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ENGAGING PRIVATE SECTOR INVESTMENT AT SCALE FOR CLIMATE CHANGE MITIGATION IN EMERGING ECONOMIES

ENGAGING PRIVATE SECTOR INVESTMENT AT SCALE FOR CLIMATE CHANGE MITIGATION IN EMERGING ECONOMIES. Insights from a GtripleC Project funded by the ASIAN DEVELOPMENT BANK and the UNITED NATIONS FOUNDATION Developed by Murray Ward. GtripleC www.GtripleC.co.nz. SHOW ME THE MONEY.

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ENGAGING PRIVATE SECTOR INVESTMENT AT SCALE FOR CLIMATE CHANGE MITIGATION IN EMERGING ECONOMIES

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  1. ENGAGINGPRIVATE SECTOR INVESTMENT AT SCALE FOR CLIMATE CHANGE MITIGATION IN EMERGING ECONOMIES Insights from a GtripleC Project funded by the ASIAN DEVELOPMENT BANK and the UNITED NATIONS FOUNDATION Developed by Murray Ward GtripleCwww.GtripleC.co.nz

  2. SHOW ME THE MONEY

  3. SHOW ME THE MONEY

  4. SHOW ME SOME LIGHTSHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY

  5. SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEATSHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY

  6. SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOLSHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME

  7. SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVESSHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME

  8. SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREENSHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME THE MONEY SHOW ME SOME LIGHT SHOW ME THE MONEY SHOW ME SOME HEAT SHOW ME THE MONEY SHOW ME SOME COOL SHOW ME THE MONEY SHOW ME SOME MOVES SHOW ME THE MONEY SHOW ME SOME GREEN SHOW ME

  9. Framing the mitigation challenge • OVER $4 TRILLION from 2010-2020 ....incl • 2.2 trillion in zero and low carbon power generation • Over 2 trillion in energy efficiency • OVER $10 TRILLION from 2021-2030 ....incl • 4.5 trillion in zero and low carbon power generation • Over 5.5 trillion in energy efficiency • AND THIS JUST IN THE ENERGY SECTOR • DOESN’T INCLUDE AGRICULTURE OR FORESTS

  10. Trillions of dollars of investments Total global investment for power generation in the 450 Scenario Source: IEA WEO2009

  11. Supply side and demand side World energy-related CO2 emission savings by policy measure in the 450 Scenario Incremental cf Reference Source: IEA WEO2009

  12. Framing the investment challenge • ~$5 TRILLION by 2020 ....means • ~ 2 trillion in equity finance • ~ 3 trillion in debt finance (using a conservative 60:40 debt:equity ratio)

  13. Framing the investment challenge • ~$5 TRILLION by 2020 ....means • ~ 2 trillion in equity finance • ~ 3 trillion in debt finance (using a conservative 60:40 debt:equity ratio)

  14. Assets under management at end of 2008 by the global fund management industry Trillions!

  15. Finance and Investment “Ecosystem”

  16. Wealth …and Funds Management

  17. Through the lens of investment Climate Change Mitigation Policy

  18. Hurdles for “green path” projects • Compared with “brown path” projects providing the same services

  19. Risk Clouds

  20. Financing green (or brown) projects

  21. Financing green (or brown) projects

  22. Financing green (or brown) projects

  23. Risk Clouds

  24. Rolling away the Risk Clouds

  25. Rolling away the Risk Clouds

  26. Rolling away the Risk Clouds

  27. Rolling over the Risk Clouds

  28. Rolling over the Risk Clouds

  29. Examples of new and innovative ideas UNEP FI World Economic Forum Nicholas Stern / LSE Meeting the Climate Challenge: Using Public Funds to Leverage Private Investment in Developing Countries

  30. Key messages from these “idea leaders” • We know where the money is, and is not. • There is enough money to achieve the mitigation task – in developed and developing countries. • We just need to unlock it. • The private sector can’t do this alone. It needs the public sector to set the framework and play its role within this framework. This involves governments of both developed and developing countries.

