The World Bank Group is now working to deliver on its pledge for a one third increase in direct climate financing to help countries tackle the impacts of climate change and move toward low carbon more resilient growth.

Currently about 20 percent of the Bank Group’s funding is climate related and that could rise to 28 percent in 2020 in response to client demand. The Bank Group now provides, on average, more than $10 billion in direct funding for climate work and if current financing levels are maintained, that would mean an increase to $16 billion in 2020.

In addition, the Bank Group plans to continue current levels of leveraging co-financing for climate related projects and has pledged to mobilize $13 billion in external private sector capital annually by FY20. That means in total direct financing and leveraged co-financing could potentially reach $29 billion in 2020.

The move to increase financing recognizes that delivering on climate ambitions will require significant increases in investments, going far beyond public resources.

As the report, Finance for Climate Action shows, the Bank Group plays a key role in mobilizing financing for climate mitigation and adaptation. And along with the other multilateral development banks (MDBs), and other leading development financial institutions, tracks finance in accordance with the common principles for tracking mitigation and adaptation finance. The latest joint report of the MDBs shows that in 2015 climate finance totaling $81 billion was mobilized for projects funded by the world’s six largest multilateral development banks (MDBs).

The Bank Group helps countries access other sources of climate financing through the Global Environment Facility, the Climate Investment Funds, various carbon funds, the Montreal Protocol, the Global Facility for Disaster Reduction and Recovery (GFDRR), the IFC Canada Climate Change Program and going forward, the Green Climate Fund.

By seeking to blend funds from outside sources with its own, the Bank Group can help spur successful investments, crowd in other investors and create incentives to drive transformation.

It’s a move that has helped the Bank Group identify and take on risk; buy down the cost of new technologies and accelerate investments in new markets; test new products; expand resources to low income countries; and provide technical assistance, as well as support to build up capacity within countries, learning and knowledge exchange. A clear example of this is the US$8.3 billion pledged to the Climate Investment Funds (CIF). With funding from the Bank Group and regional development banks, 72 developing countries have been able to pilot low-emissions and climate resilient development through country-led programs and investments.

At the program level, financing of $905 million from the CIF’s Clean Technology Fund (CTF) is driving global investments in Concentrated Solar Power (CSP) and is expected to contribute more than a quarter of current global capacity. This financing is expected to attract an additional US$ 6 billion in co-financing for projects in Chile, South Africa, and the Middle East and North Africa region delivering a projected generation capacity of 1 GW, around one-quarter of the current global capacity of  4 GW.

Transitioning to a low-carbon, climate-resilient global economy will require trillions of dollars in new investments and, while public and international concessional finance have a critical role to play, this transition will ultimately be financed by the private sector. 

The Bank Group has demonstrated innovative ways to mobilize additional resources by working with partners. This includes IFC’s efforts which co-invests donor funds on concessional terms alongside its own commercial funds in high-impact climate projects that would not happen otherwise due to market barriers or high risks. Since FY10 IFC has deployed over $380 million in donor funds to support 48 climate projects, leveraging $1.3 billion of the IFC’s own investment plus $4 billion from other financiers – a leverage ratio of almost 14 times. The IFC Catalyst Fund has raised more than $418 million from institutional investors and sovereign funds interested in green growth opportunities.

Green bonds are another powerful source of private sector led climate finance, which has emerged in recent years. The bonds support environmentally friendly activities, including projects that mitigate climate change or help countries adapt to its effects by strengthening climate resilience. The Bank helped pioneer green bonds, launching its first in 2008. The Bank issued a record $64 billion in bonds in the international capital markets to support sustainable development in countries in FY16. The fiscal year also saw the 125th green bond with $9 billion issued since 2008. IFC’s green bond program helps unlock private capital investment for low-carbon projects. In FY16 IFC’s total issuance was $1.38 billion in seven currencies through 23 bonds – the highest volume in a fiscal year. To date, IFC Treasury has issued $5.64 billion in 11 currencies through 63 bonds. IFC’s green bonds strategy is to serve as an anchor investor in bond issuances of other financial intermediaries and corporates.

