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Into the workshop for Paris finance tools

11/09/2017

Our blogs this week are a bit different to the usual.  First, there will be regular updates during the week and second, these updates will cover the launch of a complementary initiative  that Tessa Tennant and I (the co-editors of this site) have developed in parallel to NDCi.global, but equally designed to advance the cause of Paris-related green and climate finance.

This initiative is the Climate Finance Accelerator”  or CFA, and as this update goes live on Monday morning, the London Stock Exchange will be hosting the opening of its first  workshop.  As the week-long programme unfolds, shared learning expert Nicola Millson will be bringing you frequent updates from the country delegations and finance teams, rounding up with an ‘omnibus’ digest at the end of the week. Our Twitter handle @Money4NDCs will be using #CFA17 throughout the week.

Then, next Wednesday, September 21st at 13:00 BST, you can join us for a webinar on the CFA, featuring the main outcomes and learnings from what we hope will be a groundbreaking way of bringing policy and money together.  The intention is to hit the accelerator pedal  – an EV one, of course – on Paris finance.

As a lead-in, we give you the background to the Climate Finance Accelerator and our expectations for what it will achieve that’s different.  You can read the press release on the CFA here.


In the spring of 2015, as the very first INDCs ahead of the Paris COP started to be published, my long-time co-conspirator Tessa Tennant asked me to put my investment banker hat on and look at the subject of financing them.

Tessa was concerned that the whole debate around finance for Paris was getting stuck on the (in)famous $100 billion a year that was supposed to be flowing from rich countries to poor via mechanisms such as the GCF.  Her concern was not so much that this money wouldn’t actually appear – that was pretty much a given – but that even if by some miracle it did, it wouldn’t be anywhere near enough to fund all the mitigation and adaptation projects that fulfilling Paris would demand.  Add to this the very structure of the Paris Agreement, with every country playing to its strengths and submitting a GHG reduction plan it could live with (as well as highlighting its vulnerabilities and adaptation needs), it seemed to Tessa that there was nothing stopping any country from moving quickly to convert policy objectives to project pipeline if it could access the full range of public and private financing options available.  Such action didn’t require global sign-off – countries were in control of their own destiny and could deliver on their commitments if only they understood better how to implement and finance them.

My possible credentials for having some kind of worthwhile view on this topic (in Tessa’s mind at least) included my experience on the financing of the £7 billion Channel Tunnel – at the time (and possibly still, in real terms) the largest public infrastructure project ever entirely financed with private capital.  For the decade before 2015, I had also been specialising in what’s now called ‘impact investing’ – blended public and private finance seeking to address societal problems through commercially viable businesses such as microfinance.

Tessa waved her magic money wand (one that no one, in the end, has powers to resist) and a small grant emerged from the Rockefeller Brothers Fund for me to look at the first 50 or so INDCs as they came off the press over the summer of 2015. This study led to a report and a ‘Call to Action on Climate Finance’, both launched at the Paris COP and the latter supported by nine prominent climate-related organisations.

The Call to Action had three elements:  a common categorisation for climate projects, to allow for aggregation and thus better financing opportunities; the creation of country-level ‘climate investment plans’, to bring policy and money together; and the creation of networks to bring those on the ‘front line’ of Paris implementation and finance together.

Not for want of trying (a specification has been developed with Ricardo which still seeks funding), the first of these action anchors has never been picked up, despite that fact that it would be simple and cheap to do, would vastly increase the transparency of both financing needs and opportunities and so facilitate much larger fund flows into pooled and aggregated investment products.  Even though it has such great utility, it’s obviously not sexy, complicated or expensive enough to tickle the fancy of funders!

We hope the third action anchor – connecting people – is now being addressed through portals such as NDCi.global and through initiatives in the public sphere like the NDC Partnership and World Bank CAPE Project, and in the private sphere like the CMIA. (For a full picture of the Paris landscape see our blog series starting here .)

