To achieve global goals, the mobilisation of public and private resources is key. The participation of financial institutions, banks, institutional investors, corporations and capital markets play a crucial role in aligning financial flows with sustainable and green finance.
For this reason, it is essential to provide investors with information on activities that contribute to meeting climate change and natural resource conservation objectives. Green or sustainable taxonomies are designed as classification systems with criteria and indicators to classify different economic activities according to their contribution to climate change mitigation and adaptation, or to the sustainability of the country. In other words, it classifies funds according to their objectives, thus giving certainty to the market, avoiding green and social washing. Thus, the creation of green, sustainable or climate finance taxonomies helps in this process and becomes the foundation of a green financial system. The financial sector must consider environmental issues – in particular climate change – as inherent to its business and continuously conduct risk and opportunity analyses related to the environment and climate.
This guide seeks to draw on the experiences of the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, through the Mexican-German Climate Change Alliance, in developing two processes for the creation of taxonomic classification systems for finance; one with the banking sector through the Association of Banks of Mexico (ABM), focused on green assets; and the other with the Government of Mexico, in the identification of economic activities and a methodology for defining metrics and thresholds for the country’s sustainable financing taxonomy. The objective is to share with other countries the lessons learned and best practices for implementing and operating a classification system for economic activities that contribute to sustainability and/or climate change within their country.
Consult the Guide for Creating a Green and Sustainable Finance Taxonomy: Lessons Learned from Mexico’s Government and Banking Sector, click on the following image:
Mobilising finance is key to addressing climate change and moving towards low-carbon and resilient economies. These efforts require multi-stakeholder and multi-sector collaboration that include youth, who are contributing to increasing the resilience of their communities by proposing innovative solutions, leading climate action and driving change for the sustainable future we all want to build.
Considering the importance of their inclusion, as part of the Festival of Green and Inclusive Finance 2022 (FFVI), the Working Group on Sustainable, Green and Climate Finance (GT-FIN SVC) of the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH and the Tecnológico de Monterrey launched the national call “Youth in Action for Green Finance“. It aimed to create a space for dialogue for four youth projects to share their initiatives and achievements, and discuss the opportunities and challenges they face in financing the implementation of the Sustainable Development Goals (SDGs) and the Paris Agreement.
The four innovative projects selected from the call for proposals were presented during the “Youth in Action for Green Finance” session on the third day of the FFVI, where in addition to presenting their projects, the panellists engaged in a discussion about the central role of youth in driving green and inclusive finance, the impact of their projects in promoting the greening of the financial system, social inclusion and climate ambition. One thing that unites these projects, as Daisy Álvarez pointed out, is that they seek “holistic solutions, which consider all possible approaches to sustainable development”.
Below are the projects that participated in the FFVI:
EFT Verde – Daniela Carreón
ETT Verde proposes an investment fund initiative made up of a diverse portfolio of shares, bonds and commodities that seek to match the performance of an index, in this case of sustainable and socially responsible companies. Its goal is to generate a common heritage, a plurality of investments representing sustainable society where individual returns are established according to collective results. This academic initiative signals a real opportunity for the financial sector to take climate action.
EnerYOU: Women for Sustainability Fellowship – Graciela Rivera
The Women for Sustainability Scholarship (MXS Scholarship) is a co-investment initiative driven by the EdTech startup, EnerYOU, to reduce the gaps between knowledge, education and professionalisation, as well as to strengthen the labour inclusion of women in the energy and sustainability sector. Through professionalisation and knowledge creation, they will be able to contribute to climate action solutions that improve the planet and the communities in which they operate.
Mazahua High Yield Maize System. SMAR Jñatjo’o – Ivan Mendoza
SMAR Jñatjo’o seeks to connect the Mazahua community with ethical and profitable livelihood opportunities through the fusion of traditional knowledge and technology, with the aim of slowing soil erosion through ethical and sustainable agricultural processes. This project highlights the importance of including communities that face greater vulnerability to climate change, such as indigenous peoples, considering that Mexico’s natural system is sensitive to climate change and is exacerbated by anthropogenic activities such as land use change, mainly due to agricultural activities (ADCOM, 2022).
