Mobilizing private capital for the green transition in emerging countries – the role of the IFC

On 27th September we were delighted to host an informal talk and Q&A session with Mr. Alfonso García Mora, IFC's Vice President for Europe, Latin America & Caribbean in the World Bank Group.

IFC is one of the institutions of the World Bank Group with a mandate of promoting private development, helping countries, and leveraging to help boost the green transition that we need to see in order to face the challenges of today.

Climate Finance was one-third of the total IFC investments in 2021, channeled into different areas. These days, the private sector in development is more important than ever. When you look at the global challenges, we will never achieve success unless the private sector is involved. Governments and all agents have to understand: ‘Do not crowd out the private sector and cause the cascade effect. Make sure the private sector can operate on a competitive basis.’

One of the main objectives of the IFC currently is to mobilize all the investment into emerging markets of developing countries. The money is there. The issue of how to channel it and how to create the instruments needed is still complex.

Priorities of the IFC include broadening the mission and the mobilization of capital for development. The ongoing food, energy, and climate change crisis are serious challenges.

Mr. Garcia Mora detailed the case of Latin America and the challenges IFC as an organization is addressing there:

1) Inclusion, it is a very unequal region, and this leads consequently to political and social unrest. Inequality is an unprofitable situation for every country. Therefore, inclusion is a key agenda.

2) Productivity and competition. The issue is how to increase competition in critical sectors since firms do not grow. The problem, however, is not the lack of start-ups or entrepreneurship in general. They exist, but they cannot compete. Solution? Investing in Tier 2 companies

3) Climate and investment are needed to achieve net zero. It is crucial to differentiate between climate mitigation and climate adaptation.

IFC invested 33 billion dollars, out of which 40% was dedicated to Latin America and the Caribbean. The three aspects the IFC accounts for to structure the investment:

I. Development impact, according to the internal methodology

II. Additionality - bringing something new to the private sector. This includes both financial and non-financial additionality and, most importantly, ESG goals.

III. Profitability

The IFC acts as an investor and catalyst. While the World Bank Group is lending to governments with some conditions (passing legislation or creating a taxonomy of green standards), the IFC helps to understand better the private sector. Currently, IFC understands that additionality comes with innovation, and there are many examples of climate being at the heart of new instruments (green and blue bonds, for instance).