Unlocking private-sector financing in emerging-markets infrastructure

A new McKinsey article describes three levers to help governments and development finance institutions increase private-sector financing for infrastructure to narrow the SDG funding gap:

  1. Liquidity: increase availability of funds from both domestic and international investors including through favourable tax treatment and other regulation

  2. Scale: bundle individual projects and provide a portfolio of different products for large investors to increase scale

  3. Enabling environment: address the governance and capability gaps that often hinder private-sector investment

The Blended Finance Taskforce paper “Infra 3.0: Better Finance, Better Infrastructure goes even further, finding that we could reduce the overall funding gap by $1 trillion a year by improving infrastructure productivity.

Infra 3.0 provides a framework to drive efficiencies, generate cost savings and create new ways of delivering traditional, sustainable and innovative models of infrastructure – ensuring we invest “smarter” not just more.

This will be possible by delivering infrastructure in a way which is highly distributed, digitised and “service” based, and which captures the benefits of new technologies and economic clustering. Perhaps most importantly, Infra 3.0 includes natural solutions to increase asset resilience and connectivity. See more on investing in natural infrastructure in the Food and Land Use Coalition’s “Growing Better” report.

In addition to new investment, Infra 3.0 also shows how important it is to focus on O&M which can reduce the total cost of core infrastructure by more than 50%.

Taskforce Chair delivers keynote at Devex’s “Future of Development Finance” conference with real economy litmus test

This week, the Blended Finance Taskforce joined Devex for a day-long event on the future of development finance in London which gathered over 150 experts and practitioners from the business, finance, development and philanthropic community for a thought-provoking discussion on how we can close the SDG funding gap.

The event included a keynote address from Jeremy Oppenheim, Chair of the Blended Finance Taskforce and co-founder of SYSTEMIQ. It also showcased many friends and members of the Taskforce as they looked at the future of development finance – what’s holding it back and how we can create long-term solutions to mobilise capital in years to come.

Speakers shared realistic and sobering messages about the progress we’ve made so far: the bottom line is that we are not on track to achieve the SDGs. Going from billions of dollars of public capital to trillions of private dollars invested in the SDGs must involve a massive reallocation of capital away from destructive activities into those that generate positive outcomes for people and planet.

“It comes down to – what kind of economy do we want to build and how does finance play a role in building that economy?”

To do this, the financial system needs to undergo a deep transformational shift in order to build a truly sustainable global economy. How do we do this? Oppenheim says, “We need to rethink some of the ways in which we price risk, price assets, think about returns, decide what to invest in and what not to invest in … and if we continue to wait for policymakers to do it, then we’re part of the problem.”

 He went on: “If we keep on just providing the money neutrally across the system, it’s going to keep on investing in the easy stuff, because that’s what we do, that’s how everything is geared up. We will have to find a way to shift the use of monetary instruments into much more aggressive SDG and climate related investing.”

Oppenheim challenged the audience to a simple “litmus test”: are the development interventions that we are proposing actually having any impact on the real economy? One example is the food and land use system on which we utterly depend: it is generating not just static externalities but dynamic risks that are completely unpriced in the finance sector.  Because of that, all the financing overwhelmingly is going into players that have balance sheets that are creating the products at the heart of this problem. 

It also means that investment doesn’t get to the smallholder farmer who not only needs to be implementing more regenerative practices to improve soil health and resilience to drought and flood, but also needs to increase her yield per hectare fourfold to avoid rapid deforestation and agricultural land expansion.

According to the Food and Land Use Coalition’s latest “Growing Better” report, we must decrease land used for agriculture by around 1.5 billion hectares and return it to nature as a central pillar of the climate solution through reduced emissions and more resilient carbon sinks. He said, “What would it take to get successful in supporting those smallholder farmers going from 2 to 8 tonnes per hectare on their crops – if we can’t do that, then the rainforest is toast – then everything will unravel”.

Nick O’Donohoe, CEO of CDC Group reminded us of the opportunity. He said, “this is an extraordinarily exciting time to be in development finance. If you look at the big picture, there’s never been a time when what we do – investing in private companies to stimulate economic growth and create jobs – has been so central in the development agenda. And that’s a function of the SDGs, of the Addis financing conference, the climate emergency, and it’s all focused attention on the critical role that the private sector plays, and the critical need to get capital to the private sector in some of the most difficult, poorest countries in the world.”

With consensus on the scale, urgency and gravity of this challenge as well as the size of the prize for business, people and planet if we shift to a low carbon, resilient and inclusive economy, a refreshingly frank discussion followed about the barriers that exist and the range of solutions to address them.

More key takeaways from the day are set out below.  

SYSTEMIC BARRIERS LIMIT THE FLOW OF CAPITAL TO THE SDGS

Many of the same barriers highlighted in the Taskforce’s flagship report, Better Finance, Better World, were discussed throughout the Devex conference, highlighting the difficulty and complexity involved with tackling them. Three major barriers which got significant airtime were:

  1. Policy and regulation: regulatory reform and policy action are critical to get capital flowing to low carbon and sustainable assets.  This is true in developed economies, where financial regulation like Basel III can be a disincentive to investing in infrastructure or emerging markets but could have outsized positive effects (e.g. through TCFD) It is also particularly important in emerging markets, where predictable and transparent policy can play a critical role to improve the enabling investment environment. Globally, subsidy regimes (especially for fossil fuels or in the food and land use sector) must be repurposed if we are going to shift capital away from high carbon and unsustainable portfolios. Overcoming Political will is challenging in many parts of the world and we don’t have the luxury of waiting for widespread and coordinated political reform.

  2. Perception of risk: The challenge of managing risk in emerging markets and across high-impact “SDG-related” projects, was seen as one of the main factors restricting the flow of capital to where it is needed most. This underlines a fundamental need to tackle the way we price and perceive risk, either at the source (through better governance or increased data and transparency) or through the use of mechanisms and instruments which use development capital (public or philanthropic) to crowd in private investment by mitigating certain risks.

  3. Lack of local solutions: The heavy focus on cross-border finance and lack of local solutions was a recurring theme – emphasising the need for solutions which can scale domestic and local finance and increase the capacity of financial institutions in emerging. Mahmoud Mohieldin, Senior Vice President at the World Bank, highlighted this point, saying “it will be virtually impossible to achieve the SDGs on the current trajectory. Catalysing finance will be critical at all levels – international, domestic and local.”

THERE ARE PRACTICAL SOLUTIONS WHICH CAN BE ACTIONED TODAY

Overcoming barriers like a high perception of risk, limited local solutions and weak policy will require the development of better products, practices and partnerships . While not all straightforward, there are actionable steps we can take now toward these solutions.

  1.  PRODUCTS. We need to pilot innovative, fit-for-purpose vehicles and work to replicate and scale those investment models that prove successful. These vehicles should also be suitable for large-scale capital and serve a broad base of investors. One-off, small-scale vehicles that attract capital from the usual suspects won’t get us there. IDB’s “sovereign digital bond” proposed at the conference is a great example of the type of innovation we want to encourage.

  2. PRACTICES. Better institutional practices amongst data providers, NGOs, and development and commercial finance actors are critical in order to (1) promote transparency, (2) improve data accuracy and availability, and (3) increase the capacity of investors to deploy capital to high-impact, sustainable solutions. This not only helps investors better understand and manage risks but also measure the impact of their investments.

  3. PARTNERSHIPS. Innovative partnerships that involve investors across the spectrum of development finance, philanthropy and the private sector, including through blended finance vehicles, can accelerate efforts to mobilise capital for the SDGs. In doing so, these partnerships can help to mitigate investor risk, support project pipeline development, and test and bring to market new technologies and business models that might otherwise go unfunded.

Rethinking the future of food and agriculture

We are on the cusp of the fastest, deepest, most consequential disruption of agriculture in history.

A new report by RethinkX called “Rethinking Food and Agriculture” shows how the modern food disruption, made possible by rapid advances in precision biology and an entirely new model of production called “Food-as-Software”, will have profound implications not just for the industrial agriculture industry, but for the wider economy, society, and the environment. This is a useful companion to “Growing Better: Ten Critical Transitions to Transform Food and Land Use” from the Food and Land Use Coalition and the Blended Finance Taskforce.

KEY FINDINGS

  • By 2030, demand for cow products will have fallen by 70%. Before we reach this point, the U.S. cattle industry will be effectively bankrupt. By 2035, demand for cow products will have shrunk by 80% to 90%. Other livestock markets such as chicken, pig, and fish will follow a similar trajectory.

