Mobilizing Public and Private Funds for Inclusive Green Growth Investment in Developing Countries A Stocktaking Report Prepared for the G20 Development Working Group © 2013 International Finance Corporation The material in this publication is copyrighted. IFC encourages the dissemination of the content for educational purposes. Content from this publication may be used freely without prior permission, provided that clear attribution is given to IFC and that content is not used for commercial purposes. The findings, interpretations, views, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the Executive Directors of the International Finance Corporation or of the International Bank for Reconstruction and Development (the World Bank) or the governments they represent. IFC and the World Bank do not guarantee the accuracy of the data in this publication and accept no responsibility for any consequences of their use. Cover photo courtesy of the World Bank Photo Collection. Mobilizing Public and Private Funds for Inclusive Green Growth Investment in Developing Countries A Stocktaking Report Prepared for the G20 Development Working Group ii MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES Contents Acknowledgements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v 1. Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4. Literature Review: What Do We Know?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Literature Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Software Tool for Navigating the IGG Literature. . . . . . . . . . . . . . . . . . . . . . . . 18 5. Mapping of Finance Flows: Where are the Gaps?. . . . . . . . . . . . . . . . . . . . . 19 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6. Selected Case Studies: What Do They Tell Us?. . . . . . . . . . . . . . . . . . . . . . . 24 Promoting IGG through New Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Promoting IGG through New Business Models. . . . . . . . . . . . . . . . . . . . . . . . . 25 Influencing Markets through Provision of Information . . . . . . . . . . . . . . . . . . . 25 7. Promoting IGG through New Technologies. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Clean Cookstoves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Solar Lanterns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 8. Developing New Business Models. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Clean Water Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Energy Efficiency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Insurance Products and Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 9. Providing Better Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Weather Observation and Early Warning Systems. . . . . . . . . . . . . . . . . . . . . . 42 Country Risk Indicators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 ii Contents iii 10. Financing Green Growth: How Do We Unlock Private Investment?. . . . 48 Understanding Leverage: IFC’s Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Institutional Investors: The Challenges and the Opportunities. . . . . . . . . . . 23 11. Toward an Agenda for the DPIGI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Investor Views of Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Identification and Progress of Initiatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Investor Suggestions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Next Steps Toward the Design of the DPIGI . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Appendices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 List of Tables Table 1: Geographic Allocation of Green Growth Finance. . . . . . . . . . . . . . . . . 22 Table 2: Summary of Sector-Specific Climate Finance. . . . . . . . . . . . . . . . . . . . . 23 Table 3: Challenges with Scaling-Up Clean Cookstoves. . . . . . . . . . . . . . . . . . . . 29 Table 4: Indicators Relevant to Private Investment in Measures to Enhance Climate Resilience. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Table 5: Climate and Hydrological Projections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Table 6: Summary of Indicative Drivers of Institutional Investors and their Supply Chains. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Table 7: Investment Barriers and Opportunities. . . . . . . . . . . . . . . . . . . . . . . . . . . 66 List of Figures Figure 1: Investor Initiatives Mapping by Primary Role and Objectives. . . . . . 13 Figure 2: Categories Used to Map IGG Finance Data. . . . . . . . . . . . . . . . . . . . . . 20 Figure 3: Categories Used to Map IGG Finance Data. . . . . . . . . . . . . . . . . . . . . . 21 Figure 4: Structuring Support for Clean Energy in China. . . . . . . . . . . . . . . . . . . 35 Figure 5: Snap-Shot of Indicators to Determine Favorable Conditions for Business Adaptation in a Low-Income Country. . . . . . . . . . . . . . . . 47 Figure 6: IFC’s Climate-Related Portfolio, 2005–2013 – Own-Account Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Figure 7: Typical Investor Portfolios and Allocations. . . . . . . . . . . . . . . . . . . . . . . . 54 Figure 8: Sustainable and Responsible Investment Solutions. . . . . . . . . . . . . . . . 55 Figure 9: Pension Assets by Regions, 2006–2011. . . . . . . . . . . . . . . . . . . . . . . . . . . 58 iv MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES Figure 10: Investor Initiatives Mapping by Primary Role and Objectives. . . . . . 65 Figure 11: Key Objectives to Enhance Investments in IGG . . . . . . . . . . . . . . . . . . 68 List of Boxes Box 1: What are Modern Off-Grid Lighting Products?. . . . . . . . . . . . . . . . . . . 30 Box 2: Inclusive Green Growth Initiatives across the Multilateral Development Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Box 3: Insurance Programs As Mechanisms for Disaster Relief. . . . . . . . . . . 39 Box 4: Weather Observing System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Box 5: Investment Planning and Operation of Ports: A Climate Risk Analytical Study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Box 6: Barriers to Scaling Up Green Investments Identified by Investors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Box 7: The Risk in Not Going Green. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Box 8: South Africa’s Pension Funds Initiative . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 v Acknowledgements T his report was prepared by the Climate Fiona Stewart, Russell Sturm, and Tom Business Department (Stephanie Miller, Kerr. Christopher Kaminker of the OECD Director), Climate Policy and Finance also provided helpful comments and direc- Group (Vikram Widge, Head), with support tion. Research support was provided by from the German Ministry for Economic Akshatvishal Chaturvedi, Tahmina Azizova, Cooperation and Development (BMZ). The Sofia Villareal, and Nuwan Suriyagoda. Report lead authors were Aditi Maheshwari, Alan design and production assistance was provid- Miller, and Shilpa Patel (consultant). The re- ed by Rusmir Music ´ and Cristina Sy, and edi- port draws heavily on original case studies torial assistance by Lani Sinclair. The authors and supporting analysis by external experts; also express their gratitude to the Overseas a complete list is included in Appendix I. Development Institute for assistance organiz- Numerous colleagues provided helpful input ing an external workshop on the issues in the and comments including Sue Aguilar, Berit report with special thanks to Smita Nakhooda; Lauridsen, Quyen Thuc Nguyen, Mohandas and to the OECD and the Climate Policy Seneviratne, Mary Spelman, Vladimir Stenek, Initiative for their detailed comments. v 1 2 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES Executive Summary I n the Los Cabos Communique, the best practices to inform approaches to be G20  announced a commitment to “main- adopted by the DPIGI. taining a focus on inclusive green growth [IGG] as part of our G20  agenda” and went Distill key lessons learned and policy impli- on to “encourage further exploration of effec- cations as the basis for strategies for attracting tive mechanisms to mobilize public and private investment outside the G20 countries, consis- funds for inclusive green growth investment tent with making green growth more “inclusive”. in developing countries, including through the public-private Dialogue Platform on Inclusive Green Investments [DPIGI]...” As background Key Findings and Recommendations: for this decision, IFC undertook an extensive literature review and compiled a structured  The absence of an agreed definition in bibliography of relevant reports and research discussing “inclusive green growth,” which subsequently produced as a public docu- incorporates a wide range of sectors with ment, “Private Investment in Green Growth very diverse characteristics and challeng- and Climate-Related Activities.” This report es, is a major challenge to identifying, substantially expands on this earlier work as evaluating, and learning from existing IGG a contribution to the further development of investments. the Dialogue Platform, and responds to the  More than 160  publications and doc- following additional requests: uments related to IGG were reviewed and summarized as the basis for finan-  Map ongoing efforts to track finance cial mapping and lessons learned. What flows for IGG and undertake a meta-anal- emerges is that there is no one-size- ysis to identify gaps in terms of sectors, fits-all policy prescription suitable for all geographies, technologies underserved by parts of the globe. Recurring themes in- private finance. clude the need for effective policies to  Build a repository of lessons learned create investment-grade environments or across sectors to help identify best prac- to compensate for market failures and tices on structuring investments; address- the importance of predictability and pol- ing barriers; and ensuring a supportive icy-certainty for investors. Clean energy policy and enabling environment. policies are the largest source of experi-  Elaborate findings on innovative mecha- ence with mandates and regulations the nisms to leverage private finance and how most important drivers. to scale them up, including initiatives to  From the large set of documents re- engage institutional investors to identify viewed, only a subset of 16  included 2 Executive Summary 3 substantial data on finance flows appro- opportunities and barriers to scaling up priate for mapping. Most reports do not investment. A review of IFC financing track flows under the rubric of IGG and shows each dollar it invested was lever- much of the data included is under the aged around four times from private in- mantle of climate finance as an indica- vestors. Not surprisingly, greater leverage tor for IGG flows. Finance for mitiga- is achieved with well-established technol- tion investments was about $350billion in ogies. In newer areas, or with less well un- 2010/2011, with the bulk of this funded by derstood business models, active “selling” the private sector for renewable energy of the climate component can help spur projects. Data for energy efficiency and investment, and concessional finance can adaptation to climate change is less read- often nudge investment into promising but ily available and not always consistently as yet commercially unproven areas. defined and reported. The lack of com-  Institutional investors are a diverse, high- prehensive data and knowledge poses a ly differentiated group subject to very challenge to decision making and appro- different regulatory and management en- priate policy development. vironments. They rely on a chain of ser-  A highlight of all the reports is that the vice providers, fund trustees, advisors, dominant source of funding for green in- asset managers, policy makers and regu- vestments globally is domestic/local fi- lators to make investment decisions. As a nance in all regions, with the private result, introducing new asset classes or in- sector accounting for the lion’s share vestment themes takes time to embed in of total investments. While collectively the decision making process. Many such managing more than $75  trillion, OECD funds have yet to think about sustainabil- institutional investors represent only a ity and development considerations in minute portion of these overall direct in- their investment strategies and identify vestment flows. numerous barriers to doing so including  Numerous initiatives related to green perceived lack of investment opportuni- investment and the IGG agenda were ties, policy uncertainties; developing coun- identified as sources of lessons learned try risks; lack of track record; liquidity and insight into the potential role of the concerns; and short time horizons. DPIGI. Seven case studies including five  Within the universe of large institution- new works were examined ranging from al investors, those based in the OECD promoting new technologies and business have decidedly more barriers to investing models to improving information gener- into IGGI including regulatory response ation and availability. An overriding con- to recent losses and the fiscal crisis as clusion is that while financing is almost reflected in Basel III and Solvency II. In always a necessary element for success, contrast, pension fund assets in non- poor policies, inadequately proven tech- OECD countries have been growing over nologies or business models, or lack of the last few years, and while fiduciary consumer acceptance may be primary duty remains the overriding objective, de- barriers. Financing will not be an effec- veloping country pension funds are more tive solution unless and until these other likely to consider the broader socio-eco- barriers are addressed. nomic context in which they operate. One  Development banks are an important example is a new policy now under imple- source of experience with respect to mentation in South Africa. 4 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES  An analysis of 48  existing initiatives with a provide a baseline for short-term op- green focus found very few have evolved portunities for scale-up. Through shar- to a stage where they can be described ing evidence about where and under as leaders already allocating capital and what conditions “going green” is profit- providing a conduit for asset flows—a rel- able the DPIGI could aim to change the atively narrow subset of investors is likely investor mindset from the perception that to take the lead on innovative new ini- the business case for green investment is tiatives. Identifying and encouraging this still uncertain to green investment as the group of potential leaders within the in- fundamental path to preserve long-term vestment community will be an important economic growth. Through a DPIGI, gov- objective of the DPIGI. ernments can call for policy and regulato-  While very inadequate, substantial green ry change to increase investor support for investment is currently taking place with- industry initiatives, and to facilitate the in existing policy frameworks and with- efficient deployment of capital for green out special incentives. These activities investments. 2 5 Overview T he G20  countries have increasing- for inclusive green growth (IGG) investments ly recognized the importance of green in developing countries, as preparation for Los growth in recent years, and many coun- Cabos. Following the completion of that work, tries are demonstrating strong leadership IFC was asked to expand the stocktaking ex- through effective and progressive policies. ercise and provide insights on how the DPIGI The focus has so far been on creating new could engage new stakeholders such as institu- economic opportunities while solving envi- tional investors in support of IGG investments. ronmental and resource scarcity challenges. This report presents the findings of this work However, governments do not act alone—the for review by the DWG. The full report follows private sector is a natural partner, provid- this overview. In addition, a series of supporting ing new technologies, business models and documents and materials, most of them specif- investment opportunities across a variety ically created or commissioned in support of of sectors to help scale-up transformation. this work, will be made available as part of the Since the 2008  Pittsburgh G20  Summit, in final report produced for consideration at the order to foster these partnerships and lead- G20 meeting in St. Petersburg in 2013. ership by the private sector there has been An initial challenge has been the absence a surge in related intergovernmental, non-gov- of an agreed definition of IGG. IGG can in- ernmental and private sector platforms, to corporate a wide range of sectors with very actively promote government policies and diverse investment characteristics and chal- public-private partnerships to deliver greater lenges, as well as a wide range of countries at investment in resource-efficient, low-carbon differing levels of development. The impor- infrastructure and services. Recognizing gaps tance of green growth for development is being in the discussion on financing green growth increasingly documented as reflected in sev- in low income countries, the G20  Los Cabos eral recent reports including Inclusive Green Communique in 2012  enhanced the focus on Growth: The Pathway to Development (World inclusive green growth through, inter alia, the Bank, 2012), and Putting Green Growth at creation of a Dialogue Platform on Inclusive the Heart of Development (OECD, 2013). The Green Investments (DPIGI) as part of the working definition used in this paper is inten- Development Working Group (DWG) program. tionally broad and encompasses investments As the largest development finance insti- that support economic growth in a clean, resil- tution dedicated to private sector develop- ient and sustainable manner; the inclusive com- ment, with a strong emphasis on sustainability, ponent is focused on base of pyramid (BOP) International Finance Corporation (IFC) was and low-income countries or such subsets commissioned to undertake an extensive liter- of population within other developing coun- ature review as a stocktaking exercise on ex- tries. The literature review and supporting re- isting mechanisms to mobilize private capital search are presented in a manner intended to 5 6 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES allow the reader to pursue those issues associ- paragraphs. What emerges from the review ated with IGG of most interest, while also ad- is that much is being published in the area of dressing the specific objectives associated with green growth and climate finance, but little of the potential role and form of the DPIGI. it is based on original research; rather, most of This overview starts with the high-level it draws on existing work or “received wisdom.” findings of the expanded literature review. Lacking consistent definition, review of this lit- In order to help readers navigate the vast erature is also problematic as terms are not amounts of information reviewed, a software used consistently, and data cannot be easily tool has been developed that allows searches compared across sources. Many reports pro- by theme, geography, sector, instrument, and vide qualitative and/or illustrative discussion of other interests. The overview then provides barriers to investment, and provide policy pre- a mapping of financial flows relevant to IGG scriptions. The most interesting elements of based on existing information and identifies the reports from a DPIGI standpoint may well gaps in our knowledge along sectoral and geo- be specific case studies, describing successes graphical lines. We next review several case (or failures) on the ground. studies of initiatives that offer insights into Nonetheless, most reports reiterate cer- the larger context of existing efforts to pro- tain common themes. Most reports talk about mote IGG, and provide a baseline for possible the need for effective policies—either to create discussion of strategies for scaling up invest- investment-grade environments, or to compen- ment through the DPIGI. These include exam- sate for market failures; some provide qualita- ples based on new technologies, new business tive and/or illustrative discussion of barriers models, and the provision of better informa- to investment, and provide policy prescrip- tion, all with particular reference to inclusive tions. Successful examples of climate-related green growth. The penultimate section ad- investment indicate that mandates and regu- dresses two aspects of financing: leverage in lations have been the most important drivers. the context of development bank activity and Predictability and policy-certainty are also the lack of institutional finance directed to often mentioned. Several reports mention the green growth. Finally, a concluding section out- removal of subsidies, notably on fossil fuels, lines issues that may warrant further explora- and the institution of carbon pricing. Many re- tion and discussion by the DPIGI. ports also talk about the judicious use of public funding, provided in the form of dynamic subsi- dies, as a means to leverage private investment. Literature Review: What Do We Know? Certainly the review reinforces the recommen- dations for future work for the DPIGI that are The updated bibliography of publications rel- identified in this report. evant to IGG and finance encompasses more In order to render this large trove of infor- than 160  sources, each reviewed for key mes- mation more accessible and user-friendly, and sages and relevance to the particular inter- to help overcome confusion with respect to ests of the DPIGI. A detailed analysis of these terms and the scope of analysis, a sophisticated reports including their main findings and a knowledge management software was used checklist of key features will be included in that will allow readers multiple access points the supporting documents to be provided to filter the information, thereby increasing the with the final report. likelihood of being able to narrow the investi- It is difficult to summarize the find- gation to the sector, geography, technology, or ings of such a large body of material in a few other information being sought. (Examples are Overview 7 provided in the main report.) Searches will be remaining reports include analyses of different possible using a topical database organized subsets of the data and report them in different along relevant categories, key themes, key- formats. As a result, any errors, omissions, and words, and questions likely to be of interest to inconsistencies in the primary sources are rep- different users. As the DPIGI develops, such a licated and compounded across other pub- tool could provide intelligent and immediate ac- lications. For example, relative to large scale cess to vast amounts of relevant information. A renewable energy projects, the data sources publicly accessible version of this tool will be for energy efficiency and adaptation are much provided with the final report. less well developed because the relevant invest- ments are often not clearly labeled, and there- fore may be embedded in larger financing, and/ Mapping of Finance Flows: Where are or are usually not publicly reported. Data on the Gaps? smaller-scale financial flows for IGG to devel- oping countries are especially limited, often in- It is evident that financing of green invest- consistent, and with major gaps. Furthermore, ment has been growing, with financing lev- the absence of consistent definitions makes it all els of about US$ 350  billion in 2010/2011—the the more difficult to disaggregate flows to devel- bulk of it private sector funding for renewable oping countries and to specific sectors. This con- energy projects. Global financial flows for ad- straint, noted in all the reports mapping green aptation are considerably lower, at US$12– finance, makes it particularly challenging to as- 16  billion, with a significant portion based on sess private sector contributions to adaptation North-South flows and primarily from pub- and other non-mitigation-related investments. lic sources. The dominant source of funding Two areas of financing—the role of devel- for green investment is domestic or local fi- opment banks and institutional investors—are nance in all regions, and the private sector examined in greater detail, and discussed later accounts for the lion’s share of total invest- in this summary. ments. Institutional investors represent a min- ute portion of these flows. In order to establish a baseline for as- Selected Case Studies: What Do sessing financial flows currently being di- They Tell us? rected toward inclusive green investments, the data available in the literature reviewed were Numerous initiatives related to green invest- mapped to analyze the reported allocations of ment and the IGG agenda were identified finance to green investments in a systematic as possible sources for insight into the po- way. The primary objective of the exercise was tential role of the DPIGI. Consistent with to identify private sector investment gaps in the broad scope and diverse strategic ap- sectors, geographies, and technologies with re- proaches to promoting IGG, seven case gard to IGG globally. Only 16 publications out of studies were examined to expand on the in- the more than 160 analyzed included substan- sights from the literature, most commissioned tial data on finance flows appropriate for map- for this report—ranging from promoting new ping; however, most reports do not track flows technologies and business models to improv- under the rubric of IGG, and much of the data ing information generation and availability. available is under the mantle of climate finance. An overriding conclusion is that while financ- Only a handful of publications identify, col- ing is almost always a necessary element for lect, and report primary sources of data; the success, it is often not the primary barrier to 8 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES greater IGG investment. Indeed, the absence fuels (coal and traditional biomass) for cook- of financing is often an indicator of other de- ing. In order to improve energy access, direct ficiencies in the enabling environment, such health benefits and reduced indoor air pol- as poor policies, inadequately proven tech- lution, numerous initiatives have emphasized nologies or business models, or lack of con- the provision of efficient cookstoves and clean sumer awareness and acceptance. The case fuels to poor households. However, despite studies also illustrate the importance of local many projects led by the World Bank and oth- factors and market considerations; the bar- ers over the past 20  years, large-scale adop- riers to clean cookstoves and solar lanterns tion has yet to materialize due to a variety of in one country region may differ from those context-specific barriers on both the consum- in a neighboring jurisdiction, which can make er and producer/distributor sides. Financing replication and scaling up even successful the working capital needs of producers and models complicated, resource intensive, and distributors is often one challenge, while lack time-consuming. Short summaries of these of information, awareness, and cultural barri- case studies follow. ers dominate for consumers. This report draws heavily on experiences within the IFC and WBG reflecting the authors’ Solar Lanterns: greater access to documents and sources pro- About 600  million people in Africa have no duced by these institutions. While information access to electricity, and rely on increasingly was sought from other IFIs, the most up to date expensive, hazardous, and polluting fuel-based and well documented material was also often not sources of energy for their lighting needs. The readily available. A sampling of some of the pub- World Bank Group and other MDBs are work- licly available literature documenting the experi- ing with a new generation of off-grid lighting ence of other international financial institutions products or systems that generally comprise follows and shows that they too have a plethora an electricity source (most commonly, a solar of IGG-related financial initiatives now underway panel); a modern rechargeable battery; and (See Box 2). The further development of the an LED lamp or lantern. These projects in- DPIGI offers an opportunity to engage these in- corporate several types of support: product stitutions and to draw on their experience. testing (particularly important, as poor quali- ty products undermine consumer confidence Promoting IGG through New Technologies and “poison the market”); market intelligence; One of the most promising strategies for ad- access to finance; business development sup- vancing IGG objectives is through new tech- port; and collaboration with governments to nologies of particular benefit to BOP and lower identify and address policy barriers. income populations. In selling to poor popula- tions, financing initial equipment cost is often a Developing New Business Models critical barrier, even if the new technology re- Another strategy for advancing IGG objectives places a more expensive and intermittent ser- is through new business models that can ad- vice, as with improved cookstoves that reduce dress some of the constraints and risk percep- fuel costs, or solar lanterns that replace kero- tions associated with BOP and lower income sene lamps. populations. Here, too, financing is a critical requirement—but enabling policies, capacity Clean Cookstoves building, and public-private partnerships and Approximately three billion people in South dialogue are equally important. Often, such en- Asia and Sub-Saharan Africa rely on solid deavors involve adapting a successful business Overview 9 model from one context to another, be it from credit lines and/or guarantee facilities. This developed country to developing country, or approach has repeatedly proven successful one market segment to another. and low-risk and continues to be replicated and scaled up. Clean Water Services For the most part, however, commercial EE Access to clean water is one of the most im- lending does not address the needs of the very portant needs of the poor. However, tra- poor or BOP segments, as they are outside the ditional provision models often fail due to commercial banking system. Micro-credit pro- infrastructure degradation resulting from the grams or targeted publicly-supported programs absence of technical capacity and cost-re- (as for solar lanterns and cookstoves) have gen- covery mechanisms required for long-term erally stepped in to fill the breach. This may sustainability of operations. Many innovative be changing with the advent of cellular phone- ideas are being explored, but the solutions based banking, which dramatically reduces will require time and care to evaluate and, if transaction costs and barriers for banking in successful, to replicate elsewhere. One new rural areas and for smaller accounts. business model for off-grid, distributed ser- vices, being implemented in rural Kenya by Insurance Products and Services IFC with the Safe Water Network, includes Intrinsic to the concept of IGG is the mit- reduced grid infrastructure requirements to igation of and adaptation to otherwise un- substantially lower costs; initial financing for avoidable natural disasters. The availability testing and evaluating business models; mar- of insurance substantially reduces the near- ket testing of services to determine ability and and long-term economic impacts of natural willingness to pay; collaboration with relevant disasters, while reducing the burden on indi- government agencies and NGOs; and engage- viduals, as well as on in-country and foreign ment with local banks to help meet require- governmental aid. Insurance is at an earlier ments for commercial lending. stage of evolution in developing countries, with growth rates routinely outstripping GDP Energy Efficiency growth. There is much potential for further Energy efficiency (EE) investments can be developing this market in multiple ways, in- profitable and contribute to green growth cluding: in multiple ways, including reduced pollu- tion and resource requirements, as well cli-  Extending the availability of insurance to mate change mitigation. Yet, even when the manage risks in the developing world. economic viability is proven, there are bar-  Working to promote resilience and adap- riers to more widespread adoption, partic- tation to changing weather and climate ularly in developing countries. The private extremes through innovative insurance sector-focused multilateral development products and services that support green banks (MDBs), notably the European Bank growth. for Reconstruction and Development (EBRD),  Investing in and financing green growth through its Sustainable Energy Initiative and adaptation projects. Insurers could and IFC, through its Sustainable Energy bring large amounts of new funds to bear Financing program, have made EE into a on inclusive green growth projects, and business line. They package technical assis- have already made a strong start in de- tance and capacity building together with voting resources to green projects in the financial support, generally in the form of industrialized world. 