Standardisation, leverage and "early in - early out": insights from COP24 side event on de-risking climate finance

As the IPCC just recently confirmed, USD trillions of investments are needed every year for the clean energy infrastructures and sustainable landscapes necessary to steer the world to the desired 1.5-2 degree warming path. Yet despite enormous efforts to finance renewable energy and other clean technology, annual investment remains below USD 1 trillion.

So, how do we solve this challenge? Rather than increasing public money, it's about creating a low-risk policy environment. This can be done by setting a clear carbon price and using public finance wisely to de-risk and thereby mobilize private capital.

But how can we derisk climate finance? South Pole convened a panel of private and public sector experts and practitioners to discuss this at the UN climate conference in Katowice, on behalf of the Nordic Council of Ministers and the Nordic Investment Bank.

I had the honour to moderate this panel that examined the lessons from existing de-risking tools and strategised how to increase investments in the low carbon economy from USD billions to trillions. The insights were striking.

Michael Schlup, Chief Operating Officer of Sail Ventures, presented the &Green Fund that his company manages on behalf of the Government of Norway and Unilever; the fund promotes sustainable landscapes (forests and agriculture). Michael sees providing a reliable outcome and returns to the corporates they support with loans and guarantees, as the path to success and central in de-risking climate finance. He pressed the importance of thinking more from the private sector perspective and shifting from publicly supported to purely business-driven investments.

Barbara Buchner, Executive Director of the Climate Policy Initiative, showed how the Global Innovation Lab for Climate Finance mobilised up to USD 1 billion investments by bringing the right public and private stakeholders together. This includes providing tailored technical support to entrepreneurs, addressing the right risks and using standardisation (e.g. through the Energy Savings Insurance promoted by the Government of Denmark). She highlighted the importance of staying within the politically possible and away from investments with political barriers, and notably, focusing on high impact/leverage measures.

Marc Sadler, Practice Manager for Climate Funds Management at the World Bank, presented lessons from the Biocarbon Fund where donors, such as Norway and the UK pool funding for carbon projects investing in sustainable landscapes. He talked about the success achieved through private sector involvement, standardising and streamlining processes, and the design of interventions that went beyond carbon and prioritised the beneficiaries and their needs. He also urged a greater focus on the high leverage projects and the need to address policy risk.

Ayaan Adam, Director of the Private Sector Facility, Green Climate Fund, presented on their programmes, key examples being how they managed to replicate the Energy Savings Insurance in further markets, and the need to replenish the Green Climate Fund to continue with the Private Sector Facility.

5 takeaways for our own work on developing and managing Funds & Platforms

1. More standardisation: we need to provide standardised approaches that can be scaled
2. Leverage is key: we have so little public and philanthropic money that we have to go for the highest impact measures. This insight is not new but some clients and investors still prefer their pet projects over the high leverage opportunities. Work has to be done to change this thinking.
3. Think from the business perspective: de-risking only works if we know what investors and corporates really want and how they operate.
4. Go in early, go out early: we have to move public and philanthropic clients away from their comfort zone; make them invest early when things are still risky, get their investment out early enough to avoid crowding out private capital.
5. Platforms help: they facilitate learning and collaboration, leading to new actions being designed. For example, the Nordic Public-Private Collaborative Platform for Climate Finance that we manage for the Nordic Council helped to bring key stakeholders together, not just at this event, but also at a workshop in Copenhagen in May.

From left to right (Martin Stadelmann, South Pole; Michael Schlup, Sail Ventures; Barbara Buchner, Climate Policy Initiative; Marc Sadler, World Bank; Ayaan Adam, Green Climate Fund)

We have more insights to share in a new brief for the Nordic Council - where we focus on new carbon markets, supply chains and… de-risking climate finance.