Demystifying Private climate Finance Informing the international climate regime on the roles, potentials, and needs of private finance for climate investments Remco Fischer - Programme Officer - Climate Change, UNEP FI 1

Climate change, private finance, and the international climate regime Achieving a climate-compatible economy requires rechannelling of finance at unprecendeted scale USD 1 trillion pa for decarbonizing energy USD 400 billion pa for infrastructure resilience USD 50 billion pa for halting tropical deforestation Less than a third of that currently flowing Evident that the gap needs to be filled with private finance In developed countries mobilization will be driven by regulatory reform such as pricing carbon In developing countries, international public finance will be required to unlock private climate finance USD 391 billion in 2014 UNEP Finance Initiative

Institutional readiness Carbon pricing though Advanced Market Ms The problem: the providers of public climate finance often don´t understand private finance ‘Private finance’ What? Risk guarantees Risk insurance Etc. Institutional readiness Incentives (FITs) Carbon pricing though Advanced Market Ms Bundling Junior co-financing Market readiness How? In other words: Most of the inputs into the negotiations today have focused on the potential GCF interventions. The how? But they have not put the how in context of the ‘what’ and the ‘for what’. The what has been left quite un-nuanced as ‘private finance’. And the for what has been left quite un-nunaced as ‘mitgation and adaptation’. The thing is that in fact a discussion before we can a real discussion on the ‘how’ we firstly need to know ‘for what exactly’ do we need private finance. And ‘secondly’ what kind of ‘private finance’ do we need to mobilise to achieve that objective. Mitigation / adaptation For what? UNEP Finance Initiative

UNEP FI helps structure a more nuanced and conducive agenda on mobilising private climate finance So what we are doing as UNEP FI is to clarify, or demystify on these missing pieces of the puzzle so that ultimately and accurate and informed discussion can take place on the best possible interventions. The question of what is finance, be it private or public, needed for is key – because there is such a diverse set of things that developing countries may want to achieve and invest in. The list of possible interventions ranges from small-scale, off-grid renewable energy to large-scale carbon capture and storage; from land efficiency gains in agricultural production to expanding micro-insurance schemes for weather-related risks. Another dimension on top of for what? Is where? And here again the diversity of country types is important when it comes to mobilizing private climate finance. One thing is to mobilize large volumes of private finance in a least-developed country of Sub-Saharan Africa. A very different thing is to do so in a large emerging and fastly growing economy. UNEP Finance Initiative

Carbon pricing though Advanced Market Ms Institutional readiness A nuanced and structured approach to mobilizing private climate finance For what? HIGH RISK LARGE SCALE HIGH RISK SMALL SCALE LOW RISK LARGE SCALE LOW RISK SMALL SCALE Where? Project finance Project bond Corporate loans Etc. What? Listed equity Private equity Mortgages Tech, market risks Political, country risks Lack of readiness Barriers? Risk guarantees Risk insurance Carbon pricing though Advanced Market Ms So what we are suggesting is a more methodical, more logical, less pre-emptive way of structuring an agenda on private climate finance. It starts with the ultimate objective - what do we need finance for and where exactly do we need it? This gives essentially a set of four categories of investment or project types. In a second step it is determined whether private finance is needed for that or whether public finance; but more importantly, what kind of private finance is needed exactly for the kinds of projects or investments identified previously. Thirdly, what are the barriers that keep that kind of finance from flowing into that kind of project (or technology) and in the kind of country previously identified. And then at the end one can have a much more accurate discussion on what say the GCF can do about that. How? Bundling Junior co-financing Market readiness Incentives (FITs) Institutional readiness Etc.

For what? What? Barriers? How? Large-scale, on-grid renewable energy Project loans Project bonds Private equity Sponsor’s equity What? Large banks Project sponsors Inst. investors Uneven playing field, capital costs Lack of local-currency financing Investment environment risks Barriers? Revenue support, cost-sharing Currency risk hedging; mobilising domestic inst. investment How? Risk guarantees: policy risk insurance

For what? What? Barriers? How? EE in operation and production processes For what? Corporate loans Own equity What? Domestic banks Project sponsors ESCOs Lack of familiarity among third-party financiers Behavioral barriers: revenue-generation vs cost reduction Barriers? Incentives to FIs for on-lending; promotion of ESCOs How? Increase the profitability: negawatts

Demystifying Private Climate Finance Three part series informs global climate community on private finance UNEP Finance Initiative

Thank you Remco Fischer - Programme Officer - Climate Change, UNEP FI 9