Dec 12, 2015 — The Green Finance Catalyzing Facility (GFCF) is just such a vehicle, eib/attachments/press/joint-mdb-statement-on-climate-finance.pdf
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˜˚ ˜˚˛˝˙ˆ ˜˚˛˝˙ˇ ˝˝ ‘ˇ˙˝˝ˇ˚ ˇ˚•˝ ˇ˙˝ˇ˚˝˚ ˝˝˛“‡˝ “ ˜–ƒ⁄ˇˇ˙ ˙ˇ˙ˇ⁄ ⁄ˇ˙ ˆ˙ˇˇˆ˙˝ ˇ ˜ ˜˚˛˝˙˚˛ˆ ˜˙˘ ˜˚˜˛˝˙˛ˆˇ˚ ˝ˇ ˜˚˛˝˙ˆ˚ ˜˜˜˚˛˝˙ˇ ˝˝ ‘ˇ˙˝˝ˇ˚ ˇ˚•˝ ˇ˙˝ˇ˚˝˚ ˝˝˛“‡˝ “ ’ ˜–ƒ⁄ˇˇ˙ ˙ˇ˙ˇ⁄ ⁄ˇ˙ ˆ˙ˇˇˆ˙˝ ˚ˇ ˚˝ˇ 9789292578558 ˜˜˚˜˛˝˙ˆˇˇ ˜˜˚˛ ˜ ˜ ˆ ˜˛˝ˇˇ˝˛˝˜˝ˇ˙ ˜ “˜“ ’“ Green Finance Catalyzing Facility Report_COVER – 7.60 mm spine – 15aug2017.indd 18/15/2017 1:49:08 PM
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Printed on recycled paper ˜Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) © 2017 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444 www.adb.org Some rights reserved. Published in 2017. ISBN 978-92-9257-855-8 (Print), 978-92-9257-856-5 (e-ISBN) Publication Stock No. TCS178941 DOI http://dx.doi.org/10.22617/TCS178941 The views expressed in this publication are those of the authors and do not necessarily re˜ect the views and policies of˚the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of speci˛c companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned. By making any designation of or reference to a particular territory or geographic area, or by using the term ficountryfl in˚this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) https://creativecommons.org/licenses/by/3.0/igo/. By using the content of this publication, you agree to be bound by˚the˚terms of this license. For attribution, translations, adaptations, and permissions, please read the provisions and˚terms of use at https://www.adb.org/terms-use#openaccess This CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to˚another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims that arise as a result of your use of the material. Please contact [email protected] if you have questions or comments with respect to content, or if you wish to˚obtain copyright permission for your intended use that does not fall within these terms, or for permission to use the˚ADB logo. Notes: In this publication, fi$fl refers to US dollars, and fi£fl refers to UK pounds. Corrigenda to ADB publications may be found at http://www.adb.org/publications/corrigenda ADB recognizes fiChinafl as fithe People™s Republic of China.fl
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Anouj Mehta Anouj Mehta, a former London investment banker, is principal ˛nancial management specialist with ADB™s Operations Services and Financial Management Department and works on sustainable ˛nance innovations, currently structuring a China Green Finance Facility. His ˝˙ years of experience spans work with the World Bank, JP Morgan Chase Investment Banking, PricewaterhouseCoopers, private equity, and ADB. He led ADB™s ˛rst˚publicŒprivate partnership (PPP) and subsovereign initiatives in India structuring its ˛rst MRTŒBRT projects, supported the World Bank™s and Indian Government™s PPP programs including an AfricaŒIndia collaboration, advised the United Nations (UNECE) on Water PPP Centers, and the OPEC Fund for International Development on renewable energy. Working across infrastructure sectors, he has covered Europe, the People™s Republic of China, India, Central and South East Asia, and Africa. He is an MBA (INSEAD, France), Chartered Accountant (ICAEW, UK), and completed a fiClimate and Sustainable Energy Financefl executive program (Frankfurt School-UNEP Centre for Climate & Sustainable Energy Finance). Sonia Chand Sandhu Sonia Chand Sandhu, an environment engineer, climate resilience and sustainable development specialist, is senior advisor to ADB™s Vice President for Knowledge Management and Sustainable Development. Her experience in international development spans ˝ˆ years across ADB, World Bank (South Asia and Africa), and the private sector, covering multisector infrastructure operations. She has provided technical expertise for innovative sustainability solutions through policy, strategy, and institutional analysis for investment designs in challenging and complex governance systems. She holds a master™s degree in environment engineering (College Park, Maryland, United States), a bachelor™s degree in architecture (Chandigarh, India), and completed executive postgraduate programs in fiLeading Economic Growthfl (Harvard Kennedy School, US) and fiUrban Management Tools