BEIJING

BERLIN

RIO DE JANEIRO

SAN FRANCISCO

VENICE

+39 041 2700 426

Island of San Giorgio Maggiore 8

30126 Venice

Italy

climatepolicyinitiative.org

The Role of Development Banks in

International Climate Finance

“The Role of National Development Banks in Mobilizing International Climate Finance“

Inter-American Development Bank, Headquarters

Washington, D.C., April 18 & 19, 2012

Barbara K. Buchner Director, CPI Europe

IDB – Role of National Development Banks April 2012

Why changing the climate landscape?

• How to scale climate finance up?

• How to accelerate the effective disbursement of

funds?

• How to leverage low emission investments from

the private sector?

1

Money is currently flowing for climate change activities. Yet, there are a number of shortcomings and gaps…

National Development

Banks?

IDB – Role of National Development Banks April 2012

The need to focus on operationalization

2

Governance Focus, strategy, project approval…

Implementation Project implementation

Monitoring & Evaluation Environmental & social safeguards Fiduciary and fiscal MRV Performance measurement (results)

IDB – Role of National Development Banks April 2012

NDBs & international climate finance – why?

Development Mandate

Promotes financing and associated market

development in underserved sectors

Public Sector Entity

Interaction with different levels of governments,

directly influencing policy

Financial Institution

In the business of financing and risk taking, particularly in

support of LT investments

Catalyst

Works with private financial intermediaries and seeks to

catalyze

Project Structurer

Understands the risks and barriers and can influence

the project structure

Risk Taker

Can manage, mitigate and assume risks that the private

sector cannot

Incubator & 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

NDBs appear to be well suited to address current shortcomings in the climate finance architecture thanks to a number of characteristics

IDB – Role of National Development Banks April 2012

Mexico – Clean Technology Fund Renewable Energy Financing Facility

• Project implementation. Financing facility in a local

infrastructure bank (NAFIN) to leverage CTF

resources, support public & private sector investments,

demonstrate projects’ commercial viability – IDB loans and contingency credit lines to project developers

to cover cash flow deficits during the project life

– NAFIN: own funding, solvent institution with adequate risk

management practices and full backing of Mexican

government

– Private equity and/or funding

4

Program goal: contribute to Mexico’s drive to increase share of RE sources in overall generation and reduce GHG Problem: financing gap for renewable energy projects

IDB – Role of National Development Banks April 2012

Mexico – Clean Technology Fund Renewable Energy Financing Facility

• Project implementation. Financing facility in a local

infrastructure bank (NAFIN) to leverage CTF

resources, support public & private sector investments,

demonstrate projects’ commercial viability – IDB loans and contingency credit lines to project developers

to cover cash flow deficits during the project life

– NAFIN: own funding, solvent institution with adequate risk

management practices and full backing of Mexican

government

– Private equity and/or funding

5

Program goal: contribute to Mexico’s drive to increase share of RE sources in overall generation and reduce GHG Problem: financing gap for renewable energy projects

Host-driven Leverage finance

IDB – Role of National Development Banks April 2012

Mexico – Clean Technology Fund Renewable Energy Financing Facility

• Monitoring & Evaluation.

– NAFIN to assess env&social safeguards and specific

mitigation on a project by project basis, in line with IDB

policies (experiences).

– NAFIN’s systems are adequate and reliable for fiduciary

and fiscal MRV: strong internal controls and external

controls of audit firms.

– IDB and NAFIN to monitor results in various ways in

keeping with CTF requirements.

• Strategy. Financing facility is part of a multi pronged

approach to help Mexico achieve over the medium-long

term a low carbon growth path

6

IDB – Role of National Development Banks April 2012

Mexico – Clean Technology Fund Renewable Energy Financing Facility

• Monitoring & Evaluation.

– NAFIN to assess env&social safeguards and specific

mitigation on a project by project basis, in line with IDB

policies (experiences).

– NAFIN’s systems are adequate and reliable for fiduciary

and fiscal MRV: strong internal controls and external

controls of audit firms.

– IDB and NAFIN to monitor results in various ways in

keeping with CTF requirements.

• Strategy. Financing facility is part of a multi pronged

approach to help Mexico achieve over the medium-long

term a low carbon growth path

7

IDB – Role of National Development Banks April 2012

Mexico – Clean Technology Fund Renewable Energy Financing Facility

• Monitoring & Evaluation.

– NAFIN to assess env&social safeguards and specific

mitigation on a project by project basis, in line with IDB

policies (experiences).

– NAFIN’s systems are adequate and reliable for fiduciary

and fiscal MRV: strong internal controls and external

controls of audit firms.

– IDB and NAFIN to monitor results in various ways in

keeping with CTF requirements.

• Strategy. Financing facility is part of a multi pronged

approach to help Mexico achieve over the medium-long

term a low carbon growth path

8

MRV to verify ‘real’ env impacts

Long term impacts Programmatic

IDB – Role of National Development Banks April 2012

Mexico – Clean Technology Fund How to structure projects

9

Clean Technology

Fund US$70m

IDB lending to

NAFIN US$70m

NAFIN US$70m

Program total:

US$210m (min)

CTF disbursement to

NAFIN contingent on availability of IDB resources for conditional credit line for investment

projects

Disbursement period: 48 months Rate: 0,75% | Maturity: 20 years | Grace period: 10 years MDB Fee: 0.2% | Service Charge: 0.75% | Grant element: approx: 45% | Principal repayments year 11-20: 10%

Private equity & debt

IDB – Role of National Development Banks April 2012

Mexico – Clean Technology Fund How to structure projects

10

Clean Technology

Fund US$70m

IDB lending to

NAFIN US$70m

NAFIN US$70m

Program total:

US$210m (min)

IDB CTF contingent credit line

IDB co-financing

NAFIN Program

Disbursement period: 48 months Rate: 0,75% | Maturity: 20 years | Grace period: 10 years MDB Fee: 0.2% | Service Charge: 0.75% | Grant element: approx: 45% | Principal repayments year 11-20: 10%

Private equity & debt

IDB – Role of National Development Banks April 2012

NDBs – how to gain a more important role?

• Governance ”Power” – Harmonize governance policies/procedures with

international regulatory frameworks

– Establish Advisory Bodies…

• Project implementation ”Responsibility” – Share experiences as a financial institution, public entity,

risk taker, catalyst…

– Provide input to build eligible programmes’ criteria

– Support incubation of good projects

• MRV “Accountability” – Capacity: build institutional capacity

– Monitoring & evaluation: foster fiduciary role, result-based

management frameworks, effective MRV, independent

evaluation / audit of projects and portfolio performance,

disclosure policy 11

IDB – Role of National Development Banks April 2012

Bottom line

• There is money… – But: not sufficient to address the climate change challenge

– Shortcomings in disbursing the money

Experiences show that NDBs can fill the gaps and help

scaling up the investments

• Learning from the experiences: a two-way relationship – To become important actors in climate finance, development

banks need to increase their capacity and be more proactive

need for governments to help

– To ensure that governments build effective funding vehicles,

they need to work with development banks to identify clear

criteria that can guide the effective funding

12

BEIJING

BERLIN

RIO DE JANEIRO

SAN FRANCISCO

VENICE

+39 041 2700 426

Island of San Giorgio Maggiore 8

30126 Venice

Italy

climatepolicyinitiative.org

…helping nations spend their money wisely