Latin America’s investment incentives landscape, characterised by generous but loosely targeted programmes, presents a unique opportunity for a strategic redesign whose objectives and features may be relevant for other developing countries and regions.

This policy brief, based on previous in-depth research carried out in several Latin American and Caribbean (LAC) countries, explores how revamped investment incentives can propel developing countries towards climate-resilient, carbon-neutral economies, even amid fiscal constraints.

Instead of simply layering green requirements onto existing programmes, this Policy Brief advocates for a deep dive, assessing each incentive’s relevance, effectiveness, and fiscal impact. This paves the way for streamlining, termination, or transformation of existing incentives, while at the same time introducing new incentive instruments tailored to climate challenges.

While country-specific nuances exist, based on the LAC experience, a nearly universal toolkit for reform emerges under the Sustainable Development Goals (SDGs) and the Paris Agreement objectives. This Policy Brief provides evidence and practical recommendations for the South African G20 Presidency to encourage a paradigm shift and accelerate implementation of green investment incentives through:

• Targeted incentives: focus on projects demonstrably aligned with climate goals, maximising impact while minimising the use of public funds.
• Performance-based rewards: link incentives to verifiable emission reductions or adaptation measures, ensuring tangible progress in climate transition.
• Aligning green investment incentives with goals related to productive development strategies and the promotion of domestic innovation activities.

Institutional muscle is paramount. Redesigning investment incentives demands robust policymaking and implementation capabilities. This demands coordination across government agencies and a culture of flexibility, enabling swift adaptation to evolving needs. Also, green investment incentives need to converge in the same direction as other governmental policies in a long-term view. This is feasible even in the context of fiscal restrictions, since the greater targeting of the instruments is consistent with their rationalisation, ie, there is greater effectiveness in terms of SDGs together with a reduced impact on public finances.