1. Strategic Directions for the Climate Investment Funds Mafalda Duarte June 15, 2016

2. New world, new challenges, new commitment to act New world : Addis Ababa Action Agenda, SDGs, Paris Agreement in 2015 New challenges: – shifting from billions to trillions in development finance – meeting USD 90 trillion demand for sustainable infrastructure – limiting temperature rise to well below 2°C/1.5°C New commitment to act: – INDCs submitted by 189 countries – New MDB commitments on climate action

3. Estimated annual investment gaps in priority sectors to 2020 or beyond (in USD billions) Source: Climate Policy Initiative

4. Gaps and barriers to climate action Lack of access to affordable long-term capital – main barrier for mitigation and adaptation High commercial risk – including off-taker risk, currency and political risks, technology costs, uncertain payback time Non-financial risks such as information, capacity, or policy gaps Sustained access to concessional sources of climate finance – CIF top provider of concessional finance to MDBs in 2013-14 (USD 1bn/yr) – To meet 2020 climate targets (USD 36 bn), MDBs likely to require concessional finance at or above current share (~9%)

5. Seed private equity funds / patient capital & venture capital with lower expectations Risk mitigation and transfer mechanisms (parametric insurance) Risk management solutions Investment vehicles (securitization or bundling) Subordinated debt with first-loss position Local currency lending or currency swaps Instruments needed to spur investment in selected priority sectors *All sectors require technical assistance for information, policy, and capacity gaps. SECTOR Mismatch between local currency revenues and repayment obligations Limited market liquidity Gap between equity required by lenders and availability of equity from developers Limited institutional investment capital Credit default risks associated with farmers’ inadequate credit history and collateral BARRIERSINSTRUMENT Exposure to weather-related risks Lack of equity capital to develop adaptation products and services Contingent grants or equity for high- risk investment; subordinated debt ‘Climate-smart’ land use incl. agriculture & forestry Renewable energy

6. Value proposition of the CIF Largest source of concessional climate finance approved to date Offers the most risk-bearing instruments among climate funds Only climate fund to prioritize a programmatic approach Flexibility & agility to respond to private sector investment needs FIP’s DGM is one-of-a-kind instrument supporting forest communities Operating model allows for learning by doing to course-correct and adapt

7. Comparison of the CIF and GCF Accreditation model Project-based and programmatic Competitive allocation Operating entity of the UNFCCC Open to all developing countries Full service, executive function MDB partnership model Programmatic, implemented through multiple MDBs Certainty on resource envelopes Independent Targets pre-selected countries Light touch, delegates to MDBs Temporal Model Approach Funding allocation Relation to COP Geographic allocation Secretariat Operational since 2008 Flexible toolbox of instruments Operational since 2015 To be determined Experience Risk appetite Structural Differences

8. The CIF can help maintain momentum and scale-up climate finance There is broad agreement on the need to continue and scale-up the momentum in the delivery of climate finance. – The CIF is tested with a proven track record of addressing gaps. – There is a real risk that without the CIF, investments will stall. Recommendation: Continue the operations of the CIF in order to maintain and scale-up the momentum on climate action, bearing in mind the existing investment needs and the additional gaps that may arise in a “no-CIF” scenario.

9. Exploring paths for the future operations of the CIF

10. CTF: Scale, Flexibility, Innovation, Transformation 2008 CTF goes live! MDB partnership Innovation & flexibility Leverage Scale 2013 Dedicated Private Sector Program created Private sector focus Deliver at scale & speed Flexibility 2014 First Contingent Recovery Grant – Geothermal 2016 CTF Funds Fully Committed 2010 1st CTF Disbursement Recorded 2015 Morocco Noor 1 commissioned CTF USD 435m investment in world’s largest CSP complex 2013 Mexico Green Bond Securitization

11. CTF 2.0: Innovative model to scale climate finance Emerging markets require an estimated $3 - 4 trillion annually in low-carbon investments over the next 15 years MDBs uniquely positioned to help plug the gap with a broad range of offerings both in terms of sectors and instruments MDB climate finance is expected to double by 2020 to $36 billion a year, with explicit demand for more concessional finance to help meet this goal Opportunity Country-level Scarce public resources with competing priorities Weak regulatory framework Lack of access to long-term, predictable, affordable finance Technology / commercial risks Project-level High upfront costs Low / no-revenue generation Long time frames High transaction costs Lack of capacity Lack of market knowledge Limited access to capital markets, and narrow investor base Barriers Enhanced Programmatic Approach Building on experience e.g. country- programs, DPSP Priority Investment Areas Incl. energy storage, Sustainable transport, Energy efficiency in buildings, Distributed generation New Financing Modalities Green Markets Risk Mitigation Facility CTF 2.0

12. Strategic Climate Fund: considerations for future operations Funding for implementation required for new countries. Lessons from private sector set-asides can improve future private sector investment. New thematic programs reflect priorities in recipients’ INDCs; CTF DPSP as model. Possibility for greater synergies across SCF programs

13. FIP: Value proposition going forward Growing portfolio of programs/projects generating valuable lessons Experience from a wide range of forest types and situations Partnership with MDBs – ability to integrate forests into wider climate- smart land use. DGM is a model for engaging with and empowering forest-dependent indigenous peoples. Convening power to lead dialogue on the role of forests in achieving INDCs and development targets.

14. Scenario 1: No new funds are provided Risk that forests are not effectively incorporated into INDC implementation plans in new FIP countries Scenario 2: New funds are provided Extend implementation funding to some [all] of the 9 “unfunded” pilot countries Expand DGM to the 9 pilot countries Capitalize new FIP private sector window Support global forest challenges through “horizontal” strategic thematic programs FIP: Future scenarios Country A IP Country B IP Country C IP Implementation Model for a Strategic Thematic Program Cross-country Strategic Program

15. PPCR: Value proposition going forward Tried and tested programmatic approach to mainstream resilience across sectors and monitor progress. Ready made platform for translating INDCs into implementation plans and concrete investments. Experience and risk appetite to support robust MDB pipeline of private sector resilience investments Leverages unique capability of MDBs to climate-proof critical infrastructure.

16. PPCR: Future scenarios Scenario 1: No new funds are provided 10 new pilot countries will continue to advance preparation of SPCRs. Absence of core resources could undermine the design, commitment and delivery of the program; risk of fragmentation Scenario 2: New funds are provided in the near to medium term Extend implementation funding to some [all] of the 10 new countries Launch new PPCR private sector window building on May 2015 enhanced framework Launch strategic thematic program for health.

17. SREP: Value proposition and future scenarios SREP continued value proposition: –Bring energy access into strategic dialogues between countries/MDBs –Fill concessional finance gap unmet by IDA or other climate funds. Without new funding: Uncertainty for the nine countries that have yet to submit IPs (all have prioritized RE in INDCs) With new funding: –Extend implementation funding for new countries –Launch enhanced private sector window focused on energy access with more flexibility

18. G24 April 2016 Communique

19. www.climateinvestmentfunds.org @CIF_Action https://www.youtube.com/user/CIFaction https://www.flickr.com/photos/cifaction/sets Mafalda Duarte Mduarte@worldbank.org (202) 473 - 4678