Nearly two decades ago, the Bank Group established the world’s first carbon fund to support the objectives of the Kyoto Protocol by paying for verified reductions in greenhouse gas emissions while at the same time reducing poverty, improving access to clean energy and offering health and community benefits. So far, $4.65 billion has been raised through 19  carbon funds and initiatives, supporting over 150 projects in over 75 client countries to reduce carbon pollution equal to taking42 million passenger vehicles off the road.

These funds include the Carbon Initiative for Development (Ci-Dev) and the Carbon Partnership Facility, which use results-based finance (RBF) approaches to climate finance to catalyze sector-wide investment in clean technologies and low-carbon energy solutions.  RBF, which follows the payment for performance model, is also being used to reduce deforestation and preserve landscapes through the Forest Carbon Partnership Facility (FCPF) and the BioCarbon Fund Initiative for Sustainable Forest Landscapes (ISFL).  These two funds have been essential to laying the groundwork for more sustainable management and governance of the natural assets of partner countries using REDD+ strategies.

A new cost-effective climate finance mechanism using online auctions to sell contracts that guarantee the purchase of carbon credits from the private sector is also being tested by the Pilot Auction Facility (PAF).   Its first auction to sell price guarantees for methane gas reductions in the waste management sector was named Carbon Deal of the Year by Environmental Finance Magazine in March 2016. The initiative was also given a World Bank Group Innovation Award.

Looking ahead, the Bank Group is preparing for the next generation of carbon markets under the Paris Agreement.  At COP21, it announced the Transformative Carbon Asset Facility (TCAF),  a $500 millon fund that will leverage public finance to create favorable conditions for private sector investment in low-carbon technologies that will lead to efficient and low-cost mitigation at the national and global scale with lasting, transformational impact.  

The Global Facility for Disaster Reduction and Recovery (GFDRR), a global partnership managed by the World Bank and supported by 34 countries and 10 international institutions, acts as a financing and technical body that supports DRM across the World Bank Group. Over the past decade, the World Bank has emerged as the global leader in disaster risk management (DRM), supporting client countries to assess exposure to hazards and address disaster risks. It provides technical and financial support for risk assessments, risk reduction, preparedness, financial protection, and resilient recovery and reconstruction. The WBG’s DRM portfolio has increased by nearly 50% in the past five years, from $3.7 billion in FY12 to $5.5 billion in FY16.

Last Updated: Sep 30, 2016

As the World Bank Group’s Climate Change Action Plan makes clear, public funding alone won’t meet the climate challenge. Increased private sector funding will be essential for the deep economic and transformational change needed to help countries deliver on their commitments under the Paris Agreement.

The investment needs embedded in countries’ national climate plans (the INDCs) amount to more than $1 trillion per year over the next 15 years, while the World Bank Group’s annual commitments are around $60 billion per annum. While Bank Group funding will remain important, policy and institutional support for national investment plans and strategic use of private sector finance to open markets and spur more action from external investors will be critical.

To leverage more resources beyond public funds, the Bank Group has pledged to mobilize $13 billion in external private sector capital annually by 2020. To achieve this, IFC, a member of the World Bank Group, will aim to increase its private sector leverage ratio from 1:3 to almost 1:4 – and will aim to create products that attract larger institutional sources of capital.

IFC has developed an IFC Climate Implementation Plan which outlines IFC’s public commitment to roughly doubling its own investments by year 2020. The plan has four key objectives:

  • scale climate-related investments to reach 28% of IFC’s  annual financing by 2020
  • catalyze $13 billion in private sector capital annually by 2020 to climate sectors through mobilization, aggregation, and de-risking products
  • maximize impact through greenhouse gas emissions reduction and resilience
  • account for climate risk – both the physical risk of climate impacts and the carbon asset risk in IFC’s investment selection.

