An Innovative IFI Operating Model for the 21st Century
We are at a critical juncture for implementing reforms to meet the scale and urgency of the climate crisis while also addressing the other crises facing developing countries—food and energy price inflation, debt sustainability, among others—as well as development priorities as targeted in the Sustainable Development Goals. The emerging markets and developing economies (EMDEs) most impacted by the rising cost of capital and the sovereign debt crisis are also some of the most vulnerable to climate impacts, making it difficult for them to find the financial and fiscal stability needed to make climate and transition investments.
International pressure and a leadership change at the World Bank have created an opportunity to reassess international financial institutions’ approach to climate, which needs to lead to a dramatic increase in the volume of finance that the international financial system deploys to meet climate finance needs. As shareholders look to reform the international financial architecture, it is important to consider not only where the additional capital will come from, but also how capital can be effectively spent for maximum climate and development impact.
CPI is supporting various initiatives and actions to help public financial institutions – from national public development banks to multilateral development banks – to accelerate their climate action.
FiCS Financial Innovation Lab
Finance in Common (FiCS), the Inter-American Development Bank (IDB), and Climate Policy Initiative (CPI) have partnered to operationalize the FiCS Financial Innovation Lab (FiCS Lab) with CPI as its secretariat. In September 2023, FiCS announced the creation of a “Financial Innovation Lab” in its final communiqué from the 2023 FiCS Summit. The vision is to bring together public development banks (PDBs) and experts around an action-oriented platform to accelerate the implementation of climate finance and the 2030 SDG agenda. The mission of the FiCS Lab is to be a platform that fosters innovation and collaboration among public development banks in mobilizing private capital and expanding climate finance, particularly in emerging markets and developing economies.
Resources for reform
CPI has developed a suite of related resources to support international financial architecture reform efforts, with a focus on capital mobilization:
1. Climate Finance Reform Compass (Launched August 2024)
CPI has created the Climate Finance Reform Compass to facilitate consensus and coordinate action among governments, civil society, and the private sector on the full range of international financial architecture reforms needed to meet the global climate challenge. It identifies pragmatic goals and milestones for action across nine thematic areas and 29 key reforms, noting the current status, key resources, and where we need to be by 2030. The themes below are used to organize and promote consistency across the individual reform topics included in the Compass. They align with the principles laid out in the COP28 UAE leaders’ declaration on a Global Climate Finance Framework. Our hope is that this information will help to focus efforts on actions where change could happen.
To support this ambition, CPI has created the Compass as an action-oriented tool that identifies financial sector reforms that could, together, drive the increase in climate finance we need.
2. An Innovative IFI Operating Model for the 21st Century (Updated June 2023)
This paper lays out key products and processes that need to be introduced, reformed, and scaled to deploy effectively the existing and needed new volumes of climate finance to EMDEs. It builds on seminal reports such as the Finance for Climate Action (“Songwe-Stern”) report by zeroing in on the specific models that can be adopted and scaled with urgency, as well as discussions at the 9th San Giorgio Group meeting, which CPI held in March 2023. The paper has been updated from the April 2023 discussion draft to reflect valuable stakeholder feedback.
3. Landscape of Guarantees for Climate Finance in EMDEs
Cross-border guarantees are an important but underutilized tool for leveraging private capital into climate finance, particularly in EMDEs. CPI conducted a comprehensive scoping analysis to gain a baseline understanding of the global landscape of guarantees. These instruments were analyzed based on their financial instrument coverage, sector and climate focus, geographic reach, and types of risk coverage, with a particular focus on EMDEs. The study aims to map the fragmented world of guarantee instruments and actors, and identify gaps and research opportunities to enhance their use and effectiveness in climate finance for EMDEs.
3. Capital Mobilization Roadmap (Discussion Paper)
This consultation draft describes pathways—achievable over the next 18-24 months—for implementing some of the most promising risk-sharing instruments and business models described briefly in the IFI Operating Model paper, with a focus on mobilizing private capital. Not meant to be a comprehensive document, it focuses on four, high-impact instruments and initiatives that address credit risk; currency risk; development risk; and MDB incentives. Feedback welcome to framework@cpiglobal.org.
4. Additional Resources: Technical Briefs
CPI and contributing experts have developed a series of technical briefs that outline in greater detail promising approaches to capital mobilization:
- Allied Climate Partners: Anchoring and Scaling Local Investment Managers
- Avinash Persaud: A FX Guarantee for the Green Transformation in Developing Countries
- Climate Policy Initiative: Risk-Sharing Guarantee Facility to Address Cost of Capital for Renewable Energy
- Concito: MDB ‘Commitment to Catalyse’
- Intellidex: Opportunities for IFIs to Support the Scaling of Transition Finance
- iTrust: Greenmap Guarantee Facility
- Private Infrastructure Development Group: GuarantCo Local Currency Credit Solutions
- Private Infrastructure Development Group: InfraCo Project Development Risk Capital
- Sustainability-linked Sovereign Debt Hub: Sustainability-Linked Sovereign Debt
- TCX: Scaling Up Currency Risk Hedging for Low and Lower Middle-Income Countries
CPI welcomes feedback on these materials. Contact us at framework@cpiglobal.org.