  • Production volumes of the U.S. beef and dairy industries and their suppliers will decline by more than 50% by 2030, and by nearly 90% by 2035. In our central case, by 2030 the market by volume for ground beef will have shrunk by 70%, the steak market by 30%, and the dairy market by almost 90%.

  • The current industrialized, animal-agriculture system will be replaced with a Food-as-Software model, where foods are engineered by scientists at a molecular level and uploaded to databases that can be accessed by food designers anywhere in the world. This will result in a far more distributed, localized, stable, and resilient food-production system.

  • By 2035, about 60% of the land currently being used for livestock and feed production will be freed for other uses. This represents one-quarter of the continental U.S. – almost as much land as was acquired during the Louisiana Purchase of 1803. The opportunity to reimagine the American landscape by repurposing this land is wholly unprecedented.

  • Modern foods will be cheaper and superior to animal-derived foods. The cost of modern food products will be half that of animal products and they will be superior in every functional attribute – more nutritious, tastier, and more convenient with much greater variety. Nutritional benefits could have a profound impact on health, both in a reduction in foodborne illness and in conditions such as heart disease, obesity, cancer, and diabetes that are estimated to cost the U.S. $1.7 trillion every year.

  • Wider economic benefits will accrue from the reduction in the cost of food in the form of increased disposable incomes and from the wealth, jobs, and taxes that come from leading the way in modern food technologies.

  • Environmental benefits will be profound, with net greenhouse gas emissions from the sector falling by 45% by 2030. Other issues such as international deforestation, species extinction, water scarcity, and aquatic pollution will be ameliorated as well. By 2035, lands previously used to produce animal foods in the U.S. could become a major carbon sink.

IMPLICATIONS

Economic

  • The cost of modern foods and other precision fermentation products will be at least 50% and as much as 80% lower than the animal products they replace.

  • At current prices, revenues of the U.S. beef and dairy industry and their suppliers will decline by at least 50% by 2030, and by nearly 90% by 2035. All other livestock and commercial fisheries will follow a similar trajectory.

  • Farmland values will collapse by 40%-80%.

  • Major producers of animal products are at risk of a serious economic shock.

  • The average U.S. family will save more than $1,200 a year in food costs. This will keep an additional $100bn a year in Americans’ pockets by 2030.

  • By 2030, at least half of the demand for oil from the U.S. agriculture industry – currently about 150 million barrels of oil equivalent a year – will disappear.

Environmental

  • By 2035, 60% of the land currently used for livestock and feed production will be freed for other uses. These 485 million acres equate to 13 times the size of Iowa.

  • If all this freed land were dedicated to reforestation, all current sources of U.S. greenhouse gas emissions could be fully offset by 2035.

  • U.S. greenhouse gas emissions from cattle will drop by 60% by 2030, on course to nearly 80% by 2035. Even when the modern food production is included, net emissions from the sector as a whole will decline by 45% by 2030, on course to 65% by 2035.

 

Social

  • Higher quality, more nutritious food will become cheaper and more accessible for everyone.

  • Half of the 1.2 million jobs in U.S. beef and dairy production and their associated industries will be lost by 2030, climbing towards 90% by 2035.

  • The emerging U.S. precision fermentation industry will create at least 700,000 jobs by 2030 and up to one million jobs by 2035.

Geopolitical

  • Trade relations will shift as decentralized food production becomes less constrained by geographic and climatic conditions than traditional livestock farming and agriculture. Major exporters of animal products will lose geopolitical leverage over countries that are currently dependent upon imports of these products.


New sustainable finance declaration from "Make My Money Matter"

The Blended Finance Taskforce is proud to work with the “Make My Money Matter” campaign as they call on the finance industry to ensure our money builds a better world, especially through Paris-aligned pension funds.

Make My Money Matter will launch in 2020 to do three things:

  1. Help people understand where their money — especially their pension money — is invested.

  2. Help them take action to demand that their money is building a better world.

  3. Working with the finance industry to meet this demand and use our investments to End Extreme Poverty, Tackle Inequality and Defeat Climate Change.

You can read Make My Money Matter’s “Sustainable Finance Revolution” declaration here.

Polar Opposites? Where we go from the UN Climate Action Summit

Jeremy Oppenheim, Chair of the Blended Finance Taskforce and Founder of SYSTEMIQ reflects on the frenetic week of climate discussions in New York. He says it’s been hard not to think of Charles Dickens’s A Tale of Two Cities, particularly this lesser-quoted line: “We were all going direct to Heaven, we were all going direct the other way.”

There were moments of incredible progress. And moments that went the other way. Those moments that went the other way are clear: we’re not doing enough, quickly enough, to tackle the climate emergency.

The big nations (other than Russia, whose ratification of the Paris Agreement was 'surprisingly' unheralded by the media) failed to show up. Decades worth of science and climate reports show that we have consistently underestimated the risks from climate change, and that change is happening much faster than we thought, with more far-reaching, domino effects. Not a single IPCC report or serious piece of climate science over the past decade has ever gone “whoops – we over-estimated the risks or the speed with which they would play out.” They have all gone in the other direction.

Now for the bright side. We know how to answer this problem with solutions that are possible and scalable. Those years of analysis and studies give us a clear path forward.

  1. First: create a cleaner energy system. Electrify everything, shift to renewables and use energy more efficiently. Capitalise on the incredible progress and learning curve around renewables, energy storage systems and network optimisation. This gives us the first 50% of the climate solution.

  2. Second: cut the amount of land we’re using for agriculture by over 1 billion hectares and return it to nature, largely by growing trees. And, of course, stop cutting down the rainforest. This could deliver well over 30% of the solution, through reduced emissions from food and agriculture and from stronger, more resilient carbon sinks.

  3. Third: manage our oceans better to capture more carbon biologically and create alternative, low-carbon sources of protein. This could be worth up to 20% of the solution.

We know this isn’t easy. Because it comes down to people and political will. But we believe we can successfully tackle the emergency because we’re seeing positive changes, starting with what is on the table now. These solutions are not mysteries, and scaling them is technically feasible - and, in many cases, economically attractive.

System change not climate change

Not so long ago, we spent a lot of time arguing that climate change isn’t just something that might happen. Today it’s impossible to ignore. The notion of needing to ensure the planet doesn’t heat above 2 degrees once seemed radical, but today 1.5 degrees is the accepted, albeit really difficult goal. The new anchor is “net zero” by 2050 – that was the language of the New York Climate Action Summit, even if there is a chasm between rhetoric and reality. Discussions have broadened and deepened, which is fundamental to achieve transformational change. For example:

  • The importance of transitioning food and land use systems – responsible for 30% of total greenhouse gas emissions and a leading cause of natural habitat loss – was higher on the shared agenda than it’s ever been. There were more than 125 events and almost 200 commitments made to advancing nature-based solutions like reforestation and regenerative agriculture, taking what was a niche discussion on biodiversity to centre-stage as among the most cost-effective solutions to the climate emergency

  • The energy transition discussion broadened as well, to include decarbonising hard-to-abate industries, such as heavy industry, aviation and shipping, as well as more sustainable life-cycles for batteries – vital to green electrification.

  • The importance of oceans’ roles in relation to climate change came to the fore with discussion around a new IPCC report that highlights the urgency to address unprecedented damage in the ocean and cryosphere, and a high-level panel report that identifies five ocean-based climate solutions that could deliver up to 21% of the annual greenhouse gas emissions cuts the world needs by 2050 to keep the global temperature rise below 1.5 degrees.

Out of this discussion, there is action. At the Climate Action Summit, more than 80 businesses pledged to align their business plans with the 1.5 degrees target, 130 banks signed onto new climate principles and 65 countries agreed to further emissions reductions in the next year. And a growing range of new partnerships and solutions - from sustainable special economic zones in Africa to a proposed voluntary tax on plastic resin - showed just how much human ingenuity is being applied to make change happen, at speed and scale.

The power of people

Which brings us to our strongest source of hope: the power of people. Greta Thunberg’s passionate speech and the climate strikes that bookended the Summit cut through the political waffle. They have the potential to create a revolutionary shift in consciousness in which we no longer leave climate to government, business, finance – or any one actor – to fix. It’s too important. As climate lawyer and activist Farhana Yamin put it: “Energy is coming from people, not policy.”

The bet is that climate can awaken a new capacity for common action. The real source of possibility is the ways in which people will change – how they will buy, save, vote, or travel differently – in response to the climate emergency. And with the social media platforms we use now, we can coordinate action and inspire global movements in ways we never could before.

Collectively, we will make a difference if we focus not just on the planetary conundrum at hand, but the human one. While our digital world can make us more isolated, it also has the potential to expand the circle of empathy. Despite all the madness, we may look back on New York as a moment in which we – the people – seized back the initiative on climate and our shared destiny. It’s in our hands.

