The Climate Investment Fund (CIF) last week announced it has approved US $500 million in catalytic financing for Brazil and Mexico intended to unlock billions of dollars in additional funding to accelerate the decarbonization of their industrial sectors.
The World Bank-managed reserve — a US $14 billion climate-focused equity fund — has endorsed this first-of-its-kind investment to spur industrial decarbonization efforts in Latin America’s two biggest economies.
“The global race to decarbonize industry has begun, and emerging markets are out front,” CIF CEO Tariye Gbadegesin said. “Decarbonizing industry is about more than emissions — it’s about securing long-term prosperity and the jobs of tomorrow.”
Both countries are rapidly developing their industrial bases and, in Mexico, industry currently accounts for 18% of greenhouse gas emissions.
Brazil and Mexico will each get US $250 million and, although this figure might be considered modest, the design is not. The grant is intended to act as bait, “catalyzing” far larger sums from banks and private investors.
In Mexico, the investment is expected to activate US $1.68 billion in co-financing, including as much as US $1.2 billion from private investors. Participating institutions include the IDB Group and World Bank Group’s private and public sector arms.
“As Mexico advances in the implementation of Plan México and the National Development Plan 2025–2030, industrial transformation has become a strategic priority,” said María del Carmen Bonilla, undersecretary of finance and public credit with Mexico’s Finance Ministry.
Bonilla said Mexico will focus on the industries hardest to clean up, such as iron and steel, cement, chemicals and aluminum.
In a press release, the CIF said, “The investment plan [for Mexico] channels resources through non-sovereign-guarantee instruments to maximize private capital mobilization.”
The grants “will be deployed on a project-by-project basis through a range of financing instruments, including senior, subordinated and mezzanine debt, and in some cases, equity investments and guarantees,” the CIF told the online platform Latin Finance.
Combined, the two programs are expected to prevent the release of nearly 2 million metric tons of CO₂ into the atmosphere annually — roughly equivalent to the CO2 absorbed by 33 million trees — while supporting the creation of green jobs, the press release said.
Catalytic financing is designed to reduce risk, thereby bringing in private, public and institutional capital that might otherwise avoid a project.
With reports from Bloomberg News, Latin Finance and The Rio Times