10 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES Providing Better Information work was commissioned for this report to de- Often, lack of information and awareness hin- velop and test metrics that will help private ders the development of products and services investors evaluate climate risks pertinent to adapted to local conditions and needs. Making specific sectors (e.g., coastal infrastructure) in information more widely available can enable specific countries. investments, sometimes very cost effectively. An IFC study with a port client in Colombia illustrates the potential benefits of Weather Observation and Early Warning this approach. With donor support, the client Systems was given detailed information on potential Reliable, on-time weather information and risks of sea level rise and other probable cli- forecasting are vital to economic activity and matic changes relevant to the financial perfor- disaster preparedness, and early warning sys- mance of the port. With this information, the tems can avoid the need for more expensive client decided to spend over US$25 million to disaster recovery. Lessons from early ef- make improvements that will enhance the cli- forts to promote new weather technologies mate resilience of the port—an investment show that while financing is a critical element, triggered entirely by a small expenditure on mechanisms to ensure sustainable revenues, making information and awareness available to systems maintenance, and responsive busi- the company. ness and humanitarian applications are also necessary, as are the full support and buy- in of national weather agencies deploying Financing Green Growth: How Do We these technologies. Furthermore, attempts to Unlock Private Investment? meet developing country needs through tech- nologies commonly used in developed coun- The above sections have highlighted a num- tries usually result in unsustainable networks ber of interesting initiatives that speak to IGG. that perform poorly. An emerging set of low- The mapping exercise indicates that while the er-cost, highly reliable technologies, building financing of green growth has been increasing, on cellular networks (rapidly growing in most it is nowhere close to the projected need of developing countries) has the potential to up to $275  billion annually in incremental in- overcome many of the traditional barriers to vestment in developing countries to 2030  to weather observation. meet the additional costs associated with sta- bilizing global temperatures at 2ºC (World Country Risk Indicators Development Report 2010). Furthermore, very Country-based indicators that help inform in- little is explicitly directed to IGG and BOP ini- vestors about the barriers and opportunities tiatives. Strategies to increase financial flows for investment are compiled and reported in toward green growth recognize the import- many forms, e.g., the Global Green Economy ant role that the private sector must play, and Index, published by Yale University, and the the need to find ways to achieve greater “val- Doing Business Report produced by the ue for money” so that limited public dollars World Bank Group. These concepts are in- can leverage significant multiple investments creasingly being applied to various elements from other investors, although leverage is not of green growth; e.g., a recent index produced always an indicator for impact. by the Inter-American Development Bank fo- Financing by multilateral and national cuses on the climate for renewable energy in- development banks for climate related in- vestment in Latin America. Initial exploratory vestments has been steadily growing, as the Overview 11 institutions make addressing climate change an energy efficiency, and other climate-related explicit element of their strategy. They also pro- activity, further disaggregated by project type vide an interesting platform through which to (such as power generation, industrial energy study leverage, particularly as it relates to the efficiency, and financing through intermedi- private sector. Yet, development bank financing aries, to name a few). The results reveal that remains a small portion of overall financing one dollar of IFC financing—itself raised in cap- needs, and is constrained by the capital base ital markets based on significant leveraging of of the institutions. At the same time, institu- shareholder capital—was leveraged around tional investors control many trillions of dollars four times from other investors (essentially pri- in assets—a very small portion of which reaches vate, given its mandate) across the 563 projects green investment (and an even smaller amount examined. Not surprisingly, greater leverage is going to developing countries). Unlocking even achieved with well-established technologies. a small share of these flows could provide a sig- In newer areas, or with less well understood nificant boost to the availability of investment business models, active “selling” of the climate resources. component can help spur investment, and concessional finance can often nudge invest- Understanding Leverage: IFC’s Experience ment into promising but as yet commercially Development banks—whether global, regional unproven areas. In all cases, climate-related or national, or multilateral, bilateral, or do- investment needs a conducive underlying in- mestic—can play a significant role in financing vestment environment. green investment and IGG, and in leveraging Even though the volume of financing may significant resources from the private sector to be small relative to the global need, develop- do so. This report highlights in depth analysis ment banks often play a very important role of leveraging achieved through IFC’s climate in demonstrating the viability of investments, finance experience, for which detailed infor- thereby opening up markets and paving the mation is available for the period 2005–2013. way for others to follow. These findings can just as easily be applied to other private sector-focused development Institutional Investors: The Challenges and banks, as they follow similar funding models. The Opportunities Detailed data on these other banks’ activities Institutional investors are a diverse, highly were not available to permit a comparison, and differentiated group, and include public and the report therefore confines itself to reporting private pension funds, insurance companies, on IFC’s experience and sovereign wealth funds—all subject to Just as there are no standard definitions of cli- very different regulatory and management mate finance, green investment, or IGG, there is environments. The complexity of the invest- no universally accepted definition of leverage. ment system means that institutional inves- Furthermore, leverage is only one part of the tors rely on a chain of service providers. Fund story, and is not always an indicator of devel- trustees, advisors, asset managers, policy opment impact. Most discussions of leverage makers and regulators all play important refer to the ratio of total funding to public roles in the investment decision. As a result, funding, although this can be further nuanced introducing new asset classes or investment by specific reference to private funding, or to themes takes time to embed in the decision climate finance. making process. An IFC analysis of its climate portfolio re- The governing principle for investment de- viewed different sectors—renewable energy, cisions by pension funds is fiduciary duty: acting 12 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES in the long-term best interests of the benefi- based investors. However, pension fund assets ciaries. National and international regulations in non-OECD countries have been growing (such as Basel III and Solvency II) drive investors over the last few years, and while fiduciary duty to act conservatively and seek relatively large, remains the overriding objective, developing low-risk, liquid, long-term investments that country pension funds are more likely to con- deliver steady, preferably inflation-adjusted sider the broader socio-economic context in income streams that are matched to their lia- which they operate. Furthermore, in most de- bilities. Portfolios are traditionally built around veloping countries, the majority of retirement two main asset classes: bonds and equities. assets are linked to social security systems, and Investors frame green investing primarily managed by government-controlled agencies. through the broader environment, social, and National pension plans can be leaders in infra- governance (ESG) lens, focused primarily on structure investment. South Africa provides a protecting their reputation rather than with an very interesting case study of how regulatory explicit sustainability objective. Even though changes are beginning to raise awareness and studies have shown that incorporating ESG in drive investment choices; the Pension Funds the investment process can enhance returns Act now requires investors to explicitly con- and/or reduce risk, many investors have yet to sider ESG issues in their investment deci- think about how best to integrate sustainability sions. One advantage of emerging markets is into investment strategies. Furthermore, inves- that the pension fund industry is usually at an tors are cautious of repeating bad experiences; earlier stage in its evolution, and less set in its the collapse of solar photovoltaic and wind tur- ways—thus, more open to new ideas. Sovereign bine manufacturers, driven by price declines Wealth Funds based in emerging markets are and retroactive policy changes that include another potential source of IGG financing, par- reversal of clean energy subsidies in parts of ticularly with respect to green infrastructure. Europe, has damaged investor confidence. A gap analysis was undertaken to gauge In-depth interviews with investors under- the progress of existing green investment re- taken for this report reveal the following main lated initiatives including industry groups barriers to scaling up green investments: and investment initiatives e.g. Green Growth Action Alliance, toward addressing some of the  Lack of an economic business case: per- challenges mentioned above. Forty-eight ex- ceived lack of investment opportunities, isting initiatives with a green investment fea- policy reversals. ture were mapped according to four criteria  Policy uncertainties: lack of meaningful assessing their progress toward influencing the action on climate. investment process, public policy, direct invest-  Developing country risks: poor gover- ment, and industry mindset. These initiatives nance and inadequate investment pro- were further divided into four categories based cesses. on their primary type of activity: Movers—those  Lack of track record. that directly allocate capital and provide a con-  Liquidity concerns: green infrastructure in- duit for asset flows; Influencers—those that vestments can tie up capital. seek to influence others in the finance system  Investment time horizons: financial per- to behave in particular ways; Thinkers—those formance assessed on short-term results. that provide thought leadership and research; and Tools—those that provide systems support These barriers appear to apply more via ratings systems, credit worthiness, and sys- acutely to financing originating from OECD- tems to measure risk/return, and were rated by Overview 13 their assessed progress. Figure 1 is a visual rep- FIGURE 1:  Investor Initiatives Mapping by Primary Role resentation of the findings. and Objectives As the figure illustrates, most initiatives to date can be categorized as Influencers and Thinkers; very few initiatives have entered into the space where they can be described as Movers engaged in allocating capital and pro- viding a conduit for asset flows. Moreover, it is a relatively narrow subset of investors that is likely to take the lead on the initiatives re- viewed. Identifying and encouraging this group of potential leaders within the investment com- munity will therefore be an important objec- tive of the DPIGI. In addition some investors were interviewed and their observations and recommendations relevant to their green in- vestment activity include:  The need to change the narrative: rather than wait for an ideal investment frame- Source: Mercer, Internal Analysis Produced for IFC (2013) work, investors should set out their ex- pectations of the policy community and help make it happen.  Governments need to price externali- developed countries but relevance for the de- ties, provide first loss support, and create veloping world, and in particular, the least de- proper legal frameworks related to gover- veloped countries. nance and policy measures.  Multilaterals can play an increased role in Scaling Up Existing Activity: establishing precedents for investing and While very inadequate, substantial green in- opening up markets. vestment is currently taking place within ex- isting policy frameworks and without special incentives. This is the case for many devel- Toward an Agenda for the DPIGI opment bank activities focused on SMEs and BOP needs, and investments in well-estab- Issues for possible exploration by the DPIGI lished green technologies through private fi- are identified throughout the main report, in- nancing. These activities provide a baseline cluding in each case study. Several areas of for short-term opportunities to scale-up. general relevance for further exploration and discussion by the DPIGI include: Tapping the Institutional Investor Community: Exploring Initiatives Most Likely to The DPIGI has the opportunity to fundamen- Address BOP and IGG Issues: tally change the investor mindset from the The case studies discussed in the report—new perception “green investment loses money” to technologies, new business models, and in- green investment is seen as the fundamental formation provision—all have precedents in path to preserving long-term economic growth. 14 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES An objective of the DPIGI could be to help Shifting the Metrics of Financial Return identify, validate, and communicate the risks to a Broader Concept of Development of failing to take into account climate change, Dividends: food security, and other objectives of inclusive As traditionally defined, financial returns omit green growth. Through a DPIGI, governments many broader and longer-term development can call for policy and regulatory change; to considerations. An issue for the DPIGI to ex- increase investor support for industry initia- plore is how the two can be combined to the tives; and to facilitate the efficient deployment benefit of all, based on emerging initiatives of capital for green investments. such as that in South Africa. 3 15 Introduction I n the Los Cabos Communique, the and relevant initiatives as an initial step to es- G20  announced a commitment to “main- tablishing the public-private DPIGI. The DWG taining a focus on inclusive green growth were asked to report back on progress by the [IGG] as part of our G20  agenda” (Par. 70). end of 2012. The Communique went on to “encourage fur- This program of work was discussed at the ther exploration of effective mechanisms to September 2012 Bali meeting of the DWG and mobilize public and private funds for inclu- subsequently formalized in Terms of Reference. sive green growth investment in developing Key elements were: countries, including through the public-pri- vate Dialogue Platform on Inclusive Green  Map ongoing efforts to track finance Investments.[DPIGI] . . .” (Par. 72) As back- flows for IGG and undertake a meta-anal- ground for this decision, at the request of ysis to identify gaps in terms of sectors, the Development Working Group (DWG), an geographies, technologies that remain un- informal group of co-facilitators asked the derserved by private finance. International Finance Corporation (IFC) to  Update and revise the scope of the an- assist with a preliminary stock taking exer- notated bibliography and issues note pre- cise, drawing lessons from existing initiatives pared for Phase 1. on identifying and overcoming barriers to pri-  Build repository of success stories and vate investment. In response to this request, less successful approaches across sec- IFC undertook an extensive literature review tors that can help identify best practic- and compiled a structured bibliography of rel- es and lessons learned on structuring evant reports and research summarizing the investments; addressing barriers; and en- contents and relevance to the G20  DPIGI suring a supportive policy and enabling for each one. This work was subsequent- environment. ly produced as a public document, “Private  Elaborate findings on innovative mecha- Investment in Green Growth and Climate- nisms to leverage private finance and how Related Activities,” available online at the IFC to scale them up. website.1  Review initiatives to engage institutional Following receipt of IFC’s report, the investors to identify best practices to in- DWG produced a Progress Report proposing: form approaches to be adopted by the expanding the stocktaking exercise through a DPIGI. multi-stakeholder dialogue involving in partic- ular the IOs, interested development financial institutions (DFIs), countries, private sector, 1 www.ifc.org/Report-GreenGrowth 15 16 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES  Distill key lessons learned and policy im- diverse investment characteristics and chal- plications that could form the basis for lenges. The working definition used in this successful strategies for attracting invest- paper is intentionally broad and encompasses ment outside the G20  member coun- investments that support economic growth in a tries, consistent with the desire for green clean, resilient, and sustainable manner. These growth to be more “inclusive.” investments can include those that contribute to both climate mitigation and or adaptation as This report addresses each of the pro- well as those in efficient resource utilization, posed elements in some detail. A continuing particularly water. The inclusive component is challenge in undertaking this work has been focused on base of pyramid (BOP) and low-in- the absence of an agreed definition in dis- come countries in particular, and such subsets cussing “inclusive green growth,” which in- of populations within other developing coun- corporates a wide range of sectors with very tries and emerging economies. 4 17 Literature Review: What Do We Know? Literature Review few reports explicitly address inclusive green growth, which is perhaps not surprising given IFC published its first inclusive green growth the lack of accepted definitions of what consti- (IGG) bibliography in 2012, 2 profiling approxi- tutes IGG. Indeed, one recurring theme across mately 50  green growth sources. The field has the vast majority of reports was the difficulty continued to grow, and for this paper more in tracking and assessing green growth activity, than 160  publications with substantial infor- given the lack of common definitions and satis- mation on green growth and finance were re- factory data capture mechanisms. viewed (see list in Appendix III). 3 The review Most reports contain descriptions of bar- process captured the key messages from each riers to green growth investment, ranging from of the publications and some additional infor- broad enabling environment issues to more mation on a consistent basis according to a sector- and geography-specific discussions; checklist. The checklist is intended to iden- they also provide policy prescriptions de- tify and summarize pertinent details of the signed to address such barriers. Several dis- report such as geographic focus; case stud- cuss financing—through the private sector, ies; sectors and technologies that are consid- public-private partnerships, banks, bilateral ered; overall framing theme of the report, e.g., and multilateral financing institutions, and in- sustainable development or climate change; stitutional investors. Some provide toolkits and external endorsement of the analysis; determi- guidance on instruments and financial options nation of original research; indications on roles available. A number of reports have a specific for donors; and information relevant to the focus, such as new technologies, forestry, pen- DPIGI. Each of the reviews has been tagged sion funds or banks; many contain case studies according to the main themes it covers, allow- of specific initiatives and experience. ing for readers to identify all relevant publica- What emerges from this review is that tions covering the same issues. The objective there is no silver bullet: a one-size-fits-all policy of this exercise was both to inform this paper prescription sure to succeed in all parts of the with the latest thinking and to create an easi- ly accessible systematic compendium of all the most recent and relevant literature. The reports cover a range of green growth 2 Available at www.ifc.org/Report-GreenGrowth 3 The reports point to the vast amount of research related issues. Some contain estimates of fi- that is taking place in the area of green growth, nancing flows, but these are mostly focused and while the review cast a wide net to capture on clean energy or climate-related invest- most new scholarship in the area, it does not ment, and preponderantly on mitigation. Very claim to be exhaustive. 17 18 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES globe is simply not possible. But there are some assessment of important lessons and recom- recurring themes and recommendations. Most mendations from the literature. 4 reports talk about the need for effective pol- The development of a publically available icies—either to create investment-grade en- IGG knowledge management system using this vironments, or to compensate for market software was commissioned5 for use at all levels, failures. Successful examples of climate-related from researchers to decision makers. The IGG investment indicate that mandates and regula- Brain is in an advanced prototype form, and tions have been the most important drivers. work is continuing to explore different ways of Predictability and policy-certainty are also organizing the information to optimize access often mentioned. and learning, and ultimately result in a more Several reports mention the removal of productive IGG dialogue. Through creating subsidies, notably on fossil fuels, and the insti- smart interconnections between the data, the tution of carbon pricing. Many reports also talk real value of this system is allowing the user about the role of the public sector in risk miti- multiple access points and filtering for the in- gation, and the judicious use of public funding, formation, thereby increasing the likelihood of provided in the form of dynamic subsidies, as being able to find the information being sought. a means to leverage private investment. The In addition to the documents themselves, role of bilateral financing institutions and mul- a wide variety of relevant tables, figures, case tilateral development banks in financing green studies, and key paragraphs have been ex- growth is also a focus in some reports. tracted from the text of the individual publi- Numerous reports contain case studies cations and linked to other relevant, thematic that speak to the different elements of the information, allowing for a more holistic over- agenda; examples of what has worked in partic- view.6 Supplementary to using the Brain’s search ular settings or in specific areas could be an in- function to look for a specific document or iden- teresting springboard on which to base further tifying documents through key IGG “themes,” DPIGI exploration. with the most relevant documents linked by theme, this substantive body of information can be accessed through several other means.7 Software Tool for Navigating the IGG Literature 4 Additional information regarding Brain software, Instead of just updating our previous bibliog- including tutorials and sample Brains, can be ac- raphy, we decided to pursue an alternative cessed through www.thebrain.com. approach to helping people access and nav- 5 Dr. Mark Trexler (www.climatographer.com) has igate the IGG literature, and thus better sup- more than 25  years of experience in climate change and related topics, and has been utilizing port any future G20  IGG dialogue process. A Brain software in his own work for more than five public software platform developed to allow years. compiling and organizing extensive data sets, 6 Each document is assigned a unique identifying the Brain Software (www.thebrain.com), was number, and all of the materials extracted from a chosen as the basis for an IGG knowledge man- document have been labeled with the identifying agement system. This software offers an excel- number for easy tracking of where information and insights are being drawn from. Approximately lent means of organizing information in a way 2,000 “thoughts” have been extracted from the that facilitates access to a large body of in- documents included in IGG Brain. formation, allows patterns and linkages to be 7 Please see Appendix IV for a full description of seen and followed, and allows the flagging and this tool with detailed examples. 5 19 Mapping of Finance Flows: Where are the Gaps? Objective of data, but rather to systematically reflect numbers that are being published in the cur- Undertaking the literature review highlighted rent literature. A further challenge is that most the importance of establishing a baseline for reports do not track flows under the rubric of assessing the finance flows currently being di- IGG, and as such, much of the data included rected toward green investments. Green growth here is under the mantle of climate finance incorporates a wide range of sectors with very as an indicator for IGG flows or sector-specif- diverse investment characteristics and chal- ic interventions implicitly contributing to IGG. lenges; energy efficiency investments are often Given the complexities and consistency smaller and require aggregation, while adapta- constraints, the financial data in the 16 reports tion-related investments are especially difficult were captured in as much detail as possible because they typically pay off in loss avoidance under three groups based on the terms used in and lack direct profit opportunities. Using the the reports as relevant—sectors, geographies, data in the literature, a finance mapping exercise and sources—and then further codified in three was undertaken to analyze the reported alloca- categories: historical investments, projected tions of finance to green investments in a system- investments, and annual allocations. This clas- atic way from the various sources of information. sification was chosen to identify the past, ex- isting, and future financial flows scenarios for IGG-related investments, and to accommodate Methodology the significant variations in terms of the way the data are reported. The primary objective of the exercise was to All the cumulative and disaggregated fig- identify the private sector investment gaps ures reported were recalculated and cross in the sectors, geographies, and technologies checked for their accuracy and consistency. In in the context of IGG. By disaggregating the some cases where crucial details were missing, data available in a consistent and comprehen- the original sources of data were tracked down sive way, it was hoped that clear patterns and in order to verify consistency. It is interesting to gaps would emerge both in terms of the vol- note that there are only a handful of publica- umes and the data availability for the differ- tions that have collected and reported primary ent sectors and geographies. Out of a total of sources of data; the remaining reports include 160  publications, only 16  included substantial analysis based on different parts of these data data on finance flows appropriate for mapping. sets and present this information in different for- (See list in Appendix V.) This report did not mats. Most of the reports included some minor attempt to collect and report primary sources to major mathematical errors in the financial 19 20 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES FIGURE 2:  Categories Used to Map IGG Finance Data Sectors   Sources   Geographies   Mi#ga#on   Public  Money   • Renewable  Energy,  Energy  Effciency   •   Dedicated  Funds   • REDD+,  Forestry   • Carbon  Taxes  ,  Revenues   Developed,  and  Developing   • Governance,  Capacity  Building     • Government  Budgets   Countries   • Pub  Private  Partnership     Adapta#on   Private  Money   • Agriculture  and  Food   •   Corporate  Actors   • Capacity  Building     • Project  Developers   Middle,  and  Low  Income   • Disaster  Risk  ReducBon   • Households   Countries   • InsBtuBonal  Investors   Non  Climate  Green   • Water   • Waste  Management   Public,  and  Private   Emerging  Economies   Intermediaries     Regions   • Europe,    Asia  (East,  South,  Central),   Africa  (  Sub-­‐Saharan,  North  and  Middle   East),  Ocenia,    North  America,  LaBn   America  and  Caribbeans   Source: Compiled by IFC to categorize IGG finance data across multiple publications. data they were reporting. However, none of information on energy and resource efficiency these discrepancies were significant enough to investments. make any report completely irrelevant or mis- This exercise also revealed that data on fi- leading in terms of its ultimate conclusions. nancial flows for IGG to developing countries, All the data were captured under the fol- even when reported as climate finance, are lim- lowing categories8 where appropriate: ited, often inconsistent, and with major gaps, resulting in serious implications for decision making. There are a limited number of credible Findings It is evident that financing for green invest- 8 UNCSD has also produced a useful overview ments has been growing. Most reports high- of the flow of funds for climate finance/green growth, categorizing the numbers by “sources, light that finance for mitigation investments was channels, instruments and users”. approximately US$350  billion in 2010/2011,9 9 The figures are indicative estimates of annual flows with the bulk of this being funded by the pri- for the latest year available 2010 or 2011. They do vate sector for renewable energy projects (see not represent the annual expenditure between Figure 3 and Table 2). While renewable energy 2010  and 2011 (Source Climate Policy Initiative data are relatively well reported, there is a little (CPI) – Landscape of Climate Finance 2012). Mapping of Finance Flows: Where are the Gaps? 21 FIGURE 3:  Categories Used to Map IGG Finance Data Source: World Economic Forum, Green Investment Report: The Ways and Means to Unlock Private Finance for Green Growth, A Report to the Green Growth Action Alliance (2013). primary sources of information assessing fi- 10 For example, the 2013, Green Investment nance flows (four in particular) that are consis- Report by the Green Growth Action Alliance (G2A2) cites the total figure for adaptation fi- tently repackaged or modestly supplemented nance as US$14 billion. As indicated in the report, to support the analysis presented in most other the source of this figure was the CPI Landscape publications. As a result, any errors, omissions, of Climate Finance 2012  report. However, the and inconsistencies in the primary sources are CPI report includes a range for adaptation fi- then replicated and compounded across all nance from USD12.3  to 15.7. The USAID Asia other publications.10 ‘Fast out of the Gate: How Developing Asian Countries can Prepare to Access International Moreover, there is an absence of consis- Green Growth Financing’ 2013  report uses the tent definitions, making it all the more difficult figures in the G2A2  report, but again does not to disaggregate flows to developing countries refer anywhere in the report that this is the ad- and specific sectors. This was a major constraint justed figure based on an average of the range. noted in all the reports mapping green finance. Moreover, the CPI report clearly mentions that the figures collected are “indicative estimates of The lack of agreed definitions on what consti- annual flows for the latest year available, 2010 or tutes a green or inclusive green investment, and 2011.” Similar disclaimers were not used in the therefore the relevant sectors to be included, other reports referencing this data, which would renders the tracking process subjective and in- have been useful to maintain the consistency consistent across different publications. This and accuracy of the data that was used. 22 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES TABLE 1:  Geographic Allocation of Green Growth Finance most limited. See the summary of summary of Total sector specific climate finance in Table 2. Destination of Investments Regions/ Annual average investments Global financial flows for adaptation are sig- Countries All figures in US$ billion nificantly lower at approximately US$12–16  bil- Developed Countries (2010/2011) 193 lion annually. A significant portion of this funding Developing Countries (2010/2011) 172 is based on North-South flows, primarily from OECD (2011) 103 public financial sources. Unlike mitigation fi- Non-OECD (2011) 150 nance, public sector adaptation interventions Europe (2004–2011) 58.72 have not been able to catalyze private sector in- Latin America and Caribbean (2004–2011) 5.3 vestments. This figure could be under-reported Asia (2009–2012) 40 when the data and definitional constraints men- East Asia NA tioned above are taken into account, including Africa (2010/2011) 1–1.33 the lack of reporting on domestic investments in low-income countries. Sub-Saharan Africa (2011) 1.09 All the reports consistently highlight that Middle East and North Africa (2004–2011) 2.9 the dominant source of funding for green in- Central Asia NA vestments globally is domestic/ local finance in Oceania (2004–2011) 11.99 all regions, with the private sector accounting Brazil (2004–2011) 6.31 for the lion’s share of total investments. India (2004–2011) 5.50 Institutional investors represent only a minute China (2004–2011) 23.86 portion of these overall investment flows. It is South Africa (2010) 0.5 difficult to identify what proportion of this in- Sources: CPI: The Landscape of Climate Finance 2012, UNEP: Bilateral Finance Institutions and Climate vestment is focused on addressing the inclusive Change, A mapping of 2011 Climate Finance Flows to Developing Countries, USAID ASIA Fast Out of The Gate: How Developing Countries Can Prepare to Access International Green Growth Financing, vol 1, April dimension of green growth, but it is likely to be a 2013; WBG (coordinator)IMF, OECD, RDBs: Mobilizing Climate Finance; BNEF: Global trends in renewable very small fraction, as emerging markets already energy investment 2012; IEA Global Gaps in Clean Energy RD&D: Update and Recommendations for represent a small subset of their investments, International Collaboration 2010. Note: All figures represent the annual amounts for the year(s) indicated next to the Region/Country in the with green growth a smaller subset within that. same row. There is a small North-to-South and an a The figures are indicative estimates of annual flows for the latest