What’s next?

New York was, of course, but one moment in time. What happens next matters more. How will the EU Green Deal work? Will the US act? Will China step up? What will happen in the Amazon? How will activist movements grow? And how will we ensure accountability for our commitments?

While these are tough, fiercely urgent questions, New York and the movements around it reveal a short-term truth: if we are to tap the power of people, we must make the climate emergency real and relevant in people’s lives. For us, one small way we will build on the momentum that’s happening now is by connecting with at least one person every day outside “the climate bubble.” This is a simple way of speeding up action, but we think it’s an important one. Because when it comes to the climate emergency, human behaviour may well determine whether we go to heaven or the other way.



Investing in the New Food and Land Use Economy

There is a remarkable opportunity to transform food and land use systems, but as the challenges are growing, we need to act with great urgency.

The new global report from the Food and Land Use Coalition and the Blended Finance Taskforce proposes a concrete reform agenda centred around ten critical transitions with actionable solutions and examples of where capital is being mobilised to create a more sustainable food and land use economy which is not only economically viable, but is also good for people and planet.

Key messages:

  • It is not only possible, but also economically attractive, to transform food and land use systems in ways that deliver greater food security, tackle climate change and biodiversity loss, improve human health and strengthen rural communities.

  • A concrete reform agenda centred around 10 critical transitions could unlock USD4.5 trillion in new business opportunities each year, while saving USD5.7 trillion annually in damage to people and the planet by 2030.

  • The consequences of failing to act decisively over the coming decade are dire: we risk sleep-walking into an ecological and human disaster, the likelihood of which is increasing every year.

  • We are at an important inflection point where leaders across the public and private sectors have a powerful opportunity to drive change to how we consume, how we use our land (potentially conserving more than 1.5 billion hectares by 2050), how we manage our oceans, and in how we harness the power of digitisation across the food economy over the coming decade. 

  • Seizing these opportunities is key to delivering the Paris Agreement on climate and the Sustainable Development Goals.

INSIGHT: the State of Sustainable Finance

How far have we come, and what more needs to be done? Michael Eckhart shares his reflections based on a career working in sustainable finance.


If one joined this community in the past four years, since the time of the UN's adoption of the Sustainable Development Goals (SDGs) and negotiation of the Paris Climate Agreement, both in late-2015, many would say that we are in a state of chaos with a rush of attention from all corners, overcrowding of players, over-establishment of new groups seeking leadership positions, underachievement of concrete results, and repeat of the same speech – in summary, the SDGs and climate change represent enormous challenges that will require concerted efforts by public and private sectors, the magnitude of funding and investment far exceeds what the public sector can provide, so we must engage the approximately $250 trillion of capital under management by institutional investors in the debt capital markets, equity capital markets, and banks.

One of the reasons I am positive about the current state of affairs is because I joined the situation in the 1970s, doing new energy technology studies for President Jimmy Carter. In the US, the Clean Air Act and Clean Water Act were only a few years old. The US Environmental Protection Agency, established in 1970, was just getting its legs. The US Department of Energy was still a year from being formed. Similar activities were taking place in Europe, Japan and elsewhere. But in terms of "sustainable finance" we were at ground zero.

Rachel Carson's now-famous book Silent Spring was not yet a best seller. Bill McDonough had not yet written Cradle to Cradle. The UNFCCC had not been formed.

Our thoughts have been forming over these years.

The world has come a long way in the past nearly 50 years, towards massively increased funding by governments of environmental and social challenges, and financing by Multilateral Development Banks (MDBs) and other Development Finance Institutions (DFIs), now of the order of $50 billion/year. And already, the world is investing in and financing clean energy at a level of approximately $300 billion/year, according to BNEF.

We have a base to work from, many successes to replicate, many lessons learned, and a tremendous talent pool going after it.

The seeming chaos we see in sustainable finance today reminds me of Silicon Valley in the 1980s after the microprocessor was invented by Intel in 1972, Apple emerged with the Apple II in 1978, and Microsoft introduced MS-DOS. There was a rush of inventors, programmers and venture capitalists in Silicon Valley, all rushing towards success. It was a period of chaos.

With this as an analogy, the rush we see in sustainable finance is that same kind of human energy seeking to win an important race, this time in the realm of social entrepreneurship, creating organisations that will address and overcome the great SDG challenges, and organisations that will stem climate change, one action at a time. They will get funding, raise and deploy capital, make a profit, raise more capital, and do it again.

Chaos is the front-end part of a process towards success. The winners will emerge and attract funds and the best human resources. Others will fold tents and join the winners.

A key to the resolution of the chaos and scaling-up is the adoption of rules of the road, such as the Feed-In Tariff in 1998-2004, Renewable Portfolio Standards in 1999-2009, the Green Bond Principles in 2014, and the SDGs and Paris Agreement in 2015. These are creating future highways of capital.

Think of these rules for capital to flow as being like digging canals for water to flow. We in sustainable finance are in the business of digging new canals.

This has been going on for some time. It was at the Bonn 2004 Renewables conference – the first global meeting of government, business, finance and civil society on the sole topic of renewable energy – that we conceived of the International Renewable Energy Agency (IRENA), the Renewable Energy Network for the 21st Century (REN 21), and voluntary national Action Plans (that later became the basis for the Paris Agreement).

Now, we must establish similar organisations, guidelines and mechanisms for the other aspects of climate change – buildings, transportation, agriculture, and oceans, all plus adaptation. We must turn issues into revenue-producing businesses that can be financed with the $250 trillion mentioned before. We must do the same with each of the SDGs.

We need to create investable businesses out of social issues, as we did with clean energy, which can serve as a conceptual model or example, as it was a conscious and somewhat coordinated effort by hundreds of people over a period of 20+ years, as illustrated by the continual effort:

  • 1975: US formation of the Energy Research & Development Administration

  • 1977: US formation of the Department of Energy (DOE)

  • 1978: US Public Utilities Regulatory Policy Act (PURPA)

  • 1992: US Production Tax Credit (PTC)

  • 1995: Danish wind power initiative

  • 1996: Japanese Sunlight programme for solar PV

  • 1998: German Feed-In Tariff

  • 1999: Beginning of state-level Renewable Portfolio Standards (RPS)

  • 2001: Founding of American Council On Renewable Energy (ACORE)

  • 2002: Founding of the European Renewable Energy Council (EREC)

  • 2003: Founding of the Chinese Renewable Energy Industry Association (CREIA)

  • 2004: Bonn Renewables 2004 Conference

  • 2005: US biofuels incentives

  • 2006: Chinese Renewable Energy Law based on PURPA and the FIT

  • 2008: US Investment Tax Credit for solar and PTC extension for wind

  • 2009: US RD&D funding, loan guarantees, and additional tax credits

  • 2014: Adoption of the Green Bond Principles (GBP)

  • 2016: India's solar initiative and UDAY recapitalisation

With this example of success on a global basis, we must take each of the SDGs and each element of climate solutions, and do the same – dig a canal to it.

One example is about the oceans. In my recent review of the investment situation for the oceans, I sadly learned that all of the capital being raised for the oceans is going for purposes that are destroying the oceans – shipping, corporate fishing, oil and gas production, undersea mining, and other industrial purposes, plus using it as a free dump for trash, garbage and plastics.

In my forthcoming book to be titled Climate Finance and published by Columbia University Press, there will be a proposal to hold a Constitutional Convention to form the oceans as a new nation, Oceana, that will govern the oceans, make and enforce laws, collect taxes and fees from those who use the oceans for economic gain, and deploy the funds for the restoration and on-going protection of the oceans.

We cannot expect to change the course of society if we do not break out of the modes that caused us to get where we are. Three famous quotes by Albert Einstein give a roadmap:

  • "Insanity Is doing the same thing over and over again and expecting different results"

  • "Imagination is more important than knowledge. For knowledge is limited to all we now know and understand, while imagination embraces the entire world, and all there ever will be to know and understand."

  • "Never give up on what you really want to do. The person with big dreams is more powerful than the one with all the facts."

We must act fast and forcefully. One indicator of the urgency of the situation is the bond market, where there is about $12 trillion/year in new issuances, mostly government bonds, but also including $1 trillion/year in investment-grade corporate bonds. We are issuing about $180 billion/year in designated green bonds – a great success – but which is only about 1.5% of new issuances.

What is the real message here? The message is that, still today, 98.5% of all bond issuances are NOT designated green. We are continuing to raise capital for climate change-inducing purposes, like we always did. This needs to change!

