IDB in 2008/10. “At the time the Climate Change team was working on things like renewable energy as some kind of vanguard operation. Now renewables is mainstreamed within our energy sector operations. We need this to happen to the same extent in other sectors. I believe this will happen as the commitment to double spending on combating climate change gets into the main arteries of the institution.”

You can visit the NDC Invest website at www.ndcinvest.org.

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