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

Written by Eugenia Arioua, Raúl Delgado, Daniela Torres, Daniela Buchuk and Marcela Jaramillo

Climate change is one of the great challenges of our time, and confronting it requires not only political will, but also an adequate cohesion of action planning and public finance and fiscal policy instruments could help catalyze the required investments.    

Climate finance strategies are a useful tool for planning and sizing efforts and needs in terms of climate finance and financial instruments. In fact, the adoption of these strategies is increasing globally, and also in Latin America and the Caribbean, where 75% of the countries already have or are developing one. Most of these strategies respond to the need to meet the country’s climate objectives, as defined in the NDCs and Long-Term Strategies, two key climate planning instruments of the Paris Agreement, which are being updated and aligned ahead of COP30 in Brazil next year. 

Which are the benefits of having one and how can we make them more effective? A study for the Regional Climate Change Platform of Economy and Finance Ministries, developed by 2050 Pathways Platform and the IDB, sheds light on this issue with the 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, just customize your strategy. In general, climate finance strategies in the region share a common structure, but the level of detail and granularity of information is very heterogeneous across countries: timelines, targets, responsible departments, etc. The recommendation: tailor your strategy to the specific needs of your country, based on robust diagnostics and extensive consultations. 
  1. Think big, act precisely. The best strategies combine ambitious visions with concrete and realistic actions. Define inspiring goals, but make sure each step is measurable and achievable. 
  1. Economic growth and climate ambition should go hand in hand. While developed economies include in their strategies a combination of climate goals, stability and economic competitiveness, the region prioritizes in its financial strategies the fulfillment of its climate commitments. The challenge: to find a balance that promotes both economic prosperity and environmental sustainability. 
  1. Prioritize to maximize impact. When it comes to climate finance, not all actions are equally effective. The key is to identify and prioritize measures that offer the greatest benefits in reducing emissions and preparing for the impacts of climate change. For example, reshaping public investment systems so that all projects, from roads to hospitals, are designed with climate impacts considered from the outset. While this seems like a small change, it has the potential to transform all public investment toward a more sustainable future, achieving a large impact with limited resources. 
  1. There is strength in numbers. Sustainable finance roundtables” are emerging as useful spaces for collaboration. Include the financial, business and academic sectors in the design of your strategy to ensure its relevance, viability and acceptance. This synergy is essential for a successful implementation of financial strategies. 
  1. Measure, learn and adapt. The real impact of these strategies is yet to be seen. Implement robust monitoring and evaluation mechanisms to understand what works and what doesn’t, and adjust the course as needed. 
  1. From strategy to action. Strategies are not just documents; they are catalysts for change. Use them to drive legal and institutional reforms that transform public finance. 
  1. Go beyond numbers. Estimating the cost of NDCs or Long-Term Low-Emission Development (LT-LEDs) can have value, but don’t focus just on the numbers. Identify the interventions that offer the greatest social, economic and environmental benefits. In this world everything costs, better estimate which investments are most profitable and measure the net benefits.   
  1. Tackle uncomfortable but crucial challenges. There are difficult issues that many prefer to avoid, but which are fundamental to a true climate transition. Two key examples are: 
  • Stranded assets: These are investments, such as coal plants or oil fields, that could lose their value prematurely due to shifts to a low-carbon economy. This could seriously affect public finances. 
  • Fossil fuel subsidies: Many countries spend significant sums subsidizing fossil fuels, which hinders the transition to clean and cheaper energy. 

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

  1. From best practices to systemic transformation. The region is making 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.

What role do you think finance plays in the fight against climate change in your country? Do you see examples of these strategies in action?