Combating climate change requires sizeable financial resources to be mobilized without delay and without eroding current development assistance. Resources provided to date are estimated to cover just 5 percent of the needs in developing countries for low carbon development and adaptation. (Overall, $139–175 billion a year is needed by 2030 in low-carbon investments in developing countries under a +2º C scenario, with another $75–100 billion needed annually for 40 years for adaptation. Source: World Development Report (2010) and Economics of Adaptation to Climate Change (2010).)
Developed countries have pledged to mobilize $100 billion annually by 2020 in climate finance from multiple sources, with a significant portion expected to come from the private sector. Unlocking the substantial potential for private investment will require overcoming a range of barriers to investment; domestic public policies and programs; concessional and non-concessional public finance, carbon markets and new innovative financial instruments to leverage the resources at the necessary scale. Mobilizing resources at this scale will require catalyzing the private sector from different perspectives:institutional investors/pension funds, project developers, financial intermediaries (FIs) ranging from the larger global banks to domestic FIs supporting SMEs, to micro-finance institutions, as well as early stage entrepreneurs, clean tech companies, and fund managers investing in them.
IFC is well placed to work with clients and partners across the spectrum to enable and support transformational investments through its suite of existing and planned financial instruments. In addition to activities we already undertake - which you can see below - some of the initiatives we are working on to deliver in the near-medium term include:
Structured products to mobilize financing from new classes of private sector investors like pension funds who have not been active in providing debt to climate friendly projects in developing countries. Effectively leverage donor/public funds to provide the risk-reward balance that the longer term institutional investors need.
Extend our work on green bonds and move beyond issuing them off our balance sheet, but structure them so as to be asset-linked to varying degrees, like bonds that link to aspects of sustainable forestry in certain types of agro-forestry projects, as well as forex or domestic currency bonds that will help implement country or sector-specific Nationally Appropriate Mitigation Actions - NAMAs.
Structured financial/insurance products related to addressing climate risk.
The Financial Mechanisms for Sustainability (FinMech)unit manages funds provided by donors to be deployed in concessional ways in investment and advisory projects. These funds aim to address climate change by catalyzing private sector investments and advisory projects that would not otherwise happen under current market conditions.
Our green bond issues contribute to IFC’s climate-change strategy, offering both development impact and good return for investors. IFC’s Green Bond issues are part of a strategy to double lending for clean energy projects over three years, 2010-13.
IFC manages carbon facilities, offers a carbon delivery guarantee product to client companies, and provides up-front loans to projects earning income from sales of carbon credits. IFC also offers advisory services products that help IFC client-banks enter carbon markets.