I conclude by saying that the state of sustainable finance is in its infancy and needs to go very quickly through growth to maturity. So, in the context, I like the chaos of the moment, a sign that serious and talented people are stepping up and rushing forward to lead.

In 2020, we need to see the new leaders taking action and raising capital. I've always said that government looks for problems to solve, while the private sector looks for successes to replicate. It is time to create and communicate about more and more successes, to create a snowball.

In summary, to build sustainable finance to its ultimate scale, we are on the right track, and must now dig canals to create a snowball.

Michael Eckhart is adjunct professor at Columbia University and a founding member of the Blended Finance Taskforce. He was formerly a managing director and global head of environmental finance at Citigroup, and was previously founding President of the American Council On Renewable Energy (ACORE). He is one of the founding authors of the Green Bond Principles.

The resilient infrastructure opportunity

The World Bank has released a flagship report, Lifelines: The Resilient Infrastructure Opportunity, which finds that the average net benefit of investing in more resilient infrastructure in low- and middle-income countries would be $4.2 trillion with $4 benefit for each $1 invested.

The report lays out a framework for understanding infrastructure resilience and examines four essential infrastructure systems: power, water supply and sanitation, transport, and telecommunications. One important message is that making these systems more resilient is critical not only to avoid costly repairs but also to minimize the wide-ranging consequences of infrastructure disruptions for the livelihoods and well-being of people.

The report uses firms and household surveys to quantify the economic costs of infrastructure disruptions in low- and middle-income countries. It uses new infrastructure and hazard databases to estimate the average annual damages that natural shocks cause on infrastructure assets. It also assesses the benefits from building more resilient infrastructure systems, considering not only stronger assets, but also system-level solutions (from redundancy and decentralization to nature-based solutions) and opportunities to make users of infrastructure (households and supply chains) more resilient and better able to manage disruptions.

See the report, press release and other material to find more details about the analysis.

Policy Brief: Updating DFI operating models

Development financial institutions, especially their private sector windows, have a critical role to play in contributing to achieve the 2030 SDG Agenda. A new Policy Brief from ISID states that DFIs must update their operating models and methods, and the most recently launched DFIs, like FinDev Canada, must widely adopt a modernised approach towards development financing. The Policy Brief recommends that DFIs:

  1. Increase mobilisation volumes of private capital in line with recommendations in the Blended Finance Taskforce’s flagship paper “Better Finance, Better World

  2. Widen the offering of financial products and structures with high financial additionality

  3. Maximise their investment potential including by using a wide range of financial products that exist in the mainstream financial market to finance projects in countries and/or sectors and segments where the risk level is deemed higher

GLOBAL INFRASTRUCTURE RESET - INFRA 3.0 IN THE NEWS

Exploring the need for a nimbler way to bring electricity to poor, hard-to-reach communities, the Thomson Reuters Foundation reflects on the wider shift in how the world is thinking about delivering urgently needed infrastructure in a high-tech era.

The article highlights the Taskforce’s Infra 3.0 paper, which urges a more efficient and resilient approach to infrastructure. Such a shift would look at more decentralised and digitised approaches, focused on services rather than physical assets such as roads, ports or power lines.

Targeting the end result, whether transport, clean water or energy, would free up thinking on the best ways to provide green and affordable infrastructure, and how to harness the power of new technologies and natural ecosystems, said Taskforce Chair, Jeremy Oppenheim, founder of economic advisory firm SYSTEMIQ.

The Infra 3.0 paper finds that the $2.5 trillion annual gap between what the world needs to spend on infrastructure and what it is investing could be cut by $1 trillion through making infrastructure more productive and delivering services in a physically light way.

“Into the Wild: integrating nature into investment strategies”

Financial institutions have an important role to play in tackling nature loss and ensuring financial activities support rather than degrade ecosystem functionality.

A report from AXA and the WWF France calls for comprehensive and accurate data on nature-related impacts and dependencies that supports investment in natural capital and nature restoration, and helps investors align portfolios with planetary boundaries.

While financial institutions face increasing exposure to nature risk, there are also promising investment opportunities to address rising societal demand for nature conservation.

Key recommendations for governments and financial institutions include:

  • establishment of a Task Force on Nature Impact Disclosures to promote open cross-sector and cross-border collaboration between investors and policymakers

  • inclusion of material biodiversity considerations in ESG criteria and rating methodologies by non-financial rating agencies

  • creation of an investment framework for analyzing biodiversity risk and engaging businesses, especially the most damaging sectors

  • public engagement through initiatives that highlight financial products that support nature

  • prioritisation and integration of nature protection and restoration in all decision-making


WHAT IS SUSTAINABLE INFRASTRUCTURE?

The Inter-American Development Bank presents a working framework for both the public and private sector to support planning, designing, and financing of infrastructure that is economically, financially, socially, environmentally, and institutionally sustainable.

The IDB Group working definition of sustainable infrastructure is “infrastructure projects that are planned, designed, constructed, operated, and decommissioned in a manner to ensure economic and financial, social, environmental (including climate resilience), and institutional sustainability over the entire life cycle of the project.”

The report recommends the following Upstream Institutional Actions to enable delivery of Sustainable Infrastructure for environmental sustainability, including climate resilience:

“Projects should be consistent with national and sectoral infrastructure strategies and incentives designed for decarbonization. Governments should establish national, regional, and sectoral plans for climate resilience and adaptation. They should also establish national, regional, and sectoral institutional frameworks and strategies for disaster risk management and for managing air pollutant emissions. Governments should establish standards and strategies for durability, flexibility, and recovery of infrastructure systems. National requirements for project design should include systems optimization to minimize water contamination. Governments should establish and implement national and subnational soil and other pollution management systems. They should develop national and regional plans for biodiversity and ecosystem services management and ecological connectivity while also establishing institutional mechanisms to preserve natural areas, areas with high ecological values, and farmlands. National institutional frameworks should effectively manage soils and water resources. National, regional, and sectoral plans should address the management of invasive species and the efficient use of material resources, should drive the sustainable use of energy resources, and should ensure sustainable waste management.”

The report includes the following recommendations towards using financing to drive the Sustainable Infrastructure Transformation for environmental sustainability, including climate resilience:

“Projects to be financed should include life-cycle carbon assessment and a management plan for net reduction of greenhouse gas emissions. Projects should assess climate change and disaster risks systematically. They should include a durability, flexibility, and recovery plan. Projects should include management plans for air pollution, for adverse impacts on human health and the environment, for adverse impacts from pollution and contamination, for accident prevention, and for environmental management—including pre-existing liabilities, soils, water resources, materials use, energy use, waste, and hazardous materials.”

Mobilising Capital for the Oceans - Investor Roundtable at the WB / IMF Spring Meetings with RARE and the IDB

Mobilising Capital for the Oceans: The New Frontier in Natural Infrastructure Investment

What are the risks and barriers to investing in oceans? How can we scale blue investment products? Rare, the Blended Finance Taskforce, and the Inter-American Development Bank co-hosted a roundtable during the World Bank/IMF Spring Meetings in April 2019 to explore these questions and identify pathways for action with leaders from the investor, development finance and NGO community.

This article provides a summary of key discussion points covered during the roundtable, as well as a call to action as we invite others to join the preparations for the next meeting on this topic, which will take place in the fall, again alongside the World Bank/IMF Meetings.

 

Key Discussion Topics

  1. The growing interest in blue finance is an opportunity for the international community to accelerate action and investment into the ocean economy. To do so, we need to mainstream ocean investment by: (a) demonstrating this as a real economic opportunity, not an issue to be left to conservation NGOs or the philanthropic community; (b) developing a bankable pipeline of projects with sustainable revenue streams; and (c) getting the financing right, which will require innovative partnerships across the development capital and investment community.

    We need to better demonstrate that there are growing economic opportunities in the ocean sector ranging from sustainable fisheries, to coastal infrastructure, ecotourism, blue carbon, and reducing plastics, as well as medicinal and nutraceutical applications, which investors can add to their portfolios. To make these investments economically viable, we must work together to mitigate risk (e.g. technology or country risk) in the investment structure and provide market ready, scalable product offerings for the oceans. We should aim for the ocean economy to “copy clean energy,” taking a similar journey to the renewables sector to create a vibrant, viable asset class of more sustainable investments.

    During the roundtable, participants discussed ways to reduce risk and create a roadmap to bring investable opportunities to market. Examples included:
    - Aggregating and structuring funds to meet capital and regulatory requirements of host governments and investors.
    - Bringing asset managers to the table early to understand various investor needs.
    - Using guarantees as tools to mitigate entry and exit risks for investors.
    - Reducing the time frame to bring new products to market by sharing lessons learned and developing innovative partnerships.

