climate finance: overview and strategic considerations climate finance ws_2017-12-05...dec 05, 2017...

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Climate Finance:

Overview and Strategic Considerations

2nd National Workshop on Innovative Climate Finance Mechanisms for

Financial Institutions in Pakistan,

Islamabad, 5 December 2017

Climate Change – An Opportunity for the Financial Sector (?)

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Climate Change is real: Climatic conditons change, with e.g. strong

impacts on the economy, e.g. agriculture, water systems and coastal

properties (impacting investment portfolios)

Policy response: New climate policies increasingly likely (impacting

investment portfolios such as energy sector, transport infrastructure,

building codes,...)

Threat to investments, but: new business opportunities arise from e.g.

providing finance and insurances for adaptation to climate change

Financing the transformation of energy system, transport sector,

energy efficiency, etc.

Climate Change: risks + opportunities for FI´s


• Paris Agreement: Key climate policy milestone, to reduce globale temperature rise to

well below 2°C by the end of the century

• Joint efforts by developed and developing countries

• Nationally Determind Contributuons (NDCs) are backbone of Paris Agreement

• NDCs are domestic action plans of UNFCCC Parties to derive climate goals

• NDCs come with targets to reduce GHG and adaptation measures

• NDCs have unconditional and conditional features

• Pakistan intends to reduce up to 20% of its 2030 projected GHG emissions

• subject to availability of international grants (approx USD 40 billion at current prices)

• Pakistan’s adaptation needs range USD 7 to USD 14 billion/a until 2030.

• Conditional NDC elements sum up to more than of USD 4.4 trillion until approx 2035

Financial needs!

Intl. policy driving for climate finance

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International climate finance provisions: the 100 bn

5

UN target for int. climate finance: USD 100 bn

per year by 2020

To be updated by 2025

So far, some USD 67 billion may be achieved

from public finance

Financing gap of USD 33 billion indicates huge

need of mobilizing private sector finance

Given the numbers from NDCs on conditional

needs, the relevance of the private sector will

increase drastically

Mobilizing private finance implies engaging

with the banking sectorSource: OECD, 2016.


FI´s: Financing the climate agenda – and beyond

6

FI´s play an important role for financing sustainable development as a

whole, not only climate

So: Climate Change (and Sustainable Development) poses a huge

opportunity for FI´s…

But: An integrated strategy on policy level and banking sector is required

Financing the

climate agenda

Implementing an Integrated Climate Finance Strategy


Advancing Climate Finance: Domestic Policy level

8

• Consider international trends (SDGs,

NDCs), also learn from others

• Develop holistic domestic framework

(policies & regulation, institutions,

stakeholders & FI champions,...)

• Provide domestic incentives /

funding

• Harness international support (Access

to funding, capacity building such as

IFC roadmaps, donor CB activities, ...)

• Coordination & leadership, towards

an … integrated Climate Finance Strategy

Capacity Needs

Institutions

Regulation (e.g.

guidelines)


Advancing Climate Finance: Banking Sector / FI´s

9

• Incoprorate „climate“ into existing ES scrutiny :

• Is the investment / loan repayment at risk due to CC?

• Which sector specific / climate related risks do the customers face?

• e.g. Agriculture – risks due to harvest loss, smallholder solutions?

• Energy Efficiency – SMEs/ESCOs with a higher credit risk?


Example: Green Investment Facility Viet Nam

So

urc

e: G

IF 2

01

7


Advancing Climate Finance: Banking Sector / FI´s

11

• Incoprorate „climate“ into existing ES scrutiny :

• Is the investment / loan repayment at risk due to CC?

• Which sector specific / climate related risks do the customers face?

• e.g. Agriculture – risks due to harvest loss, smallholder solutions?

• Energy Efficiency – SMEs/ESCOs with a higher credit risk?

• RE – grid connectivity, offtake agreements (PPAs, FiT)?

• Mitigation /Adaptation: expected returns or need for co-finance?

• Political framework: Which regulation requires action (GBG), which

incentives (e.g. tax reliefs) exist?

• Note: The Green Banking Guidelines do offer a good basis for this!

• Understand (and voice) capacity building needs

• Implications on funding: Find suitable mix of instruments

• Conditional loans? Guarantees? Project equity? Mobile banking? etc


Co-finance required? Sources of Climate Finance

12

Domestic Funding

International Funding

Pu

blic

Fu

nd

ing

Pri

va

te F

un

din

g

Multilateral (MDBs) & Bilateral

National Budget

Funds: GCF, GEF, AF, etc

Grants, Guarantees & Loans

Loans, Bonds

Insurances

etc

FI´s

Credit lines, Guarantees,

Insurances,

etc

Central Bank, National Fund,

Guarantees, Insurances, Tax

incentives, Taxes, fines, etc

FI´s


Opportunities of international Climate Finance

13

So

urc

e: C

lima

te F

un

ds

Up

da

te, W

IR, 2

01

7

Key messages


Key messages as input for discussion

15

• Policy level:

• Coordinating the process, using synergies (integrated climate finance

strategy)

• Facilitate National Climate Finance Dialogue: Get/Keep the core stakeholders

on board, enable capacity development opportunities

• Assess co-funding opportunities – potential (and need) is there, including

capacity development / technical support programmes (e.g. GCF)

• FI´s:

• Seriously consider the risks and opportunities of climate change

• Carefully reflect CC in portfolio / activities (Green Banking Guidelines)

• Understand potential of co-financing to reduce risks (e.g. guarantees) and

unlock finance for less attractive investments (e.g. adaptation)

www.thegreenwerk.net | [email protected] © 2017 the greenwerk.

Thank you very much!

Björn Dransfeld

Founding Partner

the greenwerk. Climate Advisory Network

[email protected]

www.thegreenwerk.net


Group Work:Innovative Climate Finance approaches for FI´s in Pakistan

Format:

3-4 Small break out groups,

you have 30-40 minutes

Task:

“Scoping study, climate finance overview, green banking guidelines"

Experiences and challenges in designing and

applying instruments for climate finance

Document it on paper!

climate finance: overview and strategic considerations climate finance ws_2017-12-05...dec 05, 2017...

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