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Climate Finance Module 2

Module 02

Climate Finance
Lesson 1

Innovative Approaches to Leverage and Deliver Climate Finance

Presentation Script

Climate Finance Module 2
Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance

Presentation Script

Welcome to Module 2 of the Climate Finance e-learning course.

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Page 2 of 26 .Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1.2 Introduction Module 2 is divided into three lessons: Lesson 1 covers Innovative Approaches to Leverage and Deliver Climate Finance. And Lesson 3 describes the Role of National Development Banks (or NDBs) to Scale-Up Private Climate Finance. Lesson 2 examines Risk Mitigation Instruments.

Page 3 of 26 .Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. you will learn what instruments are used to leverage and deliver climate finance and some concrete examples of innovative finance supporting climate action. you will learn the concept of innovative finance and some innovative financing solutions for climate investment.3 About Lesson 1 In this first lesson. In particular.

Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1.4 About Lesson 1 The following are key questions that will be addressed in this lesson:  What are the key obstacles to climate investment?  What is innovative finance and how is it used to meet these obstacles?  What are innovative climate finance solutions and which instruments are used?  What are some concrete examples? Page 4 of 26 .

regulatory uncertainty and the risk of default by local institutions as major impediments to private investment. local and foreign investors perceive foreign exchange availability. financial instruments that correctly price risk. or unaffordable. Another obstacles is insufficient access to financing due to unavailable. excessive risk. as most climate-related technologies have not penetrated local developing country markets yet. Also.5 Key Obstacles to Climate Investment Private sector investors face many obstacles when considering to invest in climate change mitigation and adaptation: for example.Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. Page 5 of 26 . higher upfront costs and insufficient returns.

like solidarity taxes. innovative finance includes any financing approach that aims to: • Generate additional development funds by tapping new funding sources. by reducing delivery time and/or costs. a huge gap exists in current climate finance flows. especially for emergency needs and in crisis situation • Link financial flows to results. To address this gap. development banks like the World Bank Group have launched innovative finance initiatives to help increase climate investment flows.6 Innovative Finance Because of the many obstacles to climate investment. or emerging donors.Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. like institutional investors • Enhance the efficiency of financial flows. by using results-based financing or instruments linking flows to measurable performance on the ground Page 6 of 26 . At the World Bank Group.

Page 7 of 26 .Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. we will learn more about each of these innovative climate finance solutions. combined finance and alternative source of financing for Small and Medium enterprises (or SMEs).7 Innovative Climate Finance Solutions To achieve the aims of innovative finance. In the following slides. blending. four innovative climate finance solutions have emerged: leverage. Each solution is enabled by a range of financing instruments to leverage and deliver climate finance.

there is no single. it is necessary to leverage sources of funding to scale-up climate actions.8 Leverage We will start with the innovative climate finance solution called Leverage. Page 8 of 26 . In order to fill the climate finance gap. universally accepted definition of the term ‘leverage'.Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. While there is broad agreement on the need to leverage climate investment. or a methodology to quantify leverage.

leverage is defined as “the process by which private sector capital is ‘crowded in' as a consequence of the use of public financial intermediaries and financial instruments”. leverage implies the use of a lever to enhance an action.9 What is Leverage? In this course. leverage refers to the ratio of equity to a blend of debt. Leverage shows how much money was mobilized on the back of a public dollar. As you can see. In financial terminology. Page 9 of 26 . Leverage can also be interpreted as the amount of private financing that can be mobilized per dollar of public or quasi-public support.Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. Click the buttons for an example and further definitions.

Click the button to view one of many examples of leverage supporting climate action in developing countries. combined with public financial interventions or investments. The list on the right shows the most common instruments used to leverage private climate investment. Page 10 of 26 .10 Understanding Leverage The amount of climate finance delivered through leverage depends on many factors. Take a moment to read the list on the left. Given all of these. leveraging private resources is best accomplished through some combination of policy reforms that shift incentives for private investment and address key market failures.Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1.

Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. Page 11 of 26 . As you have learned in module 1.11 Blending The next innovative climate finance solution is blending. blended climate finance refers to financing provided to a project at below market terms due to “blending” of concessional donor funds with commercial investment.

rates invested alongside an implementing entity's own funds.Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1.12 What is Blending? Blending finance refers to funds invested at concessional. These funds “make” projects happen and increase climate-smart investments. Blending finance also enables projects to take place over time. or below market. Blending concessional funds helps to catalyze investments and accelerate impact that would not otherwise happen due to market barriers. demonstrating their viability on fully commercial terms. Page 12 of 26 . Blended funds are not a subsidy but rather donor-directed investment used to balance challenging market barriers.

like the ones listed. one from Mexico and another one from Thailand. Building and strengthening these systems is complex and may require legal status. fund management capacities. Page 13 of 26 . Blending resources also requires more complex financial capacities that draw upon banking functions.13 Understanding Blending Blended Finance can take the form of a variety of products and structures.Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. and a formal connection to Ministries of Finance. Click on the button to view just a few examples of blending. restricting the type of institutions at the national level that can be involved.