  2. There is a need to create more scalable, bankable projects and opportunities. There is a lack of investable and scalable projects in the ocean sector to help deliver on the Sustainable Development Goals and achieve global climate targets under the Paris Agreement by 2030.

    Although investors are drawn towards more “traditional” sectors (e.g. clean energy) and capital market products that deliver market rate returns, we are seeing a growing recognition from investors that the ocean is a market opportunity and there is a credible pipeline of projects and early stage ventures slowly emerging. Nevertheless, it can be difficult for first-time ocean funds to raise capital because they do not have a track record and investors like successful proof points. To build the market, we need to accelerate the development of new projects, ventures, and first-time funds – this is where philanthropic capital can be particularly catalytic. Various risk mitigation tools, such as guarantees, can also help overcome barriers to investment and provide access to the ocean sector for more mainstream players.

  3. Greater standardisation will drive a larger supply of products and market issuances. There are a number of actors currently operating in the blue economy, developing financing blueprints to define eligible blue investment categories, and piloting investable products that show positive return and impact on ocean resources.

    Challenges for these innovators include a lack of data, up-front transaction costs, and the internal capacity required to bring financial products to the market. Standardisation of due diligence processes and best practices can help to accelerate mainstreaming of scalable ocean products. Improved data will be critical to help value conservation better and calculate risk. Most importantly, platforms and investors working on these issues need to work together to identify synergies and share lessons learned to amplify impact, develop best practices, and avoid duplication.

  4. Early engagement with the private sector will help develop the right financial products for the blue economy and capture new synergies. By bringing investors into the process early, we can understand what they need – by understanding how the money moves and what regulatory requirements exist, we can unlock capital in a more scaled and systemic way. Engaging private sector players working in “ocean relevant” countries can create new opportunities which were not immediately obvious. There will naturally be a learning curve when engaging new players, who will need help to better understand blue investment criteria - which is where clear guidelines and definitions will help. We need to work with new investors to aggregate assets and create structures that meet the capital market requirements to tap large scale investment.

    Ultimately, working more closely with private sector players at an earlier stage in the transaction process will be critical to scale and develop the market, replicate existing transactions, and access new pools of capital.

  5. Ocean products must be context-appropriate. Participants discussed how the demand side for investment into blue projects at the local level is as important as the supply of funds from commercial capital. Communities must be able to absorb capital and deliver on the impact in marine resources, and simultaneously generate revenue that provides the investment returns.

    The government can be a critical player for larger scale ocean projects. Strengthening capacity on the ground and engaging forward-leaning political leaders (potentially in partnership with development banks) should aim to reduce transaction times and integrate the oceans agenda into ambitious national planning strategies for economic development, climate, the environment, waste management, innovation, and gender equality.

  6. Partnerships among diverse stakeholders is essential for success. In order to scale and replicate solutions across geographies to achieve measurable impact, governments, development banks, philanthropy, NGOs, investors, and corporations/businesses need to work together. Increased coordination and innovative partnerships on ocean-relevant transactions will lead to improved governance, new business models, cross-sector synergies, optimal forms of risk sharing and more efficient financing structures, creating an environment for more investable products.

 

The Way Forward

Participants were asked to consider taking the following actions as we prepare for the next gathering, which will take place alongside the next World Bank/IMF meetings in October 2019 in Washington, DC.

  1. Take a lead on actionable solutions. We welcome your input on the subject matter and format for the next meeting to ensure these sessions drive tangible, high impact outcomes. Please reach out to us and send your suggestions by July 2019.

  2. Share your ideas and experiences. We aim to create an open environment where we can discuss what’s working, what’s not, and lessons learned. We welcome case studies that can be shared with the wider group and encourage you to connect with roundtable participants, as well as with Rare, the IDB and the Blended Finance Taskforce to become more closely involved in their ocean investments and initiatives.

  3. Engage the non-converted. We need to frame the oceans as an investment opportunity and bring new partners to the table. We welcome suggestions for how to reach new audiences through other platforms for this agenda.

We welcome your contributions and look forward to further collaboration.

Please reach out to us at contact@blendedfinance.earth and blendedfinance@rare.org

CREATING NEXT GENERATION INFRASTRUCTURE WITH NATURAL SOLUTIONS

The World Bank and WRI have published a report called ""Integrating Green and Gray – Creating Next Generation Infrastructure" that aims to advance the integration of green and gray infrastructure solutions on the ground. Connecting with core themes in the Taskforce “Infra 3.0” concept paper, the report places a spotlight on the world’s growing infrastructure crisis, driven by climate change and growing populations. It proposes insights, solutions and examples for putting nature to work. It examines the technical, environmental, social and economic dimensions of a typical project assessment but also outlines, with new clarity and detail, the enabling conditions required to facilitate successful implementation of green-gray projects. Harnessing the collective analytical and technical expertise of the World Bank and WRI, it aims to build momentum in both policy and practice.

TASKFORCE A KEY SDG DELIVERY PARTNER AT THE THK "JAKARTA DIALOGUES"

Progress at the THK “Jakarta Dialogues” 

“… the SDGs cannot be achieved by each country in isolation. The SDGs should be achieved through global leadership and shared responsibility … ”

~ Joko Widodo, President of the Republic of Indonesia, ASEAN Leaders Summit, Bali 2018

 

Context

As the fourth most populous country in the world, and one of the fastest growing emerging markets, Indonesia’s ability to deliver high-quality, inclusive growth, in harmony with its natural and human resources is vital. 

Indonesia is already demonstrating strong leadership for the SDGs: it is striving to meet ambitious climate targets (committing to cut greenhouse gas emissions by at least 29% under the Paris Agreement).  It is implementing a Roadmap for Sustainable Finance, issued the world’s first green sukuk bond ($1.25 bn) and the world’s first sustainable land use bond ($95 m) earlier this year, has reduced the country’s poverty rate to 9.8% and increased access to clean water to 76.74%.

All this has occurred alongside a major national infrastructure programme which aims to deliver $400 billion worth of new public-works projects in the transportation, energy, water and waste sectors over five years, in line with the G20’s priority focus on infrastructure.  Indonesia’s national infrastructure finance institution – PT SMI –  has recently launched a first-of-its-kind integrated funding platform called “SDG Indonesia One”, under the leadership of Sri Mulyani, Minister of Finance.  SDG Indonesia One will support large-scale sustainable infrastructure projects in Indonesia; the platform has already reached USD2.34 billion in commitments out of a target of USD4 billion.

Indonesia continues to set a clear course for the SDGs.  At the sidelines of the 2018 IMF / World Bank Annual Meetings in Bali, Indonesia championed the inaugural Tri Hita Karana Forum on Sustainable Development (THK Forum) – a platform designed to accelerate global action for the UN Sustainable Development Goals (SDGs) and endorsed by President Joko Widodo.

 

THK Forum

The THK Forum is a platform designed to accelerate global action for the UN Sustainable Development Goals (SDGs) The mission of the THK Forum is to mobilise private capital for the SDGs (especially in priority THK sectors) through blended and innovative finance solutions combined with the right policy changes

Priority THK sectors include (i) sustainable infrastructure for a low carbon economy (especially clean energy); (ii) resilient cities (especially transport, water and connectivity); (iii) food and sustainable land use for sustainable livelihoods; (iv) plastics; (v) oceans including sustainable fisheries; (vi) female entrepreneurship; and (vii) technology and innovation.

The 2018 THK Forum saw the launch of over 30 high impact initiatives and mobilised up to $10 billion for the SDGs in Indonesia and the world, led by the United In Diversity Foundation with strategic support from the Blended Finance Taskforce, the ICC, the World Economic Forum, the World Bank, the OECD and others. 

 

THK “Dialogues”

Throughout 2019, the THK Forum will continue to champion and mobilise capital for high impact initiatives across the THK priority sectors, while influencing global and local leaders in government, business and finance to be more sustainable.  

Along with the Indonesian government, the THK Forum is focused on helping deliver tangible results and largescale investment to shift to an economy which reflects the THK ethos of “triple happiness”: harmony between people, nature and the spirit.

THK will be hosting a series of “Dialogues” in 2019 to profile success stories, identify how to address key barriers to mobilising capital for the SDGs, and accelerate the THK mission to create “Better Business, and a Better World”.  The format for the THK “Dialogues” is a roundtable (or series of roundtables) with high profile participants from government and business.  These roundtables are meant to be interactive and action-oriented.

The THK “Davos Dialogues” were first held in January 2019 followed by the THK “Jakarta Dialogues” in March 2019.  Two major announcements were made at the THK “Jakarta Dialogues” press conference: (1) the launch of the first National Plastic Action Partnership between the Indonesian government and the World Economic Forum; and (2) The Billion Dollar Fund for Women™ announcing huge progress since launching at the THK Forum in Bali with over USD 680 million committed  and a number of investments from Fund partners already made into women-founded Indonesian companies.