Building green and sustainable spaces for all – Daisy Álvarez
The Building Green and Sustainable Spaces for All project seeks the collaborative retrofitting of public spaces through sustainable structures such as planters with recycled materials, drip irrigation, phytoremediation for urban water and soil, and self-supply of electricity, which respond to and involve communities.
Youth are at the centre of climate action and are agents of change seeking to build a sustainable future. Creating spaces for multi-stakeholder dialogue that includes them is crucial to catalyse climate ambition and spread the word about the projects already underway.
We hope that by learning about these projects “more young people will believe and see that it is possible to make gradual progress on climate change issues with high-value projects”, as Ivan Mendoza said. Be part of the green generation!
Get to know the factsheet with the FFVI youth projects:
Moving towards low-carbon and resilient economies requires building partnerships to mobilise green finance, achieve the goals set out in the Paris Agreement and limit the increase in global average temperature to below 1.5°C above pre-industrial levels.
Since 2019, the Mexican-German Climate Change Alliance, implemented by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH and part of the International Climate Protection Initiative (IKI), has been working hand in hand with the Government of Mexico and actors from the private, financial and social sectors to mobilise resources for concrete actions in the territory and identify the challenges and opportunities of climate finance. This long-term vision aims to allow Mexico to meet its national and international climate commitments.
In the framework of the third edition of the Green and Inclusive Finance Festival, the Mexican-German Climate Change Alliance presented the fruitful technical cooperation with the Government of Mexico to green the financial system and mobilise climate finance towards actions to address the climate crisis in the territory. The five axes of climate action were shared, in which they collaborate with various institutions from the public, financial, private and social sectors to promote green finance.
We invite you to learn more about the results of the Mexican-German Climate Change Alliance on green finance:
Promoting green finance mobilisation is key to meeting the Sustainable Development Goals (SDGs) of the 2030 Agenda and the Paris Agreement. In this context, the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH and the Tecnológico de Monterrey organised the third edition of the Green and Inclusive Finance Festival 2022 with the aim of creating a space for multi-stakeholder dialogue to share best practices at the national, regional and international level about the allocation, access, governance, management and mobilisation of green finance.
On 13, 14 and 15 June, 24 sessions were held in a hybrid manner, with the participation of around 100 panellists and more than 2,000 online attendees from Mexico, Latin America, the Caribbean, Spain and Germany. The festival was attended by representatives of GIZ Mexico, the IKI projects in Mexico, the Tecnológico de Monterrey, the Ministry of Finance and Public Credit (SHCP), the Ministry of Environment and Natural Resources (SEMARNAT), the Bank of Mexico (Banxico), Nacional Financiera (NAFIN), the National Banking and Securities Commission (CNBV), the National Bank of Public Works and Services (BANOBRAS), the Economic Commission for Latin America and the Caribbean (ECLAC), the National Institute of Social Economy (INAES), CIBanco, among others.
The inauguration was chaired by Gabriel Yorio González, Undersecretary of Finance and Public Credit; Simone Franke, Political Counsellor of the German Embassy in Mexico; Philipp Schukat, Climate Team Coordinator of GIZ Mexico; Cynthia María Villarreal, Director of Sustainable Development and Linkages at the Tecnológico de Monterrey and Ambassador Miguel Ruíz Cabañas Izquierdo, Director of the Sustainable Development Goals (SDG) Initiative at the Tecnológico de Monterrey. To open the Festival, the speakers addressed the efforts and achievements of the bilateral Mexico-Germany cooperation for sustainable financing, the importance of multi-stakeholder cooperation in the mobilisation of financial resources and the role of universities in the greening of the financial system.
The first day of the Financing Festival addressed the social economy and impact investments, the history of change generated by the Global FELICITY Programme, decentralised financing and the efforts of GIZ Mexico, financial mechanisms for climate change and sustainable development from the public sector, the 2030 Solutions for local development, the financial inclusion of people with disabilities and the post-COVID recovery strategy of the Development Bank.
