Role of National Development Banks in Promoting Climate Finance Maria Netto – Capital Markets and Financial Institutions Inter-American Development Bank

Low Carbon Financing Challenges Government priority / policy orientation - host driven - ensure close link of international finance to national development goals Need for scale / programmatic approaches – ensure large, transformational and long term impacts in the economies How to mobilize / leverage private sector investments / participation Have “real” environmental results that are monitored, verified and reported

Some tendencies in the LAC region… National commitments and targets towards UNFCCC COP 21 (2015) Readiness initiatives to access international climate finance – prioritization of sectors and channeling models National coordination efforts and national “Green” Funds to promote climate finance Financial markets initiative (“green protocols”, stock markets sustainability indexes, national carbon markets) Increased role of regulations (of IFIs – Central Banks, and of sectors – corporate responsibility and price signals)

Role of National Development Banks Development Mandate Promotes financing and associated market development in underserved sectors Public Sector Entity Can interact with different levels of governments and potentially influence policy- making Financial Institution Is in the business of financing and risk taking, particularly in support of long term investments Mobilizer Works with private financial institutions and seeks to mobilize or attract co-financing Project Structurer Understands the risks and barriers and can shape and influence the project structure Risk Taker Can identify, manage, mitigate and assume risks that the private sector LFIs cannot Incubator and Aggregator Can develop innovative and catalytic financial instruments and can manage small scale projects International Partner Has access to long-term hard currency borrowings and work closely with the MDBs, bilateral DFIs and foreign ECAs Connector Has connections to all of the relevant public and private sector actors

Why to engage in green finance? Business opportunities Benefits $ / Revenues Environmental services Environmental markets Renewable energy sales Certified products Savings and Cost-reduction Energy efficiency Water savings Efficient use of land Co-benefits Productivity Quality improvements Modernization Competitively and trade opportunities

Sectors supported SectorsNDBsCountries Energy EfficiencyBNB, Bancoldex, Findeter, Nafin, Fira, SHF, AFD Brazil, Colombia, Mexico, Paraguay Renewable energyBandesal, Nafin, BROU, AFD El Salvador, Mexico, Uruguay, Paraguay Sustainable TransportBancoldexColombia Waste ManagementBNBBrazil AFOLUAFEAM, BNB, Banco Agrario, Financiera Rural, Fira, Finagro Brazil, Colombia, Mexico

Defining priority sector interventions Alignment with national priorities Market Studies Addressing non financial barriers: Structuring of Demand for Finance Support technology and service providers Promote business models and project incubation Capacity building of financial institutions Awareness raising and standard practices Addressing financial barriers: Development of adequate financial instruments Credit / collateral guarantees Performan ce Guarantee Insurance Medium and long term concession al credit

NDB Green Instruments in LAC NDBs Grants / TA Tier 2 loans (via LFIs) Tier 1 loans (Direct) Guarantees Other contingent facilities Equity Manage- ment of funds Co-finance with other funds Direct Equity Equity into Funds LT Inv’t loans ST working capital loans Other AFD√√√√ BANCO DEL ESTADO√√√√√ BANCOLDEX√√√ BANDESAL√√√√√ BNDES√√√√√√√√ COFIDE√√√√ FINANCIERA RURAL√√√√√√√√√√ FINDETER√√√√√√ FIRA√√√√√√

Example of Financial Strategies – EE for SMEs with Bancoldex Credit Line Bancoldex EE Insurance Policy (Optional) Service provider accreditation Project validation Energy savings verification Validation of energy savings and arbitration Validation and Verification Performance Contract (optiona l)

NDB leverage Potential Category of Instrument NDB Theoretical Leverage Factor Tier 1Non-concessional debt2-5 x Debt financed via grants8-10 x Tier 2Non-concessional debt1 x Debt financed via grants4-8 x Tier 1Direct Equity12-15 x Equity financed via grants20 x Tier 2 Direct Equity12-15 x Equity financed via grantsN/A Guarantee at non-concessional rates4-8 x Guarantees financed via grants25 x