IFC co-invests concessional funding provided by the Global Environment Facility. Click the buttons to learn more. Page 14 of 26 . For these projects. These funds can be used to undertake high-risk.Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1.14 Blended Finance Unit at IFC The Blended Climate Finance Unit at the International Finance Corporation (or IFC) manages concessional donor funds that aim to address climate change by catalyzing private sector investments and advisory projects that would not otherwise happen due to existing market barriers. the Climate Investment Funds and bilateral sources such as Canada alongside its own funds. high impact projects with significant climate impact.

15 Combined Finance The next innovative climate finance solution is combined finance.Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. Page 15 of 26 .

It can make otherwise unattractive low-carbon projects attractive. Page 16 of 26 . For example.16 What is Combined Finance? Combined finance bundles different types of finance within a single project or program. or a trust fund. Capacities are required to allocate resources in a transparent and accountable way. resources can be combined through a national financial mechanism. such as a National Development Bank.Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. a National Carbon Fund. where resources are allocated together side by side. Combined finance entails few financial complications as no additional financial risk taking is required and results can be easily attributed to each financing source.

gather a larger package of resources to address the same issue. and leverage a greater quantity of both human and financial capital toward implementation. However. Combining finance and maximizing synergies among multiple climate and development financing instruments will remain critical to achieving impact and responding to the challenges posed by climate change. combined finance faces several barriers and challenges that need to be addressed in order to enhance efficiency. Take a moment to read these barriers and challenges highlighted in red text before clicking Next.17 Understanding Combined Finance Combining finance can reduce transactions costs.Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. Page 17 of 26 .

Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. as well as strengthening national ownership. NCFs can be designed to combine sources from international climate finance flows. the Global Environment Facility. The key goals of an NCF are the collection. of climate finance. It combines capital from revenues and levies from CDM business operations.18 Combined Finance Mechanism: National Climate Fund (NCF) One mechanism that enables countries in combined finance for climate action is a National Climate Fund. Click the button to learn more about a combined finance example from China. grants and other types of support from multilateral development institutions to advance climate action. Adaptation Fund and the emerging Green Climate Fund with others resources at the project level. blending. and coordination. Page 18 of 26 . An example of a NCF is The China CDM Fund.

19 Alternative Source of Financing for SMEs The last innovative climate finance solution that we will introduce is alternative source of financing for SMEs. Page 19 of 26 .Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1.

Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. we will focus on crowdfunding which aims to pool private resources for small and medium enterprises.20 What are Alternative Sources of Financing SMEs? In module 1. Pay As You Save programs and publicly-traded investment funds. In the next slides. Page 20 of 26 . These included microfinance for energy. you were introduced to mechanisms that deliver alternative sources of financing that support private household investments in renewables. property assessed clean energy.

Crowdfunding takes advantage of collective decision-making and innovation. Page 21 of 26 .Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. and applies it to the funding of projects or businesses. According to a recent World Bank report. The possible market potential for crowdfunding in developing countries could reach up to $96 billion a year by 2025. crowdfunding is an Internet-enabled way for businesses or other organizations to raise money in the form of either donations or investments from multiple individuals. making it a viable innovative climate finance solution for scaling-up climate action.21 What is Crowdfunding? Crowdfunding is defined differently by different institutions.

Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1.  Crowd investing.22 Crowdfunding Models There are several categories of crowdfunding:  Donation or reward based crowdfunding. which raises nonequity capital rather than the sale of securities for creative projects or charity causes. This includes raising debt capital in the form of loans. and selling investors' ownership shares. Advance to the next slide for more examples of crowdfunding models. Page 22 of 26 . selling claims to the company's intellectual property. which refers to raising capital by selling financial instruments related to the company's assets and/or financial performance.

23 Crowdfunding Models On this screen.Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. please take a minute to review each of the crowdfunding models. Page 23 of 26 .

And lastly. Page 24 of 26 . Crowdfunding can potentially mobilize funds faster than Official Development Assistance.24 Understanding Crowdfunding The following are unique characteristics making crowdfunding a promising alternative source of financing supporting small-scale mitigation and adaptation actions. Crowdfunding represents a new and largely untapped source of private sector financing. Crowdfunding can potentially play a critical role to give direct financial access to micro and small entrepreneurs otherwise excluded from formal finance.Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. Click the button to view an example from Croatia. crowdfunding can tap into a more risk-tolerant segment of investors in OECD countries and enable small-scale financing institutions to venture into new business fields.

innovative finance has emerged to help increase climate investment. four innovative climate finance solutions were introduced (leverage. blending. combined finance and alternative sources of financing for SMEs) along with the various instruments and capacities used in these approaches to leverage and deliver scaled-up climate finance.25 Summary In summary. Page 25 of 26 .Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. because the private sector faces obstacles to invest in climate action. Specifically.

26 References and Resources You have reached the end of Lesson 1. Displayed are some links that you may visit for additional information.Climate Finance Module 2 Module 2: Lesson 1 – Innovative Approaches to Leverage and Deliver Climate Finance Presentation Script 1. Page 26 of 26 .