Green finance instruments and circular financing

The IDB and IDB Invest have supported the development of a common language for the circular economy in the financial sector across the region since 2021. Between 2021 and 2022, a Circular Economy Categorization System (CE-CS) was developed in Colombia (IDB and IDB Invest, 2022). This system was reviewed by the Ellen MacArthur Foundation, the United Nations Environment Programme Finance Initiative (UNEP FI), and the Colombian Banking and Financial Institutions Association (Asobancaria). This initiative, along with lessons learned in Colombia, has enabled progress in the development of a CE-CS in Peru, which builds on Colombia's advancements while adapting them to the Peruvian context. The CE-CS, as a tool to facilitate the identification and classification of circular financing opportunities, can be applied to companies of all sizes (large, SMEs, microenterprises) and regardless of their formal or informal nature (Inter-American Investment Corporation “IDB Invest,” 2024). On the other hand, green finance refers to a set of financial instruments aimed at economic activities that contribute to reducing greenhouse gas emissions, adapting to climate change, protecting and using marine and water resources, transitioning to a circular economy, protecting and restoring biodiversity, and promoting sustainable production and consumption. This definition is provided by the European Commission as part of the broader concept of sustainable finance (National Planning Department – DNP, 2024)