CTF US$ 70m CTF US$ 70m CTF concessio nal loans Debt and Private Equity IDB lending to NAFIN US$ 220m IDB lending to NAFIN US$ 220m NAFIN US$ 250m NAFIN US$ 250m US$ 1,190m - US$ 1,540m US$ 1,190m - US$ 1,540m IDB co- financing NAFIN Resources Mobilized Technical Cooperation and Grants IDB US$ 1.3m IDB US$ 1.3m Example of Leverage - CTF-REFF and NAFIN

Conditions for effective scale up of private climate finance Policy development / Enabling Environment Demand creation Demand creation Feasibility studies / Project preparation  Internal capacity  National dialogue  Internal capacity  National dialogue  Project proponent education and awareness raising  LFI education and awareness raising  Project proponent education and awareness raising  LFI education and awareness raising  Develop feasibility study for large projects  Prepare Project / investment plan for smaller projects  Develop feasibility study for large projects  Prepare Project / investment plan for smaller projects Pre-investment phase Financial structuring  Debt on market terms  Equity on market terms  Debt on market terms  Equity on market terms Investment Phase

14 Definición de esquema de contrato. Negociación con concesionarios. Arreglos sobre el financiamiento. Solicitud de financiamiento Procedimiento de licitación y contratación del proveedor Contratación de seguros Compra de las lámparas Instalación del sistema Interventoría para verificar el proyecto Pre-propuesta técnica y económica hecha por empresas proveedoras 1. Diseño/ingenier ía y análisis económico 2. Aspectos legales 4. Licitación y contratación 5. Construcción 6. Operación 3. Financiamiento Strategy for supporting pre-investments and investments in public lighting – Findeter

Integral Approach Implement and Environmental and Social management System (ESMS) Reduce environmental and social risks Identify environmental business opportunities Reduce environmental and social risks Identify environmental business opportunities Short and Medium term: Improve financial and non financial performance Reduce costs and liabilities Attract new clients and tap new markets Short and Medium term: Improve financial and non financial performance Reduce costs and liabilities Attract new clients and tap new markets Long Term: Enhance reputation Strengthen brand value Attract partners and financing Develop Innovative products Long Term: Enhance reputation Strengthen brand value Attract partners and financing Develop Innovative products Increase commitment and awareness of environmental and social issues

Lessons learned from NDBs Supported  High potential of leveraging public and private finance to address climate change  Innovation and piloting of green products  Large potential of supporting programmatic / sectorial approaches (versus project by project)  Key to understand what are financial barriers (versus other barriers) and segment specific market support (focus)  Key to understand non financial markets and support market development, including development of bankable projects and coordination / participation of relevant actors  Increasing importance of developing risk mitigation tools – particularly in liquid markets  Learning by doing process – tailored solutions for specific needs

- CFIs community of PracticeCFIs community of Practice - New Good Practices Platform – KLAVENew Good Practices Platform – KLAVE Web Platforms 2013: - Social and environmental risk management - Case studies 2014: - FI’s experience with EE and RE - Use of guarantees for green markets Publications 2013: - Green finance experience – Rio de Janeiro, BNDES/ALIDE - LAC FORUM VI– Rio de Janeiro -Financial Instruments to Manage Risks Associated to Green Projects, Cartagena 2014: - Global experiences with green financing lines – October Events

Porque apoyar finanzas verdes? Oportunidades de negocio Beneficios $ / renta Servicios ambientales Mercados de activos ambientales Venta / disponibilidad de energía renovable Productos certificados Ahorro / diminución de costes Eficiencia energética Uso eficiente de agua Manejo eficiente de uso de la tierra Co-beneficios Productividad Mejor calidad de productos Modernización Competitividad y oportunidades en comercio internacional