year available 2010 or 2011. They do even smaller South-to-North financing pattern not represent the annual expenditure between 2010 and 2011. b Same as above. for green investments, primarily in the clean en- ergy sector. Private finance already accounts for the majority of current flows, but as noted, constraint made it particularly challenging to as- this is not consistent across all sectors or geog- sess private sector contributions to adaptation raphies, with renewable energy and infrastruc- and other non-mitigation-related investments. It ture investments dominating the flows. However, is quite likely that many such private investments the lack of consistent and comprehensive data are bundled under generic climate mitigation in- on financial investments poses a major chal- vestments even though they are contributing to lenge to identifying exact sources, gaps, and op- adaptation or other green growth-related sec- portunities. Most reports include numbers only tors. Data availability and documentation are for developed and middle-income countries. very different across relevant sectors with the Investments in low-income countries are not most detailed and credible information associ- captured in the main, thereby posing a challenge ated with renewable energy, energy efficiency to forming a complete overview of global IGG in- data being a little more sporadic, and informa- vestments. This is likely to be both because the tion on adaptation and related sectors being the data are not being captured in a systematic way, Mapping of Finance Flows: Where are the Gaps? 23 TABLE 2:  Summary of Sector-Specific Climate Finance (All the totals are in bold; the highlighted cells contain verifiable financial figures; NA = Not Available) Total Public Money Private Money Intermediaries Annual Invest. Climate Funds Institutional (US$ billion) Institutions Institutions Households Developers Dedicated Total Pvt. Total Pub. Corporate Investors Nat. Fin. Intl. Fin. Budgets Pvt. Fin Project Sector Sector Actors Gov. Sources/Sectors Total (2010/211)1 14 NA 5.2 2.7 6 13.9 NA NA NA NA NA NA Agriculture 5.1 NA 3.78 NA NA NA NA NA NA NA NA NA and Forestry (2011) Adaptation Water Preservation, 3.22 NA 3.22 NA NA NA NA NA NA NA NA NA Supply and Sanitation (2011) Capacity Building and 1.40 NA 1.4 NA NA NA NA NA NA NA NA NA Technical Assistance (2011) Disaster Risk Reduction (2011) 1.40 NA 1.4 NA NA NA NA NA NA NA NA NA Total (2010/2011) 350 1.1–1.5 37.5 14.9–18.2 26.9 82.0 74.9 0.6 122.2 32.3 37.95 267.9 Energy Efficiency (2011) 23.68 NA NA NA 23.68 NA NA NA NA NA NA NA Mi T Igat Ion Infrastructure (2011) 74.4 NA NA NA NA NA NA 74.4 NA NA NA 74.4 Renewable Energy 141.4 NA NA 3.1 NA NA NA NA 138.3 NA NA 138.3 (2004–2011) Lcet (2009–2010) 23 NA NA 23.54 NA 23 NA NA NA NA NA NA Redd+ (2010–2012) 1.3 NA NA NA 1.3 NA NA NA NA NA NA NA Total (2010/2011) NA NA NA NA NA NA NA NA NA NA NA NA Water (2010) 270 2 NA NA NA NA NA NA NA NA NA NA NA Other Waste Management 0.52 NA 0.52 NA NA NA NA NA NA NA NA NA (2011) Sources: CPI: The Landscape of Climate Finance 2012, Green Investment Report: The Ways and Means to Unlock Private Finance for Green Growth (G2A2); UNEP: Bilateral Finance Institutions and Climate Change, A Mapping of 2011 Climate Finance Flows to Developing Countries; McKinsey Global Institute Resource Revolution: Meeting the World’s Energy, Materials, Food, and Water Needs (); USAID ASIA Fast Out of The Gate: How Developing Countries Can Prepare to Access International Green Growth Financing, vol 1, April 2013; IEA: Global Gaps in Clean Energy RD&D: Update and Recommendations for International Collaboration 2010. Notes: The sum total of each sub sector listed above does not add up to the ‘TOTAL ‘financial figures of the major sectors’ (Adaptation, Mitigation and Others). Most of the sector specific annual figures are provided in isolation by various reports and they do not indicate a linear relationship with the global average investment figures under the Mitigation, Adaptation and Other categories. a The figures are indicative estimates of annual flows for the latest year available 2010 or 2011. They do not represent the annual expenditure between 2010 and 2011. b The source of this investment is unclear. Given that in general most capital investments in the water sector are publically financed, it is likely that this figure represents primarily funds from government budgets. and the information may be difficult to verify. on investments in green growth technologies is This problem is again exacerbated by the lack of under-reported. consistent definitions in this field. The upshot is that a lack of comprehen- Similarly, only one report out of the 16 re- sive data and knowledge poses a challenge to viewed provided information on investments decision making and appropriate policy devel- in research, development, and demonstration opment to support new IGG investments in of Low Carbon Emission Technologies (LCET). low-income countries. A recommendation for Looking at the current growth of renewable the G20 would be to support greater consistency energy markets, RD&D in clean technologies in tracking and reporting of investments, based has been a key driver for this sector with mul- on clear definitions, in order to establish more tiplier benefits, and even so, the information clearly where public funds are most needed. 6 24 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES Selected Case Studies: What Do They Tell Us? N umerous initiatives related to green successful introduction of new consumer investment and the IGG agenda were products, even when technically proven and identified as possible sources for in- economically attractive. While consumer and sight into the potential role of the DPIGI. business financing are often inadequate, other Consistent with the broad scope and diverse factors including lack of information and cul- strategic approaches to promoting IGG, sev- tural barriers can be of greater import—partic- en case studies were examined to build on ularly when dealing with practices as personal the insights from the literature, most com- and ingrained as cooking. Lighting initiatives missioned for this report. These cases were appear to be progressing much more rap- selected to illustrate the wide range of re- idly and successfully than cookstove proj- sponses to the challenge of promoting IGG ects, arguably because of these non-financial and the correspondingly diverse issues asso- factors. ciated with finance as a central or supporting element and include the following: Promoting IGG through New Business Models Promoting IGG through New Technologies Another lesson from development programs is that sometimes the absence of a suc- This topic is addressed based on two initia- cessful “business model”—the successful or- tives of importance to the quality of life for the ganization of a business to sell a product or rural poor, promotion of modern cookstoves service and generate sufficient revenue to and solar lanterns. The importance of this ob- be sustainable—can be a critical issue even jective has recently been recognized and el- evated on the development agenda with the adoption of the UN’s Sustainable Energy for 11 A UN led initiative, with more details available at All initiative that aims to make sustainable en- (www.sustainableenergyforall.org). ergy universally available by 2030.11 Clean en- 12 The discussion draws on two primary sources, ergy for cooking and lighting are fundamental a paper by Koffi Ekouvi, a World Bank cook- steps toward poverty alleviation with a multi- stove expert, reviewing World Bank experience of promoting improved cookstove technolo- tude of benefits including improved health, gies, and extensive documentation available educational opportunities, and income gen- at the website of a World Bank Group led in- erating opportunities. The case studies12 high- ternational initiative to promote solar lanterns, light the complex factors which influence the Lighting Africa. 24 Selected Case Studies: What Do They Tell Us? 25 when consumer demand exists, technolo- their performance and value is a major chal- gies are proven, and financing is available.13 lenge. Another case study similarly combines The three case studies selected draw on very opportunities to use new technologies with a different sectors and experiences. The first focus on provision of information, in this case is an effort to provide clean water for poor weather observation and early warning of ex- rural Kenyans through a partnership with an treme weather. An emerging set of lower-cost, NGO, Safe Water Network, that included in- highly reliable technologies, building on cellular novative features such as market testing of networks (rapidly growing in most developing services to determine ability and willingness countries) has the potential to overcome many to pay, and participation from local banks to of the traditional barriers to weather observa- provide financing for small business partic- tion and early warning systems. However, as ipation. This sector shares some challenges new and very different technologies, they face similar to those faced by cookstove initiatives institutional inertia from public agencies accus- insofar as consumers can be surprisingly re- tomed to established ways of doing things. luctant to pay even small amounts for “im- A very different example of an informa- proved” services. tion based approach is the evaluation and pub- In contrast, the other two examples il- lication of climate risk indicators by country as lustrate commercial business models which a potential source of guidance for private in- work but require innovation to reach smaller vestment. The thinking behind this approach businesses and the poor. One is a strategy is that making investors more aware of risks used by a growing number of development and opportunities can both encourage invest- banks which provide some combination of ment and better public policy by governments training, credit lines, and risk reduction to interested in improving their rankings, a con- engage local commercial banks in financing cept embodied in the annual Doing Business14 clean energy efforts by their clients. These reports published by the World Bank Group. projects can bring about a large volume IFC has already had some success bringing of lending for a relatively small amount of about private action to reduce climate vulner- donor support but have to date largely ex- ability by working with business clients to help cluded smaller businesses and the poor out- them identify and implement risk reduction side the banking system. Another example measures. is insurance products: while often identified These three themes illustrated by the case as a commercial approach to reducing the studies highlight some of the diverse issues climate vulnerability of developing coun- tries, the challenge has also been to devise products suitable for poor countries and 13 “The essence of a business model is that it de- persons. fines the manner by which the business en- terprise delivers value to customers, entices customers to pay for value, and converts those Influencing Markets through Provision payments to profit: it thus reflects management’s of Information hypothesis about what customers want, how they want it, and how an enterprise can organize to best meet those needs, get paid for doing so, The preceding examples indicate that provi- and make a profit” D. Tece, “Business Models, sion of information is an important factor in Business Strategy and Innovation” Long-Range program success; solar lanterns are a very new Planning, Vol 43, 172–194 (2010) product and making rural consumers aware of 14 See www.doingbusiness.org 26 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES and challenges involved in promoting inclusive was sought from other IFIs, the most up to date green growth that may constrain or amplify the and well documented material was also often impact of financing. While discussed as distinct not readily available. A sampling of some of the influences, in practice they should be seen as publicly available literature documenting the joint factors which must be understood and experience of other international financial in- addressed simultaneously to achieve success. stitutions follows and shows that they too have For example, while promoting solar lanterns re- a plethora of IGG-related financial initiatives quires overcoming many of the barriers to new now underway (See Box 2). The further devel- technologies, a major challenge has been to opment of the DPIGI offers an opportunity to create business models consistent with large- engage these institutions and to draw on their scale distribution to dispersed rural households experience. and information programs to assure buyers of product quality and value for money.15 Short summaries16 of these case studies 15 For a useful discussion of how these issues come and their implications for possible focus by the together in an African context, see Proctor, DPIGI follow. “Solar Energy: African Economies’ Secret Short summaries of these case studies Weapon,” Fortune/CNN Money, June 25, 2013 follow. (on-line: http://management.fortune.cnn.com /2013/06/25/africa-solar/). This report draws heavily on experiences 16 Full versions of each of the case studies will be within the IFC and WBG reflecting the authors’ produced and made available at the website of greater access to documents and sources pro- the IFC Climate Business Department (www.ifc. duced by these institutions. While information org/climatebusiness). 7 27 Promoting IGG through New Technologies One of the most promising strategies for ad- 2012). There is growing momentum to shift this vancing inclusive green growth objectives is trajectory through the launch of initiatives such through new technologies of particular ben- as the public-private Global Alliance on Clean efit to BOP and lower-income populations. Cookstoves (GACC)19 and the UN Sustainable Financing is typically a critical requirement Energy For All that have both emphasized the at multiple stages of new technology devel- provision of efficient cookstoves and clean opment, including product design and early fuels to poor households. World Bank cook- market introduction. In selling to poor popu- stove projects over the last 20 years included lations, financing initial costs is often a critical 19  projects in Sub-Saharan Africa costing barrier if the new item has a one-time capital US$1.2 billion. (Ekouevi, 2013) The World Bank cost, even if the new technology replaces a is currently operating five programs that are more expensive and intermittent service, as is either global or regional in focus; each is as- true with improved cookstoves, which reduce sociated with a different business model to im- fuel costs, and solar lanterns, which replace prove access to clean cookstoves and fuel in an kerosene lamps. effort to scale up. Barriers to Scaling Up Clean Cookstoves Large-scale adoption and sustained use of clean cookstoves is not materializing due to The nexus of improved energy access, direct a variety of context specific barriers both on health benefits and reduced indoor air pollu- the consumer and producer/distributor sides. tion can be achieved in part through expanding While financing in terms of a lack of investment access to clean cookstoves and fuels.17 This and working capital appear to be constraints for is of particular significance to approximately three billion people, mainly in South Asia and Sub-Saharan Africa, who still rely on solid fuels 17 Moreover, rapid urbanization in many devel- (traditional biomass18 and coal) for cooking and oping countries, alongside inefficient produc- heating (UNDP and WHO 2009; IEA 2012). tion of charcoal and use of wood-fuels might Under business as usual, it is projected that be threatening forest cover in the neighboring 2.5  billion people will still depend on these catchment areas (Arnold et al 2003). 18 Wood, charcoal, crop residues, and animal dung fuels for cooking and heating in 2030, with the 19 Led by the United Nations Foundation to help bulk of use being in Sub-Saharan Africa, where 100  million households adopt clean and effi- the number of people without clean cooking fa- cient stoves and fuels by 2020 (www.cleancook- cilities will increase by about 20  percent (IEA stoves.org). 27 28 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES producers, lack of information, awareness, and and intended outcomes. As such, the tar- cultural barriers dominate for consumers and geted consumers need to be offered a should not be underestimated. Table 3  iden- suite of options that address their more tifies specific barriers and potential solutions pressing concerns around durability and funded by the public and private sectors. For safety. Experience has shown that public example, in the case of Bangladesh, possible funding is necessary at the early stages of solutions could include publically funded aware- program development and evolution, par- ness raising campaigns, along with broader fe- ticularly in countries with less developed male empowerment initiatives, which could be business environments.20 complemented by privately funded demonstra-  Innovative financing: Experience has tions using early adopters. In order to be sus- shown that subsidized programs cease tainable and ensure impact any interventions operations once public/donor funding is therefore need to be designed following an as- removed; hence, market-based solutions sessment of the local, context-specific barriers are key to sustainability. Social enterpris- and must be developed in line with government es and the use of carbon finance are in- strategies in consultation with local communi- creasingly being deployed across the ties and women. value chain of activities to support scal- ing up. Drivers for Scaling Up Addressing these challenges requires a multi- NGOs and companies are developing in- pronged approach across four key drivers that novative business models that provide cooking have been identified through reviewing suc- appliances to the poor in an affordable way, al- cessful programs: awareness raising; markets though this process can entail lower expected and preferences; technologies and standards; returns on investment than fully commercial and innovative financing. Both the public and ventures. Grameen Shakti in Bangladesh is a private sectors have a role to play in each case. successful example by providing soft credit for consumers, adaptive technologies to lower  Awareness raising: Households need to costs and maximize income generation, and be informed about the risks of using in- consumer-friendly after sales service, including efficient cookstoves, and the direct and buy-back options. indirect benefits of switching to cleaner Ultimately, a successful business model alternatives. Programs that have assumed will need to address producer, distributor, and spontaneous adoption have failed. consumer financing and work in tandem with  Markets and preferences: Solutions the public sector to address non-financial bar- need to be targeted to specific market riers, in particular cultural barriers. This can segments, taking into account consum- be achieved through a smart blend of public er preferences/habits and barriers such and private financing, and cooperation among as availability and affordability to ensure government, the private sector, and qualified appropriate technology choices and de- sign of business and financing models e.g., flexible repayment terms and micro- 20 The commercialized Anagi stove in Sri Lanka, finance options. which has reached overthree million house-  Technologies and standards: The uptake holds, benefited from donor funds in product of clean cookstoves and clean fuels needs development and testing over two decades (Rai to happen in tandem to ensure efficiency and McDonald, 2009). Promoting IGG through New Technologies 29 TABLE 3:  Challenges with Scaling-up Clean Cookstoves Barrier Description Public Financing Solutions Private Financing Solutions Lack of information on ad- Households lack information on negative  Awareness campaigns  Product-specific advertising verse health consequences of health outcomes of solid fuels; therefore, de-  Media coverage  Sponsorship of events to target poten- inefficient use of solid fuels mand for clean cookstoves does not exist.  Demonstrations, workshops tial customers  Sponsoring of events  Social marketing Poor access to clean cooking Clean cookstoves are not available in many  Policy, legal, and regulatory reforms  Investment in production facilities and solutions rural, peri-urban and urban areas due to lim-  Partnerships with private operators in distribution networks ited distribution networks and relatively to develop clean cooking initiatives  Expansion of existing distribution Consumer Barriers small-scale production facilities. networks Liquidity constraints to Affordability of cookstoves is an issue for the  Guarantees to micro-lenders  Flexible repayment terms affording clean cooking poor. Price competitiveness and availability of  Partner with private operators to buy  Micro-finance solutions fuels are other barriers preventing the transi- down costs using smart subsidies  Integrate carbon finance to lower tion to cleaner fuels. Cleaner fuels like LPG are product costs affordable only if available to middle/upper income households. Cultural resistance to clean Adoption of new cooking solutions is be-  Awareness raising  Demonstrations using early adopters cooking solutions havioral change from the prevailing. Often,  Campaigns to promote empower- women rely on their husbands to make the ment of women purchase. There may be resistance even if the wife is convinced about its benefits. Lack of investment capital Access to investment capital to start up a  Subsidize loans  Social impact equity investment business is difficult for small- and medi-  Guarantee credit  Debt investment um-scale entrepreneurs working on clean  Advisory services to develop busi-  Integrate carbon finance in business Producer/ Distributor Barriers cooking solutions. They usually operate in dif- ness plans plans ficult business environments with a low profit  Facilitation of commercial loans margin activity.  Reform tax/ duty regimes for energy technologies Lack of working capital There is an absence of capital to run busi-  Facilitation of access to commer-  Develop SME products ness operations, including staffing and inven- cial loans  Micro-credit tory management. Even with carbon finance, working capital is needed to bridge the gap to carbon revenues. Source: Compiled by Authors from information in Ekouvei, K., (2013), Scaling Up Clean Cooking Solutions: The Context, Status, Barriers and Key Drivers. NGOs to support clean cooking interventions. electricity. This number is expected to rise Early grants and low-cost financing provided faster than new grid connections and increase through organizations that can provide both fi- to about 700 million by 2030. These people, nance and quality assurance for products can most of whom are in rural areas, rely on in- encourage the development of businesses, ei- creasingly expensive, hazardous, and polluting ther at a community or individual level, to retail fuel-based sources of energy for lighting and the stoves to reach the base of pyramid. cooking. Fuel-based lighting is generally of low quality, impeding learning and economic productivity. In the past decade, a variety of Solar Lanterns technologies have emerged that offer the po- tential for clean, modern lighting based on About 600  million people in Africa (60  per- low-power light emitting diodes (LEDs) and cent of the population) have no access to solar energy. 30 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES  Collaboration with governments to identi- BOX 1:  WHAT ARE MODERN OFF-GRID LIGHTING fy and address policy barriers. PRODUCTS? Financing was thus only one of several The Lighting Africa program works with off-grid lighting products or systems that are stand-alone and rechargeable, and can be installed, assembled, and required elements for market development. used easily without requiring assistance from a technician. These products are The end result has been highly successful; al- affordable, typically costing less than US$100, with some retailing at US$10 or most seven million people in Africa now have less. qualified products with steady market growth (120 percent in 2012) in 20 countries. The model is also now being replicated in other parts of the world, including India. IFC’s Sustainable Energy Financing (SEF) program model applies in the off-grid lighting sector. However, the risks for financial institu- tions (FIs) to provide debt financing for a na- scent industry where the oldest companies are 6  years old, and few have matured to profit- ability, are profoundly greater than energy ef- ficiency investments with proven technology During the day, the solar panel is placed directly in the sun to generate procured from and installed by 80  year old electricity that recharges the battery. At night, the electricity is available to established firms. The risk of a market where power the lamp. Products that meet Lighting Africa Performance Targets guar- consumers themselves are not credit worthy antee users at least four hours of good, consistent lighting each night after a further compounds the challenge, along with sunny day of recharging. the initial small size of all companies and trans- actions in an immature market. Source: www.lightingafrica.org. While innovators in off-grid lighting, effi- cient cookstoves, vended water, small piped water systems and microgrids are emerging A key feature of the Lighting Africa pro- on the scene with pilots for delivering basic gram is the recognition that supporting the dis- energy, water, and sanitation services to the tribution of new lighting technologies in mostly underserved through innovative business rural markets requires several types of support: models—they will not scale without access to fi- nance, and specifically commercial debt against  Quality assurance through product testing which to leverage their equity investors’ cap- and promotion (as poor quality products ital. For example, with sales of Lighting Africa- could undermine consumer acceptance certified solar lanterns increasing by more than and “poison the market”); 100% per year—>400% for some manufac-  Market intelligence as individual companies turers—working capital and trade finance are might be reluctant to incur the cost of essential to allow distributors and manufac- evaluating diverse, dispersed local markets; turers to finance the next order (substantially  Access to finance as low-income consum- larger than the prior order) with 4–6  month ers require help with the initial cost of lead times between paying for product orders devices; and the resulting sales revenues. Without such  Business development support; and debt available, market growth and profitability Promoting IGG through New Technologies 31 is constrained not by technology or demand, better products and inevitably lower prices. but rather by debt availability.21 The design of good donor support is conse- The donor role as a source of seed capital quently a promising issue for analysis and focus and support for early innovators is therefore by the DPIGI. more important than ever in these frontier sec- tors, and the potential impact from a develop- mental as well as a climate change perspective are immense. However, the wrong interven- tion including poorly designed subsidies can 21 An informative video focusing on a Kenyan small business based on renting out solar lan- worsen the problem. Doing so will inevitably terns for the same cost a family would spend lead to donors picking winners on behalf of the on kerosene is available on-line: http://www. market, impeding innovation and undercutting youtube.com/watch?feature=player_embed- the competition that is the driver of more and ded&v=zzzIEb15Gtk 8 32 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES Developing New Business Models Clean Water Services One innovative effort to address this need is based on testing new business models for One of the most important needs of the off-grid, distributed services in rural communi- poor is for clean water. In declaring 2013  the ties, an approach potentially applicable across International Year of Water Cooperation, the the developing world.24 Key features of this UN emphasized some of the many reasons why concept include: provision of clean water is essential to poverty eradication:22  Reduced grid infrastructure requirements, which can substantially lower costs;  85  percent of the world population lives  Initial financial support for testing and in the driest half of the planet. 783  million evaluating business models over suffi- people do not have access to clean water, cient time periods to allow for meaning- and almost 2.5  billion do not have access ful evaluation; to adequate sanitation.  Six to eight million people die annually from the consequences of disasters and 22 Ootsma, “Water cooperation is key to poverty water-related diseases. eradication, gender equality and environmental  Water availability is decreasing in many sustainability,” (UNDP blog, March 12, 2013), http:// www.undp.org/content/rwanda/en/home/ourp- regions and already an issue. erspective/ourperspectivearticles/2013/03/22/  Water for irrigation is closely related to water-cooperation-is-key-to-poverty-eradica- food production and security: ~70  percent tion-gender-equality-and-environmental-sus- of global freshwater withdrawals (more in tainability.html some fast-growing economies). 23 IFC and Safe Water Network, “The Decentralized  The developmental importance of clean Water Market: Assessing and Overcoming the Hurdles to Scale in Kenya (SAWA Market Brief water is reflected in significant bilateral Issue No. 3, Jan 2013). The Kenya project draws and multilateral programs addressed to on international experience including similar ef- this need, estimated at close to US$3  bil- forts in Ghana and India. lion per year in Sub-Saharan Africa 24 The relevance of low-cost, distributed service alone. 23 As with other ongoing service models has already been discussed in the con- needs, infrastructure is often put in place text of weather observation and early warning systems. Another application is in provision of only to degrade or fail rapidly due to the clean energy as illustrated by the solar lighting absence of the technical capacity and example. Such opportunities are one focus of cost recovery mechanisms required for the Sustainable Energy For All initiative. www. long-term sustainability of operations. sustainablenergyforall.org. 32 Developing New Business Models 33  Market testing of services to determine Energy Efficiency ability and willingness to pay prices nec- essary to fund private investment; Investor interest in energy efficiency (EE)—the  Collaboration with relevant government use of technology that requires less energy to agencies and NGOs on setting “fair” pric- perform the same function in the provision of es and avoiding conflicts with ongoing ini- products and services26 has increased gener- tiatives; and ally in many developing countries due to rising  Engagement with local banks to deter- energy prices, opportunities arising from new mine what will be necessary to meet their technologies, and supportive government pol- needs if funding is to be obtained from icies.27 Such investments have also become in- commercial sources. creasingly attractive to institutional investors.28 For example, a recent report by the nonprofit This current IFC initiative, in cooperation research organization CERES29 finds that insti- with the Safe Water Network, focuses on rural tutional investors are finding EE opportunities Kenya.25 The experience to date illustrates an attractive way to mitigate climate-related some of the complex, local, and multi-layered risks in their portfolios, leading to investments challenges in applying these principles. The in EE improvements and in companies that de- first and most critical barrier has been an un- velop EE products and services. However, to willingness to pay for these services even at reach adequate scale, EE projects will need to very low prices, and even when below prices be bundled into products that meet investor previously paid for untreated water. criteria, so that a secondary market for such se- As noted, commercial financing is also curities can be created. a key requirement for sustainability and the Although focused on the U.S., the CERES focus of the Kenya initiative. Urban water ser- report contains generally applicable lessons: vice providers are a logical starting point as policymakers need to pursue policies at the they have the scale and revenue generation utility level (to align incentives with EE), at the to be most creditworthy. “Shadow” credit rat- standards and regulations level (to drive de- ings for these entities have been developed mand for EE), and at the broader financial to identify those most creditworthy. An out- market level (to encourage innovative financing put-based aid program is being tested to mechanisms). partially subsidize expansion projects for com- munity water systems; the subsidy reduces the overall financing cost and provides some com- 25 IFC/SAWA Market Brief fort to the lender in evaluating the overall risks 26 http://www.eia.gov/energyexplained/index. of the project. cfm?page=about_energy_efficiency. 27 Both China and India have adopted aggressive The Kenya program illustrates some of the energy efficiency policies in recent years IEA many challenges, including financing, in pro- 2013. viding clean water services to the poor. Many 28 See discussion of increased interest from the innovative ideas are being explored, but the asset management side of insurance companies solutions will require time and care to eval- in the insurance case study infra. uate and, if successful, to replicate elsewhere. 