The new plan also points to IFC’s renewed efforts to mitigate risks in new markets through de-risking tools. New and additional project risk can be mitigated through the use of blended finance, allowing IFC to target first-of-a-kind projects with high development impact, strong potential to create a demonstration effect, and limited commercial track record.

The Bank Group will also help to “green” the financial sector through a coordinated and integrated approach across banking, pensions and capital markets. The Bank Group will expand financing for green investments by working with regulators on the enabling environment; demonstrating the business case and creating green financial champions; work to remove barriers to financial sector growth and use; promote the adoption of appropriate environmental and social performance standards by pension funds and banks; provide climate credit lines directly to private sector banks and work with banks and investors/pension funds to identify and build the pipeline in climate sectors as well as measure and track their climate investments. The Bank Group will provide climate finance policy guidance for regulators, including through the IFC-managed platform of the Sustainable Banking Network. The Bank Group will also gather data on whether climate risk threatens the stability of the financial sector and develop a performance framework to assess the level of greening of the whole financial system. By 2020, the Bank Group aims to have five country programs that can integrate green elements into banking, capital markets and pension funds.

Work on the green bond market will be expanded. The Bank was an early leader in the green bond market, which is expected to reach a total volume of $80 to $100 billion by the end of this year. The Bank Group will develop and deploy asset-backed project and other new classes of green bond issuances, and continue work in two or three countries to implement green elements in ongoing bond market development programs.

Well-designed strategic investment funds (SIFs), with governments as anchor investors, could act as powerful catalysts to crowd in domestic and international institutional investors in large, climate-resilient infrastructure projects, by sharing and mitigating the risk of private investors. By 2020, the Bank Group plans to work with SIFs in 34 markets to make them greener and support them in crowding in equity and debt financing from domestic and international institutional investors.

The Bank Group will also scale up financial leverage in Bank, IFC and MIGA operations for resilience and mitigation. As one example, the objective is to mobilize $25 billion in commercial funds for clean energy between FY16 and FY20, including funds to support up to 20 GW of renewable energy generation.

Support will also be boosted for project preparation facilities, such as the Global Infrastructure Facility and the Africa Climate Resilient Investment Facility so that they support the creation of resilient or low carbon projects.

And the Bank Group will create “deal teams” across the institution to tackle high opportunity areas – with the aim to work with countries to deliver transactions at scale by generating a robust pipeline of bankable/investable projects from early stage to financial closure. Early ideas include:

  • Energy infrastructure – by 2020, the Bank Group aims at working in six countries including four countries funded by IDA to help bundle projects and attract private investors.
  • Rooftop solar – the goal is to close two systematic transactions on rooftop solar in two countries by 2020
  • Distributed energy service companies (DESCOs) which provide assets at below cost to customers who pre-pay for energy services. By 2020, the aim is to close two transactions in two countries and crowd in private capital through successful securitization. By 2020, the team expects the number of deployed home systems in Nigeria to have increased by 50,000 and the number in Sub-Saharan Africa by 150,000
  • Resilient urban infrastructure – Bank Group teams will aim to act as brokers, engaging a global network of partners to leverage public/private financing solutions. By 2018, the aim is to close three transactions in more than one countries and by 2020, to close six transactions in two or more countries.

The Bank Group also aims to optimize the use of concessional finance. Climate change will continue as an important theme in the 18th replenishment round of IDA. There is an on-going need for concessional finance, IDA and non-IDA, to support the Bank Group in accelerating the transition from fossil fuels to renewable energy and expand energy efficiency.

A key element of the transition will be “getting prices right” – using pricing as a signal to redirect investments for low carbon and more resilient growth. For the Bank Group, that means helping countries reduce damaging fossil fuel subsidies as well as putting a price on carbon pollution. Direct fossil fuel subsidies were estimated at $493 billion in 2014, exceeding one percent of gross domestic product (GDP) in more than 30 countries. The Bank Group is currently working in some 20 countries to support fossil fuel subsidy reform. 

