Mobilizing Climate Finance for Emerging Markets

Emerging economies need nearly $3 trillion annually by 2030 to adapt to the changing climate.

The catch? The lion's share of this essential funding must come from private sources. However, governments are moving too slowly with regulations to encourage markets and climate projects in emerging markets often don't align with investor expectations due to steep initial costs and inherent risks associated with climate mitigation and adaptation initiatives.

Earth in water drop reflection under green leaf, water and environment concept, Elements of this image furnished by NASA

Convening and Standards

IFC was one of the earliest issuers of green bonds and has been driving innovation in the market by setting standards, deploying new financial products, and scaling-up existing ones. By the end of FY23, IFC had issued over $12.5 billion across 198 green bonds in 21 currencies and over $6 billion in social bonds across 14 currencies. In addition to issuing its own bonds, IFC actively invests in labeled bonds and loans, committing $4.5bn in FY23, and develops innovative fund structures to mobilize institutional capital into the market. IFC also builds capacity in the financial industry and issues its own guidelines and standards, covering critical areas such as blue finance and biodiversity.

Pipeline Creation

IFC has created a long-term pipeline of new climate projects to unlock markets across over 100 countries. IFC identifies market barriers and distortions affecting capital allocations through the World Bank Group’s diagnostic reports, advises the public sector on how to design climate-friendly public-private partnerships, and works upstream to develop projects, partner with clients and structure PPPs. This includes standardized approaches such as our flagship Scaling Solar program, and a wide range of renewable energy solutions to help governments and developers quickly bring projects to fruition.

Mobilization

IFC invests its own money in climate projects and puts into place investment funds that help institutional investors achieve their “risk-return” objectives in new areas. Our innovative platforms make it easier for commercial banks, pension funds, insurance companies and sovereign wealth funds to invest alongside us and gain an opportunity to diversify their portfolios and access new markets. For example, our MCPP One Planet (Managed Co-Lending Portfolio Program), which received $2.5 billion in commitments in FY23, is the world’s first portfolio of emerging-market loans aligned with the Paris Agreement.

Reducing Risk

IFC uses blended concessional finance to stimulate the flow of private capital into emerging markets. This donor capital helps rebalance the risk-reward equation, making first-mover projects commercially viable and “crowding-in” private capital. Importantly, blended finance also helps bring down the cost of early installations of new technology for consumers and achieves a demonstration effect, enabling subsequent projects to take off without such support.

Since 2010, IFC has committed a substantial $4.6 billion in concessional donor funds to support 457 high-impact projects spanning over 90 countries. IFC catalyzes an average of $7 in commercial funding for every dollar of blended climate finance deployed. Our Advisory and Upstream solutions support clients in anticipating risk, enhancing capacity and preparing prepare longer-term solutions/opportunities.