The second day’s sessions dealt with instruments to boost financing with women entrepreneurs, feminist financial policy, solar thermal energy financing, Payment by Results mechanisms, socio-economic assessments of resilient and low-carbon infrastructure projects, crowdfunding for green investment in Mexico, digital tools for project preparation and the green supply of commercial banks.
On the final day, sessions focused on the economic and financial impacts of climate change, the development of green and sustainable taxonomies in Latin America, youth in action for green finance, challenges and opportunities for energy efficiency finance, climate finance engagement at the COP, green and sustainable finance mechanisms at the subnational level, and partnerships to drive ambition in climate action.
Recognising the role of youth in climate action, the Festival also featured innovative projects selected from the open call promoted by GIZ Mexico, “Youth in Action for Green Finance“. The young people who presented their projects were Daisy Álvarez for the project Construyendo espacios verdes y sustentables para todes, Graciela Rivera with the project EnerYou, Daniela Carreón with the project ETF Verde and Iván Mendoza for the project in Mazahua communities SMAR JÑatjo’o.
To conclude the Festival, participants discussed alliances to increase climate action ambition, including the results of the cooperation between GIZ Mexico and the Government of Mexico to green the financial system. In addition, the Mexican-German Climate Change Alliance presented on the progress of the cooperation and its work with key actors to promote green and inclusive finance in the country, from the territory to the creation of sustainable taxonomies. Moreover, the SHCP and Banxico highlighted the need to move towards low-carbon and resilient economies, as well as the key role of the technical cooperation provided by GIZ Mexico in addressing climate change.
In the closing session, Philipp Schukat, Coordinator of the GIZ Mexico Climate Team, presented two key conclusions on green finance. First, that “in the face of the climate crisis we already have the technological innovation, now we have to create the financial mechanisms to implement it and reduce social gaps”. Second, he stressed the importance of multi-stakeholder cooperation between governments, civil society and businesses to achieve global goals.
The NAMA SME project began the launch of the initiative that supports the strengthening of the energy efficiency market in SMEs in Yucatan through technical and financial solutions.
The NAMA SME project is implemented by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, together with the Yucatan Institute for Entrepreneurs (IYEM) and the Energy Sub-Secretariat of the Ministry of Economic Development and Labour (SEFOET) of the Government of the State of Yucatan. On May 11, it launched an initiative to strengthen small and medium-sized enterprises (SMEs) in the state of Yucatan through energy efficiency (EE). Through an open call, companies in the state were invited to register to receive an energy diagnosis (DE) at no cost and be able to implement EE measures.
With the aim of providing technical and financial support to incorporate EE measures in companies, capacity building sessions were held for SMEs on 19 and 26 May and 2 June 2022. More than 60 people participated and learned what EE is, the importance of DE in their companies and how to manage a loan and pay it back through energy savings. In addition, companies learned about the MicroYuc Verde financing initiative promoted by IYEM, as well as the requirements to participate in the call for proposals.
The success of these events was reflected in the 36 SMEs that registered for the initiative, with participation from the industrial, service and trade sectors. Those selected were those with the greatest potential to implement EE projects and that were priority sectors for the economy of the state of Yucatan.
Of the SMEs that registered, 16 were selected and will be able to identify and implement improvements in their energy consumption, generating economic savings, increasing their competitiveness, and reducing greenhouse gas (GHG) emissions. Importantly, seven are led by women, contributing to GIZ Mexico’s commitment to promote access to finance for women entrepreneurs in the state.
In September, each SME will begin to implement the projects they selected based on their needs, as well as their technical and economic viability. These projects will be regularly monitored to document the energy saving measures and the economic, environmental and social benefits to each company.
This publication was prepared within the framework of the technical cooperation between Mexico and Germany. With the National Water Commission (CONAGUA) as a counterpart, the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH implements the programme “Water and Wastewater Companies for Climate Mitigation” (WaCCliM) commissioned by the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) through the International Climate Initiative (IKI).
In this journal, climate financing options are identified at municipal, state, national and international levels, as well as existing opportunities for water and sanitation operators in Mexico to access these sources of financing. These opportunities work with the assumption that operating agencies will identify potential climate change mitigation and adaptation measures within their operations, implementing them and planning to monitor and improve them over time.