29 CERES 2013, Power Factor: Institutional Investors’ Policy Priorities Can Bring Energy Efficiency to A combination of commercial financing, new Scale. http://www.ceres.org/resources/reports/ technologies, supportive governments, and in- power-factor-institutional-investors2019-poli- novative business models will most likely be cy-priorities-can-bring-energy-efficiency-to-scale/ necessary. view. 34 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES Yet, even where the economic viability of in emerging markets. As of June 2012, IFC has such investments is proven, there are barriers provided SEF Advisory Services to 47 FIs. to more widespread adoption—often more so The EBRD addresses EE and climate in developing countries. The key impediments change through its Sustainable Energy Initia- to EE investments are several, intertwined tive (SEI). The SEI was launched in 2006 with market failures. In addition to weak policy envi- the aim of scaling up sustainable energy invest- ronments to encourage low-carbon and green ments, improving the business environment growth, the situation is further exacerbated by for sustainable investments and removing key a lack of awareness on the part of end-users barriers to market development. Between and financiers, problems of high transaction 2006 and 2012, the EBRD SEI invested €11 bil- costs, perceived high risks that may drive up lion in 602 sustainable energy projects (RE and the discount rates associated with projects, and EE) in 33 countries across the region.31 difficulties in structuring workable contracts EBRD combines investments with tech- for preparing, financing, and implementing EE nical assistance and policy dialogue to finance investments. Such investments thus require sustainable energy projects. Technical assis- market development that addresses the con- tance is available for activities ranging from straints to designing, packaging, and financing market analysis and energy audits to training EE projects.30 and awareness-raising. As part of its policy di- Private sector focused MDBs like IFC and alogue activities, the SEI works with govern- EBRD have made EE into a business line. In ad- ments to support institutional and regulatory dition to incorporating EE into direct lending frameworks that incentivize sustainable energy activities, they work through FIs to extend investments while addressing market or regula- credit lines and other facilities in support of tory barriers. EE and renewable energy (RE) lending. Such Through specialized financing facilities, the programs often include significant technical EBRD extends credit lines to local FIs to de- assistance to address some of these barriers. velop sustainable energy financing as a perma- An initial barrier specific to EE lending is usu- nent field of business. Local financial institutions ally the absence of traditional hardware or on-lend the funds to their clients, including other forms of security; the credit risk is de- small and medium-sized businesses, and corpo- fined by the opportunity for reduced costs, rate and residential borrowers. Financing has and the lender may perceive a greater risk in supported diverse projects in virtually all sec- the absence of local experience to validate the tors, ranging from agribusiness food processing saving potential. Thus risk guarantees alone and manufacturing, to industry, construction are insufficient; tailored technical assistance and services. Examples include the overhaul of and training are also required. The on-lending district heating systems in western Siberia and model is particularly well-suited to reaching Ukraine, replacing inefficient energy sources smaller companies and end-users, because it avoids the large transaction costs typically associated with direct MDB financing, and because it can be deployed to the local FI’s 30 World Bank Internal Evaluation Group (IEG) existing client base. 2010. Assessing the Impact of IFC’s China Utility-based Energy Efficiency Program: Energy IFC’s SEF program is implemented by IFC’s Efficiency Finance. Advisory Services to address key barriers to FI 31 Financing Sustainable Energy: EBRD Action and lending to clean and resource-efficient proj- Results – http://www.ebrd.com/downloads/re- ects, as well as renewable energy investments search/brochures/sei.pdf. Developing New Business Models 35 FIGURE 4:  Structuring Support for Clean Energy in China The  CHUEE  Program:  Improving  Access  to   Credit     CHUEE  I   CHUEE  II   FIs   IB  (2006)   FIs   IB  (2008)   BoB  (2007)   SPDB  (2008)     Facility  Size   RMB  760M  (~US$106M)     Facility  Size   RMB  2,500M    (~US$350M)     Donor  Commitment   GEF:  US$  7.3  M     Donor  Commitment   GEF:  US$  8.4  M     Donor  Leverage   14x     Donor  Leverage   42x     FIs   IFC FIs   IFC 2nd loss 2nd loss FIs   GEF 1st loss 1st loss FIs   GEF Source: IFC Presentation (2011). with biomass from forestry waste, and the up- programs have explicitly focused on the SME grading of buses in Bulgaria, to run on cleaner segment. There is some evidence that SME fi- fuel.32 Since 2006, to date, EBRD has provided nancing remains more challenging due to the 22 financing facilities with close to €2.6 billion.33 1   higher transaction costs and greater need for One of the primary concerns in the evo- providing clients with technical support. lution of the clean energy financing programs There is also some evidence that as has been the tension between climate change banks become more knowledgeable and ex- objectives, which imply a focus on large emit- perienced in the technical requirements and ters such as heavy industries, and more inclu- sive market segments such as small businesses and low-income households. A review of 32 SEI Municipal and infrastructure EE, updated May China Utility-based Energy Efficiency Program 2010, available at http://www.ebrd.com/pages/ (CHUEE) and other clean energy finance proj- sector/energyefficiency/sei/municipal.shtml. ects by the World Bank Internal Evaluation 33 Sustainable Energy Financing Facilities, updated April 2013, available at http://www.ebrd.com/ Group concluded that SMEs should be the pages/sector/energyefficiency/sei/financing.shtml. increasing focus of lending as larger, better 34 World Bank Internal Evaluation Group (IEG), financed customers were less in need of sup- Assessing the Impact of IFC’s China Utility- port.34 While the opportunities and barriers Based Energy Efficiency Finance Program vary by country, several clean energy finance (2010). 36 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES BOX 2:  INCLUSIVE GREEN GROWTH INITIATIVES ACROSS THE MULTILATERAL DEVELOPMENT BANKS (MDBS) IADB: The Inter-American Development Bank (IADB) finances EE initiatives in the Latin America and Caribbean region through its project lending (loan) portfolio operations. IADB has initiated EE work in specific sectors—such as biofuels and water utilities—to reduce operating costs through investments in more efficient technology1. Some recent examples include the IADB EE project in the Dominican Republic (DR)a currently under prepa- ration, which aims in part to create a demand for EE products and services in order to support a market for such products. Another IADB project in Colombia,b also under preparation with resources from the Clean Technology Fund, plans to offer a credit line to SMEs to finance EE and co-genera- tion projects. Much of IADB’s EE work focuses on the infrastructure sectors via direct lending to governments for public sector EE initiatives with a combina- tion of private sector support. Recently, however, IADB established a US$50 million Energy Efficiency Finance Facility (EEFF) which will offer small- scale loans to private clients including some technical assistance to help overcome financial barriers and reduce costs to companies investing in EE and small-scale RE projects in the region.c AfDB: The African Development Bank (AfDB) addresses EE and sustainable energy in Africa through its Sustainable Energy Fund for Africa (SEFA).d SEFA is a bilateral trust fund administered by AfDB and funded by the Government of Denmark. SEFA supports sustainable private-sector led EE and small and medium clean energy projects through advisory services, grants for technical assistance and capacitybuilding, as well as investment cap- ital. Its investments include seed/growth capital to SMEs to off-set preparation costs and crowd-in additional investment to unlock and expand the SME market. ADB: The Asian Development Bank (ADB) recognizes scaling-up EE improvements as a highly costeffective alternative to increasing energy availability to address rapidly rising energy demand, projected to rise from 34% of global demand in 2010 to as much as 56% in 2035.e ADB’s EE efforts for EE are part of the multi-pronged Clean Energy Program (CEP). ADB has well over 100 EE projects across the region with the majority being DS-EE projects (over 50 projects) that are currently under implementation. ADB’s demand side investments in EE equaled US$721 million (along with US$252 million for supply side investments), or 41% of total CEP investments with the remaining 59% majority in RE initiatives.f An interesting example of the emerging possibili- ties in the building sector is highlighted through the ADB EE Multi-Project Financing Program in China which utilizes a Partial Risk Guarantee Facility set up through ADB to facilitate greater financing of building EE projects through a number of commercial banks working with ESCOs. A goal is to encourage local commercial banks to lend to building developers and operators in order to access financing for EE improvements. Another way ADB aims to promote EE improvements is by setting minimum energy performance standards and labeling programs for appli- ances. Similarly, in encouraging construction of EE buildings, ADB can provide capacity building to government bodies to enhance the skills base to create mechanisms for verification and enhancement of EE building codes.g Although most of ADB’s EE interventions are at commercial scale, one sector of greater relevance to low income populations is brick manufac- turing. ADB is financing a Brick Kiln Efficiency Improvement Project in Bangladesh which aims to transform the brick sector while also providing sus- tainable growth potential for brick manufacturers, an industry which employs many poor households. The project will promote advanced brick kiln pilots to demonstrate their operational and commercial viabilities in Bangladesh. The combined efforts will help build more energy-efficient brick manufacturing capacities, a concept potentially replicable in other parts of the region including China, India and Nepal.h a IADB-Topics-Energy-EE, http://www.iadb.org/en/topics/energy/energy-efficiency,2654.html. b IADB-DR, http://www.iadb.org/en/projects/project-description-title,1303.html?id=DR-L1034. c IADB-Colombia, http://www.iadb.org/en/projects/project-description-title,1303.html?id=CO-L1124. d IADB-EE Finance Facility, http://www.iadb.org/en/news/news-releases/2013-04-12/energy-efficiencyfacility, 10412.html. e Sustainable Energy Fund for Africa,http://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/sustainableenergy-fund-for-africa/. f ADB-Accelerating DS-EE investments, June 2013 http://www.adb.org/news/adb-aims-accelerate-demand-sideenergy-efficiency-investments. g ADB-Same Energy More Power report, Figure 4, 2012 http://www.adb.org/sites/default/files/pub/2013/sameenergy-more-power.pdf. h World Bank-ESMAP Report – Clean Technologies in the Brick Sector, 2009 https://openknowledge.worldbank.org/bitstream/handle/10986/2797/601550ESW0P1110e- 00201100Color0FINAL.pdf. Developing New Business Models 37 administration of clean energy loans in general, ters, including those stemming from global cli- they become more willing to offer the product mate change. to a wider range of customers, including SMEs. If environmental degradation and risks This has particularly been IFC’s experience associated with increasing extreme weather in China. Replication has occurred in several events escalate in the developing world, a crisis forms, as over time local FIs found that loss of insurance availability and affordability could rates were low; they offered larger amounts, ensue, in turn hampering growth. The avail- offered loans to additional client categories ability of insurance substantially reduces the or for additional types of EE/RE investments, near- and long-term economic impacts of nat- and even expanded into other countries within ural disasters, while reducing the burden on their regions. The MDBs also found they were individuals and on in-country and foreign gov- able to mainstream such products and offer ernmental aid. better terms as they too found that the risks Insurance is at an earlier stage of evolution in were lower than initially perceived. the developing world and takes a different form For the most part, commercial EE lending there. As the incidence of weather-related ca- does not address the needs of the very poor or tastrophes has tripled in the past three decades, BOP populations as they are outside the com- the underdevelopment of insurance markets mercial banking system. This has consequently renders a high proportion of losses uninsured, been the focus of micro-credit programs, often and thus a rising stake in new loss-resilient infra- operated by civil society organizations, or tar- structure. In many developing countries, insur- geted publicly supported programs as in the ance has been historically dominated by public case of some examples discussed in the con- entities. Liberalization allowing commercial en- text of the solar lantern case study. However, trants has taken place in many cases, beginning there is some sense this may be changing with in China in 1992 and in India in 1999. the advent of cellular phone-based banking, Insurers can materially engage in green which dramatically reduces the transaction growth in several ways: by helping spread the costs and barriers for banking in rural areas costs of everyday as well as catastrophic losses and much smaller accounts.35 An interesting ex- (their core business) that so often represent ample of the emerging possibilities is illustrated a setback to development efforts; accurately by a presentation made in March 2013  at the Asian Development Bank (ADB) by the Bank of 35 See e.g., “Is it a Phone, Is it a Bank?” The Economist, the Philippines (BoP), not coincidentally a par- March 30, 2013 (http://www.economist.com/ ticipant in the IFC clean energy financing pro- news/finance-and-economics/21574520-safar- gram.36 It described a pilot program offering icom-widens-its-banking-services-payments-sav- consumer financing for small, energy-efficient ings-and-loans-it). There are also opportunities for creating markets for solar energy technol- appliances, a growing market in rural areas. ogies to power cellular phone service to rural Financing is available for an approved list of areas; solar charging stations can also become products and vendors, and financing can be ob- small businesses supporting local lighting, cell tained entirely via cellular phone. phones, and other low power devices off the grid. IFC is supporting such an approach in an advisory project recently initiated in Papau New Guinea. Insurance Products and Services 36 US AID, ADB, CDKN, Workshop Report: Preparing for Scaled-up Climate Financing: New Intrinsic to the concept of inclusive green Business Opportunities for Green Growth, April growth is limiting damages due to natural disas- 2–4, 2013. 38 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES evaluating and communicating risks to inform IADB member countries are eligible to receive public and private decision making; offering in- this loan. Financial terms are those regularly ap- novative risk management products and ser- plied to IADB operations. (World Bank, 2011) vices; providing influential input to the public As a regulated industry subject to govern- policy processes; and directly investing some of ment review of terms, conditions, and rates, in- their substantial assets (more than US$20  tril- surance can also be viewed as combining public lion under management) in inclusive green and private characteristics. Governments have growth projects and providing risk manage- a wide range of involvement in the insurance ment tools for other investors.37 sector beyond the most obvious oversight of Disaster risk financing compensates for rate increases from mandating coverage (e.g., losses but does nothing by itself to physically as a condition for publicly financed mortgages shield populations and assets from natural haz- in the U.S.); imposing conditions for coverage ards. A number of recent innovative disaster (e.g., raising homeowners insurance rates after risk financing tools have forged more explicit floods in coastal areas); capping or regulating links between disaster risk financing and di- liability (e.g., capping liability for damages from saster risk management. These instruments nuclear power plant operation); to creating and make access to financing contingent upon en- underwriting insurance products otherwise not gagement in disaster risk management activi- adequately available in the market (e.g., crop in- ties. The World Bank, for example, established surance for farmers; micro-insurance for poor a contingent credit facility in 2008 with an el- farmers). Thus while for many purposes the in- igibility requirement of implementation of na- surance sector can be appropriately seen as tional disaster risk management strategy; the a private business, there is considerable gov- Inter-American Development Bank (IADB) has ernment involvement and at least the potential since followed suit with a similar facility. for greater collaboration in support of inclusive The World Bank Development Policy Loan green growth-related investment.38 (DPL) with Catastrophe Deferred Drawdown Option is available to IBRD eligible member countries. Eligibility is contingent upon the im- 37 In 2012, insurance represented seven percent of plementation of a national disaster risk manage- the global economy, manifesting as US$4.6 tril- lion in premium revenues, US$22  trillion in ment program that is monitored by the World assets under management, and a large multina- Bank. Financial terms are those regularly ap- tional workforce. Almost all revenue growth in plied to IBRD loans. Drawdown of funds is con- the insurance sector today is centered in the tingent upon the occurrence of a natural disaster developing world, where demand is far from that results in the declaration of a state of emer- saturated; just over US$700  billion in annual gency by a Head of State. Another example is premiums already come from emerging market. Moreover, insurance can help offset the high the IADB’s Contingent Credit Facility for Natural proportion of GDP otherwise lost due to natural Disaster Emergencies, a US$600 million Facility disasters in the developing world. Most long-run that provides contingent loans ranging up to economic costs of natural disasters occur where US$100 million or 1 percent of a country’s gross insurance is not widely used. (Mills, 2013). domestic product, whichever is less. Countries 38 There are signs that some insurance regulators are required to have an adequate integrated di- in developing countries are also showing interest in these issues. For example, a conference or- saster risk management program to be eligible. ganized by the Comision Nacional de Seguros Drawdown of funds is contingent upon the oc- Y Fianzas this November in Mexico City includes currence of a natural disaster of a type and in- a session on the role of the insurance sector in tensity determined by Facility guidelines. All responding to climate change. Developing New Business Models 39 BOX 3:  INSURANCE PROGRAMS AS MECHANISMS FOR DISASTER RELIEF The Caribbean Catastrophe Risk Insurance Facility (CCRIF) was set up in 2007 to provide catastrophic coverage for the island states of the Caribbean. Donor countries were encouraged to provide capital to establish the CCRIF and thereby instill some discipline to the ex-ante relief program. The coverage was for relief funds that could be paid out immediately after a catastrophe, but were not intended to provide a substitute for long-term relief. Caribbean states choosing to engage had to pay a participation fee, which formed part of the capital of the CCRIF, together with an annual premium. As of 2011, the CCRIF had paid out seven claims totaling about US$32 million, two for earthquake (a surprise) and five for wind losses. Famously, the CCRIF was one of the first payers of monies (in the amount of US$7.7 million) immediately after the 2010 Haiti earthquake. Donor support for the CCRIF was very important to its establishment and included US$67million for a special fund to help establish the Facility in its early years. Donor funds are helping to defray expenses and claims for running the fund while CCRIF builds up its own capital. The initial period of support is five years but can be extended. In its first years, the donor fund has reimbursed the CCRIF for its operating expenses, its reinsurance premiums, and its claims. In short, the donors are in the first loss position. Source: World Bank, Innovation in Disaster Risk Financing for Developing Countries: Public and Private Contributions (2011). Policy and regulatory environments clearly The Contribution of Insurance Products to shape insurers’ ability to engage in business gen- Green Growth erally, and green growth in particular. Regulators Insurance can contribute to green growth in are often in the position of approving new in- several ways, including: surance products and services. The “Solvency II” regulations (anticipated to go into force  The insurance industry provides a high- 1  January 2014) will likely call for greater cap- ly valuable role in spreading the costs of ital reserves than at present for riskier and/or natural disasters, a service essential for unlisted investments. Regulated rates are also effective disaster response and recovery. a concern. As previously noted, if insurers per-  Insurance provides products for disas- ceive that rates inadequately reflect risks, they ter response and recovery. See Box 3, will shy away from markets. This is of course a Insurance Programs as Mechanisms for material concern under climate change, given Disaster Relief. that insurance rate-setting is often based on  Insurers can be investors in green historic losses as opposed to projections of fu- growth. In the past decade, 25  insurers ture losses. have collectively made US$40  billion in Countries with limited or ineffective finance and direct investments relevant insurance coverage typically suffer much to climate and environmental concerns, longer and lasting economic consequences spanning venture capital, private equi- from the impact of extreme events. Man- ty, public equity, and credit. Of the to- aging approximately a quarter of total ca- tal, US$23  billion was directed to climate tastrophe losses globally, their engagement change mitigation. varies widely by region. The insured frac-  Insurance companies are sources of tion of total losses is 44  percent in North risk management, technical knowledge, America, 29 percent in Europe, 9 percent in and advice. Within the insurance in- South America, 8 percent in Asia, and even dustry, a few companies focus primarily less in Africa. Insurers’ exposure, however, is on providing their clients with techni- rising everywhere. cal support on how to manage their 40 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES risks. 39 This can include information re- Strategies for Increased Collaboration and lated to designing building to withstand Issues for Greater Public-Private Dialogue high winds and other extreme weather As the preceding discussion suggests, there events, as well as risks specific to man- are several potential roles for insurance prod- ufacturing processes, such as minimizing ucts and the insurance industry that could fire risks in warehouses. contribute to enhanced resilience to natural di- sasters and the risks of climate change. These Accurately Evaluating and Communicating include: the Risks of Extreme Weather Events A prerequisite for insurance is the informed a. Extending the availability of insur- evaluation of risks, without which delineation ance to manage risks in the developing of coverage and premium setting isn’t possible. world. While some climate-specific in- Due to its many uncertainties, climate change surance products have been introduced presents many challenges to the meaningful in developing countries, the weakness quantitative and financial estimation of risk, but the insurance industry has perhaps the greatest incentive to develop and apply the latest scien- 39 One example is FM Global, www.fmglobal.com. tific methods. 40 40 The actuarial profession has an essential role to The role of the insurance industry in public play in interpreting the results of the currently discussion of climate change, especially with available loss models, and to collaborate with respect to policy choices, has been increasing the climate and loss modelling community to de- but remains somewhat limited relative to the velop the models for the future. Actuaries are accountable for assisting markets and govern- economic stakes. A recent New York Times ments to find the technical solutions to manage article citing a prominent industry official the dynamic effects of an increasingly unpre- characterized what the American insurance dictable global climate. This responsibility falls industry was doing to combat global warming equally on the shoulders of modelling, pricing as “nothing much.”41 In assessing why this might and product development actuaries. be the case, the article cited the underlying 41 Porter, “For insurers, no doubts on climate change,” NYT, May 14, 2013. Consequently, de- assumption of risk by the federal government spite losses due to Sandy and record drought, (especially for flood insurance) and the ability USUSU.S. property and casualty insurance was to raise premiums and drop coverage to adjust more profitable in 2012 than in 2011. to higher risks. In contrast, a detailed survey 42 E. Mills, 2013. As of third quarter 2012, 378  in- of insurance companies found a pattern of in- surance entities based in 51  countries had col- creasing activities globally, ranging from infor- lectively initiated 1,148  activities related to managing the risks of human-induced climate mation and awareness campaigns to innovative change. These activities have emerged largely in risk management and insurance products to the past decade, with the earliest dating to 1973. investments in greenhouse gas mitigation. 42 Most major insurers and all major reinsurers There are also recent insurance industry re- and insurance brokers have engaged to varying ports warning governments that the conse- degrees, collectively representing $2  trillion quences of climate change may be so serious (44%)%) percent) of industry revenues and 2.5 million employees. as to “threaten the insurability of catastrophe 43 Geneva Association, Warming of the Oceans and risk”, and noting the need within the industry Implications for the (Re)Insurance Industry (2013) to shift from historic to predictive risk assess- (https://www.genevaassociation.org/media/616661/ ment methods. 43 GA2013-Warming_of_the_Oceans.pdf). Developing New Business Models 41 of insurance markets in general in these premiums for energy efficient housing or countries, especially low-income countries, vehicles), or fill coverage gaps that oth- is a significant barrier to more specialized erwise stand as barriers to development disaster insurance products. and infrastructure investment (e.g., cover- b. Working to promote resilience and ad- age for offshore wind energy infrastruc- aptation to changing weather and cli- ture). mate extremes. While insurers have d. Engaging in public policy and land use begun to reactively adapt to rising planning processes. For centuries, insur- weather-related losses by adjusting in- ers have influenced public policy on is- surance prices, contract terms, and sues ranging from land use planning in availability, a few have sought to help flood zones to automobile safety, fre- customers proactively improve their quently striking agreements on the pric- physical and economic resilience to a ing of risk and the establishment of public changing climate. risk management activities. c. Introducing innovative products and e. Investing in and financing green growth services that support green growth. and adaptation projects . Insurers could Many insurers in the industrialized world bring large amounts of new funds to bear offer “green” insurance products that on inclusive green growth projects, and incentivize their customers to adopt have already made a strong start in de- energy-efficient and renewable ener- voting resources to green projects in the gy products and services (e.g., lower industrialized world. 9 42 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES Providing Better Information O ften, the lack of information and Attempts to meet the weather ob- awareness hinders the development serving needs of developing countries of products and services adapted to by deploying technologies common- local conditions and responsive to local needs. ly used in developed countries usually One area where timely information is crucial result in networks that perform poorly is weather data and early warning of extreme and quickly prove to be unsustainable. weather events. Market information can en- (Snow, 2013) courage investment in better technologies and services. This situation is typically even worse in the poorest, least developed countries, where the budgetary support, human capacity, and sup- Weather Observation and Early porting infrastructure are weakest. World Bank Warning Systems assessments have concluded that despite in- vestment of many millions of dollars in support Reliable, real-time, locally relevant weather in- for traditional weather systems in low-income formation and forecasting is a vital contributor countries, few if any have been able to maintain to economic activity and disaster prepared- effective operation, much less become com- ness, and a high return investment from a so- mercially sustainable. cietal perspective. Early warning systems can An emerging set of lower cost, highly re- avoid the need for much more expensive di- liable technologies has the potential to over- saster recovery and sometimes avoid the need come many of the traditional barriers to for much more costly infrastructure improve- weather observation. Such technologies can ments. 44 Good weather information is also es- also link effectively to early warning of nat- sential or highly valuable for many commercial ural disasters through cellular phone service activities. Farmers, including small farmers, and public communication systems, a major live by the weather—when and what to plant, step toward making some of the poorest and when to harvest, when to irrigate; so do many larger businesses, including utilities (planning for temperature related variation in demand 44 S. Hallegate, “Early Warning Weather Systems and hydropower supply), aviation, and ports/ Have Very Real Benefits”, (World Bank Blog shipping companies. Yet the reality as summa- posted July 23, 2012), http://blogs.worldbank. rized in a recent assessment commissioned for org/developmenttalk/early-warning-weath- this report is that: er-systems-have-very-real-benefits. 42 Providing Better Information 43 most vulnerable populations less at risk from servation. Emerging technologies offer addi- extreme weather events. While no one tech- tional benefits and in some instances, surpass nology or service can effectively replace con- the quality of established approaches. For ex- ventional weather observing technology for all ample, technology for detecting lightning in purposes, a combination of approaches offers clouds has been shown to be highly effective the potential for meeting most needs as well as in locating thunderstorms and predicting the (and in some cases better than) current systems at much lower cost and with supporting require- ments much better suited to the circumstances of poor countries. The new approaches build BOX 4:  WEATHER OBSERVING SYSTEM on the rapidly growing, extensive cellular tele- Two examples of a small, self-contained weather observing system: the Lufft phone network increasingly available even in WS401 Weather Station. This multi-sensor device comes in a variety of config- rural areas as a foundation allowing for a combi- urations. Each system shown here measures barometric pressure, temperature, nation of some or all of the following elements: and relative humidity. However, the top one also measures rainfalls via a tip- ping bucket gauge; the one on the bottom measures solar radiation together  The use of cell phone towers as sites for with wind speed and direction. The device consumes little power; most config- weather observing stations45 and compa- urations have no moving parts. All sensors within the unit are calibrated at the ny staff to install and maintain necessary Lufft factory. equipment.  Deployment of a new generation of low- cost, durable sensing systems appropriate to local conditions that require minimal maintenance and calibration, and can pro- vide automated information via the cellu- lar phone networks.  Developing public-private partnerships be- tween weather agencies and telecommu- nication companies to plan, implement, and operate the network.  Developing business models based on the value of weather information, which help cover the costs of system operation and maintenance. The system described can provide most of the basic requirements for weather ob- 45 There is an ongoing technical debate about the appropriateness of cell phone tower siting for weather observation purposes. As reviewed by Snow (2013), the empirical evidence shows that this is not likely to be a source of large errors Images from www.lufftusa.com/tools/categoryitems.cfm?caitid=517. or bias. 44 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES onset of heavy rainfall and severe weather, al- Country Risk Indicators lowing earlier public warnings and with greater geographic accuracy than possible from con- In recent years one approach of interest to in- ventional systems. 