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Public and Private Green Financial Innovations

December 11, 2014

Lima, 9 December 2014 - Organized by the International Emissions Trading Association (IETA) and the Global Environment Facility (GEF) this event, moderated by Carolina España, Director for Institutional Funding, CAF, brought together public and private sector leaders to discuss how to scale up innovative financial mechanisms for low-carbon investments.

In opening remarks, Naoko Ishii, CEO and Chairperson, the GEF, noted that in recent years the GEF has been working directly with the private sector to share the risk of investing in transformational change. Introducing the session, Espana mentioned the launch of the GEF’s US$110 million non-grant pilot to attract proposals from public and private sector stakeholders to demonstrate innovative financing mechanisms. She called on panelists to discuss examples of financial innovations that have led to replicable investments, as well as insights into gaps and opportunities for future green innovations.

Christian del Valle, Founder and Managing Partner, Althelia Ecosphere, noted the company’s portfolio focuses on investing in degraded landscapes in developing countries, highlighting a €9 million investment for the long-term conservation of natural forest in Madre de Dios, Peru. He said that the project has created an “economic buffer” around the reserve to enable smallholder farmers to intensify farming practices and earn higher market prices for cocoa and other agroforestry products, while meeting broader conservation goals. He noted that the project is now ready to feed into the national REDD+ programme.

Josué Tanaka, Managing Director, Financial Strategy and Business Planning, EBRD, discussed the Bank’s experience in leveraging private sector funding for environmental projects. Noting that innovation is a misleading concept as “many of the instruments we are talking about are not new,” he said that if the real objective is scaling up the focus, even established instruments such as bonds can create impact, and lauded the GEF’s record in leveraging such funding.

Vikram Widge, Head of Climate Finance and Policy at the IFC, discussed how public finance can be used in a catalytic way, citing the Momentum for Change company that has developed a scalable business model for the commercial diffusion of solar technology, and the China Energy Efficiency Project, which leveraged US$20 billion in GEF funding to raise more than US$800 billion in private equity for energy efficiency projects.

Kenneth Lay, Managing Director, Rock Creek Group, highlighted challenges in meeting strict fiduciary requirements of institutional investors such as pension funds. He advised using reputable multilateral mechanisms such as the IFC and the EBRD to do the “heavy lifting” needed to “match those who need the money and make them fit those who have the money to invest.”

During discussions, one participant noted the low response to the UN Principles for Sustainable Investment, attributing it to the strict regulatory environment. Referring to strategies for raising adaptation finance, such as climate-smart agriculture, one speaker proposed identifying “who is avoiding the cost and what they would pay now to avoid that cost in the future,” citing as an example the self-interest of large supermarkets to invest in a secure food supply chain. Among specific proposals to make green projects more attractive to investors, participants noted, inter alia, the need to: aggregate successful projects to lower operational costs; bring together investors and multilateral institutions to map a green financing pipeline ahead of the Paris Climate Conference; and explore less “risk averse” options such as impact investing, public procurement models, and resilience and catastrophe risk bonds.

 

Reporting by IISD