CFA Day 5: Financing the Future

18/09/2017

On Friday, Government delegations from Nigeria, Colombia, and Mexico presented their climate finance propositions to a diverse group of investors, at the close of the week-long Climate Finance Accelerator.

These engaging read-outs of their learnings marked the culmination of 5 intense days where country delegations worked alongside the finance community to test and develop climate finance plans. The delegations were praised by Aziz Mekouar, from the Moroccan COP Presidency, for “showcasing leadership and forward thinking”, by taking part in this first Accelerator. The delegates themselves showed remarkable progress and cohesion – remarking on how impressed they were with the commitment of the financiers to supporting them in developing bankable pipeline.

The climate imperative for all stakeholders

Private sector, Governments and NGO’s reiterated that there is no alternative to action on climate change. Steve Waygood, our host from Aviva, spoke of climate change as a business imperative with Aviva committing to invest £500m annually in low-carbon infrastructure projects and actively diversifying out companies that are not responding to the climate agenda. Mr. Mekouar set the bar high “We shouldn’t speak of climate finance”, he said “all finance needs have a component of climate.”

The countries presented exciting opportunities but showed that there is no ‘cookie-cutter’ approach to financing, even across the same sectors, as each country’s context differed.

Miguel Angel Gomez from the Columbia delegation had three key messages for his audience: Columbia has ambitious goals, the institutions necessary to deliver these goals are in place and there are bankable projects underpinning them. He presented a sustainable mobility plan for Bogota that, using the proposed Metro as the core, creates an extended proposition to increase climate impact by integrating with other modes of transport such as cycling. The $4bn capex required is proposed to be funded by a mix of trade finance and green bonds. Columbia overcame the issue of fragmented finance requirements in both energy efficiency and agriculture by proposing an ESCO structure and Climate Smart Ag fund, respectively, that would each aggregate smaller projects into more attractive / “mainstream” investments size-wise. The ag fund was worked out during the course of the CFA as the country delegation and financiers from BNP Paribas and Enclude looked for ways to move away from small, single, idiosyncratic projects likely to be dependent on grants, to more commercially sustainable structures. Colombia also identified $ several billion of further NDC related projects requiring finance, in just the transport, energy and agriculture sectors.

Giesela Meindez and Daniel Chacon-Airaya presented on behalf of the Mexico delegation. They focussed on energy and transport, which together make up 50% of Mexico’s carbon emissions. An e-taxi pilot project to convert 2700 taxis in Mexico City (2% of fleet) and Colima (40% of fleet) was proposed. In addition, through clever structure to reallocate existing subsidies, devised during the CFA as a result of the team’s work with HSBC, a further project to provide solar for 25 million households and 4 million SMEs was put forward.

Olukayode Ashuolu from Nigeria’s central-bank sponsored agriculture guarantor NIRSAL, presented an electrifying speech on behalf of the Nigerian delegation. He spoke of his governments’ strong commitment to NDC-related projects, as they are vital for climate compatible development, diversification of the economy and economic and social inclusion. Nigeria’s initial NDC plan has outlined more than $142bn of investment.  Working wth Deutsche Bank during the CFA, they had identified  8 projects for immediate focus in the agriculture and energy sectors.

A statement by Ha Han Nguyen from the Vietnam delegation, who observed the weeks proceedings, confirmed her country’s eagerness for further future engagement in the CFA process, for which a funding package is now being sought.

All speakers remarked on the value of the Accelerator and the pre-London processes run in-country to bring together people who needed to be at the same table. In a panel, country representatives discussed their thoughts from the week’s proceedings. Some of these were:

  • “We [governments and financiers] speak different languages, but we can learn to understand each other”
  • “We need to enhance dialogue between the private and public sector at international, but also local levels, to know what is already happening inside the country [finance-wise] and to leverage that”

“There is a huge amount of focused work required to move from plan to projects to desired outcomes and results”

  • “Climate finance is still finance, and needs to manage risk and be linked to returns”
  • “We need access to international funding to enable us to pursue larger projects outside boundaries of local finance and to access other networks and knowhow”
The rigour and attention to detail of investment bankers is vital to successful climate projects

In a panel with the investment banks which had worked with the country teams, Tessa Tennant praised the bankers for their commitment to the process – even earning the kudos from one country delegation of “these bankers, they’re actually quite nice”! She spoke of the importance of having term sheets to act as ‘dictionaries’ between financiers and policymakers, to ensure everybody understands and can act on the spectrum of issues that need to be addressed to get projects over the transaction line.

Graham Smith from HSBC spoke of three considerations to access finance: ensure the rule of law is in place (i.e. contracts enforceable and protected), know your customer (clarify if the mandate allows for customer type and country risk, and ensure the right people are on board); and lastly, check that the project is ‘bullet-proof’ (i.e. practically workable in context).

Bankers spoke of their delight to discover that dialogue was constructive and friendly and were impressed by the interest of the delegations in unpicking what risk really meant. They were pleasantly surprised that their colleagues from other parts of their institutions were also interested in the opportunities and ready to get involved.  They saw the CFA as a ‘deal-flow network’ and all were keen to stay involved with this and future processes.

“Further, faster, together…”

Nick Nuttal from UN Climate Change summed up the main objective of the 5-day process: “The Paris agreement was like a shiny new concept car – looks incredible, but there’s as yet no engine under the bonnet. The CFA is helping to create that engine, and move the car from concept to the road”. His final words rang true for the audience: “This”, he said “is where the future is…”

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