46 Warnings can be provided creasing investment has been the development through automated systems and by radio and of country-based indicators that help measure cellular phone services. and inform investors about the barriers and Some efforts to improve weather and opportunities for investment in different coun- early warning systems utilizing new technolo- tries. Such indicators are now complied and gies have been supported by international ini- reported in many forms by many sources. For tiatives. One notable failure was the Weather example, the Global Green Economy Index Information for All initiative (WIFA), launched published by Yale University “evaluates the with great fanfare in 2008  by Kofi Annan and efforts of countries to create environmentally the Global Humanitarian Forum. The project sustainable economies, focusing on efforts to aimed to use the mobile telecommunications invest in clean energy technology, sustainable network spreading rapidly across Africa to im- forms of tourism, and improved domestic en- prove both the continent’s weather observing vironmental quality.”48 In contrast, the Doing network and the availability of weather infor- Business Project launched by the World Bank mation through mobile short message ser- and IFC in 2002  more narrowly provides ob- vices. Only the first of three planned phases of jective measures of business regulations and the WIFA program was completed before the their enforcement, further looks at domestic Forum ceased all activities in 2010 due to lack small and medium-sized companies, and mea- of funds. All the weather stations installed are sures the regulations applying to them through reportedly no longer operational. (Snow, 2013) their life cycle. 49 Through the publication of The failure of this program, despite the expected economic and social benefits and relatively low investment required, points to 46 Experience in the U.S. shows that lightning de- several challenges. First, financing was clearly tection allows for warnings up to 30  minutes inadequate for the level of ambition pro- earlier, time that can be crucial for effective di- posed. Second, there was never a business saster mitigation—especially in poor countries where disaster response programs are not as plan consistent with the need for sustainable fully developed. Snow, 2013. For more detailed revenue and system maintenance; public-pri- description of cloud lightning detection and its vate partnerships for business and humani- potential contribution to storm warnings see tarian applications were not pursued. Third, http://www.earthnetworks.com/OurNetworks/ the hardware selection was based too much LightningNetwork.aspx. on minimizing costs and did not adequately 47 UNDP GEF, “Climate Information and Early Warning Systems in Africa Supported by UNDP consider the local conditions; new innovative GEF” (http://ews-undp.blogspot.com/2012/09/ and more appropriate technologies were also s t re n g t h e n i n g - cl i m ate - i nfo r m at i o n - a n d . not fully considered. Fourth, the full support html#!/2012/09/strengthening-climate-informa- and “buy-in” of national weather agencies was tion-and.html). not achieved. 48 http://epi.yale.edu/indicators/indicator- These concepts are being tested again case-studies/reports/global-green-economy- index-0. in 10  projects approved by the Global 49 A benefit of rankings is also their appeal for Environment Facility using resources from the media purposes and consequent relevance for Least Developed Countries Fund, and are ex- governments See materials available at www.do- pected to begin implementation later this year. 47 ingbusiness.org Providing Better Information 45 objective performance metrics, the Doing Table 4). Significant criterion in prioritizing ini- Business publication of rankings “encourages tiatives was ease of implementation in each countries to compete toward more efficient country independent of a country’s level of regulation; offers measurable benchmarks economic development, cost effectiveness, for reform; and serves as a resource for aca- and cost/benefit ratio potential, as well as the demics, journalists, private sector researchers feedback from private sector companies that and others interested in the business climate were surveyed for the purpose. This initial of each country.”50 work was exploratory and intended to outline The concept of indices and country rank- the concept sufficiently to allow for review and ings is increasingly being applied to various discussion with potentially interested private elements of green growth. For example, The parties and governments. An application of the Pew Charitable Trusts, in partnership with rankings to one country illustrating how the re- Bloomberg New Energy Finance, publishes a sults could be presented is presented below. review of clean energy investment rankings. See Table 5. The Inter-American Development Bank re- The potential impact of an information cently released profiles on 26 countries in Latin based approach also draws on experience from America and the Caribbean, reviewing 30  in- IFC’s series of business case studies done to dicators related to the investment climate for help understand the feasibility of analyzing the low-carbon investments.51 As a contribution to financial risks of climate change across different the G20 project, IFC commissioned Deloitte to sectors and regions in the context of IFC clients explore the potential application of the index (www.ifc.org/climaterisk). One such study on and ranking approach to the indicators of most investment planning and operation of ports,52 relevance to private actions to reduce coun- (see Box 5) cost approximately US$200,000, tries’ vulnerability to weather extremes and cli- yet informed and enabled multi-million dollar mate change as a way to incentivize inclusive private sector adaptation investments, which in green growth. These actions, largely but not turn will protect several hundreds of millions of exclusively in the domain of the public sector, dollars of port infrastructure used for moving have the potential to protect the assets, and one percent of Colombia’s international trade social and environmental structures from the (2008). impacts of climate change, unlock the demand The leverage ratio of the cost of removing for adaptation products and services, and es- the informational barrier to the private sector sentially prepare the socio-economic struc- investment was on the order of 100. If a similar tures to incorporate climate change concerns in type of information was produced for all infra- planning, operation, and investments. The ini- structure facilities and incorporated in relevant tiatives that have the potential to address the regulation, it could be expected that the ratio observed barriers are classified in five general would be considerably higher. categories: Data and Information, Institutional Arrangements, Policy Frameworks, Economic Incentives, and Technology and Human Capital (see Figure 5). 50 See, e.g., “UK slips down global green invest- Based on observed best practices and on ment rankings,” The Guardian, March 29, 2011. 51 http://climatescope.fomin.org/ conclusions of IFC’s previous work, each cate- 52 The Muelles el Bosque climate risk study was fi- gory is populated with a list of initiatives that nanced by the Trust Fund for Environmentally have the potential to achieve the objective and Socially Sustainable Development (TFESSD) of enabling climate change adaptation (see and IFC. 46 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES TABLE 4:  Indicators Relevant to Private Investment in Measures to Enhance Climate Resilience Indicator Description Data and information 1. Climate and hydrological projections National climate (e.g. temperature, precipitation, humidity, solar radiation/cloud cover and wind) and/or hydrological (e.g. soil moisture, groundwater, runoff, evaporation, flood/drought) projections based on calibration and validation of climate and hydrological models 2. Direct and indirect impacts National data/information about climate change direct and indirect impacts relevant to the private sector and elaborated for specific sectoral and geographic needs 3. Adaptation measures, costs and benefits National data/information about climate change adaptation measures, and associated costs and benefits, elaborated for specific sectoral and geographic needs 4. Community vulnerability, risk and adaptation National/local data/information about community vulnerability and risk from climate change and/or adaptation priorities Institutional arrangements 5. Institutions and forums 1. Coordinating national bodies and forums with a role in facilitating climate change adaptation in the private sector Policies 6. Building standards and/or codes 2. Building standards and/or codes incorporating climate change impact and adaptation considerations 7. Public infrastructure Public and key infrastructure having factored climate change impacts and adaptation into design, operations and/or decommissioning 8. Local zoning rules Local zoning rules incorporating climate change impact and adaptation considerations for new and/or existing infrastruc- ture/buildings in areas vulnerable to climate change (e.g. floodplains, coastal zones, glaciers) 9. Permitting and impact assessments National/local permitting (e.g. land use and/or construction permits) and/or environmental/social impact assessment rules incorporating climate change impact and adaptation considerations into developments 10. Investor relations and/or stakeholder Incorporation of climate change impact and adaptation considerations in instruments and practices for investor relations management and stakeholder management (e.g. disclosure in security fillings, bond prospectuses, stakeholder consultation, commu- nity resettlement and compensation) Economic incentives 11. Government incentives Government incentives promoting climate change adaptation in the private sector 12. Finance Public and/or private finance instruments (e.g. loans, equity, guarantees) for climate change adaptation, including plan- ning, implementation, purchase of equipment and material, and innovation/R&D in the private sector 13. Full-cost accounting for water and energy Cost accounting and pricing practices in water and energy utilities, which reflect the ‘true’ lifecyle costs of the impacts of more extreme weather and climate change on water and energy management and services, and which incentivizes in- creased efficiency, reduced consumption and improved resilience 14. Environmental trading markets Markets to trade environmental entitlements or allocations (e.g. over water, soil and/or biodiversity resources) under pressure from climate change Communication, technology and knowledge 15. Information and communication technologies Availability and market penetration of information and communication technologies (e.g. internet and mobile cellular) 16. Technology and knowledge Access to and use of technology and knowledge useful to understand, assess and respond to climate change risks and opportunities Source: IFC, (2013), Enabling Environment for Private Sector Adaptation: an Index Assessment Framework. Providing Better Information 47 TABLE 5:  Indicator: Climate and Hydrological Projections Description Measures Costs Benefits Business case summary National climate (e.g. tempera-  Free access to data/information from a national  Installation, operation  Avoided loss and  The costs of producing ture, precipitation, humidity, or international body (e.g. government depart- and maintenance of damage from cli- climate and hydrolog- solar radiation/cloud cover and ment, public agency, research center, donor hydro- meteorological mate-related hazards ical projections are likely wind) and/or hydrological (e.g. organization) observation network  Avoided business outweighed by potential soil moisture, groundwater,  Data available electronically  Climate modeling interruption avoided costs and increased runoff, evaporation, flood/  Data available in both raw format as well as capability  Better mid- to long- revenue opportunities— drought) projections based on maps or graphs (e.g. cumulative frequency  Research costs term planning and/or the World Bank estimates calibration and validation of cli- distributions)  Data/ information pricing decisions en- that hydrometeorological mate and hydrological models  Downscaled projections diffusion hancing profitability investments in Russia and  Data available on primary (e.g. average, max-  Increased revenue op- Central Asia have bene- imum and minimum temperature and precipi- portunities (e.g. new fit-to-cost ratios between 5 tation) and derived (e.g. growing season length, insurance products) to 1 and 53 to 1 hot/cold days, flood/drought indicators, soil moisture) hydro-climate variables Source: IFC, (2013), Enabling Environment for Private Sector Adaptation: an Index Assessment Framework. FIGURE 5:  Snap-shot of Indicators to Determine Favorable Conditions for Business Adaptation in a Low-income Country BOX 5: INVESTMENT PLANNING AND OPERATION OF PORTS: A CLIMATE RISK ANALYTICAL STUDY In 2011, IFC and the port of Muelles el Bosque (Cartagena, Colombia), in collaboration with numerous public and private sector partners, elaborated a cli- mate risk study for the port and quantitatively assessed financial, environmental, and social impacts that are projected to result from the changing climate. The study analyzed projected changes in sea level rise, storm surge height, precipitation, temperature, and wind patterns, and direct and indirect effects of these on port assets, operations inside and outside of the port, surrounding environment and communities, and the trade of the goods trans- ported through the port. Where applicable, the effects of impacts were incorporated into the company’s financial model, using the company’s usual discount rate, allowing further assessment of cost-effective adaptation options. Based on the conclusions of the study, the company announced plans for US$30 million adaptation investments in two of the ports it operates, of which US$12 million have already been invested. 10 48 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES Financing Green Growth: How Do We Unlock Private Investment? T he above sections have highlighted a Understanding Leverage: IFC’s number of interesting initiatives that Experience speak to IGG. The mapping exercise indicates that while the financing of green Development banks—whether global, regional or growth has been increasing, it is nowhere national, or multilateral, bilateral, or domestic— close to the scale that will be required to sta- can play a significant role in financing green in- bilize global temperatures. Furthermore, very vestment and IGG, and in leveraging significant little is explicitly directed to IGG and BOP ini- resources from the private sector to do so. This tiatives. Strategies to increase financial flows report highlights in depth analysis of leveraging toward green growth recognize the important achieved through IFC’s climate finance experi- role that the private sector must play, and the ence, for which detailed information is available need to find ways to achieve bigger “bang for for the period 2005–2013. These findings can buck” so that limited public dollars can lever- just as easily be applied to other private sec- age significant multiple investments from oth- tor-focused development banks, as they follow er investors. similar funding models. Detailed data on these Financing by multilateral and national other banks’ activities were not available to development banks for climate related in- permit a comparison, and the report therefore vestments has been steadily growing, as the in- confines itself to reporting on IFC’s experience. stitutions make addressing climate change an The results reveal that one dollar of IFC fi- explicit element of their strategy. They also pro- nancing—itself raised in capital markets based vide an interesting platform through which to on significant leveraging of shareholder cap- study leverage, particularly as it relates to the ital—was leveraged over four times from other private sector. Yet, development bank financing investors (essentially private, given its man- remains a small portion of overall financing date) across the projects examined. Not sur- needs, and is constrained by the capital base prisingly, greater leverage is achieved with of the institutions. At the same time, institu- well-established technologies. In newer areas, tional investors control many trillions of dollars or with less well understood business models, in assets—a very small portion of which reaches active “selling” of the climate component is green investment (and an even smaller amount necessary, and concessional finance can often going to developing countries). Unlocking even nudge investment into promising but as yet a small share of these flows could provide a sig- commercially unproven areas. In all cases, cli- nificant boost to the availability of investment mate-related investment needs a conducive un- resources. derlying investment environment. 48 Financing Green Growth: How Do We Unlock Private Investment? 49 IFC’s Climate-Related Portfolio IFC client results in GHG reductions by An analysis of IFC’s climate portfolio reviewed a third party. Activities that qualify as different sectors—renewable energy, energy direct mitigation include renewable en- efficiency, and other climate-related activity, ergy (RE) generation; energy efficiency further disaggregated by project type (such as (EE); agriculture, forestry and land use: power generation, industrial energy efficiency, waste management; transport; and other and financing through intermediaries, to name mitigation such as replacements of heat- a few). The review encompassing 563 projects ing and cooling systems with reduced undertaken over the 2005–2013 period,53 pro- global warming potential refrigerants, vides interesting insights on trends in the na- or carbon transactions. Indirect mitiga- ture of the activities that have been financed, as tion includes component manufacture, well as the leverage and mobilization achieved. financial intermediary (FI) transactions Starting from a relatively modest level in 2005, and advisory services (AS) market-lev- when IFC began tracking its climate-related el activities. In order to be classified as activities (21  projects amounting to IFC in- mitigation, the activity must be able to vestment of US$211.7  million, or four percent demonstrate emissions reductions against of IFC’s own account commitments), IFC’s ac- a business-as-usual baseline, according to tivities have grown in volume as well as in the detailed methodologies that IFC has de- breadth of sectors involved to reach 14 percent fined for this purpose. of total own account54 commitments in 2013.  Adaptation: implies reduction in the vul- The definitions and typology that IFC nerability of human or natural systems uses for climate-related investment and ad- to the impacts of climate change and cli- visory projects are contained in a docu- mate variability related risks by maintain- ment entitled IFC Definitions and Metrics for ing or increasing adaptive capacity and Climate-Related Activity.55 Sometimes, an en- resilience. tire project can be considered climate-related;  Special Climate: includes activities that for others, climate-related activities will be a contribute to mitigation, but for which small component of a broader project. IFC iso- no approved GHG reduction calculation lates the climate component of the project for methodology exists. tracking and reporting purposes, determines the share of climate-related activities within a In the period under review, there was just given project, and then calculates the IFC “cli- one project that could be classified as “adapta- mate claim” based on a pro-rata share of the fi- tion.” This is largely due to the fact that there nancing provided.56 IFC uses three broad categories to define climate-related investment: 53 IFC 2013. Patel, S. and Musić, R. Climate – Related Investment at the International Finance  Mitigation: implies ether reduction in Corporation: A Review of 9 Years of Investment emissions of GHGs into the atmosphere Activity (2005–2013). or absorption of GHGs from the atmo- 54 Investments that are carried on IFC’s bal- sphere. Mitigation is further categorized ance sheet; does not include monies mobilized through third parties. as direct, wherein the GHG reductions 55 Available at www.ifc.org/ghgaccounting. are attributable to changes in the client’s 56 For example, if total project cost is 100, the cli- operations as a result of investment or mate component is 50, and IFC has financed advice; or indirect, where activity by an 20 overall, the “climate claim” will be 10. 50 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES FIGURE 6:  IFC’s Climate-related Portfolio, 2005–2013 climate finance to broader public and private fi- – Own-account Commitments nance flows.58 In some quarters, leverage implies a more complicated calculation that attempts to mea- sure the value of the lower return that inves- tors may be induced to accept on account of the risk mitigation provided by the public sup- port. The concept of “net” flows, evoked in the Secretary-General’s High-level Advisory Group on Climate Change Financing report (AGF), re- flects this sentiment.59 In this section, the term leverage is used to denote the ratio of project cost (as repre- sented by the financing plan) to IFC’s portion of the financing. As the graph below suggests (See Figure 6), leverage could be calculated along several dimensions. One is to look at Source: Patel, S. and Musić, R., (2013), Leverage in IFC’s Climate-Related Investments: a Review of 9 years total project cost, divided by total IFC commit- of Investment Activity (Fiscal Years 2005–2013) (IFC). ment; in the case of the climate portfolio, this yields a weighted average of 3.8, implying that one dollar of IFC financing mobilized close to are few commercial opportunities in adapta- three additional dollars of financing from other tion at the present time, although IFC expects sources (essentially private). However, since IFC this to be a growing part of its business going tracks the climate component of its financing forward. separately, leverage could also be calculated as the climate component of the project cost as a Leverage multiple of the IFC climate claim. On a simple Just as there are no standard definitions of cli- average basis, which is more representative mate finance, green investment, or IGG, there is of individual project experience, the project no universally accepted definition of leverage. leverage was 4.1. Leverage implies the use of a lever to enhance However, there is an additional aspect an action. In a financial or business context, it of leverage that must be pointed out here. is the ability to have a relatively small amount of cost yield a relatively high level of return, and generally refers to the amount of debt that 57 A discussion of different approaches to leverage can be raised on the strength of equity57 The is contained in Brown, J. et al (2011) Improving Overseas Development Institute defines lever- the Effectiveness of Climate Finance: A Survey aging as the process by which private sector of Leveraging Methodologies, available at capital is mobilized as a consequence of the http://climatepolicyinitiative.org/wp-content/ use of public sector finance and financial instru- uploads/2011/11/Effectiveness-of-Climate- ments. It recognizes that there is no uniform Finance-Methodology.pdf. 58 http://www.odi.org.uk/resources/docs/7082. methodology to calculate leverage ratios, which pdf. can be expressed as the ratio of total funding 59 http://www.un.org/wcm/webdav/site/climat- to public funding; the ratio of private funding echange/shared/Documents/AGF_reports/ to public funding; or the ratio of specific public AGF_Final_Report.pdf. Financing Green Growth: How Do We Unlock Private Investment? 51 IFC raises financing in capital markets on the markets and paving the way for others to follow. strength of its balance sheet, which is itself The experience of other development banks, derived from shareholders’ contributions and while unfortunately not publicly available for retained earnings. IFC’s balance sheet for inclusion in this report, would undoubtedly add 2013 reports a debt/equity60 ratio of 2.6:1—im- to our understanding of the role that develop- plying that IFC borrowed 2.6 dollars for every ment banks can play. dollar of capital. In that same year, IFC reported total capital of $22.3 billion, including $2.4 billion Observations of capital stock (the rest being retained earn- Even though IFC’s climate-related portfolio has ings and other accumulated income), and total not been analyzed according to the degree of assets of $77.5 billion, including investments of “inclusiveness” that the underlying projects $34.7 billion. One dollar of shareholder paid-in embody, the climate portfolio review paper capital could thus be considered to have lever- provides the following insights that are useful aged 14 dollars of IFC investment. This is a sim- to consider when discussing green growth and plistic calculation, to be sure—one could argue climate-related investment more broadly; each that retained earnings represent foregone of these could be the basis for additional anal- shareholder returns and should therefore be ysis and questions for the DPIGI to pursue considered as shareholder contribution, or that the appropriate numerator should be total as- There is great potential in leveraging pri- sets, for example—but it does demonstrate the vate sector climate-related investment very high leveraging potential that one dollar of through multilateral development banks public contribution, judiciously managed and (MDBs). As IFC’s experience shows, one dol- deployed, can have on private sector financing. lar of IFC climate-related investment brings Furthermore, the summary data presented in close to 3  additional dollars from other in- above do not tell the full story on leverage. vestors on average; and that one dollar of IFC’s climate portfolio review paper61 contains IFC investment has itself been leveraged on a detailed analysis of IFC’s climate-related the strength of IFC’s shareholder capital. All portfolio, and calculates the leverage ratios MDBs follow a similar funding model, and that were obtained for the different activities would likely have similar leveraging potential. embodied in the three broad categories of classification mentioned above. Essentially, cli- Average leverage ratios, while useful, mask mate-related leverage ratios can range from 1 to significant variations across project types. A 9, depending on the type of activity involved. nuanced picture of leveraging potential emerg- In terms of geographic distribution, Latin es when the underlying activities are broken America and Eastern Europe hold the highest shares of climate business, followed by East Asia. These regions are home to the larger 60 Defined as the number of times outstanding emerging market economies, which have the borrowings plus outstanding guarantees cover market size and industrial development neces- paid-in capital and accumulated earnings (net of sary to support domestic mitigation activity. retained earnings designations and certain un- This analysis suggests that even though realized gains/losses); see http://www.ifc.org/ wps/wcm/connect/92f23b804112384a89a1ff- the volume of financing may be small relative f e 5 67 9 e c 4 6/A R 2 0 1 3 _ R e s u l t s _ F i n a n c i a l _ to the global need, development banks often Summary.pdf?MOD=AJPERES&Sections%20 play a very important role in demonstrating the 6:%20Financial%20Summary. viability of investments, thereby opening up 61 Patel, S., and Music ´, R, 2013. 52 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES down into “like” categories. Even within a rel- technology may be less well understood by atively homogeneous category, such as renew- the market, and a critical mass of activity may able power generation, there are variations not yet have been attained for market demon- depending on technology and market charac- stration purposes, leading to limited co-financ- teristics. The private sector does not behave ing interest on the part of other investors. IFC in a homogeneous fashion. can play an important role in financing such activities, so as to bring them up the curve A simple leverage ratio calculation does not and create greater market awareness and ac- always tell the full story. Because of the way ceptance. IFC accounts for investments, the leverage that will actually be achieved on the ground Climate-related investment follows under- is not always captured. This is particularly the lying market trends . The growth in IFC’s case for indirect investments, as through fi- climate-related business, particularly for re- nancial intermediaries (FIs). Direct investment newable energy (RE), reflects underlying financing better captures the actual invest- market trends in the RE business, which has ment that takes place. Neither case captures seen significant growth in many of IFC’s mar- the broader multiplier effects of investment kets. IFC has been ready and able to sup- on income and economic development. port such growth, but the supply of capital, while undoubtedly critical, is not necessarily Greater leverage is achieved with well-es- the defining element in the growth of such tablished technologies . Where technologies activity. are well established and understood by the market, it is easier to attract other financiers Active “selling” of climate components can to participate in the investment plan. Where help. In some cases, climate-related oppor- there are technical issues associated with a tunities may not be immediately obvious to technology, as in solar thermal electric tech- a client. This is particularly the case in some nology (concentrated solar power—CSP), or EE improvements. In such cases, the differ- where the activities financed have not yet en- ence between their adoption or not is the tered the mainstream, as in some types of en- advice and technical expertise that can be ergy efficiency (EE), leverage ratios are lower. brought to bear in a given project. IFC’s in- house technical experts (engineers and envi- Leverage ratios are often higher for larger ronmental specialists) are key to such active projects . Big, capital-intensive projects tend client engagement, particularly in the context to attract more financiers, as individual lend- of IFC’s Performance Standards which re- ers run up against exposure limits. Large proj- quires clients to consider resource efficien- ects can also absorb the higher transaction cy possibilities. costs associated with multiple lenders and complex project finance structures. Climate finance is often a portion of the overall financing. In many cases, climate-relat- Lower leverage activities may still fulfill im- ed components will be tangential to the main portant market development roles. In some investment being pursued, yet there may well cases, leverage appears to be low because of be opportunities to reduce the project’s emis- the conventions underlying project account- sions footprint through renewable energy (RE) ing for that type of activity (as in FI activity, or EE. Such components may be a small part for example). In other cases, the underlying of the project overall, but they should not be Financing Green Growth: How Do We Unlock Private Investment? 53 discounted for their impact or demonstration blocks for certain types of climate-related in- value. Here again, active client engagement by vestment. IFC’s technical staff is key. Leverage is an important “bang for buck” Climate-related investment needs a con- measure, but not the only one . Leverage ducive underlying investment environment . shows how much money was mobilized on Most of the activities that IFC has undertak- the back of a public dollar, but it does not en to date have not involved special subsidies. capture the impact of that money in terms of This means that their creditworthiness derives GHG reductions, or employment creation, or from the prevailing business environment, pol- any number of other objectives that a coun- icy and regulatory regimes in the countries try may wish to pursue. These should be ar- involved. In the absence of such conditions, eas for further work for IFC and others. such investments will simply not take place—or will require additional risk mitigation measures. Institutional Investors: The Blended finance can nudge investment into Challenges and the Opportunities promising but as yet commercially unproven areas. Often, being a first-mover entails risks Given the significant investment gaps to finance that make it difficult for a client to complete the transition to low carbon and climate resilient a financing plan on acceptable terms. The per- economies identified earlier, and the tightening ceived risk may be too high even for a devel- of capital provision in key parts of the banking opment finance institution like IFC. A small sector globally, policymakers and experts are amount of concessional finance can act as a looking to alternative sources of capital to catalyst and mobilize the necessary financing. bridge this need, including institutional inves- tors62 who manage US$75  trillion in assets in What gets measured gets managed . It is the OECD alone. Figure 7 outlines assets under only in 2005  when IFC made a public com- management and typical portfolios and alloca- mitment to grow its RE and EE activities that tion for different types of investors. According a tracking system was put in place; it is only to the OECD the asset allocation to direct in- when such investments began to be tracked frastructure investments of pension funds is that staff realized that there were several cli- less than 1 percent, with the green investment mate-related opportunities in the business component being even smaller.63 Many factors that could, with a little extra effort, be ma- contribute to this low percentage, including the terialized. IFC’s commitment to grow its cli- diversity and complexity of the entities man- mate-related business has given a boost to aging large assets, the dominant conservatism such endeavors. and inertia that govern their investments, and the emphasis on fiduciary duty that is driven in Advisory services and capacity building are essential components of some activities . This paper has not examined advisory ser- vices (AS) and the role that it has played in 62 This section focuses primarily on institutional in- vestors as this was part of the terms of reference supporting IFC’s climate-related activities. The agreed with the Development Working Group, brief description of AS programs provided given the intended target of the Dialogue shows that some technical assistance and ca- Platform on Inclusive Green Investments. pacity building activities are essential building 63 Kaminker, C., and Stewart, F., 2012, OECD. 54 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES WHAT  ARE  TYPICAL  INVESTOR  PORTFOLIOS  &  ALLOCATIONS?     