At day 2 of thhe Climate Finance Accelerator, country delegates were paired with experts from international banks to discuss the enabling environment within each country involved. This was in order to understand which projects to prioritise and what financing mechanisms would be most appropriate. This technical deep dive session took a sector by sector focus to explore barriers to financial access and potential solutions.
All change happens in context and today’s process enabled finance participants to better understand the specific market conditions in each country, discussing policy and regulation, financial and economic, technical and market, social and cultural factors in detail. One delegate said that her views of emerging market opportunity had shifted because she’d realised that for the country she was involved with climate change was a very live issue and finding a solution is viewed as a necessity. This meant that engagement with both government officials dealing with extreme weather conditions and communities’ dealing with livelihood loss was easier and faster, than in other, more developed and resilient countries.
The afternoon plenary was opened by Dr Daniel Klier from HSBC, who heads up both strategy and climate finance for the bank. His compelling presentation outlined the gap the Accelerator is here to fill – pointing out that, based on HSBC research: 97% of investors want to increase their climate related investments, yet the market was viewed as ‘shallow and illiquid’, with a lack of clear definition on climate investment or transparency of opportunities. He stressed that the finance community has a role to play in creating liquid markets through standardisation, working closely with transition clients to reduce risk and in improving transparency through better data and disclosure.
A few cross-cutting themes included:
Developing a strong, diverse narrative
Part of the discussion across the groups centered on how to create a narrative to maximise the benefits and impact of investments and create access to more sources of finance. An example was how to finance fresh food value chains in Nigeria – to focus on strengthening local value chains for better production to create jobs, resilience, and shift from import dependency. The tomato crop alone has a deficit of 1.2m tonnes that is created by under-production, spoilage and lack of adequate distribution. This is an opportunity for the economy that could support climate-smart agriculture and local livelihoods.
Finding solutions outside current definitions of bankable climate projects
All the teams noted that it was harder to work on agriculture than on transport and energy – yet this sector was vital for the transformation of these economies both because of the high climate impact and because of the co-benefits in livelihood and community development. Agriculture initiatives engage rural populations and support political stability. It was noted that taking a regional, portfolio approach might allow for insurance which would lower risk and make projects more attractive to finance.
A similar question arose on how to best package and then measure smaller energy efficiency projects – vital for the transformation – for financing.
Learning from each other
While there are nuances at sector level in each country, the similarities of the challenges faced allows for cross-pollination of ideas and sharing of precedent and practice. A call was made for an ongoing platform to be created to support countries in sharing experience.
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Nigeria was paired with Deutschebank. The team developed a set of criteria to evaluate projects based on a detailed discussion of enabling environment. These included: having generation and distribution embedded in the community, developing clusters below 1MW to side-step time consuming regulation, ensuring developers and project leads have strong track records and focussing on smart models to collect money. A delegate from the country said a key insight for him was to how to approach and set up investments to better protect investor money. Nigeria is focussing on 3 mini-grid projects which will engage multiple communities.
Mexico worked with a team from HSBC. Looking at the transport sector, they expressed the need for supportive policy at all levels of government. They used precedents internally and from other countries, particularly Bogota in Columbia, to learn how to transform transport. Insights included exploring the opportunity for electro-mobility working firstly with taxis and distributing subsidies for a shift to electro-mobility directly to the end-user. However, there are still many questions on how to incentivise the shift, access best practice and technical assistance, invest into technology – particularly software required, develop T’s and C’s for fleet renewal and leverage international pressure to support the transformation.
A similar dialogue in the Mexico team on the energy sector raised questions on how to fill capability gaps, create working renewable systems and overcome “oil inertia” in culture and values. A delegate noted that a recurrent problem of land rights could be overcome through focussing on cash flow guarantees.
The Columbia team, working with BNP Paribus took a systems approach to the projects they set-out. This meant looking to expand large, bankable projects to incorporate other, smaller projects that were less easily financed but vital to the transformation of sectors. They looked, for example, at how to incorporate the development of bike lanes (which are hard to finance) with the larger metro development project to enable a complete transport system. A question they worked with was how to access funding not only for the project but to address the enabling conditions to better make the project work.
The day closed at the Crystal Exhibition on Sustainable Cities with inspiring talks from Pete Daw of Siemans and Matthew Scott from the Bank of England with insights on crowding in private finance and creating orderly transitions.
Day 3 is about priorities and we will dive deeper into the opportunities.