The aim of the session was to learn about the way in which the financial and productive sectors assess and incorporate both climate transition risks and opportunities in their strategic planning, corporate decision-making and financial disclosure related to climate, as well as the possible role of the Emissions Trading System (ETS) in these processes. Distinguished experts participated: Alan Gómez (Citibanamex Vice President of Sustainability) as moderator, as well as Alba Aguilar (Director of New Markets in the Mexican Stock Exchange) and José Ramón Ardavín (Executive Director of the Private Sector Studies Commission for Sustainable Development, CESPEDES).
It was highlighted that the recognition of transition risks in Mexico has promoted important changes. These changes include a financial community that is now convinced about the importance of understanding, evaluating and integrating risks in their strategies. In addition, the need for information, standards and clear business rules was identified to scale the green financing market. Finally, in recent years, green financial products have emerged and been labeled with environmental, social and government criteria. However, it was highlighted that the amount of green financing is still incipient.
The launch of the ETS is essential to unleash climate finance and accelerate the development of the green product market. During the session, the importance that companies should give to the ETS was mentioned, since it is an important instrument for integrating climate change into their business strategies and reducing climate financial risks. This is because it allows them to specify emission reduction goals and facilitate the management of the carbon budget, facilitate the development of mitigation projects and promote green investment. It also allows them to promote resilient business models, adapt to changes in the market and continue to be highly competitive in the future.
To access the recording of the session, click here (in Spanish).
Invitation to the Virtual Forum “Financing for a Green and Inclusive Recovery”. GIZ
Distributed Generation is an adequate mechanism to impulse cost reduction in companies and organizations while avoiding emitting greenhouse gases into the environment. It is an important strategy to mitigate the economic impacts of COVID-19, and one of the main challenges is to find financing mechanisms that can accelerate the execution of these projects in the country. For this reason, LAB Mexico promoted the development of a workshop for the financing of Distributed Generation (DG) on November 13, 2019.
Currently, the photovoltaic DG has an installed capacity in Mexico of almost 1,000MWp, representing 1% of the capacity of the national electricity system, while the available capacity of the General Distribution Network is 27,000MWp. The DG will play a fundamental role in fulfilling energy transition goals by 2035.
There is a great opportunity to support companies – especially small and medium-sized enterprises – with renewable energy strategies that reduce their energy costs, permitting the recovery of their post-COVID-19 economies.
The conclusions, based on the analysis of the discussions carried out among participants during the workshop, will serve as a guide for establishing the monitoring and intervention plan (roadmap) with key stakeholders in the industry.
Credits: LAB México
The DG sector is not robust enough to finance this transformation alone. Commercial banking in Mexico is a solid sector with reserves, capacities and scope that can facilitate this transition.
However, both industries are required to work together on the following aspects:
The promotion of the benefits of photovoltaic DG must be strengthened in the SME sector to increase financing demands for this type of project. This promotion should be a joint effort between relevant business associations, development finance institutions, and local and federal governments.
Revolving credit lines must be implemented for companies integrating DG in order to facilitate DG growth and consolidation.
Other financing instruments, such as leasing and energy purchase contracts, must be promoted as alternatives to conventional credit, both in supply and demand.
A certain and stable regulatory environment must be promoted to facilitate the investment of risk capital with different business models and financing, and with the capacity to replicate and scale. This is the work of the photovoltaic industry, alongside development and commercial financial institutions, as well as local governments.
Information that allows financial institutions to better assess risks and generate products according to the risk profile of the projects must be generated on the market and performance of DG projects.
Financial institutions require a greater technical understanding of the value propositions of PV systems, their operational risks and shelf life.
Various financial intermediation schemes should be explored with the support of “asset managers” that facilitate project evaluation, risk determination, dispersion of financing and collection responsibility.
As a product of this IDB workshop, ABM and GIZ, together with NAFIN, encouraged the hiring of a consultant to provide material for this roadmap, which will be delivered at the end of June and will be disseminated through the IDB, ABM, GIZ and IKI.