FIGURE 7:  Typical Investor Portfolios and Allocations INSTITUTIONAL INVESTOR ASSET PORTFOLIOS Sovereign Wealth Public and Private Insurers and re- Philanthropists Funds Pensions insurers /Foundations $5.9trillion in top 70 $12.7trillion in top 300 $16.4 trillion in top 40 $455billion in top 40 Investing via Investment Bank AM Specialist AM Groups Groups Direct Investments Investing in Equities Fixed Income Alternatives Cash 45-50% 35-40% 5-10% 3-4% Hedge Funds 3-4% Tangible Assets PE 1-5% 3-7% Forestry Real Estate Infrastructure /Agribusiness Source: Compiled by IFC with estimates sourced from a range of industry publications current at June 2013. large part by nationally specific regulation, lack across institutional investors, but there are of suitable financing vehicles and investor inex- common themes, with the primary one being 1   perience with direct investing. This section will the need for a solid investment case. By ex- attempt to deconstruct the asset allocation and amining the structure of decision making it is decision making processes of institutional in- possible to identify the main entry points to in- vestors to identify opportunities for promoting fluence and inform on investing in green growth the shift to green investment.64 Decision Making by Institutional Investors 64 G20 leaders have highlighted the importance Globally institutional investors are a diverse, of long-term financing, focusing on infrastruc- highly differentiated group. They include ture investment, to foster long-term growth. The public and private pension funds, insurance OECD, within the framework of its project on Institutional Investors and Long-Term Investment, companies and sovereign wealth funds—all is participating in this work and has been working of which are subject to very different regula- with IFC to analyze barriers and potential solu- tory and management environments. The me- tions to long term financing by institutional inves- chanics of asset allocation vary significantly tors. See: www.oecd.org/finance/lti. Financing Green Growth: How Do We Unlock Private Investment? 55 FIGURE 8:  Sustainable and Responsible Investment Solutions Source: Returns in Low-yield times: Alternatives for returns in a low interest rate environment, Allianz Global Investors, 2013. opportunities. Retail investors fall outside the complexity, particularly when the asset owners scope of this report as their decision making are not undertaking direct investments in process and primary investment drivers are projects. different to those of institutional investors. For Portfolio managers are assigned an asset the purposes of this paper the emphasis will be class (or sub-asset class), an allocation with on pension funds. a varying degree of autonomy (but very little The complexity of the current investment variation in performance monitoring), and a system means that institutional investors rely benchmark—usually with a targeted increment on a chain of service providers. Fund trustees, beyond the benchmark specified. Thus port- advisors, asset managers, policymakers and folio managers are motivated by: the proba- regulators play important roles in controlling bility of any investment making the target on the fund governance agenda, strategic direc- a standalone basis; the function of the invest- tion and investment opportunities. The de- ment in balancing the portfolio—for example in cisions on asset classes and allocations are delivering returns at a specific point in time or subject to periodic review at the strategic level, in balancing risk; and compliance with the con- which typically happen annually and are re- straints of the allocation. structured less frequently. This highly analytic Therefore new asset classes or invest- review sets the broad policy frame and target ment themes on a significant scale take time that are broken down for portfolio managers in to embed in the decision making process. For each of the major asset classes; considers inclu- example, in the case of infrastructure invest- sion of new (or redefinition of old) asset classes ments, deregulation and privatization in Europe and examines the appropriate benchmarking. over 10  years created a pool of projects ripe Internal and external third party consultants for investment, and investible structures at and advisers play a major role in guiding invest- scale that offered long term steady yields. This ment thinking and decision-making through prompted the advent of large private equity 56 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES infrastructure funds, which in turn attracted in- their liability through cash contributions, and stitutional investors’ attention, with many of the the liability each fund owes for the benefits of largest pension funds making specific alloca- its members. Table 6 provides a high level sum- tions to infrastructure of up to three to five per- mary of the differing motivations and drivers cent of their portfolio in some cases. of different types of institutional investors and The trajectory of investing in new asset their supply chains, which need to be consid- classes by investors is often along the lines of ered when seeking to direct efforts at engaging initially investing in a fund of funds, then self-se- their interest in IGG investments. lected individual managers, followed by direct project investments in line with growing com- Drivers and Barriers to IGG Investment in fort levels, experience, and track record. Developing Countries Given the time frames and process around Most investors frame any green growth in- including new asset classes, this suggests that vesting through the broader ESG (environment, to make sustainability concepts an integral, tar- social, and governance) lens. This catchall for geted part of financial investment strategies will sustainable investing is often focused primarily require focused efforts to inform and promote on protecting investors’ reputation, or is lim- inclusive green growth investments directed at ited thematically to a certain investment seg- the executive officers and the advisory firms ment. Many investors have yet to think about that are supporting them. Moreover, engaging how best to integrate sustainability into invest- the investors will require a clear pipeline of in- ment strategies; they usually underestimate vestable products, at which point portfolio the additional opportunities sustainability of- managers should be targeted when new invest- fers for effective risk management throughout ment products are available to be deployed in the entire investment portfolio and the entire support of IGG investment. value chain. There are numerous studies avail- able now that demonstrate that incorporating Constraints to Shifting Asset Allocations ESG considerations in the investment process The governing principle for all asset allocations can enhance returns and/or reduce risk. That by investors such as pension funds is fiduciary said, the literature also states that the em- duty, whereby they are obliged to act in the phasis has been on the G (Governance), with long term best interests of the beneficiaries of fewer studies demonstrating focus on the the fund. Coupled with stringent regulations E (Environmental) and S (Social) factors.66 With that vary by country, and are supplemented respect to the lower focus on E, a key barrier to by internationally agreed frameworks such as green growth is the mispricing of externalities Basel III65 that are adjusting capital adequacy requirements, investors are driven to act con- 65 Basel III: A global regulatory framework for more servatively and seek relatively large, low-risk, resilient banks and banking systems—revised ver- liquid, long-term investments that deliver sion June 2011 http://www.bis.org/publ/bcbs189. steady, preferable inflation-adjusted income htm. streams. 66 See Mercer’s Demystifying Responsible This does not however imply a homoge- Investment Approaches Returns and Impacts nous block of assets; different types of inves- (2009) and a subsequent study by Deutsche Bank Climate Change Advisors Sustainable tors will have different motivations, investment Investing – Establishing Long-Term Value and requirements etc. A pension fund’s investment Performance (2012) (in particular at page approach is shaped by who bears the invest- 5) which essentially confirms and updates the ment risks, the methodology funds use to fund findings of the earlier study. Financing Green Growth: How Do We Unlock Private Investment? 57 TABLE 6:  Summary of Indicative Drivers of Institutional Investors and their Supply Chains Institutional Investors Public and Private Pension Foundations and Sovereign Wealth Funds Funds Insurers and Re-Insurers Endowments Assets under Top 70, US$5.9 trillionb Top 300, US$12.7trillionc Top 40, US$16.4trilliond Total of Top 40 in each cate- management US$a gory US$455billione Assets under manage- Top 25, US$154 billion Top 100, US$1.4trillion Top 25, US$244billion Top 25, US$72billion ment in the Alternatives Asset Classf Primary investment Capital Growth and Yield, Principal Meeting current and future pension Meeting current and future in- Meeting Foundation objec- drivers protection, long term outlook liabilities surance liabilities, corporate tives and principles, prin- profitability cipal protection Current ESG positions While data is less complete on SWF, some form of ESG policy exists in the vast majority of the top ranks. It is typically found in a form developed along risk management principles, where the risk is placed where it is best managed within the investor’s supply chain. Therefore there are in- ternal activity requirements and thresholds on investment in certain sectors and asset allocation, but primarily base requirements in investment operations consist of governance requirements for asset managers and in direct investments for the asset. Sector engagement Investment mandate (varies by Industry and sector regulation, scale, Industry and sector regulation, Foundation objectives, constraints country), scale, suitable products suitable products, uneven knowl- scale, suitable products scale, suitable products edge distribution, internal band- internal bandwidth of re- width of resources. sources. Perceptions of dif- ficulty achieving alignment with commercially focused investors in the medi- um-long term. Influenced by Traditionally access investments Traditionally access investments Internal Analytics from risk man- Traditionally access invest- through managers and fiduciaries. through managers and fiduciaries. agement business. Proven portfolio ments through managers Proven portfolio performance. Public performance. and fiduciaries. Trust struc- Public Policy. sector influenced by public sector tures and mandate are pri- compliance requirements locally. mary influences. Professional Associations. Invest Through Investment Vehicles And Managers Managers Investment Banks and Large Multi- Asset Managers specializing by Fiduciaries providing custom in- Direct Investments and par- Asset managers sector, region or product vestment management solutions allel investments Current ESG positions The majority of these intermediaries subscribe to (or have independently developed) ESG Frameworks. 78 have subscribed to the Equator Principles, and professional/industry bodies such as Venture Capital Associations across world regions have developed ESG reporting Frameworks which have wide credibility and membership. The principle follows that of the Investors – ESG is treated in risk management prin- ciples where it is managed in proportion to the directness of the investment. a The total AUM of these investors is not indicative that these funds are available but indicates (a) the scale at which these institutions may exert influence through their portfolios management activities in disseminating ESG (b) the scale necessary to attract investment flows from them. b Sovereign Wealth Institute 2013 c Towers Watson 2012 d Pensions and Investments 2012 e Pensions and Investments 2013 f Towers Watson Global Alternatives Survey 2013 (e.g., pollution) in markets, favoring invest- “rules of the game” is often the most effec- ments in brown assets given investors’ primary tive way of driving the internalization of costs driver is economic returns. and thereby improving the relative invest- Institutional investors often put high pri- ment case of green (or greener) investments. ority on regulatory incentives, as changing the Investors are nervous about the unfamiliar and 58 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES are cautious of repeating bad experiences re- Moreover, a lack of investor experience in sulting from some risky exposure, primarily in emerging markets and or with direct project in- the clean energy space. The collapse and de- vesting and with new technologies and asset faults of solar photovoltaic and wind turbine classes is an additional barrier to scaling up manufacturers, which were driven by price IGI. Typically making direct investments in proj- declines and retroactive policy changes (e.g., ects is difficult and resource intensive, and can reversal of clean energy subsidies in parts of be prohibitively expensive due to the need to Europe), have damaged investor confidence. build in-house capacity. While direct invest- The definition of asset classes consistent with ments should have higher risk-adjusted re- IGG investment is also a major constraint, turns than investment in publicly traded shares with the most promising area being green in- or bonds, the additional return must be high frastructure. For pension funds based in the enough to justify both the higher transactions OECD, these concerns are exacerbated in the costs and the possible illiquidity of the invest- context of investing in developing countries, let ment (OECD, 2012a, CPI, 2013). alone IGG investment in developing countries. For example, CPI (2013) suggest around Fundamentally, given their fiduciary responsi- US$ 50 billion of assets under management are bilities, for investors to increase allocations to required to justify building a dedicated man- IGG investment, these investments would have agement team, focused on renewable energy to compete on a risk return basis over all time investments. As such, only a small number of horizons with all other investments. If the in- large pension funds have significant potential vestments can meet the risk/yield thresholds for undertaking direct investment in green in- that investors are seeking, capital will flow. The frastructure projects.67 following Box 6 summarizes the main barriers identified by investors to scaling up green in- Domestic and South-South Investing vestments in interviews conducted by Mercer Within the universe of large institutional inves- Associates. tors, those based in the OECD have decidedly more barriers to investing into IGG in devel- oping countries. This opens up the question of other sources of capital that could be directed FIGURE 9:  Pension Assets by Regions, 2006–2011 towards these types of investments. The chart below shows that pension fund assets in non- OECD countries has been growing over the last few years. While pension funds globally are mo- tivated by their fiduciary duty, institutional in- vestors in frontier and emerging markets are also challenged by the context in which their assets are accumulating, where the socio eco- nomic situation suggests there is a strong de- mand for capital to grow the local economy. Emerging markets present many opportunities to promote economic growth through wisely deploying capital and creating shareholder Source: OECD Pension Markets in Focus http://www.oecd.org/daf/fin/private-pensions/PensionMarketsInFocus2012.pdf 67 OECD, forthcoming 2013 Financing Green Growth: How Do We Unlock Private Investment? 59 BOX 6:  BARRIERS TO SCALING UP GREEN INVESTMENTS IDENTIFIED BY INVESTORS 1. Lack of economic business case: From a governance perspective, the funds must ensure that pension capital is used effectively within a risk-ad- justed framework.  Currently, there is a perceived lack of investment-worthy opportunities.  Subsidies for renewable energy appear to be at risk of being eliminated (as has occurred in Spain).  Recent technology innovations have caused a collapse in natural gas prices in the United States, hurting the profitability of alternative energy and hindering green growth.  Related research has focused on the risks associated with a lack of green growth, as opposed to the opportunities that it presents. 2. Policy uncertainty:  Policy uncertainty (risk) is deterring investors from green investments.  Governments have not yet effectively tackled the climate change issue; thus, chance of meaningful near term policy change appears slim.  Policy risk is more relevant in developed countries because:  This is where the bulk of the pension fund assets are invested, and  The developed countries need to lead on any successful global framework. 3. Higher risk in developing countries:  Geopolitical risk – Corruption, political uncertainty and poor governance frameworks are barriers that are more prevalent in developing coun- tries. Unless these barriers are adequately addressed (and related risks reduced), growth in IGI will be hindered, even if all other barriers to GI are addressed.  Process risk – Developing countries need improved investment processes; most of the investments are green-field assets and processes for pro- curing them are not up to developed country standards. 4. Lack of a track record: The business case for green investments has not unfolded in a favorable manner – track records are short and not compelling. As a result, investors have lost confidence. Until a more meaningful (and positive) track record is established, meaningful investment allocations are unlikely to be forthcoming. And without those allocations, the track record will be difficult to develop. 5. Liquidity: Many funds are subject to liquidity constraints imposed by the relevant regulator. This is a material issue as green growth requires signif- icant infrastructure investments which may tie up capital in excess of 10 years. The economic business case for the infrastructure investment may be sound, but liquidity constraints may make it unfeasible. 6. Investment time horizons:  While evaluations of financial performance of listed equity investments may be stated to be quarterly, in effect managers / performance is now often monitored on a monthly or daily basis. This shorter timeframe can make it more difficult to quantify or ‘make a bet’ on green growth coming to fruition if the immediate market opportunity is not apparent.  A key trend for large corporate (defined benefit) pension plans is to ‘de-risk’, which involves moving away from long-horizon, illiquid invest- ments. This means a smaller amount of longerterm capital is available for IGI (such as for infrastructure or venture capital). value. Moreover, there is likely to be much accumulation currently exists (due to young greater political will to push for such policies, in populations meaning that more money is being emerging markets. collected than being paid out), these are usu- Pension assets in emerging markets are ally managed by central, government con- different from the largely private pension funds trolled (or at best ‘arms-length), national social which form the bulk of assets in more devel- security agencies. National pension plans can oped economies. In emerging markets, pri- be leaders in infrastructure investment, as the vate, voluntary pension savings form only a Canadian public pension plans have shown.68 tiny tip of the market. The bulk of most pen- sion systems in developing economies consist of PAYG, social security systems. Where asset 68 See OECD Australia/ Canada paper. 60 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES Such a role can also be played by public plans in fashion. As such, in the short-medium term emerging markets, but strong governance over- working with national development banks and sight will be required to ensure that the assets emerging market based pension funds to pro- are invested safely and prudently. Investment mote IGI is promising. by centrally managed social security and prov- Sovereign Wealth Funds based in emerging ident funds has in the past in many countries markets are another potentially major source been subject to political influence with assets of IGG financing, particularly with respect to directed towards projects with potential social green infrastructure. Unlike the world’s largest benefits rather than delivering the required risk pension funds, most SWFs are based in devel- adjusted return which the beneficiaries of the oping countries in the Middle East and East fund require.69 Asia (Norway’s Government Pension Fund An example at the forefront of this type is the main exception) and manage public of shift is the Government Employees Pension funds earned from natural resource exports Fund in South Africa, currently in the process or currency reserves. SWFs have increas- of modifying its investment practices following ingly searching for investment opportunities adoption of a new policy that mandates consid- in growing markets, and green infrastructure eration of social and environmental concerns as could be a natural asset class for them, pro- well as financial returns. Although the respon- viding stable returns if properly structured and sible Investment agenda in South Africa started regulated. Moreover, South-South investment out with very low awareness of the relevance is becoming an increasingly feature of SWF in- of “sustainable/ responsible investment” from vestment. SWF assets continue growing rapidly the pension fund side, it has picked up very fast and resource-rich developing countries are set- as the connection/impact that institutional cap- ting up their own SWFs to better manage the ital can have on climate change mitigation, un- revenues from their natural resource exports. employment and poverty has become clearer For instance, Nigeria recently set up a SWF to (see Box 7). Once the sustainable/ respon- manage its oil wealth, while Ghana is planning sible investment policies and practices are in to do so in the coming years. In addition, for place (i.e. the pension funds have bought into SWFs based in less developed countries there the concept of sustainability risks and oppor- is strong political pressure to dedicate some of tunities to their portfolios), it will be possible their financing to local projects, in particular in- to discuss investment in specific green prod- frastructure ones, given their potential to boost ucts/ investments that can deliver the desired economic growth, which could be greened. development impact. Another large source of assets under pri- Another advantage in emerging markets vate management are insurance companies. compared to other markets is that as the pen- Opportunities to attract investment in green sion fund industry is often at earlier stages of growth by insurers were discussed earlier in organization and governance, they are able to the case study on insurance. come together in a collaborative way, to de- velop industry-wide tools for implementation as in the case of South Africa. Arguably this leads to more efficiency, economies of scale 69 See Iglesias, A., Palacios, R., (2000), ‘Managing Public Pension Reserves Part I: Evidence from and much faster implementation, compared to International Experience’ and David Hess, D., other OECD countries where responsible in- Impavido.G., (2003) ‘Governance of Public vesting practices have developed over a much Pension Funds: Lessons from Corporate longer period of time, but in a non-coordinated Governance and International Evidence’. Financing Green Growth: How Do We Unlock Private Investment? 61 BOX 7:  THE RISK IN NOT GOING GREEN Strategies to overcome perceived greater risks and lower returns associated with investments in inclusive green growth are only part of the equation; there is increasing evidence that not focusing on the green dimension of investments has its own risks, which currently may be under appreciated by the financial community. Only a few years ago, the failure to properly quantify and communicate the risks of a widely traded commodity—mort- gage-backed securities—caused major damage to the US and ultimately the global economy. According to the IMF, total resulting losses now approach $4 trillion.a A significant share of the losses were incurred by pension funds and insurance companies typically viewed as among the more risk-averse and cautious segments of the investment community. One obvious source of risk from a failure to “go green” is losses due to extreme weather events. Although individually difficult to link to climate change, the number and severity of such events has risen dramatically in recent years with losses from weather-related events exceeding $1 trillion be- tween 1980 and 2011 in North America alone.b Losses from extreme weather events are increasingly a factor in corporate balance sheets as exemplified by the floods in Thailand in December 2011.c This single extreme weather incident, reduced the country’s GDP by several percent, eliminated tens of thou- sands of jobs, and disrupted global supply chains for manufacturing products from cars to computers.d The potential impact of expected changes in climate to investors was examined in a recent study by Mercer Associates.e This looks at the financial implications from alternative climate change scenarios on the relative financial performance of different asset categories (equities, bonds, real estate) as typically categorized by pension funds and other long-term asset managers.f The study concludes that climate policy could impose cumulative costs of as much as $8 trillion by 2030, a significant source of portfolio risk for institutional investors to manage over the next 20 years and as much as 10 percent of overall portfolio risk. While not included in the study, the physical impacts of climate change as reflected in the consequences of recent extreme weather events represent another source of economic risk. A follow up study published by Mercer in 2012 found that a third of participating sponsors had decided to reallocate assets based on the study with another half indicating they may do so in the future.g Another recent assessment by the Carbon Tracker Initiative and the Grantham Research Institute on the Environment and Climate Change evalu- ates the failure to properly value the risks of climate policy to companies with major fossil fuel reserves and finds a similar potential for massive financial fall-out. They conclude that “Between 60–80% of coal, oil and gas reserves of publicly listed companies are ‘unburnable’ if the world is to have a chance of not exceeding global warming of 2°C.”h Yet the same companies invested $674 billion last year to find and develop additional resources consistent with plans to commit more than $6 trillion to fossil fuel resource development in the decade ahead. The potential for negative environmental news to adversely impact stock values is well documented.i There is also evidence that greenhouse gas emissions are negatively correlated with the value of traded equities.j Yet to date pension funds and other large institutional investors have been surpris- ingly slow to appreciate and act upon this information. This may be starting to change. This year New York State became the first to include an explicit warning about the effects of climate change in its bond offerings.k The investor advisory group Ceres also recently organized a letter on behalf of 14 in- vestment groups representing $40 billion in assets asking that the National Federation of Municipal Analysts (NFMA) issue stronger disclosure require- ments for water and sewer utilities on risks including climate change impacts.l a http://www.imf.org/external/pubs/ft/weo/2009/01/pdf/exesum.pdf b Munich Re Press Release, Oct. 17, 2012, http://www.munichre.com/en/media_relations/press_releases/2012/2012_10_17_press_release.aspx c See examples summarized in Ceres, 2012. Physical Risks from Climate Change: A Guide for Companies and Investors on Disclosure and Management of Climate Impacts d World Bank Global Facility for Disaster Reduction and Recovery, 2012. Thai Flood 2011: Rapid Assessment for Resilient Recovery and Reconstruction Planning (http://www.gfdrr. org/sites/gfdrr.org/files/publication/Thai_Flood_2011_2.pdf) e Mercer, Climate Change Scenarios – Implications for Strategic Asset Allocation (2011). The report was sponsored by 12 pension funds, the UK Carbon Trust, and IFC. f “Strategic asset allocation (SAA) is a key component of the portfolio management process, with some research estimating that more than 90% of the variation in portfolio returns over time is attributable to SAA decisions. While standard approaches to SAA rely heavily on historical quantitative analysis, much of the investment risk around climate change requires the addition of qualitative, forward-looking inputs. Given the unclear climate policy environment and uncertainty around the full economic consequences of climate change, historic precedent is not an effective indicator of future performance.” Mercer, (2011). g Through the Looking Glass: How Investors Are Applying the Results of the Climate Change Scenarios Study. Both the original study and the followup a year later are available on-line at http://www.mercer.com/climatechange h Carbon Tracker Initiative, 2013. Unburnable carbon 2013: Wasted capital and stranded assets (http://www.carbontracker.org/wastedcapital). i Deloitte, Drivers of Long Term Business Value http://www.deloitte.com/us/driversoflongtermbusinessvalue j UC Davis Study Finds Greenhouse Gas Emissions Can Hurst Companies Stock Value (Jan. 24, 2011)(UC Davis Press Release, http://news.ucdavis.edu/search/news_detail.lasso?id=9741) k “New York State Sees Climate Change as Risk to Bond Holders,” Bloomberg, March 26, 2013 (http://www.bloomberg.com/news/2013-03-26/new-york-state-cites-climate- change-as-risk-to-bondinvestors. html) l http://www.ceres.org/files/water/nfma-letter (March 26, 2013) 62 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES BOX 8:  SOUTH AFRICA’S PENSION FUNDS INITIATIVE Recent studies of the retirement industry in South Africa show that this is an industry in full and rapid evolution. Comprising over $400 billion in assets under management, the industry aggregates the savings of millions of individuals, and must operate under strict standards of fiduciary responsibility. Increasingly, “responsible investing” is seen as not only compatible with, but indeed, required by, fiduciary duty. Responsible investing (RI) requires taking environmental, social and governance (ESG) considerations into account on all investments, in addi- tion to financial considerations. There is no universally accepted list of ESG factors that pension funds should consider; rather, such a list will vary across countries and companies depending on local conditions and national priorities. In South Africa, for example, ESG issues may include climate consider- ations and energy security and efficiency, but also corporate governance, contributions to development infrastructure and water security, to name a few. Retirement funds, by virtue of their asset base, are major investors with the potential to support sustainable economic development. The updated Regulation 28 of the Pension Funds Act 24/1956 in South Africa is considered groundbreaking at the international level in that it makes explicit the obligation to take ESG risks into account in pension fund investments. This represents a fundamental shift in investment philosophy: in order to honor their fiduciary responsibilities, pension fund trustees must consider ESG issues in addition to financial considerations. The Code for Responsible Investment in South Africa (CRISA), issued by the Committee on Responsible Investing by Institutional Investors in South Africa, aims to pro- vide the investor community with the guidance needed to integrate ESG issues into their investment decisions. The majority of pension funds are at an early stage in RI implementation, and the state of knowledge about ESG remains low. Recognizing this, an industry-led project, the Sustainable Returns for Pensions and Society Initiative, was formed to promote RI learning and guidance to pension funds as they embark on this journey. This guidance recognizes that the responsibility for RI sits with the trustees, and covers a range of issues to enable pension funds to devise appropriate investment strategies and disclosure policies. 