Where, when and how much? Costa Rica plans to track climate finance flows
Due to the increasing impact of climate change, significant investments will need to be made – and funds will have to be mobilized. Costa Rica is no exception, considering its ambitious objective of decarbonising its economy by 2050. The country is highly affected by climate phenomena, investing over 1% of its 2017 gross domestic product in repairing and reconstructing damaged infrastructure. Also, the country faces an alarming fiscal deficit, making the mobilization of private climate finance critical to reach its climate objectives.
Currently, the country has no way of knowing how much climate finance is available, where it is used, and how big the financing gap is. To track it, the banking supervisory authority SUGEF and the Ministry for Environment´s Climate Change Directorate (DCC) are developing a monitoring methodology with the support of the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, which will gather information on credit allocation by public and private financial intermediaries in adaptation and mitigation projects. The data will also be included in the upcoming National System for Climate Change Metrics SINAMECC.
“Climate-friendly investments are a huge opportunity for financial institutions, as these investments tend to perform better. However, climate change has various risks, such as increased loan default in areas affected by extreme weather events. Tracking data on climate finance and risks will help us to identify these better and visualize the contribution of the financial sector to the national climate objectives”, explains Genaro Segura, SUGEF´s General Intendent.
While DCC has the technical knowledge needed for determining if investment proposals are climate-related, SUGEF has the juridical reach to gather the required information from the 48 financial intermediaries in Costa Rica. GIZ supports the methodology´s development and the necessary capacity building measures for financial institutions.
“The banking sector already finances climate-related projects. In 2017, we identified climate finance investments of around 2 billion USD. Most of these are directed to renewable energy. However, Costa Rica’s energy stems almost 100% from renewable sources, so this does not match with the country´s mitigation needs. GHG emissions are mainly attributed to transport, agriculture, infrastructure, waste management and the industrial sector. There is still great potential in financing mitigation and adaptation activities. Tracking these financing flows will help understand needs and investments and redirect efforts to critical sectors”, states Sandra Spies, project director of GIZ.
For 2019´s second semester, a new requirement will obligate financial intermediaries to identify climate-related finance in their portfolios. SUGEF also plans to propose a new prudential regulation on climate change risk. Currently, the institution is adjusting its existing data collection software to include climate-related credit allocation. By mid-2019, the first financial intermediaries will be trained. First data is expected to be acquired in December 2019.