One of the major THK announcements we also expect this year at the THK Dialogues is the launch of a new “Blended Finance and Innovation Institute” on Kura Kura Bali at the Tsinghua SEA Hub. Please email contact@blendedfinance.earth if you want to learn more.

Key highlights of the THK “Jakarta Dialogues”

  1. Plastics: Launch of the first National Plastic Action Partnership with the World Economic Forum.  The National Partnership with Indonesia will convene leaders from government, industry, academia and civil society to develop a concrete roadmap for action ranging from policy and industry guidelines to well-informed investment plans. The roadmap will build on a first of its kind modelling analysis based on complex data sets and extensive research. The National Partnerships with Indonesia forms part of the larger Global Plastic Action Partnership, with the vision of averting plastic pollution by 2025 through fast-tracking circular economy solutions.  

  2. Sustainable Land Use for Sustainable Livelihoods: Showcase of Indonesian entrepreneurs and dialogue about solutions to support sustainable livelihoods and create sustainable food and land use systems in Indonesia.  The session was opened by Paul Polman, Chair of the ICC and championed by H.E. Luhut Panjaitan, Coordinating Minister for Maritime Affairs. The session included presentations from:

  3. o   Lestari Capital’s Sustainable Commodities Conservation Mechanism which unlocks sustainable, large-scale long-term finance for landscape restoration and conservation to directly combat the negative effects of deforestation, fires and other environmental degradation by tapping into global commodities markets. Cargill was announced as the first investor at the THK Forum in Bali and there is a strong pipeline of conservation projects being developed.

    o   JAVARA which is one of Indonesia’s leading purveyors of artisanal food products and works across agricultural value chains to preserve biodiversity and bring community-based organic products to broader markets with a strong focus on capacity building in communities.  In doing so, they help farmers move up the value chain and generate enough income to get out of poverty.  JAVARA collaborates with more than 52,000 farmers who produce over 700 products.  

    o   SOBI which is a market hub for sustainably managed community based natural resource commodities.

    o   &Green a blended finance vehicle for sustainable land use which has invested into a largescale rubber project in Indonesia through the Tropical Landscape Finance Facility.  The project’s strict social and environmental requirements will protect tens of thousands of hectares in East Kalimantan and Jambi.  

  4. Indonesia – The New Hub for Blue Finance and Sustainable Fisheries:  Showcase of Indonesian initiatives which are trying to mobilise private capital for the blue economy with strong leadership for the marine agenda from H.E. Bambang Brodjonegoro, Minister of National Development Planning (BAPPENAS).  Leading oceans initiatives in this session included:

  5. o   Blue Halo S which supports Marine Protected Areas through sustainable commercial fishing and ecotourism user fees.  The first pilot involves over 4.3 million hectares of ocean off the coast of West Papua. 

    o   A major partnership between BAPPENAS and RARE of a mechanism to fund sustainable fishing activities at the local level in Indonesia. 

    o   Blue Finance and the WWF developing ecotourism projects to support Marine Protected Areas including in the Sabang islands off Banda Aceh with a 9% return rate.  The THK Forum will try to help understand "why isn’t the private sector investing in these kinds of projects with attractive returns?"  

  6. Blended Finance and Innovation: Workshop showcasing Indonesia’s leadership on mobilising capital for the SDGs including plans to establish a “Blended Finance and Innovation Institute” in Bali.  The WEF’s Sustainable Development Investment Partnership and the Blended Finance Taskforce provided key input on the concept, which was championed by Chairman Wimboh from the OJK.  Special presentations included:  

o   Sustainable finance and “greening” the domestic financial system with presentations from Bank Indonesia and the Ministry of Finance.

o   Blended finance for sustainable infrastructure, with an update from PT SMI on the progress of SDG Indonesia One – including investments in resilient infrastructure in disaster affected communities in Indonesia.

o   Innovative solutions to major SDG challenges including The Billion Dollar Fund for Women™ which has over USD 680 million committed.

o   Overcoming barriers to mobilising capital for high impact sectors with presentations from entrepreneurs like FeelWell Ceramics (investing in anti-stunting infrastructure), Gobi Partners and Teja Ventures (which have invested millions of dollars into women-founded and Indonesian companies since the launch of The Billion Dollar Fund for Women™ at the 2018 THK Forum in Bali).

Vision for the future

What would we be proud to have achieved 12 months from now?  There is a huge agenda that is ahead of us – and everyone will have their own priorities.  Throughout the 2019 “THK Dialogues”, we hope to drive some of the following milestones.   

First, that we would halved the rate of deforestation and be targeting net zero primary deforestation by [2020].   Second, that we would have reduced the flow of plastics into the oceans by at least 30% by [2020] and 70% by 2025.   Third, that we would have increased our supply of clean energy – renewables, geothermal – by another 3-4 gigawatts.  Fourth, that we would have created one of the world’s top 3 markets for ecosystem services that protect our forests and our biodiversity.  Fifth, that we would have supported 1000 young entrepreneurs, at least 50% of them of women, to bring new SDG-linked products and services into the market.  Sixth, that we would be turning the tragedy of natural disasters including Palu and Sulawesi into an opportunity for rebuilding that community on a “stronger than before” basis, shaped around delivering the SDGs on the ground and attracting large-scale blended finance.   Seventh, that we would have officially launched the THK “Blended Finance and Innovation Institute” in Bali as a platform to institutionalise the THK values of collaboration, innovative partnerships and action to mobilise large-scale investment for the SDGs in Indonesia and the world.  And finally, that we would have mobilised an additional $20 billion of private capital through blended finance and better policies and regulations – and have productively invested the first $10 billion. 

“Tri Hita Karana” stands for three simple values.  That we are at our best when we have harmony with other people, with nature and with our own inner sense of spirituality.  Participants at the THK Forum and the THK Dialogues continue to feel the spirit of THK – making new friends, forming new partnerships and having the chance to reflect on our relationship with nature in the beautiful surroundings of Bali.  We have built a THK community.  And of course, we have been strengthened in our resolve to take on the challenges of building a better world – and to do so with a deeper spirit of collective and personal leadership.  This is THK in action – working its way into our own lives, beliefs and actions. 

The organisers of the THK Forum hope that this will endure long after we have moved back into our busy lives and that participants take these values with them, wherever they go.  We thank everyone who joined us in Bali, Davos and Jakarta – and especially to those who used the THK Forum as a catalyst to act boldly in their mission to drive sustainable development in Indonesia and the world.  We look forward to working with you all throughout 2019 to continue this mission and will see you at the next THK Dialogue!

ANNEX

 

Blended finance and THK 

Blended finance is the use of development finance (public or philanthropic funds) to mobilise commercial capital for the SDGs; it was a central theme of the THK Forum and President Jokowi told the ASEAN Leaders Gathering in Bali that “Indonesia encourages innovative sources of financing like blended finance.” 

The THK Forum showed the effectiveness of this approach to financing the SDGs.  THK launched over 30 high-impact projects, investments and initiatives, and is estimated to have mobilised up to $10 billion for priority SDG sectors including green infrastructure, sustainable land use, oceans, ecotourism, health, women and innovation.  This continues to be showcased and championed through the “THK Dialogues”.

You can learn more about it at www.blendedfinance.earth.

 

Meaning of “Tri Hita Karana”

Tri Hita Karana is a traditional Balinese philosophy of life, meaning “Three Ways to Happiness”. The literal translation is “Tri” for three, “Hita” for happiness and “Karana” for causes or ways.

The three ways to happiness are: (i) harmony of people with people, (ii) harmony of people with nature and (iii) harmony of people with the spiritual. Participants across the Forum were invited to consider this philosophy as they engage in their sessions and to emphasise how the happiness and harmony of people’s health and livelihoods intersect with the health of the planet, including thriving and resilient ecosystems. Where relevant, participants were also invited to share their personal reflections on the successes and frustrations in developing and financing clean energy and resilient infrastructure projects.

INVESTING IN NATURE - FINANCING BIODIVERSITY AND CONSERVATION

The European Investment Bank (EIB) and the Blended Finance Taskforce have developed a new guide which provides developers of conservation and nature-based adaptation projects with an overview of the financing basics, potential financial models as well as practical examples of conservation/adaptation projects and their financial models and legal structures.

Halting the loss of biodiversity and adapting to climate change requires increasing investment in natural capital so the EIB and the European Commission have partnered to create the Natural Capital Financing Facility (NCFF), a financial instrument that supports projects delivering on biodiversity and climate adaptation through tailored loans and investments. Projects financed through the NCFF need to generate revenues or demonstrate cost savings.

