Days 3 and 4 of the innovative Climate Finance Accelerator, brought countries and financiers together to co-create solutions to meet climate commitments. This is the third in this series, following the process and highlighting insights from the day.
“I’m learning to be flexible”, said a senior country delegate on Wednesday, “to get on board and not give up – to jump, to hide, to move around obstacles – make it happen, and keep going until it’s done”.
All participants are showing entrepreneurial grit and determination as they begin to align agendas, reframe projects as bankable solutions and develop workarounds to challenging contexts.
Plenary discussions focused on four challenge areas:
- Aligning interests, priorities and ways of working
Policy-makers and financiers have different mandates, related accountabilities and ways of operating. As one person pointed out “it’s like getting people speaking only Spanish to understand those speaking only Chinese”.
This is further complicated by the fact that within government institutions and across different parts of the finance community objectives differ and ‘green’ and ‘climate’ are understood differently.
A delegate from the public sector spoke of the insight that behind every question asked by the finance expert was a set of measures and the answer given is rated objectively in terms of commercial return. Once this was understood and the questions and underpinning framework made clear, the projects could be better framed against these terms.
A discussion on linking hard currency to local cash flow helped another group realise the value of local banks to fund local solutions. This group pointed out that even if there is good dialogue, it’s important not to lose focus on independent goals and the results needed to get to the best solution for end-beneficiaries.
A bemused banker spoke of trying to get a delegation to vote to prioritise projects – only to realise that they operate on consensus. Not only are people ‘speaking different languages’, often they don’t realise different cultures exist. However, it was acknowledged that “No single person or entity has all the knowledge needed to complete a deal. Everyone has a role to play”.
- Scoping the opportunity
The discussion within the groups looked at how to understand the opportunity beyond financing a single project to: extend impact (e.g. by taking a regional view), leverage grant funding (by taking a longer term view of finance needs) and find finance for joined up solutions that address the problem in its entirety.
For some of the policy-makers, it was important to stretch projects to meet the scale of their ambition to maximise impact on NDC’s, and then work out how to finance this project. This meant understanding other sources of capital beyond project finance e.g. local funding, guarantees, etc.
A frustration was “how green is green enough?” In many cases funding is needed for both the transition (e.g. LPG) not just destination (e.g. renewable) in order to shift systems and this was not always aligned to funding mandates.
- Funding set-up
Most funders are focussed on commercial returns from specific projects. However in order to get to this, there is an investment of time and resource and the need for capacity-building. A significant amount of work is required in order to find the data required to get funding. Time is required to engage all stakeholders – no matter how brilliant the projects. More work is required where no single policy champion exists to get support for opportunities through multiple government departments. Technical expertise and other resource is required to develop transition plans that contextualise projects over time.
There is a major need for specialist financial intermediation – people who have the structuring skills and investor networks to help project sponsors meet the needs and objectives of investors and get the deals done. In many markets this is not available except for very large projects and at high cost. “Lower end” intermediaries need to be developed both in number and capacity, and this will probably require concessional funding.
There is a potential role for Development Banks and Foundations to fill this gap.
- “Oiling the wheels”
Doing a deal is easier where clear policy signals exist that welcome the private sector and any investment made is respected and protected.
Further, it is easier to move projects forward where early success stories or precedents from other places can be shared to create an evidence base against relevant metrics (e.g. number of jobs) for the change.
On Thursday, the discussions started to coalesce as teams look beyond individual projects to how a financing plan for their NDC has a whole can be brought into shape.
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Want to learn more about what goes on at CFA17? Sign up for our ‘NDC Financing Made Easy‘ webinar, which will expand on the outcomes and teachings.