for Climate Changefl (IHS Rotterdam, the Netherlands). Belinda Kinkead Belinda Kinkead is a sustainable energy and climate ˛nance professional with almost ˝ˇ years™ experience. She is currently the Australian Director of LOˆ Energy, an energy and technology company working on innovative new hardware and software products within the emerging distributed energy industry. Her previous work includes roles with ADB, World Bank, EcoSecurities, and the Sustainable Energy Development Authority of New South Wales, Australia. Her technical experience spans projects in the People™s Republic of China, India, Brazil, Senegal, Ethiopia, Papua New Guinea, and Thailand; and sectors such as renewable energy, energy e˘ciency, emissions trading schemes, Nationally Appropriate Mitigation Actions (NAMAs), and Programs of Activities (PoAs). Renard Teipelke Renard Teipelke (M.A. urban and economic geography, transport and mobility studies) is a multidisciplinary specialist in integrated urban development, infrastructure planning and ˛nance, as well as metropolitan governance. After having gained experience in municipal governments, a city planning ˛rm, and think tanks in Germany and the United States, he has worked across a range of countries in Asia and Africa. He contributed to ADB™s GrEEEn Cities Initiative, GIZ™s Urban Nexus, and UN-Habitat™s Cities and Climate Change Initiative. His recent projects with the ADB Urban Sector Grinance Facility have focused on smart urban data and green ˛nance in cross-sectoral infrastructure projects. Author Biographies
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Simon Zadek, co-director, United Nations Environment Programme Inquiry into the Design of a Sustainable Financial System, United Nations Environment Programme, Geneva, Switzerland Scaling green ˛nance is a precondition for aligning ˛nancial systems with long-term needs of the real economy, integrating environmental risks, opportunities, and policy imperatives in decisions that drive lending, investment, and insurance. Improving this alignment requires developments across the real economy, the use of public ˛nance, and the ˛nancial system itself. The People™s Republic of China (PRC) has taken international leadership, working closely with the United Nations Environment Programme, in establishing a policy framework for catalyzing green ˛nance, adopted by the State Council in At the same time that the importance of green ˛nance was embraced at the G˝ˇ (grouping of ˝ˇ major world economies) Leaders™ Summit in Hangzhou. Accelerating private green investment ˜ows in the short- to medium-term require blending in public ˛nance to secure public goods, such as environmental bene˛ts, that will not be paid for by private capital. The extent of such subsidies will depend on the features of the potential investment, and a vehicle is required tectively and e˘cienerentiate such potentials and associate the design of appropriate ˛nancing instruments. The Green Finance Catalyzing Facility (GFCF) is just such a vehicle, providing a basis for assessing the merits of blended ˛nancing based on the value of such environmental and associated economic cobene˛ts, and so the optimal ˛nancing instrument that catalyzes green investments that would not otherwise happen. Dr. Ma Jun, chief˜economist, Research Bureau, The People™s Bank of China; co-chair of G˚˛ Green Finance Study Group, People™s Republic of China Turning the commitments onited Nations Climate Change Conference (Cto actions require the private sector™s contribution in transitioning to a green global economy. The public sector currently has a number of levers to pull in catalyzing the private sector within green ˛nance, but innovative and scalable solutions are needed to speed up the transition. The GFCF provides exactly such a lever, and is therefore an initiative that should be warmly welcomed. First, the GFCF™s combination of simultaneously focusing on bankability as well as on green targets makes it both an advantageous tool for policy makers and also an attractive instrument for private investors. Second, the potential scalability of the GFCF provides the prerequisite for the initiative to have a long-term global impact. Third, the timing is right for the initiative since global ˛nancial markets are undergoing transformation toward a low-carbon economy. Consequently, the GFCF is a universally