Palm oil is intertwined with an abundance of value chains, is fundamental to a number of emerging market economies, and has driven quality of life improvements to millions of people globally. Proliferating demand for the commodity rapidly expanded its cultivation, particularly in Southeast Asia, leading to near-catastrophic levels of rainforest deforestation and poorly regulated value chains.

In 2024, IDB Invest, the private sector arm of the Inter-American Development Bank, became the first development finance institution to close a deal in the palm oil sector in Latin America and the Caribbean in the last 15 years, partnering with Prolade S.A.P.I. de C.V., a Mexico-based, RSPO certified sustainable palm oil cultivator. Prolade presented IDB Invest an opportunity to i) bridge the financing gap faced by the company and enable the expansion of sustainable palm oil cultivation and ii) demonstrate how palm oil production could be executed sustainably, achieve a high level of development impact and attract follow-on investment.

IDB Invest used blended finance from the Canadian Climate Fund for the Private Sector in the Americas and the Finland-LAC Climate Blended Finance Fund to achieve these twin objectives. First, innovative structuring of the concessional loans, informed by Prolade’s unique cash flow characteristics, allowed for debt repayment flexibility and promoted the long-term financial stability of the company. Secondly, IDB Invest embedded an outcome-based incentive scheme into the concessional loans that would encourage robust climate outcomes.

The partnership between IDB Invest and Prolade demonstrates how blended finance instruments can be used to incentivize, enable and prove the viability of sustainable business models in the palm oil sector, particularly for smaller, growth stage companies.