Financial Instruments to promote public-private investment in low-carbon, climate- resilient development

Financial Instruments to promote public-private investment in low-carbon, climate- resilient development – I4CE and AFD Joint side event

There are great opportunities to use financial instruments, such as green bonds, credit lines, ‘blended’ finance, to support low-carbon, climate-resilient development around the world – and particularly in Africa. This event fostered a discussion on how to overcome the challenges faced and finance mitigation and adaptation on the ground.

Detailed Program:

Moderator: Ian Cochran – I4CE

Panel :

• Béryl Bouteille, Project manager, Financial Institutions and Private Sector Support , AFD
• Paul Horrocks, Lead Manager – Private Investment, OECD
• Boutania Benchekroun, Senior Structuring Officer – Moroccan Solar Energy Agency (MASEN)
• Coşkun Kanberoğlu, Head Engineering Analysis Department – TSKB (Industrial Development Bank of Turkey)

 Background information

Financing the transition to a low-carbon, climate-resilient economy often requires overcoming difficulties encountered by actors on the supply-side and demand-side of capital. Project developers have identified limited access to credit – while capital providers have expressed concerns on a lack of pipeline of bankable green projects. On one hand, insufficient financial performance of green projects – especially given in-country economic incentives – may limit the development of projects. On the other hand, a mismatch between project characteristics and investors’ needs may limit the flow of finance, even when a project is economically viable. This mismatch between investors’ needs and the green project market is one of the main barriers to address in order to support financial flows at scale going from where the capital is to where it is needed – project developers.

This event aimed to present and discuss the potential of specific financial instruments and approaches increasingly used to address this mismatch: ‘blended’ climate finance, green bonds and credit lines. Discussions will focus on the steps needed by public and private stakeholders to ensure both the financial and environmental impact of such instruments, and their role in domestic implementation of NDCs to achieve international long-term climate objectives. Particular attention was given to the African context and experience.

Key takeaways of this event

1.No one size of instruments fits all needs – green bonds, green credit lines, blended finance and other instruments can fill different financial niches and roles depending on:  who are the project developers; the sectors; the size of projects;  the needs of those institutions providing capital; the depth of domestic capital markets; and the technical capacity of the financial institutions involved.

2.When instruments are selected for use, two key areas must receive careful attention to ensure a tangible and robust contribution to supporting the low-carbon, resilient transition:

• Financial Additionality: or the ability to leverage new resources or better terms for project developers;
• Environmental Integrity: end-uses have positive and aligned environmental and financial outcomes

See Introduction PPT below

Cases presented in the event

a.AFD’s work in extending green credits lines to commercial local banks in developing countries to facilitate both access to capital for EE and RE projects, as well as technical capacity building to support lasting in-country market development. See here an example of AFD’s intermediation activity in South Africa.

b.The Moroccan Renewable Energy Agency (MASEN) has adopted international standards in ensuring the quality of their first green bond issuance – Morocco’s first – for MAD1.5 billion.

c.TSKB has been active in Turkey in getting technical assistance from DFIs to train both operational teams to extend green credit lines for energy efficiency and renewables – as well as issuing green bonds to finance projects in those sectors of activities not currently supported by DFI funds. (see PPT below)

d.OECD’s work on blended finance demonstrated many possible combinations of the use of public and private, concessional and market-term funds to support climate-related investment. The ReDesigning Development Finance Initiative (RDFI) hosted jointly by the World Economic Forum (WEF) was launched to identify best practice for blended finance – both for environmental and other development objectives. (see PPT below)