Lessons from the Lab
Putting green finance into practice
PUNTA CANA, Dominican Republic—How can financial institutions go green? How technologically savvy do they need to be? What kinds of microloans would make the biggest impact in their area? What steps can lenders take to mitigate their financial risks? How can they best educate their customers about green products? What are some of the pitfalls they might expect?
These are the types of questions that representatives of credit unions, development banks, microfinance institutions and other financial intermediaries asked themselves during the EcoMicro Knowledge Sharing & Networking Event, held on October 30 in the Dominican Republic—a country “on the front lines of climate change,” as a local panelist put it.
For participants whose projects are still in the planning stage or just getting off the ground, the event offered a chance to hear from EcoMicro veterans who had managed or consulted on projects in several Latin American countries since 2012.
Learning from others who are further along in the process can help avoid repeating mistakes, said Cletus Joseph, Executive Director of the National Development Foundation of Dominica. “While every jurisdiction, every organization, every country has its own challenges, its own peculiarities, there are certain lessons that you can learn from them,” he said in an interview.
Linda Miller, Chief Operations Officer for COK Sodality Co-Operative Credit Union in Jamaica, joked to her colleagues that when her institution first started working with IDB Lab, it was green—not in the environmental sense but in the sense of inexperience. But today, COK is an advocate for green energy; it has solarized its head office and is putting together various green loan options for its customers.
One widely shared challenge, Miller said, is how to increase awareness about the importance of renewable energy and energy efficiency. “How do we introduce this to the public? That is one of our biggest issues in Jamaica, and from the panelists we noticed that it is pervasive right across the countries that they have dealt with,” she said.
“If people don’t understand the technology, if people don’t understand the concepts, they’re not going to use it,” said Franklyn Magloire, Chief Strategist and Climate Champion at the Development Finance Corporation (DFC) in Belize.
His institution started offering renewable energy loans in 2015, when Belize faced a series of climate change-related events, including drought and flooding, and it became clear that “we had to do something.” While loans for renewable energy projects did not take off as quickly as he had hoped, Magloire said, interest has been picking up and DFC is beginning to do larger loans for businesses turning to renewables. “We have to be persistent,” he urged EcoMicro participants.
The value of the EcoMicro Program is that it provides the freedom to experiment on a small scale, speakers at the opening session pointed out. “It allows us to understand what works and what doesn’t work, because we all know failure has to happen as well,” said Janine Cocker, Head of Development Cooperation for Guyana and Suriname at the Canadian High Commission in Guyana, which provides financial support to the EcoMicro Caribbean Program.
The demonstration effects of successful projects open doors to greater opportunities involving both the public and private sector, noted Maria Elena Nawar, Chief of the Knowledge Unit at IDB Lab. “If these models are in fact effective and can really show an impact, even at a small scale, then we can really proliferate and expand that impact to other countries,” she said.
Director Selwin Hart, who represents five Caribbean countries on the IDB Board of Executive Directors, pointed out that the EcoMicro Program cuts across four critical priorities for the Inter-American Development Bank: addressing the challenges of climate change, growing the private sector, harnessing the potential of the Fourth Industrial Revolution and promoting regional integration. Because small countries can be especially nimble in piloting investments, the Caribbean region can serve as a “lab for IDB Lab,” he said with a smile.
A Wide-Ranging Agenda
The EcoMicro event packed a range of topics into one intense day of panel discussions and special presentations. (Over the two days that followed, participants would attend Foromic, IDB Lab’s flagship annual event on promoting inclusion in Latin America and the Caribbean).
Two panels drew on field experience from EcoMicro projects, with one focusing on mitigation finance and the other on adaptation finance. Mitigation measures seek to reduce greenhouse gas emissions (think renewable energy or energy efficiency), while adaptation involves steps taken to adjust to the effects of a changing climate (such as the introduction of drought resistant varieties).
Several panelists stressed that green finance can be—must be—good business, but it doesn’t necessarily produce quick returns. “This is not a short-term effort,” said Stefan Platteau of the Palladium Group, who moderated the panel on mitigation finance. “We’re talking about a structural change in the way business and financial institutions treat energy efficiency and renewable energy. It’s a new game. We have to take our time.”
Another session covered tech options for climate resilience—primarily tools to make agriculture more efficient and to lower the financial risk both to farmers and the financial institutions that provide them loans.
With a “clear, 360-degree view” of risks, a lender can steer a client toward better farming practices, explained Hannes Graef of YAPU Solutions, which provides data-driven software solutions to financial institutions serving smallholder farmers and other small businesses in developing countries. He noted that based on current projections, the world will need 70% more food by 2050, and most of that growth will have to come from smallholder farmers. “Somehow they have to be supported,” he said.
Any financial product or service should be designed with the whole market in mind, and that means applying a gender perspective to green finance, stressed Rebecca Fries, Managing Director and Co-Founder of Value for Women.
“There are many reasons why we know it’s the right thing to do. But I think what we often hear less of is that it’s also smart,” she said. “Women repay their loans at a better rate, they’re more loyal banking customers and they’re also more risk-aware.”
Green investment was the focus of another panel, which discussed the role that impact investment funds, green bonds and blended finance play in combating climate change, as well as some of the challenges involved in addressing the increasing levels of risk.
In an interview after the session, Selwin Hart applauded the EcoMicro Program’s efforts to create innovative financial products, whether to support renewable energy or energy efficiency measures or to help small-scale fisherfolk or farmers better manage the risk of climate change.
“Governments must really help,” he said, adding that they can “provide the enabling environment needed so that these products can be deployed across the economy.”
Summary Booklet of Lessons & Key Takeaways
can be found in the EcoMicro online
Also, don't miss a chance to hear directly from our participants, including IDB Executive Director for the Caribbean Selwin Hart, as they reflect on the Event in the
Video Testimonials below.