10 Key Considerations to Boost Climate Finance in Latin America and the Caribbean

Climate change is one of the greatest challenges of our time, and addressing it requires not only political will but also proper alignment of action planning with public finance and fiscal policy instruments to catalyze the necessary investments.

Climate finance strategies are essential tools for planning and assessing climate finance needs and related financial instruments. Globally, the adoption of these strategies is on the rise, and in Latin America and the Caribbean, 75% of countries have already developed or are in the process of developing one. Most of these strategies aim to meet the climate goals defined in Nationally Determined Contributions (NDCs) and Long-Term Strategies (LTS), two key climate planning instruments under the Paris Agreement, which are currently being updated and aligned in anticipation of COP30 in Brazil next year.

What are the benefits of having such strategies, and how can they be made more effective? A study conducted for the Regional Climate Change Platform of Economy and Finance Ministries, developed by 2050 Pathways Platform and the IDB, sheds light on these questions in its publication "Climate Finance Strategies: Analysis of International Experiences." Here are 10 key conclusions and recommendations that can shape the future of climate finance in the region:

1.Don't reinvent the wheel-customize your strategy. While climate finance strategies in the region share a common structure, the level of detail varies significantly between countries in terms of timelines, targets, and responsible departments. The recommendation: tailor your strategy to your country's specific needs based on solid diagnostics and extensive consultations.

2. Think big, act precisely. The most effective strategies combine ambitious visions with realistic, actionable steps. Set inspiring goals but make sure that each step is measurable and achievable.

3. Economic growth and climate ambition should go hand in hand. Developed economies often balance climate goals with economic competitiveness in their strategies, while countries in the region prioritize meeting climate commitments. The challenge lies in promoting both economic prosperity and environmental sustainability.

4. Prioritize to maximize impact. Not all climate finance actions are equally effective. Focus on measures that offer the greatest benefits in reducing emissions and adapting to climate impacts. For example, incorporating climate considerations into public investment systems can transform infrastructure projects and have a large-scale impact with limited resources.

5. There is strength in numbers. "Sustainable finance roundtables" are emerging as valuable collaborative spaces. Engage financial, business, and academic sectors in the design of your strategy to ensure its relevance and broad support. This synergy is key to successful implementation.

6. Measure, learn, and adapt. The true impact of climate finance strategies is yet to be fully seen. Implement strong monitoring and evaluation mechanisms to identify what works and what doesn't, and adjust accordingly.

7. From strategy to action. Climate finance strategies should act as catalysts for legal and institutional reforms, driving transformational change in public finance systems.

8. Go beyond the numbers. While estimating the cost of NDCs or Long-Term Low-Emission Development Strategies (LT-LEDs) is useful, don't just focus on the figures. Identify interventions that deliver the greatest social, economic, and environmental benefits. In a world where everything costs, it's crucial to prioritize investments that provide the highest net benefits.

9. Address uncomfortable but critical challenges. Some issues, though politically sensitive, are essential for a genuine climate transition. Two examples are:

• Stranded assets: Investments in sectors like coal or oil that could lose value prematurely due to the shift toward a low-carbon economy, potentially affecting public finances.
• Fossil fuel subsidies: Many countries still spend large sums subsidizing fossil fuels, hindering the transition to clean and affordable energy.

These issues are complex and politically sensitive, but ignoring them will only make the problem worse. Climate finance strategies offer an opportunity to address these challenges in a planned and equitable way, minimizing negative impacts while maximizing the benefits of the transition.

10. From best practices to systemic transformation. The region has made progress in areas such as the classification of public climate spending, sustainable sovereign bond issues, and green and sustainable taxonomies. Next critical steps include assessing the efficiency and effectiveness of climate change spending, as well as reviewing decision-making mechanisms throughout the budget cycle to ensure that public spending is consistent with national climate goals.

The path to a sustainable and prosperous future in Latin America and the Caribbean requires fiscal and finance policies consistent with combating climate change, and innovative financing strategies are one key tool available. Each country has the chance to lead, learn and adapt these lessons to its unique context.

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