Photo: usacehq

Dutch Initiatives on Climate Finance Address Key Challenges

15/12/2016

“Climate action is an integral part of our development cooperation policy, and we focus particularly on the least developed countries”

Ahead of the GIIN Forum in Amsterdam on December 7/8, NDCI.global asked Lilianne Ploumen, Minister for Foreign Trade and Development Cooperation, for thoughts on a number of issues surrounding the NDCs.  We also spoke to Dutch development bank FMO on their Climate Investor One hybrid project finance fund

Photo: NL Government
Photo: NL Government
  1. Does the Dutch government have a specific strategy or agenda for helping developing countries finance and implement their nationally determined contributions (NDCs)?  If so, what are its key elements?

Developing countries – and especially the least developed countries – are extra vulnerable to the effects of climate change: they often lack flood protection and their relatively fragile agricultural sectors can be hard hit by extreme weather conditions. So climate action is an integral part of our development cooperation policy, and we focus particularly on the least developed countries. The Netherlands is committed to supporting these countries in financing and implementing their NDCs, a majority of which includes gender, both via our own programmes and by mobilising private finance funds. We also work closely with civil society to address the causes and consequences of climate change on the ground.

In supporting climate-relevant programmes and projects, we focus on sectors where the Netherlands can add value, such as water, agriculture and renewable energy. Examples include water management projects in Bangladesh, climate-smart agriculture in Uganda and access to clean cooking solutions in sub-Saharan Africa. The Netherlands also pays particular attention to women, as they act as agents of change.

The Netherlands has joined the NDC Partnership that was launched in Marrakech last month. We see this as an important platform to enhance international cooperation and coordinate action supporting countries in the implementation of their NDCs. It allows partners to exchange the best practices that emerge from climate projects and to learn from each other’s experiences. In the NDC Funding and Initiatives Navigator, an online platform, information is collected on the effective implementation of NDCs in the various partner countries. The platform also supports developing countries in financing climate projects and offers training and expertise.

  1. Is there a figure for Dutch funding of public climate finance funds, such as the Green Climate Fund and the Adaptation Fund?  What should the role of such funds be?

Climate finance funds are key to creating an effective finance mix that enables climate action by developing countries. The Netherlands’ contribution to the Green Climate Fund is €100 million. The aim is to help developing countries limit or reduce their greenhouse gas emissions and to adapt their economies and living environments to the effects of climate change. The fund has already raised more than $10 billion from 43 countries. We have also contributed close to €83 million to the Global Environment Facility, which supports climate action in developing countries. And we are supporting the Climate Investment Funds by contributing $76 million to a renewable energy programme in low income countries.

“Paris can only be fulfilled if businesses play their part”

  1. What role does the Dutch government see for private finance or companies in the implementation of NDCs in developing countries, and what support will it provide to enable or promote this?  Specifically, what role does the government see for the Dutch development bank, FMO?

First, businesses have a responsibility to reduce their environmental impact. Under the Paris climate agreement, the EU countries have promised to reduce their CO2 emissions by 40%. This can only be achieved if businesses play their part. What’s more, private funding is a crucial additional source of funding to support developing countries in their mitigation and adaptation efforts. The Netherlands supports initiatives that promote private sector involvement in climate finance. A good example is Climate Investor One, which is being set up by the Dutch development bank, FMO. Climate Investor One (see below) is a fund that allows public and private actors to invest jointly in renewable energy projects in developing countries. Public authorities like the Dutch government take on a higher share of the risk so as to attract private sector finance to programmes. We also promote public-private partnerships in the water, food and energy sectors to boost private sector involvement, mobilise additional climate finance and promote innovation. A good example is the Partnership for Cleaner Textile. This partnership assists the Bangladesh textile industry in adopting climate-sensitive measures, such as reducing water and energy consumption.

Climate Investor One

Picking up the mention of this FMO-led fund  by minister Ploumen, we spoke with FMO Investment Management’s Managing Director Yvonne Bakkum

Climate Investor One is a blended finance facility designed to significantly reduce the time to market of renewable projects in ‘frontier’ markets, by splitting out the different phases of projects and channelling appropriate funding to each.  It was co-founded by FMO and  South-Africa based infrastructure specialist Phoenix InfraWorks.

The Fund has three component parts.  A $30 million Development Fund, financed from aid and other donor sources, will provide developers with development loans to identify projects, develop business plans and obtain necessary approvals. A $500 million Construction Equity Fund, financed in three risk tiers by donors, DFIs and private investors, will provide project finance for this phase, bearing its risks and with appropriate returns in the different tiers.  Finally, a  $500 million Refinancing Fund will transfer the operational phase of projects to a further set of investors, with expectations more aligned to the long-term revenue/risk profile of projects in this phase.

Ms Bakkum said that the structure responds to FMO’s experience in the African, Asian and Latin American markets that Climate Investor One will work in, and is designed to reduce development times and improve the bankability of projects.  “In recent years, we’ve seen more developing countries establishing supportive regulatory frameworks for private investment in renewable energy. But finance is still scarce, you have to bring together multiple providers of capital, and these complexities often lead to long delays in the development period, higher costs, and sometimes the projects just don’t proceed.”

The fund (called ‘One’ because ‘Two’, ‘Three’ and ‘Four’ are anticipated to address to other climate relevant market opportunities) tries to address these problems by combining several innovative investment funds into one, providing a full lifecycle financing solution and mobilising capital into emerging markets at a more attractive risk profile to institutional investors.

Leave a Reply

Your email address will not be published. Required fields are marked *