Session 11 Kaori Miyamoto
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Climate-related development finance is increasing, with more money going towards mitigation than adaptation. Development organizations are increasingly engaging the private sector in climate finance. An example is given of a green credit line program between SIDBI and JICA that provides credit lines, equity, and sub-loans to private end-borrowers for energy saving projects. Lessons learned include focusing on effectiveness beyond just mobilizing private funds, adapting to local conditions, creating bankable projects from pilots, and supporting enabling environments, including for adaptation.
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Session 11 Kaori Miyamoto
- 1. Climate-Related Official Development Finance: Mobilising Private Investment Kaori Miyamoto, OECD 3rd OECD Green Investment Financing Forum, Tokyo • 14 October 2016
- 2. Climate-related development finance: mitigation vs. adaptation Source: OECD-DAC, USD commitments (http://oe.cd/RioMarkers)
- 3. Climate-related development finance is increasing Bilateral ODA from DAC Members Source: OECD-DAC, two year averages, USD commitments (http://oe.cd/RioMarkers)
- 4. Development co-operation providers are increasingly engaging the private sector Climate-related development finance and support for private sector engagement, 2013 Source: Crishna Morgado et al., (forthcoming)
- 5. SIDBI JICA Credit line sub- loan End- borrower 1 Equity End- borrower 2 Equity End- borrower 3 Equity T A = public = private Repayment Credit line maturity Green credit line example: SIDBI-JICA Energy Saving Line Phase I, II and III (2008-ongoing) EUR 220 m/phase Source: Crishna Morgado et al. (forthcoming)
- 6. Conclusion (2/2). Risks and lessons learned in mobilising private climate finance • Pay attention to effectiveness beyond mobilisation of private finance • Adapt efforts to national circumstances and promote affordable technologies • Transform innovative pilots to create ‘bankable’ projects • Support the enabling environment • Mobilise investment for adaptation
- 7. For more information on OECD work related to mobilising private investment and climate change please see www.oecd.org/dac/private-sector-engagement-in-development-co-operation.htm www.oecd.org/dac/environment-development/ Thank you.
Editor's Notes
- What I’d like to do is to give an overview of the role of official development finance in mobilising private investment 1) Some facts and trends 2) How it’s been done 3) And some issues and challenges
- The financing gap to meet the SDGs for developing countries is roughly estimated at USD 2.5 trillion a year. Goal 13 is the one that related to climate change. But we haven’t found good estimates on how much it requires to meet this goal—but some say that USD 750 billion is an overestimate. Either way, it’s a large figure. So how much do bilateral and multilateral development partners spend their official development finance on climate related development? In 2013, this amounted to roughly USD 40 billion, which includes both concesssional and non-concessional finance. You can see that it’s a relatively small amount compared to the whole financing gap. Of this amount, almost 85% is for mitigation, and about 40% for adaptiation and about 13% for both.
- It terms of trend, if we just look at bilateral ODA, because data from multilaterals are not complete, we can see that official develoment finance related to climate issues has been increasing in the last 10 years, both in terms of absolute amounts, but as a proportion of total bilateral ODA, which was about 18% in 2013-14.
- So what are the development partners actually doing in climate finance. About 78% is supporting the developing country governments in various areas, but 22% relates to mobilising the private sector. Of this amount, a large proportion is financing the private sector directly by the Development Finance Institutes in providing financial instruments such as guarantees, loans, and equity for mostly renewable energy projects. And the remainder is not financing the private sector directly but the public sector and CSOs in support of activities where there was a high likelihood of private sector engagement, such as capacity building for SMEs on climate risk assessments, dialogue and partnerships with the private sector and testing and demonstrating the business case for new technologies and solutions. This does not include mainstreaming of climate considerations across development finance portfolios overall. broader support to policy frameworks and reform policies (e.g. Feed-in-tariffs etc.) to build the enabling environment for developing pipeline of bankable green projects. On measuring mobilisation: We carried out a survey on how much the direct support to the private sector for climate issues mobilised private finance for three iinstruments: guarantees, syndicated loans, and shares in common investment vehicles, which is only a subset of the support. The amount was not all that significant, amounting to about USD 2.4 billion. Half was due to guarants, and about 70% was in middle income countries in energy and financial services. We are expanding the types of instruments so as to better capture the totality of support to the private sector.
- To give an example of mobilising priavate investment, JICA is providing a EUR 220 million loan facility made available to SIDBI (Small Industries Development Bank of India) which on-lends to MSMEs (Micro, Small and Medium-Sized Enterprises) to invest in machinery for pollution control and energy efficiency. There’s a minimum equity requirement of 25-33% . The project so far has provided finance to about 5000 MSMES.
- Final slide is about some challenges that development partners face in trying to mobilise private investment for green growth and climate change, including: An excessive focus on mobilisation of private finance and much less on effectiveness and impact of the support. In particular, efforts increasingly involve working through intermediaries such banks, business and professional associations, and companies with extensive supply chains. While this approach may be a necessary and effective way of reaching out to companies, especially small and medium-sized enterprises, it leads to difficulties in monitoring and verifying environmental impacts and outcomes. Put this way, the first and second sentences repeat each other Second, it is important to adapt efforts with national circumstances and promote affordable technologies. Often development partners promote and favour technologies from their own countries, which may not not necessarily contribute to supporting the development of local technologies or longer-term solutions or be the most cost effective. Third, there are The need to go beyond piloting efforts and scale up successful approaches. While there are several examples of successful innovative ways to engage the private sector in promoting green growth, there is still a need to scale up such approaches. One of the biggest challenges facing infrastructure investors is the limited flow of bankable projects in clean infrastructure such as renewable energy or low-carbon transport, despite many of these technologies being proven at a small scale. It is import to also invest in the enabling environment: Using approaches that integrate support for policy frameworks - such as support for feed-in tariffs or the phase out of fossil fuels subsidies - with project level instruments for infrastructure. Need to move beyond mitigation, and scale up action on adaptation and the private sector.
- Final conclusion: This didn’t do justice to describe the key role that development partners are playing to mobilise private investmate for climate issues, particularly in lower income countries, but there’s a lot going on, with successes and challenges, and we hope to continue discussing and improving the way we work th developing countries.