11 63 Toward an Agenda for the DPIGI T he previous section highlighted the recommendations included here on the areas challenges and barriers being faced by of focus for the DPIGI. institutional investors to scale up (in- clusive) green growth-related investments. A number of initiatives have developed to Investor Views of Challenges seek to address investor issues in the con- text of knowledge sharing, influencing policy, It is important to acknowledge that there is and facilitating investment flows. To inform considerable diversity in the institutional in- the proper specification of the potential role vestor base, and accordingly, diversity in the of the DPIGI, avoid duplication, and ensure approach and quantum by which each issue is its maximum impact, it is important to as- dominant. For example, while larger investors sess the experience of existing initiatives and have the resources and innovation capability to understand what gaps remain. In support of engage in thought and investment leadership this, IFC commissioned Mercer to map the on issues such as reconsidering the definition current spectrum of initiatives70 and compare of fiduciary duty to include a broader custo- them with perspectives of existing barriers dianship element and/or integrating very long to, or drivers of, allocations to inclusive green term issues such as adaptation and forming the growth investments expressed by large insti- tutional investors. The Mercer report was based on inter- 70 The various investor initiatives related to green views with investors,71 alongside an inventory growth were mapped, capturing their objec- and assessment of the range of related investor tives, size, geographical focus and other factors. initiates that exist in the market. The purpose The analysis includes comments about each ini- of the interviews was to solicit input on how in- tiative’s progress against objectives, influence in the market with both policy makers and inves- vestors factor green growth and inclusive in- tors and future potential. vestment considerations into their investment 71 Mercer interviewed 9  of the 12  pension funds allocations, and their views on the critical suc- that participated in the Mercer Climate cess factors and obstacles to an increase in Change study in 2010/11 (Climate Change IGG investment. The report then compares the Scenarios – Implications for Strategic Asset barriers and key success factors identified by Allocation, Mercer, 2011), together with three other pension funds of similar characteristics. investors to the objectives and the extent to These are all very large public sector pension which these initiatives have progressed in pro- funds with across the 12  funds managing as- gressed in influencing these outcomes resulting sets exceeding $1  trillion, located in Australia, in a gap analysis that has helped to shape the Canada, Europe, the UK, and the U.S. 63 64 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES investment environment, their smaller peers including sustainability-themed, ESG- do not. Similarly, for the larger investors, given targeted, climate-sensitive, or climate-re- their scale of operations, smaller investments lated investments and green allocations. typically associated with BOP opportunities This is demonstrative of the lack of a can only fall within their investment programs if consistent understanding of the issues there is intermediate aggregation into sufficient in specifying and tracking opportunities scale. and challenges. An emerging trend is to The challenges emerging from the survey use some variation on “environmental, include: social and governance (ESG)” as a catch- all.  Within this category the emphasis is  Deviation from a strict financial interpre- often more focused on the governance tation of fiduciary duty is challenging for criteria by which the underlying invest- institutional investors, both on policy and ment addresses the green investment is- operational levels; a strong investment sues. Similarly, a range of terms are used case with appropriate risk/return is the to capture the “inclusive” element, in- primary driver of attracting investment. cluding social investments and impact in- If green investment opportunities with fa- vestments; these are also embedded in vorable risk-adjusted return potential ex- broader investment strategies. ist in developing and frontier markets, the  All of those surveyed indicated a willing- capital should follow, but such decisions ness to carry out more investment in the are typically not driven by social objec- sector but cited a lack of suitable prod- tives. Institutional investors do not put ucts and managers (e.g., lack of track re- material weight (if any) on the “inclusive” cord, lack of economic business case, or element of an opportunity when making liquidity constraints). A compelling risk-ad- investment decisions. justed return of any potential inclusive  While many investors (70  percent within green investment is critical. However, the survey group) have made allocations there is also a common belief that the and/or are increasing allocations to rel- marketplace will respond and fill this gap evant parts of their portfolios—including once a more compelling economic busi- emerging markets, infrastructure and so- ness case develops. For example, almost cial infrastructure, agribusiness and for- half of the funds have increased asset al- estry, and private equity in cleantech and locations to emerging markets, but this renewables—this is not specifically asso- is purely driven by growth opportunities ciated with inclusivity objectives or even (i.e., risk-adjusted returns), and not at all green objectives, but on the characteristic by an objective for inclusive investment financial performance of the assets. Few opportunities. of those interviewed (30  percent) allocate  There is an appreciation of the need at assets to the “bottom of the pyramid’ the senior management policy and stra- (i.e., assets that are targeted primarily as tegic level, driven both by growing under- “inclusive” assets), and even the alloca- standing of the potential impact on their tions that have been made are very small portfolio and pressure from lobbying and (<1  percent of the fund). investors, to have some policy in the IGG  There is a wide range of inconsistent ter- investment area. There is a common be- minology used both by investors and their lief in the ability of markets to identify initiatives to define green investments, the point at which the space becomes Toward an Agenda for the DPIGI 65 investable for institutional investors and capital and provide a conduit for asset flows; products to emerge that offer the re- Influencers—those that seek to influence others quired compelling economic case that in the finance system to behave in particular creates momentum. Investors acknowl- ways; Thinkers—those that provide thought edge that they have a proactive role to leadership and research; and Tools—those that play in encouraging the policy changes provide systems support via ratings systems, they need: “We can’t simply wait for the credit worthiness, and systems to measure government to implement ideal policies.” risk/return, and were rated by an assessment of their progress to date in having a transforma- tive effect: high, medium or fair. Identification and Progress of The bias of current initiatives is clearly to- Initiatives ward the Influencers and Thinkers, and the spread of progress achievement is quite signifi- Mercer assessed and mapped the impact of cant within these groups. 48  initiatives, including industry groups and in- vestment initiatives as they relate to green in- vestments, assessing the alignment and progress FIGURE 10:  Investor Initiatives mapping by Primary Role toward filling the gap between investor interest and Objectives and IGG investment needs on four criteria.72 1. Impact on investment process: The orga- nization has succeeded in influencing the valuation of investments to reflect the risk/cost associated with externalities, re- source scarcity, and other factors. 2. Impact on public policy: The organization has been able to achieve material chang- es in legislation/regulation or other pub- lic policy mechanisms that impact on the pricing/risk of green growth in investment terms. 3. Impact on direct investments: The organi- zation has become an actual conduit for the flow of funds to specifically address green growth. 4. Impact on industry mind-set: The orga- nization has shifted the mind-set in rela- tion to green growth, leading to concrete Source: Mercer, Internal Analysis Produced for IFC (2013). changes and action. Most initiative activities relate to green in- 72 Clearly, the analysis is affected by such factors vestments without specific reference to “inclu- as the relatively short period some initiatives sive.” The different initiatives were divided into have been in existence and allocation in each four categories based on their primary type of category has been done at high level rather than activity: Movers—those that directly allocate in full analytical detail. 66 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES Further analysis within the groups exam- initiatives report their engagement on the ined the extent of focus in each of the fol- basis of the value of their members’ assets lowing categories of concern identified by under management (“size” above), it is dif- investors. ficult to assess the level to which there is However, there was little uniformity strong engagement of the underlying inves- among the initiatives in their approach or tors rather than “membership,” particularly in their delivery. For example, although many the Influencers group. TABLE 7:  Investment Barriers and Opportunities Comments on Initiative Approaches to Barriers Investor Types Addressing Each Barrier 1. Lack of economic business case: Movers 6% Many of the investor initiatives in the sample are broadly focused on addressing this From a governance perspective, the funds must ensure that Influencers 29% barrier. However 44% of the total sample do not address it. In reality, few initia- pension capital is used effectively within a risk-adjusted tives directly provide solutions to offset risk and help to steer capital toward green framework. Thinkers 15% growth. Tools 6%  Currently, there is a perceived lack of investment-worthy  Increasingly, initiatives are focused on how to identify the potential invest- opportunities. 56% of initiatives try ment risk associated with climate change, resource scarcity, and carbon pricing.  Subsidies for renewable energy appear to be at risk of being However, this work has for the most part not been translated to implementation to address this barrier eliminated (as has occurred in Spain). by individual funds.  Recent technology innovations have caused a collapse in  More needs to be done by investor initiatives to identify the investment opportu- natural gas prices, hurting the profitability of alternative nity. One investor noted that he feels he has only seen “Part 1 of the business case.” energy and hindering green growth. “We are ok with the fact that private equity has a J-curve – you lose before you win,  Related research has focused on the risks associated with a but it is worth it. With climate change, we only see the ‘lose’ part of the equation. If lack of green growth, as opposed to the opportunities that you convince us that the curve will rise, we will be able to act accordingly.” it presents. 2. Policy uncertainty: A majority of initiatives seek to address policy uncertainty and see it is a key barrier to IGG investment. Most of these initiatives, however, lack sufficient clarity on stating  Policy uncertainty (risk) is deterring investors from green exactly what policy changes are required and or achieve policy change. investments.  Governments have not yet effectively tackled the climate This suggests a need for collaboration or focus among existing groups and not nec- change issue; thus, the chance of meaningful near term essarily the creation of new groups – or a new mechanism for determining baseline Movers 10% policy change appears slim. consensus on particular issues from an investor perspective to achieve successful  Policy risk is more relevant in developed countries because: lobbying efforts.  This is where the bulk of the pension fund assets are in- vested, and  The developed countries need to lead on any successful global framework. 3. Higher risk in developing countries: Movers 17% The barrier to investing in developing countries is not a primary focus for the in- Influencers 8% vestor initiatives in our sample. The Movers contribute most strongly to addressing  Geopolitical risk – Corruption, political uncertainty and this barrier in their work, especially where initiatives specifically focus on developing poor governance frameworks are barriers that are more Thinkers 2% markets. prevalent in developing countries. Unless these barriers are Tools 0% Most initiative activities relate to green investments without specific reference to de- adequately addressed (and related risk reduced), growth in veloping countries and ‘inclusive’ investments that target the poor. In our sample, IGG investment will be hindered, even if all other barriers to 27% of initiatives try there are no Tools based investor initiatives to focus on this barrier. green investments are addressed. to address this barrier  Process risk - Developing countries need improved invest- There are a number of potentially relevant initiatives outside our sample which war- ment processes; most of the investments are greenfield rant further consideration (such as the World Forum on Governance at the Brookings assets, and processes for procuring them are not up to de- Institute). veloped country standards. (continued on next page) Toward an Agenda for the DPIGI 67 TABLE 7:  Investment Barriers and Opportunities (continued) Comments on Initiative Approaches to Barriers Investor Types Addressing Each Barrier 4. Lack of track record: Movers 17% The track record barrier is considered mostly by investor initiatives working with Influencers 4% capital allocation in this sample. There are no Thinker initiatives focused on track The business case for green investments has not unfolded in record in our sample. Some attention has been directed to this practical issue by a favorable manner – track records are short and not compel- Thinkers 0% Tools-related initiatives. ling. As a result, investors have lost confidence. Until a more Tools 6% meaningful (and positive) track record is established, we will struggle to see meaningful investment allocations. And 27% of initiatives try without those allocations, the track record will be difficult to to address this barrier develop. 5. Liquidity: Movers 0% This is not a barrier that initiatives specifically address in our sample. Overall, it is Influencers 0% difficult for initiatives to change this barrier, as it will generally require regulatory Many funds are subject to liquidity constraints imposed by the change. However, the availability of listed versions of infrastructure type vehicles regulator. This is a material issue as green growth requires sig- Thinkers 0% could be helpful. nificant infrastructure investments which may tie up capital in Tools 0% excess of 10 years. The economic business case for the infra- structure investment may be sound, but liquidity constraints 0% may make it unfeasible. Gap – no initiatives ad- dress this barrier 6. Investment time horizons: Almost none of the initiatives in our sample are contributing to the debate on ad- dressing this barrier. It is a challenging issue to address and has multiple parts  While evaluations of financial performance of listed equity (“quarterly capitalism” on the hand, which contributes to short-term decision investments may be stated to be quarterly, in effect man- making by corporations; as well as the de-risking of corporate pension plans which agers / performance is now often monitored on a monthly reduces the availability of long-horizon capital). The DPIGI will need to consider Movers 0% or daily basis. these factors in how it is constructed.  A key trend for large corporate pension plans is to ‘de-risk’, which involves moving away from long-horizon, illiquid investments. This means a smaller amount of longer-term capital is available for IGG investment. Source: Mercer, Internal Analysis Produced for IFC (2013). Investor Suggestions pollution, water usage, carbon emissions), addressing political and regulatory uncer- Investors surveyed recognized their own po- tainty, strong governance, and corruption. tential role in the creation of the framework  Expand the universe of targeted risk man- within which IGG investment issues might be agement tools for innovation—e.g., first addressed as both Influencers and Movers, and loss guarantees. in actively seeking potential investments cur-  Expansion of the number of precedent rently available. They were willing to engage and model initiatives or carefully struc- in that role either directly or through their ad- tured entry opportunities to build confi- visers or industry initiatives, and offered these dence and experience in the investment suggestions to encourage investments in IGG in models. the developing country context: The primary gaps and needs suggested  Clear and effective government policy to by this work as potential areas of focus of the deal with undesirable externalities (e.g., air DPIGI are: 68 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES FIGURE 11:  Key Objectives to Enhance Investments in IGG Source: Mercer, Internal Analysis Produced for IFC (2013).  Coordination of the significant spectrum important respect in which the G20 has an in- of initiatives in the Influencing area, cre- herent comparative advantage and which does ating consistency, optimizing focus, and not appear to be effectively addressed today. disseminating best practices. Identifying That is in the creation of a forum that can bring areas for Thinkers to focus upon for together the mix of public and private finance greater effectiveness. and policy makers necessary to bring about in- creased investment in inclusive green growth. Supporting and expanding the Movers and While such efforts are sometimes happening Tools, which are assessed as having made sig- currently, the process is time consuming and ar- nificant progress relative to their objectives. duous and requires very dedicated champions. The Deutsche Bank (DB) experience promoting its GET FiT – Global Energy Transfer Feed-in Next Steps Toward the Design of the Tariffs Program is a good example. DPIGI DB publicly proposed GET FiT in January 2010  in response to a request from the UN Initiatives to define, track, and report finan- Secretary General Advisory Group on Energy cial flows for green growth-related goals have and Climate Change for new concepts to pro- grown steadily. While as shown in this report mote renewable energy in developing countries.73 gaps do exist—particularly for some sectors (adaptation to climate change) and low-income countries—existing organizations, multilateral 73 See Deutsche Bank, “GET FiT Program: Global processes, and international institutions would Energy Transfer Feed-In Tariffs for Developing appear to be adequate if not always sufficiently Countries” (April 2010) (https://www.deut- well supported. On the other hand, there is one sche-bank.de/cr/en/docs/GET_FiT_Plus.pdf). Toward an Agenda for the DPIGI 69 The key elements of the GET FiT proposal were studies discussed in the report—new tech- to create new international public-private part- nologies, new business models, and infor- nerships to mitigate investment risks for private mation provision—all have precedents in financiers interested in renewable energy; tech- developed countries but relevance for the nical assistance to support developing country developing world, and in particular, the policies supportive of RE investment; and ulti- least developed countries. mately to catalyze supply and demand for re-  Scaling up existing activity: While very in- newable energy projects in developing countries adequate, substantial green investment is through strategies that provide the greatest in- currently taking place within existing policy centive for the least cost to the funding part- frameworks and without special incentives. ners. To build support and enhance the quality This is the case for many development of the concept design, DB engaged with well bank activities focused on SMEs and BOP over 100  experts from around the world and needs, and investments in well-established several international and multilateral organiza- green technologies through private financ- tions including UNDP, UNEP, IADB, IETA, and ing. These activities provide a baseline for the University of California at Berkeley. These short-term opportunities to scale-up. diverse views were included in a GET FiT re-  Tapping the institutional investor com- port published in 2011. This extensive discussion munity: The DPIGI has the opportunity to process bore fruit this year with an agreement fundamentally change the investor mindset by the Government of Uganda, the World Bank, from the perception “green investment los- and the governments of the UK, Germany, and es money” to green investment is seen as Norway to implement a version consistent with the fundamental path to preserving long- the GET FiT approach; financial incentives are term economic growth. An objective of offered to Ugandan developers interested in in- the DPIGI could be to help identify, vali- stalling small (1 to 20 MW) hydropower, cogene- date, and communicate the risks of failing ration, and biomass power projects.74 to take into account climate change, food DB is to be commended for its commitment security, and other objectives of inclusive to the lengthy and resource intensive process re- green growth. Through a DPIGI, govern- quired to achieve initial implementation of the ments can call for policy and regulatory GET FiT concept—with little if any assurance of change; to increase investor support for a business reward for its efforts. The process re- industry initiatives; and to facilitate the ef- quired might be made more efficient and less time ficient deployment of capital for green in- consuming if a G20 initiative along the lines of the vestments. proposed Dialogue Platform were available to as  Shifting the metrics of financial returns a forum for public and private sources of finance to a broader concept of development interested in green growth related initiatives. dividends: As traditionally defined, finan- In addition, other issues for possible ex- cial returns omit many broader and lon- ploration by the DPIGI have been identified ger-term development considerations. An throughout the report, including in each case issue for the DPIGI to explore is how the study. Several areas of general relevance for two can be combined to the benefit of further exploration and discussion by the all, based on emerging initiatives such as DPIGI include: the one in South Africa.  Exploring initiatives most likely to ad- 74 (For more information about the Uganda pro- dress BOP and IGG issues: The case gram, see www.getfit-uganda.org). 70 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES References Allianz Global Investors, 2013. Returns in Low- 2009. The Energy Access Situation in yield times: Alternatives for returns in a Developing Countries low interest rate environment. Rai, K., and McDonald, J., 2009. Cookstoves CERES, 2013, Power Factor: Institutional and Markets: Experiences, Successes and Investors’ Policy Priorities Can Bring Opportunities (GVEP International). Energy Efficiency to Scale. IFC and Safe Water Network, 2013. “The Climate Policy Initiative (CPI), 2012. 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Shedding Light on Responsible WHO (World Health Organization) and UNDP Investment: Approaches, Returns and (United Nations Development Programme). Impacts. 70 References 71 Deutsche Bank Climate Change Advisors 2012. David Hess, D., and Impavido.G., 2003. Sustainable Investing – Establishing Long- Governance of Public Pension Funds: Term Value and Performance. Lessons from Corporate Governance and Della Croce, R., 2012, “Trends in Large Pension International Evidence. Fund Investment in Infrastructure”, OECD Mercer, 2011. Climate Change Scenarios: Working Papers on Finance, Insurance and Implications for Strategic Asset Allocation. Private Pensions, No.29. World Bank, 2011. Innovation in Disaster Risk G20/OECD, 2012. Policy Note on Pension Financing for Developing Countries: Public Fund Financing for Green Infrastructure and Private Contributions. and Initiatives World Economic Forum (WEF), 2012. Green Iglesias, A., and Palacios, R., 2000, Managing Investment Report: The Ways and Means Public Pension Reserves Part I: Evidence to Unlock Private Finance for Green from International Experience. Growth: A Report of the Green Growth Action Alliance. 72 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES Appendices Appendix I: Commissioned Research 4. Opportunities for innovative new technol- in Support of the IFC Project on IGG ogies to promote inclusive green growth: a case study of emerging low cost tech- 1. Creation of a searchable database to fa- nology for weather observation and early cilitate research on the extensive litera- warning systems ture identified related to investment in Author: Dr. John Snow, Emeritus inclusive green growth Professor, U. Oklahoma Author: Dr. Mark Trexler 5. Current forums for dialogue between 2. Lessons from 20  years of international sources of public finance and pension efforts to promote improved cookstoves, funds and other large institutional inves- with particular reference to opportunities tors: a review and assessment and limitations for finance Author: Mercer Associates Author: Koffi Ekouvi, World Bank 6. An analysis of the potential feasibility 3. Challenges and opportunities promoting and benefits of an index for private in- more climate resilient buildings: the inter- vestment to enhance climate resilience section between building practices, insur- with particular relevance to actions from ance, and climate change SMEs and small enterprises in develop- Author: Evan Mills, Lawrence Berkeley ing countries Laboratory Author: Deloitte Canada 72 Appendices 73 Appendix II: Outreach and  Climate Change Experts Group Meeting, Consultation Undertaken in Support Paris, March 19–20, 2013 of the Project  Asia Low Emission Development work- shop, ADB, Manila, April 3–4, 2013  Club de Madrid – Institutional Investors  Bloomberg New Energy Finance Summit, and green investment, December 16–17, New York, April 22–24 2012  Climate Resilience and Economic  Research Collaborative on tracking pri- Growth in Developing Countries: Expert vate finance, Paris, February 13 2013 Workshop, April 24, 2013  IFI Workshop on tracking private finance,  Workshop on the design of the GCF Paris, February 14–15, 2013 private sector facility hosted by the  Citi-IFC event: Real world solutions for Government of Switzerland, April 29, 2013 bridging the climate investment gap,  Global Green Growth Forum planning London, 4  March meeting, Copenhagen, May 2, 2013  Overseas Development Institute hosted  Ceres Conference – Institutional Investors workshop: Driving Private Investment in Igniting Innovation, Scaling Sustainability, Inclusive Green Growth, London, March San Francisco, May 1–2, 2013 6, 2013  Global Investors Coalition/AsRIA Meeting,  Climate Parliament Forum, Brussels, Hong Kong 13–14  June 2013, including March 8 2013 closed meeting with investors and poli-  Research Collaborative on tracking pri- cymakers vate finance, Paris, March 18 2013 74 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES Appendix III: List of Publications Reviewed for Annotated Bibliography # Author Title Year Link 1 Accenture, Barclays Carbon Capital. Financing the low 2010 http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture_Barclays_ carbon economy Carbon_Capital.pdf 2 AFD Partnering with banks to finance 2010 http://idbdocs.iadb.org/WSDocs/getDocument.aspx?DOCNUM=36786618 “green” growth 3 AFDB Facilitating Green Growth in Africa 2012 http://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic-Documents/ Facilitating%20Green%20Growth%20in%20Africa%20%20Perspectives%20 from%20the%20African%20Development%20Bank%20June%202012.pdf 4 Africa Partnership, UN Financial Resources and Investment 2009 http://www.africapartnershipforum.org/meetingdocuments/43551000.pdf for Climate Change 5 BNEF Global Trends in Renewable Energy 2012 http://fs-unep-centre.org/sites/default/files/publications/globaltrendsreport- Investment 2012final.pdf 6 BNEF Crossing the Valley of Death 2010 http://www.newenergyfinance.com/WhitePapers/download/29 7 BNEF Towards a green climate finance 2011 www.newenergyfinance.com/WhitePapers/download/46 framework 8 BNEF, UNEP SEFI and Clean Weathering the Storm: Public Funding 2010 http://www.newenergyfinance.com/WhitePapers/download/31 Energy Group for low-carbon energy in the post-fi- nancial crisis era 9 Brandon Smithwood, CERES and Power Factor: Institutional Investors’ 2013 ceres.org/resources/reports/power-factor-institutional-investors2019-policy-prior- Ryan Hodum, David Gardiner & Policy Priorities Can Bring Energy ities-can-bring-energy-efficiency-to-scale/view Associates Efficiency to Scale 10 CDC Climat Financing the transition to a green 2012 http://www.cdcclimat.com/IMG//pdf/12-05_climate_brief_14_-_financing_ economy: their word is their (green) the_transition_to_a_green_economy-_their_word_is_their_green_bond.pdf bond? 11 CDC Climat Financing the Transition to a Green 2012 http://www.cdcclimat.com/IMG//pdf/12-05_climate_brief_14_-_financing_ Economy: Their Word is their (green) the_transition_to_a_green_economy-_their_word_is_their_green_bond.pdf Bond? 12 CDC Climat Assessing the Financial Efficiency of 2012 http://www.cdcclimat.com/IMG/pdf/12-09-10_climate_brief_no19_-_ the Green Climate Fund: Leverage leverage.pdf Ratios – From Theory to Practice 13 CDC Climat Accessing the financial efficiency of 2012 http://www.cdcclimat.com/IMG/pdf/12-09-10_climate_brief_no19_-_ the Green Climate Fund: leverage ra- leverage.pdf tios from theory to practice 14 CDC Climat research Operating and financial investments 2011 http://www.rumoursandfacts.com/wp-content/uploads/2011/01/11-01_cdc_cli- by European utilities over 2004-2009: mat_r_wp11-9_investments_by_eu_utilities_over_2004-09_eu_mitigation_ what role for European mitigation policies_herve-mignucci.pdf policies? 15 CDC Climat Research The role of sub-national authorities 2011 http://www.cdcclimat.com/IMG//pdf/11-11-02_climate_report_30_-_the_ in public support for renewable ener- role_of_regional_authorities_in_public_support_for_re.pdf gies. Examples in Europe and France 16 CDKN Inside stories on climate compatible 2012 http://www.dfid.gov.uk/r4d/PDF/Outputs/CDKN/Barbados-InsideStory_WEB.pdf development: Seizing the sunshine: Barbados’ thriving solar water heater industry (continued on next page) Appendices 75 (continued) # Author Title Year Link 17 CDKN Private conservation agreements sup- 2012 http://redd-net.org/resource-library/ port climate action: Ecuador’s Socio CDKN+Inside+Story%3A+Ecuador%E2%80%99s+Socio+Bosque+Programme Bosque programme 18 Center for American Progress Leveraging private finance for clean 2010 http://www.americanprogress.org/issues/2010/11/pdf/gcn_memo.pdf energy: A summary of proposed tools for leveraging private sector invest- ment in developing countries 19 Centre for Climate Change, Who will win the green race? In 2012 http://www2.lse.ac.uk/GranthamInstitute/publications/WorkingPapers/ Economics and Policy search of environmental competitive- Papers/90-99/WP94-green-race-environmental-competitiveness-and- ness and innovation innovation.pdf 20 Ceres, UN Foundation, UN Office 2012 Investor Summit on Climate Risk 2012 http://www.ceres.org/resources/ for Partnerships & Energy Solutions - Final Report reports/2012-investor-summit-on-climate-risk-energy-solutions-final-report/view 21 Ceres; Investor Network on Institutional Investors’ Expectations of 2012 http://www.ceres.org/resources/reports/ Climate Change; Institutional Corporate Climate Risk Management institutional-investors-expectations-of-corporate-climate-risk-management/view Investors Group on Climate Change; Investor Network on Climate Risk 22 Chatham House, Kirsty Hamilton Unlocking Finance for Clean Energy 2009 http://www.chathamhouse.org/sites/default/files/public/Research/Energy,%20 – The Need for ‘Investment Environment%20and%20Development/1209pp_hamilton.pdf Grade’ Policy 23 CINCS REDD+: Current inhibitors and po- 2012 http://www.cincs.com/media/upload/cincspublication/Forestracker_In_Focus_ tential solutions to securing private REDD_finance_FINAL.pdf investment 24 Clean Edge Clean Energy Trends 2012 http://www.cleanedge.com/sites/default/files/CETrends2012_Final_Web.pdf 25 Climate Strategies How to enable the private sector to 2011 http://www.climatestrategies.org/component/reports/category/71/325.html mitigate? 