Using green credit lines to foster climate investment

Using green credit lines to foster climate investment Igor Shishlov @ishishlov @I 4 CE_

I 4 CE – Institute for Climate Economics 3 research areas addressing the issues faced by actors involved in the energy transition 2

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Next 15 years critical to ‘shift trillions’ Source: New Climate Economy Report (2014) 4

Barriers to environmental lending Investment environment • Economic • Financial • Legal Source: I 4 CE (upcoming) Demand-side (end borrowers) Supply-side (LFIs) • Low awareness of technologies/ financing options • Trade-off between long- and shortterm benefits • Lack of capacity to prepare business plans • Lack of capacity to assess projects • Unsuitable lending practices • Lack of risk management mechanisms • Profitability considerations 5

Green Credit Line Grant PFI Policy dialogue Funds / guarantees Consultants LFIs Government Funds Technical assistance Source: I 4 CE (upcoming) Endborrowers Public policies 6

Example: SUNREF program by AFD Source: AFD 7

Financial benefits of GCLs Lower interest rates Reduce the cost of capital Public subsidies within a GCL Reduce the cost of capital Longer tenor Address the temporal mismatch Increased grace period Address the temporal mismatch Guarantees Reduce technology/political/FX risks Incentive payments Incentivize demand for green loans Source: I 4 CE (upcoming) 8

Non-financial benefits of GCLs Stage in green lending Technical assistance to LFIs Identification and marketing Market studies, portfolio assessment Appraisal Feasibility studies, technical audits, financial assessment Product delivery Support in design and deployment of new financial products Monitoring and evaluation Development of monitoring and evaluation tools Source: I 4 CE (upcoming) Technical assistance to end borrowers Barriers addressed Energy audits, providing Low awareness of green information on potential investment funding opportunities Support in drafting business plans and investment proposals Lack of capacity to evaluate/draft green investment proposals Accompanying end Unsuitable financial borrowers during products and/or lending project implementation practices Support in the assessment of the project Lack of capacity to monitor and evaluate ongoing projects 9

Challenges to GCL deployment § Financial additionality and market distortion § Concessional vs commercial pricing § Lack of harmonized evaluation tools § Limited internal uptake & TA capitalization § No track record of GCLs for adaptation 10

Thank you! igor. shishlov@i 4 ce. org www. i 4 ce. org 11