Global coalition of governments, investors, and foundations launch four new financial instruments to catalyze billions for developing country climate action
June 28, 2016
London, June 27, 2016—Today the Global Innovation Lab for Climate Finance (The Lab) announced endorsement for four new investment vehicles that are ready to pilot in developing countries. This announcement is in partnership with The Lab members, including the Danish, Dutch, German, United Kingdom and United States governments, Bank of America Merrill Lynch, Willis Group, development finance institutions, foundations, and other public and private investors.
Founded in 2014, The Lab is a public-private initiative that identifies, develops, and pilots innovative financial instruments that can drive billions in private investment in climate action in developing countries. The Lab was endorsed by the G7 in 2015 and has catalyzed over 500 million in seed funding for projects in Colombia, Mexico, and Rwanda, among others.
“Climate change threatens development gains made in water, agriculture, energy, and infrastructure around the world,” says Lord Bourne of Aberystwyth, Parliamentary Under Secretary of State, Department of Energy and Climate Change, UK, and Lab Principal. “Previous Lab interventions quickly mobilized resources for low-carbon energy. The new instruments offer the same promise for new sectors, helping communities meet development needs today and in the future.”
Research shows current global investment falls short of the need for new finance to mitigate and adapt to climate change. Private sector investment represents the largest source of global climate finance available, but investors face unique barriers to climate-friendly, low-carbon investment in developing countries, which they perceive as riskier. In fact, 92% of current private investment in climate-friendly projects originates in the same country in which it is spent.
“Global climate change is a critical issue affecting our world and future, and the private sector will play a key role in financing action,” says Elizabeth Littlefield, President and CEO, Overseas Private Investment Corporation, and Lab Principal. “To solve this complex issue as we promote sustainable development will require innovative thinking. The Lab is at the cutting edge, providing the early support for solutions that shift us toward new sectors and opportunities.”
“Initiatives like The Lab are introducing new innovative climate finance solutions to the financial industry,” says Purna Saggurti, chairman of Global Corporate & Investment Banking at Bank of America Merrill Lynch, and Lab Principal. “These solutions are helping to broaden investment opportunities in clean energy and other low carbon initiatives and priorities.”
- The Climate-Smart Lending Platform will bring together the tools, actors, and finance necessary to reduce climate risk in lending portfolios and scale up climate-smart lending to smallholders around the world. Proposed by F3 Life in Kenya, the long-term goal of the platform is to mainstream climate-smart agriculture metrics into the potentially USD 200 billion smallholder lending market. The Sophia Foundation (Project Sophia), which facilitates sustainable business models for delivery of important financial and livelihood inclusion services to the poor and unserved, has helped incubate F3 Life and will make an equity investment to support the scalable deployment of the Platform. FONERWA, the national Rwandan climate fund, announced intention to support a first project in Rwanda with the support of IUCN.
- The Energy Efficiency Enabling Initiative, developed by the Inter-American Development Bank Group (IDBG), will mobilize equity finance and deploy technical assistance for energy efficiency in developing countries. Analysis from the Lab Secretariat shows that a USD 100 million pilot initiative could mobilize USD 3-9 billion in energy efficiency investments in target countries including Mexico and Colombia. The proponents submitted an eligibility proposal to the IDB’s Multilateral Investment Fund for USD 5 million in anchor funding.
- The Oasis Platform for Catastrophe and Climate Change Risk Assessment and Adaptation aims to provide access to transparent and standardized analytics to improve understanding and management of risks in regions vulnerable to extreme climate-related events. Developed by Oasis Loss Modelling Framework and Imperial College London, Lab Secretariat analysis indicates that a USD 10 to 14 million invested in piloting the Platform in three Asian countries could indirectly facilitate up to USD 6 billion in new property insurance coverage. Climate-KIC, the EU’s main climate innovation initiative, has supported OASIS since 2012 and has pledged to further support and co-develop the core platform as it is seen to be a key enabler for developing the adaptation services market.
- The Water Financing Facility would mobilize large-scale domestic private finance and strengthen water utilities in countries subject to climate-related water stress. In seven potential pilot countries, Lab Secretariat analysis shows that the facility could mobilize USD 1.2 billion per year in private finance for climate-resilient water projects out to 2030. The Netherlands Ministry of Foreign Affairs, which proposed the idea, is committing USD 3 million in anchor funding to a pilot in Kenya.
As one of the first investors to commit anchor funding to the new instruments, Lilianne Ploumen, Minister for Foreign Trade and Development Cooperation for The Netherlands, says: “The Netherlands is a founding member of The Lab, and is pleased to offer strong technical, financial and political support to take these instruments from concepts, to action. Adaptation finance is a key priority, so we are pleased to support the Water Financing Facility to move forward to ensure climate-resilient, safe water resources for Kenyan communities.”
The previous instruments launched in 2015 by The Lab include the Long-Term FX Risk Management Instrument, which is being applied to projects in Sub-Saharan Africa to unlock billions in hedging potential, as well as Energy Savings Insurance, which guarantees the financial savings of energy efficiency projects, and has launched successfully in Latin America including in Mexico and Colombia. Energy Savings Insurance is currently being considered by the Green Climate Fund for funding in El Salvador and by other institutions for replication in Africa and Asia.
“The Paris Agreement aims to limit global warming to well below two degrees Celsius. Mobilizing finance now is critical to ensure the world meets this target,” says Jochen Flasbarth, Secretary of State, Federal Ministry for Environment, Nature Conservation, Building and Nuclear Safety, Germany. “Germany has been a founder of the Lab, supported previous Lab instruments and endorses these new initiatives moving forward.”
Download the comprehensive instrument assessments and view videos about each of the new instruments at http://www.ClimateFinanceLab.org.
The Global Innovation Lab for Climate Finance identifies, develops, and pilots cutting edge climate finance instruments that can drive billions of dollars of private investment in climate change mitigation and adaptation in developing countries. Developed in 2014 by the UK, U.S. and German governments in partnership with several climate finance donor countries and key private sector representatives, The Lab has been funded by the UK Department of Energy & Climate Change (DECC), the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB), the U.S. Department of State, the Netherlands Ministry for Foreign Affairs, Bloomberg Philanthropies, and The Rockefeller Foundation. Climate Policy Initiative serves as The Lab Secretariat.
Elysha Rom-Povolo – Lab Communications Lead
Dan Storey – Europe
+44 (0) 203 795 2692
Maggie Young – U.S.
+1 415 202 5982