relevant concept. As˚the PRC has taken a leading role in green ˛nance, both within its domestic policy framework as well as through the G˝ˇ, the GFCF additionally provides a timely contribution to this process, with particular relevance as green ˛nance rapidly expands and policy makers and investors seek new and innovative tools. As such, the GFCF has the potential to play a role in the green economy both within the PRC and globally. Atul Joshi, founder and chief executive o˝cer (CEO) of Oyster Capital Group; former CEO and managing director, Fitch Ratings, India The concept of the GFCF proposed by the Asian Development Bank (ADB) is a much-needed thought piece for all development banks to consider, because all sovereign funds need to be leveraged for much greater impact and this concept is exactly in that direction. I am especially appreciative of the fact that while the GFCF concept proposes an initial simpler approach of leveraging concessional ˛nance from government and development agencies for green projects, it also identi˛es the need for a more sophisticated approach to the actual raising of ˛nance from other nongovernment sources through capital marketsŠthis leveraging of scarce government funds for accessing large pension, insurance, and other funds is likely to be even more critical for countries and projects to implement in endeavoring to meet the massive ˛nance needs for green development. Key Messages from Reviewers
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viiviiKey Messages from Reviewers Dr. Arvind Mayaram, former ˙nance secretary of India; chairperson, CUTS Institute for Regulation and Competition (CIRC), India Green infrastructure costs more than traditional infrastructure. Therefore, the cost of delivery is higher on account of two factors: (i) the cost of intellectual property rights (IPR), as technologies are new and (ii)˚adaptation costs as most of the auxiliary and ancillary systems are designed around traditional technologies (for example evacuation systems for renewable energy). India™s Viability Gap Finance (VGF) approach worked well for levelling the delivery costs but the burden on the host public resources is higher than it would have been if infrastructure was traditional. Supporting revenues is also a tried and important approach in many successful publicŒprivate partnership projects for de-risking projects; it is however di˘cult to predict at the start of a project how the revenues would add up over the project lifecycle (typically ˝˙Œˆˇ years). Hence, innovating revenue support mechanisms that could be linked with the classic India VGF scheme and together adapted for green ˛nancing such that the support is available in riskier or high technology adaptation periods but also in a way that allows part of the upside, when the project revenues start ˜owing eventually, to be ploughed back to the support facility could prove to be a truly good partnership between government or development entities and private sources of capital. We had, at the time, in India developed innovative concepts for revenue support schemes or ‚annuity™ structures such as the Provision of Urban Amenities in Rural Areas (PURA) as well as pooled ˛nance structures such as Infrastructure Investment Trusts (INVITS). I am happy to note that the proposed GFCF has taken account of several of these and proposed an approach which will be a very strong toolkit for governments to utilize and adapt as necessary to framing their green ˛nance approaches. I would strongly commend ADB for taking a lead in developing one of the ˛rst leveraged facilities for the ‚blended ˛nance™ concept which is critical if we are to really ramp-up the much-needed ˛nancing from especially institutional private sector sources into green development. Laurence Breton- Moyet, executive director in charge of operations, French Development Agency (AFD) To contribute to a much-needed acceleration of green investments worldwide in a world of abundant private savings, International Finance InstitutionsŠboth multilateral and bilateralŠare increasingly called upon to step up their orts to increase the crowding in of private sector ˛nancing. The GFCF proposal from ADB is an innovative ˛nancial structure aiming to address this critical issue, and a welcome addition to the ongoing collective discussion around leverage and additionality of public funds.