  31. KEY QUESTIONIs it possible through smart and targeted public sector interventions (policies and finance mechanisms) to sufficiently lower the risk environment of green investments in infrastructure in developing countries to enable lower cost-of-capital finance from institutional investors to be attracted...... at scale?

  32. KEY QUESTIONIs it possible through smart and targeted public sector interventions (policies and finance mechanisms) to sufficiently lower the risk environment of green investments in infrastructure in developing countries to enable lower cost-of-capital finance from institutional investors to be attracted...... at scale?

  33. KEY QUESTIONIs it possible through smart and targeted public sector interventions (policies and finance mechanisms) to sufficiently lower the risk environment of green investments in infrastructure in developing countries to enable lower cost-of-capital finance from institutional investors to be attracted...... at scale?

  34. KEY QUESTIONIs it possible through smart and targeted public sector interventions (policies and finance mechanisms) to sufficiently lower the risk environment of green investments in infrastructure in developing countries to enable lower cost-of-capital finance from institutional investors to be attracted...... at scale?

  35. KEY QUESTIONIs it possible through smart and targeted public sector interventions (policies and finance mechanisms) to sufficiently lower the risk environment of green investments in infrastructure in developing countries to enable lower cost-of-capital finance from institutional investors to be attracted...... at scale?

  36. KEY QUESTIONIs it possible through smart and targeted public sector interventions (policies and finance mechanisms) to sufficiently lower the risk environment of green investments in infrastructure in developing countries to enable lower cost-of-capital finance from institutional investors to be attracted...... at scale?

  37. KEY QUESTIONIs it possible through smart and targeted public sector interventions (policies and finance mechanisms) to sufficiently lower the risk environment of green investments in infrastructure in developing countries to enable lower cost-of-capital finance from institutional investors to be attracted...... at scale?

  38. Why Institutional Investor Capital?Because here’s where trillions of $s are

  39. BUT .... and it’s a big one! • Most institutional investors are looking for predictable rates of return, commensurate with energy infrastructure investing (particularly pension funds whose investment requirements are for long term investment horizons to match their long term predictable pension liabilities) • However, a gap exists between the risk/return expectations of such investors and the risk/return characteristics of clean energy and low carbon technology and infrastructure projects, especially in emerging developing country markets

  40. Something of a “Catch 22” • Green investments in developing countries are too risky for institutional investors – so these trillions go elsewhere • Investors with higher risk appetite want correspondingly higher returns – so this cost of capital too high to bridge the “green gap” • Need a comprehensive ‘de-risking’ programme

  41. “De-risk elements” .... a beginning menu • Host country policies that specifically and directly are supportive of investments in these sectors, including needed support for these to be implemented • Political and policy risk insurance • Mechanisms to address foreign currency exchange risk • In-depth capacity building of relevant public and private institutions and groups that are instrumental to the success, or otherwise, of investments in these sectors in these countries

  42. Cost of capital and the ‘green gap’DEBT side Typical debt finance % in developing countries Recent ‘coupon rates’ on Green Bonds

  43. Institutional Investors and Green Finance Closing the risk spread INSTITUTIONAL INVESTORS Risk range across asset classes DEBT(GreenBonds) EQUITY

  44. Institutional Investors and Green Finance Closing the risk spread INSTITUTIONAL INVESTORSRisk range across asset classes DEBT(GreenBonds) EQUITY

  45. Institutional Investors and Green FinanceClosing the risk spread INSTITUTIONAL INVESTORS Risk range across asset classes DEBT(GreenBonds) EQUITY

  46. A two tier public-private fund for EQUITY

  47. A two tier public-private fund for EQUITY De-risk package‘wrapping’

  48. 10 billion EQUITY

  49. 15 - 20 billion DEBT 10 billion EQUITY

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