The EIB recently signed a €5 million loan with CDC Biodiversité, the subsidiary of the French national promotional bank Caisse des Dépôts et Consignations, to support biodiversity compensation services.
This is the first project of this kind in France, and it is backed by a guarantee from the NCFF. More than €400 million of new nature conservation investment is expected to be supported by the €125 million NCFF by 2021.

The NCFF is accepting project proposals until the end of 2021. If you have a project that contributes to promoting the EU’s biodiversity or uses a nature-based solution to adapt to climate change, then please contact NCF_Instrument@eib.org.



BEYOND THE GAP - HOW COUNTRIES CAN AFFORD THE INFRA THEY NEED

The World Bank’s report “Beyond the Gap: How Countries Can Afford the Infrastructure They Need while Protecting the Planet” aims to shift the debate regarding investment needs away from a simple focus on spending more and toward a focus on spending better on the right objectives, using relevant metrics. It does so by offering a careful and systematic approach to estimating the funding needs to close the service gaps in water and sanitation, transportation, electricity, irrigation, and flood protection.

The “Beyond the Gap” analysis was a key input into the Taskforce’s Infra 3.0 concept paper - which found that we could save $1 trillion a year on the global infrastructure bill by improving infrastructure productivity through a more digitised, distributed, tech enabled delivery approach which optimises the benefits of natural infrastructure and economic clustering.

Exploring thousands of scenarios, the “Beyond the Gap” report finds that funding needs depend on the service goals and policy choices of low- and middle-income countries and could range anywhere from 2 percent to 8 percent of GDP per year by 2030. Beyond the Gap also identifies a policy mix that will enable countries to achieve key international goals—universal access to water, sanitation, and electricity; greater mobility; improved food security; better protection from floods; and eventual full decarbonisation—while limiting spending on new infrastructure to 4.5 percent of GDP per year. Importantly, the exploration of thousands of scenarios shows that infrastructure investment paths compatible with full decarbonisation in the second half of the century need not cost more than more-polluting alternatives. Investment needs remain at 2 percent to 8 percent of GDP even when only the decarbonised scenarios are examined. The actual amount depends on the quality and quantity of services targeted, the timing of investments, construction costs, and complementary policies.

Finally, investing in infrastructure is not enough; maintaining it also matters. Improving services requires much more than capital expenditure. Ensuring a steady flow of resources for operations and maintenance is a necessary condition for success. Good maintenance also generates substantial savings by reducing the total life-cycle cost of transport and water and sanitation infrastructure by more than 50 percent.

INVESTING IN NATURE AND FOOD SECURITY - BLENDED FINANCE TASKFORCE WITH THE FOOD AND LAND USE COALITION

In partnership with the Food and Land Use Coalition and the Hoffmann Global Institute for Business and Society, the Blended Finance Taskforce facilitated a roundtable focused on investing in sustainable food and land use at the SDG tent in Davos. The event focussed on the trade-offs that must be managed to halt biodiversity loss and deliver sustainable food and land use systems. The event was attended by ambitious leaders from business, finance and civil society, who discussed the priority solutions for transforming food and land use systems to become more productive, equitable and regenerative.

Blended Finance Taskforce - having impact: looking forward, looking back

Looking Back on 2018; Looking Forward to 2019

It’s that time of year again when we ask ourselves: are we any closer to mobilising the trillions of dollars needed to achieve the Sustainable Development Goals (SDGs) and deliver global climate action under the Paris Agreement.

Reflecting on the last 12 months, it would be easy to be disheartened.  Foreign direct investment into emerging markets fell, a trend exacerbated by US / China trade tensions and the debt crises in Turkey and Argentina.  Responses to the Intergovernmental Panel on Climate Change’s report on global warming ranged from deeply concerned to shocking.  Institutional investors still allocate less than 1% of their portfolios directly into infrastructure (and of that only a fraction is sustainable or goes to frontier markets).  87% of assets managed by the world’s largest pension funds have not undergone any formal assessment for climate risk.  Climate risks are not yet widely factored into financial decision-making[1] or priced into long term financial thinking. Information asymmetries, misaligned incentives, financial mis-education and a lack of available data, conspire to leave portfolios over-weight on carbon risk and under-exposed to the new climate economy.

On the 2017 numbers, multilateral development banks (MDBs) still mobilise less than $1 of private capital for every public dollar.  The preliminary figures for 2018 suggest that that there will not be much improvement and to our knowledge, only one MDB has set a formal mobilisation ratio target.  Guarantees make up only 4% of MDB climate finance commitments, despite being one of the most catalytic instruments at mobilising private capital.   

Despite the low points, we also saw major progress this year, with a slew of corporate commitments and growing investor action on climate.  Almost 150 companies committed to go 100% renewable under the RE100 initiative and more than 300 investors – with a combined $32 trillion in assets – signed up to Climate Action 100+ to urge the world’s largest emitters to curb emissions.  More banks announced that they will no longer finance greenfield coal assets, and almost 300 financial firms, responsible for assets of nearly $100 trillion became supporters of the Task Force on Climate-related Financial Disclosure (TCFD).  

We are also seeing a proliferation of SDG-related financial instruments in the market and the green bond market is booming (the Climate Bonds Initiative counts almost $158 billion in green bonds issued in 2018 with a total universe of $1.45 trillion climate-aligned bonds).  ESG negative screening has been widely accepted and there is growing interest in the ~$230 billion impact investing market.  In some sectors – most obviously coal – the cost of capital and credit ratings are starting to reflect climate risk as sustainable finance and disclosure become more mainstream.

Governments are playing their part, as they design regulatory frameworks with new standards, green taxonomies, and incentives for disclosure.  Some countries have made investing in the SDGs a national priority.  Indonesia is one example, issuing the world’s first green sukuk bond ($1.25 billion) and the world’s first sustainable land use bond ($95 million) this year.  With the help of the Taskforce, Indonesia also launched “SDG Indonesia One” – a blended finance platform which will help to mobilise institutional investment for sustainable infrastructure in the country.  $2.34 billion had already been committed to this platform when it was launched in October, with a target of $4 billion.

Finally, we are seeing huge innovation within the development finance community.  Development banks and philanthropies are natural champions of the SDG agenda, aligning portfolios to the Paris Agreement and developing new platforms and programmes to crowd in institutional capital for high impact sectors and/or geographies.  Private capital mobilisation has, more recently, become a board-level issue for multilateral and bilateral development banks alike.  Target setting, new incentive structures and scaling up the use of catalytic instruments like guarantees are increasingly on the agenda internally and with shareholders. 

On balance, 2018 has been a critical year.  To deliver on Paris and the SDGs we know we need to shift from a high-carbon energy system where around 80% of the world economy runs on fossil fuels, to a zero-carbon energy system by mid-century.  This will mean renewing our energy-related infrastructure to the tune of $200 trillion[2] and decarbonising at least $50 trillion of existing infrastructure over the next 30 years.  We also know we need to invest up to $500 billion a year to transform our food and land use systems. These are entirely achievable goals given the size of the current world economy (~$80 trillion in 2017) and its expected growth to around $145 trillion by 2035.[3]  There should be no macro-economic constraint on building this new economy.  Indeed, redirecting these capital investments into low-carbon technologies and regenerative, circular models of production and consumption could drive higher-quality, lower risk economic growth. 

However, if we don’t turn this year’s momentum into rapid action and the right kinds of partnerships in 2019, then we will run out of time to effect these economic transformations.  The rest of this note lays out what the Taskforce has, with your help, achieved this year to accelerate this agenda, as well as our vision for 2019.  Above all, as we reflect on the year that was, and the action we need to take going forward, we thank you for the leadership you show every day in this space and for your support (financial and in kind) for the Taskforce itself. This doesn’t happen without you and we are so grateful for your support.