The genesis of what has now become the “Climate Finance Accelerator” or CFA is the second action anchor  – the need for country level financing plans.  We hope the workshop taking place this week is the first of many.

The yawning gap between policy and money is the biggest danger to Paris implementation … 
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From the very first engagement that I had with the INDCs back in 2015, it was clear that the principle difficulty with finance for Paris would be the yawning gap between policymakers and the money (wo)men.  At the global level, the UNFCCC is a body of climate negotiators with little expertise (and at best a wary interest, it would seem) in finance, with the exception of the very narrow sliver of funds that flow through “official” climate vehicles such as the GCF. At the country level, politicians and government officials rarely if ever interact with commercial sources of finance, except to tax them.  And vice versa, most financiers tend to put emerging market projects and investments into the “too difficult” tray, even though the perceived risk is generally much exaggerated compared to the reality, if the proper skillsets and approaches are developed.  (As we saw in our recent interview with Nanno Kleiterp, development banks like FMO have been making good and sustained profits in these markets for years, but only because they have taken the time and effort to understand them.}

… The Climate Finance  Accelerator seeks to bridge the policy / finance gap by practical interaction focussed on bankable projects
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So the CFA is seeking to bridge this gap, by bringing the finance and policy worlds together, but with an important difference compared to most efforts directed at this problem to date.  The CFA is a transaction-geared exercise, not a consultancy one.

We are bringing senior civil servants and local private sector representatives from Nigeria, Colombia, and Mexico to London for a week[1]. There, we are partnering each country team with a finance team comprising deal-makers from investment banks[2], DFIs and concessional finance.  The outputs will not be reports that gather dust on shelves, but outline ‘term sheets’[3] for real-world projects that should be able to be taken forward towards a transaction stage after the workshop.

At the same time we will be generating recommendations for practical enabling environment measures that address the key risks perceived by financiers and project developers.  Again, these are intended to be actionable in a reasonably short timeframe so that governments know what they have to do to clear in-country barriers to investment.

Already there have been substantial learnings from the “homework” phase of the workshop over the past couple of months.  This has involved our consulting partners, PWC and Ricardo Energy & Environment, working with the country teams to identify priority sectors, pull together project long-lists and think about enabling measures.  In each country, there has been a preparatory workshop, and in all cases, we were astonished but also encouraged to learn this was the first occasion on which anyone had brought governments and the private finance sector together to consider finance for sustainable development.  This is an early vindication of our theory of change, and a very clear win, before anyone even gets to the meetings rooms in London this week.

Another learning has been the sheer complexity of finding the funding for this relatively simple and cheap idea.  We are hugely grateful to our funders[4], but the fact that there are so many of them that we have to put them in a footnote tells its own story.  There is simply too much complexity in this space for anything to move at the urgent pace it needs to – the workshop has taken some 15 months to activate, and after all, it’s only three countries and a meeting of just 60 or 70 people.

We’ve heard a lot about the trillions needed for the implementation of the Paris Agreement, and all that activity means a lot of jobs and economic uplift, which is excellent news.  But if climate activists of every shape and hue are really serious about cracking the global low-carbon transition, then they need to think about knocking some of the idiosyncratic edges off their own agendas, so we have tiles that can be assembled in many different ways to achieve a particular shape, rather than jigsaws that can only be assembled in one way, and after huge puzzlement.


[1] A ‘pathfinder’ delegation from Vietnam will also be present

[2] Respectively Deutsche Bank, BNP Paribas and HSBC

[3] ‘Term Sheet’ is the commonly used banker parlance for the terms and conditions that would apply to a project or company financing, setting out the type of finance, its duration, interest rates payable, repayment schedules and so on

[4] CIFF, The Hewlett Foundation, BEIS (the UK’s department for Business, Energy, Innovation and Skills) Climate Works Foundation, CDKN, InterAmerican Development Bank

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