The Bank Group’s work to put a price on carbon pollution is being extended to help widen, deepen and connect markets. Currently, some 40 governments and 23 cities, states and regions put a price on carbon pollution, accounting for 13 percent of annual global greenhouse gas emissions. This marks a three-fold increase over the past decade. Bank support for country programs is being provided through the Partnership for Market Readiness (PMR), and extending the work on Networked Carbon Markets. In the past year, the PMR’s support has ranged from Chile to Costa Rica, Morocco to Vietnam and the PMR has also been helping China with its plans for a national emissions trading scheme to begin next year.

The Bank Group will continue its support through the Carbon Pricing Leadership Coalition, a voluntary coalition of governments, business, NGOs and other groups, to advance the carbon pricing agenda. Ten leaders, including Chancellor of the Federal Republic of Germany Angela Merkel, Mexican President Enrique Peña Nieto, and Bank Group President Jim Yong Kim, who’re members of the High Level Panel on Carbon Pricing, laid out goals in a vision statement, released in April 2016, to expand carbon pricing to cover 25 percent of global emissions by 2020, and achieve 50 percent coverage within the next decade. 

Last Updated: Sep 30, 2016

Transformational impact of concessional climate finance:

  • Concentrated solar power in Morocco: The Moroccan Agency for Solar Energy, the government agency set up to realize the country’s solar ambitions, used a $43 million World Bank-Global Environment Facility (GEF) grant to test the viability of solar thermal technology in the country’s north-east. This laid the groundwork to scale up and secure the more than $3 billion needed for the Noor-Ouarzazate complex from the World Bank, the Climate Investment Funds’ (CIFs) Clean Technology Fund, the African Development Bank, and European financing institutions. In 2014, IFC supported the project’s first phase (160 MW Noor 1) with an equity investment of $20 million, of which $10 million was funded by the GEF Earth Fund.

The Noor project has helped reduce costs, and sped up the commercial adoption of large-scale, low greenhouse gas-emitting generation technologies, while testing the viability of solar thermal technology to encourage its use in Morocco and elsewhere.

  • In South Africa, the 100 MW Sere Wind Farm is one of the largest projects of its kind in Africa and the first commercial utility-scale renewable energy project of the national utility Eskom. It will save nearly 6 million tons of greenhouse gas emissions over its 20-year expected operating life. Average annual energy production is estimated at about 298,000 megawatt hours (MWh), enough to supply about 68,000 standard homes. The development of the Sere Wind Farm is part of South Africa’s efforts to diversify its energy mix to reduce reliance on coal. A total of $100 million in concessional funds from CTF channeled through the World Bank and the African Development Bank were essential to bridge the cost gap relative to coal power generation and in providing the positive incentives required for Eskom and its lenders to proceed with the investment.

Other results:

  • In Morocco, the Bank Group is supporting the government’s National Program for Saving Water in Irrigation (PNEEI) with a new $150 million commitment, which builds on $500 million of prior commitments. It will help poor and vulnerable farmers with more efficient irrigation technologies so they can cope with increasingly less water and greater variability in water supplies.
  • We’re also showing how blended finance can be used to open up difficult markets. For example: IFC supported Jamaica’s first independent wind power, the BMR Wind Farm, through $10 million from the IFC-Canada Climate Change Program and $10 million from the IFC and the Overseas Private Investment Corporation. This financed a 36 megawatt wind farm.
  • IFC has been developing Asset Backed Securities structures through aggregation and mobilization: a recent example is the India Rooftop Solar Warehouse. This initiative would provide affordable and accessible term debt financing to developers of solar rooftop projects in India. It will target institutional, commercial and industrial customers, and demonstrate the viability of a sustainability-focused Asset Backed Securities (ABS) structure for the Indian market.

Last Updated: Sep 30, 2016

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