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ContentsAuthor Biographies iiiKey Messages from Reviewers vContents viiiForeword xiiiKey Perspectives from A DB xvii Acknowledgments xixAbbreviations xxi Executive Summary xxiiiPart A: The Green Finance Priority ˚ The World™s Natural Capital at the Tipping Point ˝˝. The Green Growth Path to Business fiUnusualfl ˆ. The Green Finance Concept . Road Maps from International Development Agendas ˙. The Financing Needs and Gaps Part B: The Green Bankability Conundrum ˚˙ Sourcing Green Finance: From Public to Private ˝ˇ˝. More than PublicŒPrivate Partnerships ˝˝ ˆ. Challenges for Green Bankability Part C: The Emerging Lessons from Green Finance Initiatives ˝ˆ Learning from Green Finance Initiatives ˝. Three Key Country Initiatives ˆ. Moving Forward: The Need for a Green Finance Catalyzing˚Facility Part D: The Green Finance Catalyzing Facility ˆ˚ Objective ˙˝˝. Scope ˆ. The Twin Pillars of Financial and Environmental Sustainability . Financial Sustainability Principles
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ixContents˙. Environmental Sustainability Principles ˙ The Value for (Green) Money . Mechanics of the Green Finance Catalyzing Facility Institutional Structure of the Green Finance Catalyzing˚Facility . Summary: Proposed Term Sheet of the Green Finance Catalyzing Facility Next Steps: From Concept to Practice Appendixes ˚ˇ˘ erview of Green Finance Initiatives Appendix ˝: Comparative Analysis of Green Finance Initiatives Appendix ˆ: Gap Analysis and Recommendations on Green Finance Initiatives erview of Green Finance Projects Appendix ˙: Operating Guidelines for the Green Finance Catalyzing Facility Bibliography ˚ˆˆ
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xFigures, Tables, Boxes, Inserts Figures Figur Structure of the Publication xxivFigure ˝: The Green Financing Decision xxviFigure ˆ: The Technology Implementation Management Paradigm for a Finance Plus Approach to˚Project˚Development xxviiFigur Bankability in Green Infrastructure Financing xxviiiFigure ˙: Levers for Adequate Risk Mitigation of Green Finance Projects xxixFigur Basic Rationale and Principles for the Green Finance Catalyzing Facility xxixFigur: Conceptual Mind Map of the Green Finance Catalyzing Facility xxxFigur The Twin Pillars of Financial and Environmental Sustainability xxxiiFigur GFCF Mechanics at the Overall Pooled Vehicle Level xxxiiiFigur GFCF Mechanics at the Project Level xxxivFigur Green Bene˛ts Leveraged Bond xxxviFigur Levers of Inclusive Low-Carbon Green Growth ˙Figur The Green Financing Decision Figur Estimated Climate-Adjusted Infrastructure Investment Needs in Devˆˇ) Figur The Technology Implementation Management Paradigm for a Finance Plus Approach to Project Development Figur Simpli˛ed Overview of Public and Private Infrastructure Finance ˝ Figur: Bankability in Green Infrastructure Financing ˆˇFigur Green Finance Challenges and Constraints Figur Categorizing Green Finance Initiatives Figure ˝ˇ: Levers for Adequate Risk Mitigation of Green Finance Projects Figur Basic Rationale and Principles for the Green Finance Catalyzing Facility ˙˝Figure ˝˝: Simpli˛ed Conceptual Derentiation of Green Funds and Green Finance Facilities ˙˙Figure ˝ˆ: Approach of the Green Finance Catalyzing Facility Figure ˝ Example Project Areas for Green Finance Catalyzing Facility Projects Figure ˝˙: The Twin Pillars of Financial and Environmental Sustainability Figure ˝ Risks and Mitigation Instruments to Green Finance Projects ˙ Figure ˝: GFCF Mechanics at the Overall Pooled Vehicle Level Figur GFCF Mechanics at the Project Level Figur Multiplying Leverage Through the Green Finance Catalyzing Facility (GFCF) Figure ˆˇ: Green Bene˛ts Leveraged Bond ˆ Figur Proposed Organization Structure of the Green Finance Catalyzing Facility Figur Categorizing Green Finance Initiatives Figure A˝: Set-Up Guidance for Green Finance Initiatives Figure Aˆ: Illustrative Project Application Process for the Green Finance Catalyzing Facility
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