26 Climate Strategies Game-changer of complement? The 2011 http://www.climatestrategies.org/component/reports/category/71/332.html potential of public instruments for covering risks and facilitating low- carbon investments in developing countries 27 Climate Strategies Accounting of Private Climate Finance, 2011 http://www.climatestrategies.org/component/reports/category/71/331.html Types of Finance, Data Gaps and the 100 Billion Dollar Question 28 Climate Strategies Low Carbon Technology for the Rising 2013 http://climatestrategies.org/research/our-reports/category/47/373.html Middle Class 29 Climate Strategies Innovation for Climate-Compatible 2013 http://climatestrategies.org/research/our-reports/category/47/372.html Development for the ‘Bottom of the Pyramid’ 30 Climate Strategies Mobilizing private finance for low- 2011 http://www.climatestrategies.org/research/our-reports/category/71/334.html carbon development 31 Climate Strategies’ Financing Energy Efficiency Buildings 2010 http://www.climatestrategy.es/index.php?id=19 Retrofits (continued on next page) 76 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES (continued) # Author Title Year Link 32 CPI Landscape of Climate Finance 2012 2012 http://climatepolicyinitiative.org/publication/ global-landscape-of-climate-finance-2012/ 33 CPI Effective Green Financing: What have 2012 http://climatepolicyinitiative.org/wp-content/uploads/2012/12/Effective-Green- we learned so far? Financing-What-have-we-learned-so-far.pdf 34 CPI Meeting India’s Renewable Energy 2012 http://climatepolicyinitiative.org/publication/ Targets: The Financing Challenge meeting-indias-renewable-energy-targets-the-financing-challenge/ 35 CPI Public Climate Finance: A Survey of 2012 http://climatepolicyinitiative.org/wp-content/uploads/2012/07/Public-Climate- Systems to Monitor and Evaluate Finance-Survey.pdf Climate Finance Effectiveness 36 CPI Risk Gaps: A Map of Risk Mitigation 2013 http://climatepolicyinitiative.org/wp-content/uploads/2013/01/Risk-Gaps-A- Instruments for Clean Investments Map-of-Risk-Mitigation-Instruments-for-Clean-Investments.pdf 37 CPI San Giorgio Group Case Study: Walney 2012 http://climatepolicyinitiative.org/wp-content/uploads/2012/06/Walney-Offshore- Offshore Windfarms Windfarms.pdf 38 CPI San Giorgio Group Case Study: 2012 http://climatepolicyinitiative.org/wp-content/uploads/2012/06/Ouarzazate.pdf Ouarzazate I CSP 39 CPI San Giorgio Group Case Study: Prosol 2012 http://climatepolicyinitiative.org/wp-content/uploads/2012/06/Prosol-Tunisia- Tunisia SGG-Case-Study.pdf 40 CPI The Landscape of Climate Finance 2011 http://climatepolicyinitiative.org/wp-content/uploads/ 2011/10/The-Landscape-of-Climate-Finance-120120.pdf 41 CPI, 3GF Concept note for financing stream at 2012 http://www.globalgreengrowthforum.com/wp-content/uploads/2012/06/ 3GF 2012 Financing-Concept-Note.pdf 42 Deloitte Financing the Future Designing public 2012 http://www.deloitte.com/view/en_GX/global/c7d4b5338d9e7310VgnVCM- funds to mobilize private investment 1000001956f00aRCRD.htm#.UVCIulsughM in sustainable development 43 Deloitte Alternative Thinking 2011: A look at 2012 https://www.deloitte.com/assets/Dcom-Ireland/Local%20Assets/Documents/ 10 of the Top issues and Trends in Energy/ie_ER_AlternativeThinking2010_Sep2010%20.pdf Renewable Energy 44 Deutsche Bank Investing in Climate Change 2011: The 2011 http://www.dbcca.com/dbcca/EN/_media/Inv_in_CC_2011_Final.pdf Mega-Trend Continues - Exploring Risk & Return 45 DNV Climate Change Adaptation Finance 2012 No link available. Proposal: Weather-linked Climate Adaptation Securities: Who, why, what and how? 46 DNV KEMA Private Investment, Market 2012 http://www.ganadapt.org/cgi-sys/suspendedpage.cgi Mechanisms and Climate Change Adaptation: Options for Closing the Adaptation Financing Gap 47 Duncan Rithchie, Proparco’s Barriers to Private Sector Investment 2010 http://www.proparco.fr/webdav/site/proparco/shared/ELEMENTS_COMMUNS/ Magazine in the Clean Energy Sector of PROPARCO/Revue%20SPD%20vraie/PDF/SPD6/SPD6_Duncan_Ritchie_uk.pdf Developing Countries 48 E. Engel, R. Fischer and A. The Economics of Infrastructure 2009 http://www.eib.org/attachments/efs/eibpapers/ Galetovic Finance: Public-Private Partnerships eibpapers_2010_v15_n01_en.pdf#page=42 versus Public Provision 49 EBRD Sustainability Report 2010: Climate 2010 http://www.ebrd.com/downloads/research/sustain/sr10ed.pdf change and Sustainable Energy (continued on next page) Appendices 77 (continued) # Author Title Year Link 50 ECN, IIT Delhi Climate Technology & Development 2013 No link available. Case study: Advanced cook stoves to meet climate and development challenges 51 ECN, SPRU, University of Sussex Climate Technology & Development 2013 No link available. Case study: Compact Fluorescent Lamps (CFLs) 52 Ecofys Mapping of Green Finance Delivered 2012 http://www.idfc.org/Downloads/IDFC_green_finance_mapping_re- by IDFC Members in 2011 port__2012_06_14.pdf 53 EDC 2020 Climate Finance in Indonesia: Lessons 2011 http://www.edc2020.eu/fileadmin/publications/EDC_2020_-_Working_Paper_ for the Future of Public Finance for No_11_-_Climate_Finance_in_Indonesia.pdf Climate Change Mitigation 54 EIB Public and private financing of infra- 2010 www.eib.org/attachments/.../eibpapers_2010_v15_n02_en.pdf structure. Policy challenges in mobi- lizing finance 55 Ernst & Young CAI Renewable energy country attractive- 2012 http://www.ey.com/Publication/vwLUAssets/Renewable_energy_country_at- ness indices tractiveness_indices_February_2013/$FILE/Renewable_energy_country_at- tractiveness_indices.pdf 56 EURODAD Cashing in on climate change? 2012 http://eurodad.org/wp-content/uploads/2012/04/CF_report_web.pdf 57 Frankfurt School - UNEP National Climate Finance Institutions 2012 http://www.fs-unep-centre.org/ Collaborating Centre for Climate (NCFIs) & Sustainable Energy Finance 58 Frankfurt School - UNEP Case study: The Thai energy efficiency 2012 http://fs-unep-centre.org/sites/default/files/publications/fs-unepthaieerf- Collaborating Centre for Climate revolving fund final2012_0.pdf & Sustainable Energy Finance 59 Frankfurt School - UNEP Case Study: The Indonesia Climate 2012 http://www.fs-unep-centre.org/ Collaborating Centre for Climate Change Trust Fund & Sustainable Energy Finance 60 GEF, UNEP Risø Centre Accessing International Financing for 2012 http://orbit.dtu.dk/fedora/objects/orbit:114330/datastreams/file_10542038/ Climate Change Mitigation content 61 GGGI The role of public private cooperation 2011 http://www.globalgreengrowthforum.com/fileadmin/user_upload/3GF_2011_ in enabling green growth Report_01.pdf 62 GIZ Smart Climate Finance. Designing 2011 https://www.allianz.com/media/responsibility/docuarments/giz2011-0233en- public finance strategies to boost smt-climate-finance.pdf private investment in developing countries 63 GIZ Ready for Climate Finance: GIZ’s 2013 http://www.giz.de/Themen/en/dokumente/giz2013-en-climate-finance-ap- Approach to Making Climate Finance proach.pdf Work 64 Global Green Growth Institute The Role of Public-Private Cooperation 2013 http://gggi.org/ in Enabling Green Growth (?) the-role-of-public-private-cooperation-in-enabling-green-growth/ 65 Global Green Growth Institute Infrastructure for Development: 2013 http://gggi.org/infrastructure-for-development-meeting-the-challenge/ Meeting the Challenge 66 Global Investing in Clean Energy 2010 http://www.globalclimatenetwork.info/ecomm/files/Investing%20in%20 Climate Clean%20Energy%20Nov2010.pdf Network (continued on next page) 78 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES (continued) # Author Title Year Link 67 Grantham Institute A strategy for restoring confidence 2012 http://www2.lse.ac.uk/GranthamInstitute/publications/Policy/docs/PB-Zenghelis- and economic growth through green economic-growth-green-investment-innovation.pdf investment and innovation 68 Green economy coalition (GEC) Surveying the ‘green economy’ and 2012 http://gec.dev.iiedlist.org/sites/greeneconomycoalition.org/files/Background%20 ‘green growth’ landscapes? paper%20%28LIVE%20DRAFT%20FOR%20COMMENT%29_0.pdf 69 Green Growth Action Alliance The Green Investment Report: The 2013 http://www3.weforum.org/docs/WEF_GreenInvestment_Report_2013.pdf Ways and Means to Unlock Private Finance for Green Growth 70 Green Investment Bank Unlocking Investment to Deliver 2010 http://www.bobwigley.co.uk/wp-content/uploads/2010/02/Unlocking- Commission Britain’s Low-Carbon Future investment-to-deliver-Britains-low-carbon-future-Green-Investment-Bank- Commission-Report-final-June-2010.pdf 71 H. Reichelt Green Bonds: A Model to Mobilize 2010 http://treasury.worldbank.org/web/Euromoney_2010_Handbook_ Private Capital to Fund Climate Environmental_Finance.pdf Change Mitigation and Adaptation Projects 72 HSBC Climate Change – September 2012 2012 No link available. Will be sent via email. annual index review: Unveiling Agriculture, Forestry and Carbon Capture & Storage themes. 73 HSBC Sizing the climate economy 2010 http://www.research.hsbc.com/midas/Res/ RDV?ao=20&key=wU4BbdyRmz&n=276049.PDF 74 IEA World Energy Outlook 2011 2011 http://www.worldenergyoutlook.org/docs/weo2011/executive_summary.pdf 75 IEA, OECD Global Gaps in Energy RD&D: 2010 http://www.iea.org/publications/freepublications/publication/global_gaps.pdf Update and Recommendations for International Collaboration 76 IEG, the World Bank, IFC and Adapting to Climate Change: 2013 http://ieg.worldbankgroup.org/content/dam/ieg/climate_change3/cc3_full_ MIGA Assessing the World Bank Group eval.pdf Experience Phase III 77 IFC From Gap to Opportunity: Business 2012 http://www.scribd.com/doc/94692230/ Models for Scaling Up Energy Access From-Gap-to-Opportunity-Business-Models-for-Scaling-Up-Energy-Access 78 IFC Climate Finance: Engaging the Private 2011 http://climatechange.worldbank.org/content/mobilizing-climate-finance Sector 79 IFC Public Private Equity Partnerships: ac- 2011 http://www1.ifc.org/wps/wcm/connect/topics_ext_con- celerating the growth of climate re- tent/ifc_external_corporate_site/ifc+sustainability/publications/ lated private equity investment publications_report_publicprivateequity 80 IFC/World Bank Doing Business 2011: Making a 2012 http://www.doingbusiness.org/reports/global-reports/doing-business-2012 Difference for Entrepreneurs 81 IIGCC Global Investor Statement on Climate 2010 http://www.unepfi.org/fileadmin/documents/InvestorStatement_ Change: Reducing Risks, Seizing ClimateChange.pdf Opportunities, and Closing the Climate Investment Gap 82 IIGCC Shifting Private Capital to Low Carbon 2010 http://www.iigcc.org/__data/assets/pdf_file/0016/12247/IIGCC-Position-Paper- Investment, An IIGCC position paper on-EU-Climate-and-Energy-Policy.pdf on EU climate and energy policy 83 Imperial College, University of Country Case Study Vietnam. 2011 http://www.climatestrategies.org/component/reports/category/71/322.html Zurich Removing barriers for climate change mitigation (continued on next page) Appendices 79 (continued) # Author Title Year Link 84 International Institute for Investing for sustainable 2011 http://pubs.iied.org/pdfs/16505IIED.pdf Environment and Development development? 85 Joel Makower, GreenBiz Group State of Green Business 2013 http://info.greenbiz.com/state-green-business-2013-get-report. html?src=GreenBiz 86 LSE, Grantham Institute Meeting the Climate Challenge: Using 2009 http://www2.lse.ac.uk/GranthamInstitute/publications/Other/Leveragedfunds/ Public Funds to Leverage Private Meeting%20the%20Climate%20Challenge.aspx Investment in Developing Countries 87 Luis M. Abadie An analysis of the causes of the mit- 2012 http://link.springer.com/article/10.1007%2Fs11027-012-9401-7#page-1 igation bias in international climate finance 88 McKinsey & Co Resource Revolution: Meeting the 2010 http://www.mckinsey.com/Features/Resource_revolution world’s energy, materials, food, and water needs 89 Mercer with IFC, Carbon Trust Climate change scenarios: implica- 2011 http://www1.ifc.org/wps/wcm/connect/topics_ext_con- and 14 Asset Owners tions for strategic asset allocations tent/ifc_external_corporate_site/ifc+sustainability/publications/ publications_report_climatechangesurvey__wci__1319579483875 90 Norwegian Agency for Leveraging Private Investment to 2010 http://www.norad.no/en/tools-and-publications/publications/ Development Cooperation Clean Energy Projects: A Guidance publication?key=197936 (NORAD) Note for Norwegian Development Assistance 91 ODI Background Note: The United States’ 2012 http://www.odi.org.uk/publications/6759-united-states-private-climate-fi- private climate finance support: nance-support-mobilising-private-sector-engagement-climate-compatible-de- mobilizing private sector engagement velopment in climate compatible development 92 ODI Background Note: The UK’s private 2012 http://www.odi.org.uk/publications/6760-uks-private-climate-finance-sup- climate finance support: mobilizing port-mobilising-private-sector-engagement-climate-compatible-development private sector engagement in climate compatible development 93 ODI Coding and tracking adaptation fi- 2012 http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opin- nance: lessons and opportunities for ion-files/7821.pdf monitoring adaptation finance across international and national scales 94 ODI Mitigation Finance 2012 http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opin- ion-files/7823.pdf 95 ODI Designing public sector interventions 2012 http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opin- to mobilise private participation in ion-files/7660.pdf low carbon development: 20 ques- tions toolkit 96 ODI Unlocking business dynamism to 2013 http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opin- promote green (sustainable and in- ion-files/8185.pdf clusive) growth: learning from inno- vation in emerging economies 97 ODI Leveraging private investment: the 2011 http://www.odi.org.uk/resources/docs/7082.pdf role of public sector climate finance 98 ODI, CPI, EDF, Brookings Improving the Effectiveness of Climate 2011 http://climatepolicyinitiative.org/wp-content/uploads/2011/11/Effectiveness-of- Finance: A Survey of Leveraging Climate-Finance-Methodology.pdf Methodologies (continued on next page) 80 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES (continued) # Author Title Year Link 99 OECD G20/OECD Policy Note on 2012 http://www.oecd.org/finance/private-pensions/S3%20G20%20OECD%20 Pension Fund Financing for Green Pension%20funds%20for%20green%20infrastructure%20-%20June%20 Infrastructure and Initiatives 2012.pdf 100 OECD Greening Household Behavior: The 2011 http://center.sustainability.duke.edu/sites/default/files/documents/publicpolicy- role of Public Policy forsustainability.pdf 101 OECD The Role Of Institutional Investors In 2012 http://www.oecd.org/environment/WP_23_ Financing Clean Energy TheRoleOfInstitutionalInvestorsInFinancingCleanEnergy.pdf 102 OECD Putting Green Growth at the Heart of 2013 http://dx.doi.org/10.1787/9789264181144-7-en Development 103 OECD The Role of Pension Funds in financing 2011 http://www.oecd-ilibrary.org/finance-and-investment/the-role-of-pen- Green Growth Initiatives sion-funds-in-financing-green-growth-initiatives_5kg58j1lwdjd-en 104 OECD Private Sector Engagement in 2011 http://www.oecd-ilibrary.org/environment/private-sector-engagement-in-ad- Adaptation to Climate Change: aptation-to-climate-change-approaches-to-managing-climate-risks_5kg221jk- Approaches to Managing Climate f1g7-en Risks 105 OECD Sources of Finance, Investment 2011 http://www.oecd-ilibrary.org/environment/sources-of-finance-investment Policies and Plant Entry in the -policies-and-plant-entry-in-the-renewable-energy-sector_5kg7068011hb-en Renewable Energy Sector 106 OECD Towards a Green Investment Policy 2012 http://www.oecd.org/dataoecd/53/42/49184842.pdf Framework: the Case of Low-Carbon, Climate-Resilient Infrastructure 107 OECD 50 Towards Green Growth 2011 http://www.oecd.org/greengrowth/48012345.pdf 108 Parhelion and Standard & Poor’s Can Capital Markets Bridge the 2010 http://www.parhelion.co.uk/pdf/Parhelion_Climate_Financing_Risk_Mapping_ Climate Change Financing Gap? Report_2010.pdf 109 Pew Charitable Trusts and BNEF Who’s winning the clean energy race? 2011 http://www.pewenvironment.org/uploadedFiles/PEG/Publications/Report/G- G-20 investment powering forward 20Report-LOWRes-FINAL.pdf 110 REN 21 Renewables 2011 GLOBAL STATUS 2011 http://www.ren21.net/Portals/97/documents/GSR/REN21_GSR2011.pdf REPORT 111 REN21 – Renewable Energy Renewables. Global Futures Report 2013 http://ren21.net/Portals/0/REN21_GFR_2013.pdf Policy Network for the 21st Century 112 RiskMetrics Group & Ceres Addressing Climate Risk: Financial 2009 : http://www.deginvest.de/deg/EN_Home/I/Download_Center/PDFs_Online- Institutions In Emerging Markets - A Library/AddressingClimateRisk.pdf Best Practices Report 113 Ruhr- Universität Bochum (RUB) Economic Impacts from the 2009 http://repec.rwi-essen.de/files/REP_09_156.pdf Promotion of Renewable Energy Technologies 114 SEI Will Private Finance Support Climate 2011 http://www.sei-international.org/mediamanager/documents/ Change Adaptation in Developing Publications/SEI-WorkingPaper-Atteridge-WillPrivateFinance Countries? SupportClimateChangeAdaptationInDevelopingCountries-2011.pdf 115 SinCo on behalf of The Principal Defining Momentum: A review of the 2013 No link available Officers Association of South retirement fund investment value Africa chain and state of responsible in- vesting in South Africa (continued on next page) Appendices 81 (continued) # Author Title Year Link 116 Standard & Poor’s How Europe’s Initiative to Stimulate 2011 http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT- Infrastructure Project Bond Financing Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inli Could Affect Ratings ne%3B+filename%3DFAQHowEuropesInitiativeToStimulateInfrastructure. pdf&blobheadername2=Content-Disposition&blobheadervalue1=ap- plication%2Fpdf&blobkey=id&blobheadername1=content-type&blob- where=1243906442331&blobheadervalue3=UTF-8 117 The Climate Group Shaping China’s Climate Finance 2013 http://www.theclimategroup.org/_assets/files/Shaping-Chinas-Climate-Finance- Policy Policy.pdf 118 The Deutsche Gesellschaft für It’s not just the money: institutional 2012 http://www.giz.de/Themen/de/dokumente/giz2012-en-climate-funds-institu- Internationale Zusammenarbeit strengthening of national climate tional-strengthening.pdf (GIZ) funds. Lessons learned from GIZ’s work on the ground. 119 The Equator Principles The ‘Equator Principles’: A financial 2009 http://www.equator-principles.com/resources/equator_principles.pdf industry benchmark for determining, assessing and managing social and environmental risk in project financing 120 The Journal of Environment and Green Credit, Green Stimulus, Green 2009 http://www.indiaenvironmentportal.org.in/files/Green%20Credit%20Green%20 Development Revolution? China’s Mobilization of Stimulus%20Green%20Revolution.pdf Banks for Environmental Cleanup 121 The Monitor Group From Blue Print to Scale : The case of 2012 http://www.mim.monitor.com/downloads/Blueprint_To_Scale/From%20 Philanthropy in Impact Investing Blueprint%20to%20Scale%20-%20Case%20for%20Philanthropy%20in%20 Impact%20Investing_Full%20report.pdf 122 The Nature Conservancy Climate Finance Readiness Lessons 2012 http://change.nature.org/wp-content/uploads/TNC-Climate-Finance- Learned in Developing Countries Readiness.pdf 123 The Oxford Institute for Energy Oxford Energy and Environment Brief 2012 http://www.oxfordclimatepolicy.org/publications/documents/ Studies OIESBriefPlanCfinal.pdf 124 The Principal Officers Association Responsible Investment and 2013 No link available of South Africa, in collaboration Ownership : A Guide for Pension with the International Finance Funds in South Africa Corporation 125 The World Bank Accessing the investment climate for 2012 http://elibrary.worldbank.org/content/workingpaper/10.1596/1813-9450-6211 climate investments. A comparative clean energy framework for South Asia in a global context. 126 The World Bank Design and Performance of Policy 2011 http://siteresources.worldbank.org/EXTENERGY2/Resources/DiscPaper22.pdf Instruments to Promote the Development of Renewable Energy: Emerging Experience in Selected Developing Countries 127 The World Bank INCLUSIVE GREEN GROWTH in Latin 2012 http://siteresources.worldbank.org/INTLAC/Resources/green_growth_full.pdf America and the Caribbean 128 The World Bank Group Beyond the Sum of Its Parts: 2010 http://siteresources.worldbank.org/ENVIRONMENT/Resources/DevCC2_ Combining Financial Instruments to Blending.pdf Support Low-Carbon Development 129 The World Bank, Climate Financing Renewable Energy – 2012 https://www.climateinvestmentfunds.org/cif/sites/climateinvestmentfunds.org/ Investment Funds Options for Developing Financing files/SREP_financing_instruments_sk_clean2_FINAL_FOR_PRINTING.pdf Instruments Using Public Funds (continued on next page) 82 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES (continued) # Author Title Year Link 130 UN Global Compact, UN Adapting for a Green Economy 2011 http://www.unglobalcompact.org/docs/issues_doc/Environment/climate/C4C_ Environment Programme, Report_Adapting_for_Green_Economy.pdf Oxfam and the World Resources Institute 131 UNDP Catalysing Climate Finance 2011 http://www.undp.org/content/undp/en/home/librarypage/environ- ment-energy/low_emission_climateresilientdevelopment/in_focus/ catalyzing-climate-finance/ 132 UNDP Readiness for Climate Finance 2012 http://www.undp.org/content/dam/undp/library/Environment and Energy/ Climate Strategies/Readiness for Climate Finance_12April2012.pdf 133 UNDP De-risking Renewable Energy 2013 http://www.undp.org/content/undp/en/home/librarypage/en- Investment. A Framework to Support vironment-energy/low_emission_climateresilientdevelopment/ Policymakers in Selecting Public derisking-renewable-energy-investment/ Instruments to Promote Renewable Energy Investment in Developing Countries 134 UNDP/World Bank Climate Finance Options Platform (Web http://www.climatefinanceoptions.org/cfo/ Portal) 135 UNEP Bilateral Finance Institutions and 2012 http://www.afd.fr/webdav/site/afd/shared/PORTAILS/SECTEURS/CLIMAT/pd- Climate Change f/2012-Mapping-report.pdf 136 UNEP NAMA Finance Study. Examples from 2012 http://www.unep-fin.org/article/publications/3-unep-bfi-ccwg/35-nama-fi- the UNEP Bilateral Finance Institutions nance-study-examples-from-the-unep-bilateral-finance-institutions-cli- Climate Change Working Group mate-change-working-group.html 137 UNEP Finance - Supporting the transition to 2011 http://www.unep.org/greeneconomy/Portals/88/documents/ger/GER_15_ a global green economy Finance.pdf 138 UNEP Green Economy. Developing Countries 2010 http://www.unep.org/pdf/greeneconomy_successstories.pdf Success Stories 139 UNEP Bilateral Finance Institutions and 2011 http://www.unep.org/pdf/dtie/BilateralFinanceInstitutionsCC.pdf Climate Change: A Mapping of 2009 Climate Financial Flows to Developing Countries 140 UNEP Towards a Green Economy 2011 http://www.unep.org/greeneconomy/Portals/88/documents/ger/ GER_synthesis_en.pdf 141 UNEP Finance Initiative Universal Ownership—Why 2010 http://www.unepfi.org/fileadmin/documents/universal_ownership_full.pdf Environmental Externalities Matter to Institutional Investors 142 UNEP SEFI Public Finance Mechanisms to 2006 http://www.sefalliance.org/fileadmin/media/base/downloads/pfm_EE.pdf Increase Investment in Energy Efficiency 143 UNEP Sustainable Energy Publicly Backed Guarantees as Policy 2013 http://www.sefalliance.org/fileadmin/media/sefalliance/docs/specialised_re- Efficiency (SEF) Alliance Instruments to Promote Clean Energy search/guarantees_web.pdf Publications 144 UNEP, UNCTAD, UN-OHRLLS Why a Green Economy Matters for the 2011 http://www.unep.org/greeneconomy/Portals/88/documents/research_products/ Least Developed Countries Why%20a%20GE%20Matters%20for%20LDCs-final.pdf 145 UNEP-FI Investment-grade climate change 2011 http://www.unepfi.org/fileadmin/documents/Investment- policy: financing the transition to the GradeClimateChangePolicy.pdf low-carbon economy (continued on next page) Appendices 83 (continued) # Author Title Year Link 146 UNEP-FI Catalyzing low-carbon growth in de- 2009 http://www.unepfi.org/fileadmin/documents/catalysing_lowcarbon_growth.pdf veloping economies: public finance mechanisms to scale up private sector investment in climate solutions 147 UNEP-FI Financing renewable energy in devel- 2012 http://www.unepfi.org/fileadmin/documents/Financing_Renewable_Energy_ oping countries: drivers and barriers in_subSaharan_Africa_01.pdf for private finance in sub-Saharan Africa 148 UNEP-FI REDDy Set Grow: Private sector sug- 2011 http://www.unepfi.org/fileadmin/documents/reddysetgrowII.pdf gestions for international climate change negotiators Part 2 149 UNEP-FI REDDy Set Grow: Briefing for financial 2011 http://www.unepfi.org/fileadmin/documents/reddysetgrow.pdf institutions Part 1: A briefing for fi- nancial institutions, Opportunities and roles for financial institutions in forest carbon markets 150 UNFCCC Investment and Financial Flows to 2008 http://unfccc.int/resource/docs/2008/tp/07.pdf Address Climate Change 151 UNFCCC Innovative options for financing 2007 http://unfccc.int/resource/docs/publications/innovation_eng.pdf the development and transfer of technologies 152 US EPA, JOSRE Removing Market Barriers to Green 2009 http://www.costar.com/josre/JournalPdfs/06-Barriers-Green-Development.pdf Development: Principles and Action Projects to Promote Widespread Adoption of Green Development Practices 153 USAID Fast out of the Gate. How Developing 2013 http://lowemissionsasia.org/sites/default/files/pdf_file/fast-out-gate-vol-1.pdf Asian Countries Can prepare to ac- cess international green growth fi- nancing. Vol 1. 154 W. Blyth and R. Baron, OECD Green Investment Schemes: Options 2003 http://www.oecd.org/environment/cc/19842798.pdf and Issues 155 WEF & BNEF Green Investing 2011: Reducing the 2011 http://www.newenergyfinance.com/WhitePapers/download/37 Cost of Financing 156 WEF with PWC, UN Foundation Scaling up low-carbon infrastructure 2011 : http://www3.weforum.org/docs/WEF_EI_CriticalMass_Report_2011.pdf and IFC (Critical Mass) investments in Developing countries: 157 World Bank Group (coordinator); Mobilizing Climate Finance 2011 http://climatechange.worldbank.org/content/mobilizing-climate-finance IMF, OECD, RDBs 158 World Business Council for Enabling Frameworks for Technology 2010 http://www.wbcsd.org/Pages/EDocument/EDocumentDetails.aspx?ID=149 Sustainable Development Diffusion (WBCSD) 159 WRI Public-Private Finance Tools for 2011 http://pdf.wri.org/bottom_line_energy_efficiency_financing.pdf Energy Efficiency 160 WRI, ODI, OCN The US. Fast-start Finance 2012 http://pdf.wri.org/working_papers/ocn_us_fast-start_finance_contribution.pdf Contribution 161 WWF & Credit Suisse Transition to a Low Carbon Economy: 2011 https://infocus.credit-suisse.com/data/_product_documents/_shop/324153/ The Role of Banks wwf_paper_low_carbon_economy.pdf (continued on next page) 84 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES Appendix IV: The Inclusive Green when a mouse cursor hovers over them. These Growth “Brain” icons include material that has been “captured” from the source document, including tables, In order to enable user-friendly access to graphics or relevant text. the large amount of information covered in Users can access the information in the the literature review, The Brain® software IGG Brain through several Portals (see figure (www.thebrain.com) was used. This is a pow- above): erful knowledge management tool that can organize a virtually infinite amount of infor-  IGG Bibliography: lists source materials mation, simultaneously allow different stake- by date, author, and title. From this por- holder groups to explore the relevant issues, tal, it is easy to see all the source docu- and hopefully help users zero in on the infor- ments, and the thoughts linked to each. mation they need to support decision-making.  IGG Keywords: Source documents and in- The Inclusive Green Growth Brain (IGG Brain) dividual thoughts are linked to keywords. focuses on exploring the role of the private  Topical Database: allows users to drill sector in green growth, and in particular the down through green growth topics. ability to leverage private sector funding to  Key Questions: allows users to access in- promote green growth policy objectives. cluded information through specific ques- The Brain® software uses “thoughts” as tions likely to be of interest to a range basic building blocks. Thoughts can be con- of users. nected to each other in multiple ways to organize  Climatographers’ Guide to the Brain: information, to help explore that information in raises and discusses key IGG issues. thought-provoking ways, and to help illustrate Whereas the bulk of the Brain organizes patterns and relationships in the underlying in- information without commentary or anal- formation. Version 1.0 of the IGG Brain contains ysis, this Portal is organized around more approximately 2,500 “thoughts,” extracted subjective insights and conclusions regard- from 150 source documents. Each document is ing the green growth literature. assigned a unique identifying number, and ex- tracted thoughts include the document identi- There are many topics for which one might fication number for easy source tracking. Many want to use the IGG Brain. The goal of ex- thoughts include “thought icons” that expand ploration could be to find a specific piece of Appendices 85 information. For example, searching the Brain Many of the 15 thoughts come from four of the and its attachments for the exact term “power documents in the Brain, which easily points the sector in Africa” gives one result: Document user to where to go for more information. In #45, a 2012  UNEP report entitled “Financing many cases, however, simply reviewing the rel- Renewable Energy in Developing Countries.” evant thoughts in the IGG Brain, and their as- Expanding the search to attachments in which sociated “thought icons” that provide graphical the three words “power sector Africa” occur, and text-based extracts from the document in gives 75  results. Using basic search function, question, will tell users what they need to know a user can quickly zero in on documents they about the kinds of information and analysis that need to review in more detail. can be found in the literature specifically on the The Brain, however, allows much deeper topic of “barriers to expanding institutional in- investigation of both technical and policy ques- terest in green growth.” tions than the basic search function profiled just above can deliver. Using two broader ques-  Question: How much of the green growth tions as starting points, one substantive and discussion is more rhetorical than real? one subjective, the following discussion illus- Searching the Brain for the word “rhet- trates how one might explore the Brain, and oric” results in a list of five specific what one might find: thoughts in which the word “rhetoric” ap- pears in the text of the thought. One of  Question: What are the barriers to le- those results is a heading (identified by veraging institutional funding into green its font color, and by the fact that it is growth sectors? A quick look at the IGG phrased as a question) entitled How much Topical Database heading leads us to of the “green growth” discussion is rhet- sub-heading #4, Engaging Institutional oric? That thought is linked to approxi- Investors in Green Growth. That heading mately 15  subsidiary thoughts, including: has additional subsidiary headings includ-  (016) Institutional investors are em- ing How much are institutional investors bracing responsible investing and cli- investing in “green growth?” and Why mate change investing are institutional investors important to  (036) Policymakers are moving toward green growth? Under the sub-heading a new green economy paradigm Barriers to expanding institutional in-  (070) The green economy has arrived vestors’ green growth investments, there are some 15  thoughts, including: As can be seen, a number of the listed thoughts  (024) Need to strengthen price signals focus on statements found in the literature that to make opportunities more attractive can be perceived as rhetorical rather than an- to investors alytical. Several thoughts, however, are more  (12 2) Barriers to institutional investors specific to the question, including: in infrastructure investments  (122) Green infrastructure adds risks to  (031) Private sector finance has been tout- conventional infrastructure investments ed for decades as the way to reduce  (147) There are several barriers to global poverty, with little effect pension fund investments in infra-  (03 1) Should not rely on assumption that structure private finance can deliver large part of fi-  (029) Barriers and solutions to pen- nances for developing countries to tackle sion fund infrastructure investments climate change 86 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES  (062a) Much of the “green growth” discus- These two examples are illustrative in sion has been political rhetoric, with little terms of demonstrating the kinds of informa- impact on green growth tion that can be found in the IGG Brain, and how it can be accessed. The power of The Several of these more skeptical thoughts come Brain® software is in organizing and displaying from the same source document (# 031), a relevant information in different ways, and in 2011  report from the Stockholm Environment the ease with which such information can be Institute entitled “Will Private Finance Support reorganized to respond to new needs. A Brain Climate Change Adaptation in Developing like the IGG Brain can never truly be “com- Countries?” Again, the thoughts in the Brain can plete,” since there will always be new informa- easily point the user to where to go for more tion to include. Even existing information can information, but the thoughts themselves (and be linked in additional ways as a topic is fur- their associated “thought icons”) may be suffi- ther explored. cient to give users the information they need. Appendices 87 Appendix V: Publications With Substantial Financial Figures Sectors Sources Region & Energy Efficiency Renewables/ clean Developing Adaptation Developed Mitigation Forestry Private REDD+ Public Water OECD No. Publications 1 CPI: The Landscape of Climate Finance 2012 2 EURODAD: Cashing in on Climate Change? 2012 3 GCN: Investing in Clean Energy, 2010 4 Green Investment Report: The Ways and Means to Unlock Private Finance for Green Growth (G2A2) 5 WBG (coordinator)IMF, OECD, RDBs: Mobilizing Climate Finance 6 Resource Revolution: Meeting the World’s Energy, Materials, Food, and Water Needs China (McKinsey Global Institute) 2011 7 BNEF: Global trends in renewable energy in- vestment 2012 8 ODI: The United States’ private climate fi- nance support: mobilizing private sector * USA engagement in climate compatible develop- ment 2012 9 ODI: The UK’s private climate finance support: mobilizing private sector engagement in cli- * UK mate compatible development 2012 10 WRI, ODI, OCN: The U.S. Fast-start finance contribution 2010-2011 11 ECOFYS: Mapping of Green Finance Delivered by IDFC Members 2011 12 UNEP: Bilateral Finance Institutions and Climate Change, A mapping of 2011 Climate Finance Flows to Developing Countries 13 REN21: Renewable Energy Policy Network for the 21st Century (in the partnership with Global ISEP) 2013 14 G20 / OECD Policy Note on Pension Fund Financing for Green Infrastructure and Initiatives, June 2012 (continued on next page) 88 MOBILIZING PUBLIC AND PRIVATE FUNDS FOR INCLUSIVE GREEN GROWTH INVESTMENT IN DEVELOPING COUNTRIES (continued) Sectors Sources Region & Energy Efficiency Renewables/ clean Developing Adaptation Developed Mitigation Forestry Private REDD+ Public Water OECD No. Publications 15 Global Gaps in Clean Energy RD&D : Update and Recommendations for International Global Collaboration 2010 16 USAID ASIA Fast Out of The Gate: How Developing Countries Can Prepare to Access International Green Growth Financing, vol 1, April 2013 Legend: � Cells filled with light blue color indicate that data of financial allocations is available, under sector, sources and geography. * There is no clear information in the report available on in which sector the financial resources were allocated, however looking at the existing global financial flow private sector money is mostly invested in the mitigation sector. Contact Information Climate Business Department International Finance Corporation 2121 Pennsylvania Ave., NW Washington, DC 20433 www.ifc.org/climatebusiness