 

Impact and priorities

2018 highlights

It would be impossible to capture everything, but some of the highlights from the Blended Finance Taskforce over the past year include: 

  1. From thought to action: Launching an ambitious Action Programme with 8 key initiatives and over 20 active champions from the public and private sector

  2. Development bank mobilisation: Shaping international dialogue on climate finance and development bank mobilisation; supporting development banks and development agencies through bilateral engagement on their mobilisation strategies

  3. Investing in sustainable infrastructure: Hosting two investor roundtables on sustainable infrastructure, including preliminary analysis on institutional investor allocations and public commitments

  4. Capital for the SDG agenda: Helping to mobilise up to $10 billion for SDG-related investments in Indonesia and around the world through the Tri Hita Karana Forum for Sustainable Development (THK Forum) in Bali around the World Bank Annual Meetings

  5. New blended finance platforms: Working with PT SMI to structure the SDG Indonesia One blended sustainable infrastructure platform ($2.34 billion committed, target $4 billion); inspired the launch of the Climate Finance Partnership, an investment vehicle to be managed by BlackRock which was developed by the Philanthropic Taskforce to invest in climate-related infrastructure in emerging markets

  6. Scale up blended finance vehicles: Working with over 10 blended finance vehicles and instruments across priority sectors[4] to help scale activities and increase exposure (including The Currency Exchange (TCX), Climate Investor One, SDG Indonesia One, the Emerging Africa Infrastructure Fund, the Tropical Landscapes Finance Facility, Clarmondial’s Food Securities Fund, Lestari Capital’s Sustainable Commodities Conservation Mechanism, AgDevCo, the &Green Fund, Partnerships4Forests, the Blue Forest Resilience Bond, the Natural Capital Finance Facility, The Billion Dollar Fund for Women and many others

  7. Capacity building: Developing “Initial Project Screening Tool” for renewable energy projects in developing countries

  8. Strengthening partnerships and market-making: Acting as an intermediary between the “public” and the “private” sectors, building the knowledge base around sustainable finance and SDG-investing, facilitating new partnerships, bridging the gap between the development finance community and institutional investors, advising new vehicles on optimal structures, and helping mobilise capital by acting as an informal deal platform (including through initiatives like France’s One Planet Summit and the City of London’s Green Finance Institute)

  9. Development guarantees: Working paper about how to unlock the power of development guarantees plus bilateral consultations, Taskforce virtual roundtable and panels at the THK Forum on this topic

  10. Data and reporting: Supporting Taskforce partners to improve data on blended finance vehicles and instruments including input to the OECD survey for funds and facilities

  11. Thought leadership: Publishing two articles in global magazines: Moving to Mobilisation published in Financing the UN Development System and Sustainable Infrastructure – the untapped SDG opportunity published in the Global Goals Yearbook; contributed to a number of major reports including the New Climate Economy’s “Unlocking the Inclusive Growth Story of the 21st Century”, the Energy Transition Commission’s “Mission Possible: Reaching net-zero carbon emissions from hard to abate sectors” and “Better Blending: Making the case for transparency and accountability in blended finance”

  12. Media and comms: Tracked over 100 media mentions including Bloomberg, Financial Times, Reuters, The Guardian, Forbes, ImpactAlpha, Devex, IISD +++

  13. Network and events: Curated and contributed to over 50 panels and events including a session at the Oslo Tropical Forest Forum on mobilising institutional capital for sustainable land use and forest restoration, a one-day conference with TCX and Germany’s BMZ on the importance of local currency finance to deliver the SDGs, and an ILX seminar with institutional investors on private debt in emerging markets

  14. SDG impact: Delivers on at least 14 of the 17 SDGs

  15. Fundraising: Achieving the 12-month Taskforce budget with 50% of funders coming from the private sector [currently finalising 18-month budget]

 

2019 priorities

The Blended Finance Taskforce is on track to deliver the major outputs of its Action Programme over the next 9 months.  There is a lot to do in 2019 to make sure that happens, and we are excited to continue working with you to drive this agenda.  Some of our key priorities include:

  1. Products for institutional investors: Catalogue the suite of key instruments and products which are mobilising institutional capital for the SDGs (especially in our priority sectors of sustainable infrastructure, food and land use, oceans/plastics, and resilient cites)

  2. Scaling blended finance vehicles: Help innovative partners set up or scale blended finance vehicles for emerging markets in priority sectors (sustainable infrastructure, clean energy, food and land use, oceans and resilient cities)

  3. Investor ranking: Explore partners to develop an annual Investor League Table of climate finance commitments and sustainable infrastructure allocation to create “a race to the top” and improve transparency; support/help accelerate and profile the mission of other investor initiatives (e.g. ShareAction’s Asset Owners Disclosure Project, CBI/M2020’s Green Bond Pledge, Ceres/CDP Investor Agenda); support national programmes that aim to mainstream and increase ambition for sustainable finance (e.g. UK’s Green Finance Institute and France’s One Planet Summit)

  4. Development bank mobilisation: Work with Taskforce mobilisation “champions” to develop ambitious strategies to drive external private capital mobilisation; undertake more granular analysis on MDB mobilisation data released for 2018, continue to broker open performance dialogue between institutional investors, fund managers, commercial banks and development finance institutions

  5. Development guarantees: Continue engaging development agencies and ministries that are considering or looking to scale the use of development guarantees; link up fragmented research efforts on guarantees as an instrument across the blended finance community (including with the G20 working group for MDB instrument harmonisation) to ensure the private sector perspective is included

  6. Finance working group for the food and land use agenda:  Establish a high-ambition “Finance for FOLU” working group with experts and practitioners to help mobilise capital for the food and land use agenda; partner with the Food and Land Use Coalition to identify capital required to transform the food and land use system and recommend ways to mitigate risks to scale up the right kind of investment

  7. Insurance products for ocean risk: Work with leading insurers and climate risk analytics teams to develop insurance products and partnerships which can mitigate investor risks and build global resilience (with a particular focus on ocean risk including with the Ocean Risk and Resilience Alliance), including further Taskforce consultations and a high-ambition investor roundtable series

  8. Other priority sectors: Explore partners for investor roundtables on blended finance for resilient cities, healthcare (with a focus on data and insurance), or affordable housing 

  9. Incubation for pipeline: Working with established and new incubator programmes to accelerate project development, support innovative finance solutions and facilitate follow-on financing. Examples include P4F, FNE, CPI’s “The Lab” (which now has a sustainable land use and Africa focus), Seedstars, Investing for Food, Prospero and others

  10. One Planet Summit and other policy levers: Working with France’s One Planet Summit initiative on its finance, climate, oceans and biodiversity workstreams; engaging with the Eminent Persons Group[5] and MDB Heads on development bank mobilisation strategies

  11. Blended finance capacity in developing countries: Work with emerging market infrastructure units and/or aspirational national/regional development banks to mobilise a network of blended finance institutions to help share knowledge and build capacity (e.g. with IDCOL in Bangladesh, PT SMI in Indonesia and FDN in Colombia); strengthen synergies within the blended finance ecosystem to build on-ground capacity within local institutions and for foreign investors (e.g. through SDIP/WEF Africa and ASEAN hubs, CGDev, green investment banks, the GIIN, Convergence etc.)

  12. Database of development capital providers: Explore potential partners that can build and manage a digital database for concessional finance facilities and climate funds (information is scattered and hard to navigate for finance practitioners not familiar with development institutions and climate funds)

  13. Financial ecosystem: Accelerate initiatives and proposals which look to overcome barriers to investing in emerging markets (e.g. public access to the GEMs database and regulatory review of Basel III and Solvency II, including with the Insurance Development Forum)


Notes:

[1] A recent study by Pinsent Masons found that ¾ of the biggest UK corporate pension funds recognise the potential impact of climate change, only 5% have a specific policy in place and none of the top 43 UK pension funds have targets for investment in low carbon, energy efficient or other sustainable assets.  None have a decarbonisation target.

[2] Better Growth Better Climate - http://static.newclimateeconomy.report/wp-content/uploads/2014/08/BetterGrowth-BetterClimate_NCE_Synthesis-Report_web.pdf

[3] “Asset & Wealth Management Revolution: Embracing Exponential Change”, PWC 2017.

[4] Taskforce priority sectors include: sustainable infrastructure, food and land use, oceans/plastics, and resilient cites.

[5] Building on the EPG report for example Proposals 4 and 5, p. 38-42: see link.

BLENDED FINANCE IN LEAST DEVELOPED COUNTRIES

A report from the UNCDF sets out an action agenda for pursuing blended finance strategies effectively in least developed countries. It calls for:

  • providers of concessional finance to take more risks to support blended transactions, when appropriate, throughout their lifecycle;

  • least developed countries to be fully included in global discussions about blended finance;

  • blended strategies to support sustainable outcomes, including by actively seeking out suitable domestic investors and supporting transactions in local currencies;

  • improvements in impact measurement and transparency of blended deals; and

  • increased knowledge-sharing and evidence to improve blended finance practices.

“Only 7% of private finance mobilised for development goes to vulnerable countries, meaning the bulk of these investments bypass the people who need it most. We can do better” said UNDP Administrator Achim Steiner. “To meet the Sustainable Development Goals, we must harness a broader range of financing options – including blended, private and public finance when appropriate – and move beyond established pathways to mobilise finance for least developed countries.”