Improving Access to Climate Finance

February 2, 2023

Welcome to this CARTAC forum on improving access to climate finance in the Caribbean. Let me thank you all for participating. And let me take a moment also to thank the CARTAC director, Christian Josz, and his staff for organizing this forum and providing a venue for these discussions.

Climate change, in my view, is likely to be one of the foremost macroeconomic, financial, and debt policy challenges that IMF members will face over the coming decades. Meeting this challenge will require an unprecedented and massive scaling up of global investments for climate adaptation and mitigation. The good news is that at the current rate of $630 billion a year, the scaling up has already begun. ESG investments continue growing as an asset class on the investment landscape. The bad news is that this amount is still far short of the estimated financing needed for the green transition.

The reality is that the current levels of climate finance are not only too small, they are also distributed unevenly and inefficiently especially in Emerging Markets and Developing Economies. Too often—due to capacity constraints, information gaps, and potentially high upfront costs—the economies that are most vulnerable to climate change and most in need of climate finance, like the Caribbean countries, are also the countries that are less able to access climate finance. This needs to change if climate finance is to fulfill the promise of meaningfully contributing to decarbonization and averting a climate disaster.

This is why we are here today. This event comes at a perfect time to address these challenges given recent financial and economic developments:

  • On the one hand, the international community and the private sector are making significant efforts to scale up climate finance initiatives.
  • On the other hand, the global economy is still navigating through tumultuous waters and most economies are facing significant headwinds. These stem from rising inflation, elevated public debt, commodity price volatility, geopolitical uncertainty from the Russian invasion of Ukraine, and the lingering effects of the pandemic.
  • Adding to these challenges, debt managers and climate financiers in this room are also facing tighter financial conditions in the Caribbean region.

So, the key question today before us is how to respond to these challenges. What is generally the case for the global economy is equally true for the Caribbean. Climate change is an existential threat to the region, and thus far, climate finance to the region has been insufficient to meet the region’s investment needs. In terms of physical risks from climate change, such as risks from rising sea levels, the increased frequency of weather-related disasters, and coastal erosion, the region is disproportionately vulnerable given its geography. Consequently, there is also a predominant need to invest in climate adaptation. In terms of transition risks, while there is a notable difference between tourism-dependent Caribbean economies with high debt levels vs. commodity exporters with fiscal space, both will need to access climate finance for the transition to a greener economy. 

  • For Caribbean economies that are tourist dependent, there will be the challenge of greening the tourism sector and investing in climate adaptation while maintaining debt sustainability. In these cases, where the average debt-to-GDP ratio for these economies hovered around 90 percent in 2022, climate finance may provide novel financing solutions that support the dual objectives of prudent debt management and meeting climate targets.[1] These solutions could include contract clauses for delayed debt repayments when disaster strikes, such as the ones that Barbados and Grenada have introduced in their bonds. I am hopeful here of building on this success and drawing from these experiences in the development of a standardized bond clause to facilitate the adoption of climate-resilient debt instruments.[2] Alternatively, climate finance can free up fiscal resources via a debt-for-nature swap, so that governments can improve resilience without triggering unsustainable debt levels or sacrificing spending on other development priorities. This region has experience on this from Belize and Barbados. Here, the common thread running through these efforts to make public debt climate resilient is an opportunity to achieve simultaneous debt management and climate investment goals. But this will only happen if these initiatives can be scaled up and if there is sufficient capacity to analyze, negotiate, and finalize these types of agreements.
  • Commodity exporting Caribbean countries will also need to secure financing for climate adaptation, but they will also have to manage, and finance, the decarbonization of the economy, in particular the energy sector. These economies have the benefit of increased borrowing capacity, and potentially a significant amount of sovereign assets, but will need to plot a path for their commodity sectors to a net-zero green economy. These economies are a microcosm of many emerging market and developing economies where it will be critically important to scale up private climate financing. To attract private sector capital to low-carbon projects, public-private synergies could play a critical role through blended finance. There is a need for innovative financial instruments that could enhance risk-sharing through public-private partnerships. We recently devoted a chapter in our October Global Financial Stability Report to this issue, building on the IMF staff climate notes we published in 2022.[3],[4]

The international community also has an important role to play, including the IMF. In this area, I see two important streams of support. The first is making available financial resources for climate finance. The second is providing analytical, policy, and technical assistance to access climate finance.

  • With respect to climate resources, COP27 resulted in several important additions to the international climate finance landscape. Most of the media attention was given to the historic agreement to establish a new “loss and damage” fund for vulnerable countries, on which we are all awaiting further details in terms of its operationalization and size. But there were also other key additions. Another initiative, to be discussed in our second session, is the Global Shield against climate risks initiative that was spearheaded by the V20 Group and the G7 under the German Presidency. The IMF has also added to our lending framework with the creation of the Resilience and Sustainability Trust, or “RST”, a new lending facility designed to provide longer-term financing to tackle longer-term structural challenges, including climate change. This is our first-ever long-term financing facility with a 20-year maturity and a 10½‑year grace period, and greater concessionality, especially for our poorest members. We have over $40 billion in funding pledges for the Trust. The IMF Board has already approved the facility for Barbados, Costa Rica, and Rwanda, and staff level agreements with Bangladesh, and Jamaica are already in place. The IMF is exploring opportunities to catalyze private financing in member countries availing themselves of the RSF through: (1) policy reforms and conditionality supported by the RST/RSF program to improve the climate investment environment; (2) capacity development to improve public and private capacity in attracting and managing climate investment; and (3) establishing public-private risk sharing financing structures to leverage private capital.

With respect to climate finance frameworks, I would like to stress the importance of strengthening the climate information architecture. Assessing climate risks, allowing accurate market pricing, and enabling informed investment decisions, all require a strong information architecture around climate risks and remains a policy priority. It requires reliable and high-quality data, a harmonized and consistent set of climate disclosure standards, and principles such as taxonomies to align investments to sustainability goals.  

Finally, let me conclude by emphasizing the importance of debt management as countries pursue efforts to scale up climate finance. If climate finance is to grow significantly in size, it cannot operate in a vacuum. Climate financing options will need to be evaluated against other means of financing and the overall impact on debt sustainability. To achieve this, it will be necessary to integrate climate finance into medium-term fiscal and debt management strategies, including the debt portfolio risk management and cost analyses. Fortunately, many of the traditional core skills of the debt manager—such as implementing liability management operations, negotiating commercial loans, and maintaining strong investor relations practices—are equally valuable for assessing climate finance options. From this perspective, improvements in debt management capacity can simultaneously support improved access to climate finance.  Therefore, I encourage you today to take full advantage of our debt management capacity development program at CARTAC.

To conclude, climate finance presents a significant opportunity for the Caribbean countries to tackle the negative impact of climate change. I am delighted this conference will provide a platform for us to advance our thinking in the area. We have an impressive lineup of expert speakers over the next two days, and I look forward to hearing from them. With that, let’s start our first session of the day.

Thank you.


[1] Regional Economic Outlook, Western Hemisphere: Navigating Tighter Global Financial Conditions

[2] Private Sector Working Group – Climate Resilient Debt Clauses (CRDCs): Chair’s Summary (UK)

[3] GFSR Chapter 2: Scaling up Private Climate Finance in Emerging Market and Developing Economies: Challenges and Opportunities.

[4] The IMF Staff Climate Note Series

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