NationalDevelopmentBanks:buildingmarketsforanet-zeroworldPrioritiesfortheG20SamanthaAttridge,BiancaGetzelandArchieGilmourJuly2023PolicybriefODIPolicybrief2Readersareencouragedtoreproducematerialfortheirownpublications,aslongastheyarenotbeingsoldcommercially.ODIrequestsdueacknowledgementandacopyofthepublication.Foronlineuse,weaskreaderstolinktotheoriginalresourceontheODIwebsite.Theviewspresentedinthispaperarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsofODIorourpartners.ThisworkislicensedunderCCBY-NC-ND4.0.Howtocite:Attridge,S.,Getzel,B.andGilmour,A.NationalDevelopmentBanks:anuntappedopportunitytomobilisetheprivatecapitalandbuildthemarketsneededforanet-zeroworld.PolicyBrief.London:ODI(https://odi.org/en/publications/national-development-banks-building-markets-for-a-net-zero-world/)ODIPolicybrief3AcknowledgementsTheauthorswouldliketothankthepeerreviewersfortheirveryhelpfulcritiqueandcomments:NehaKumar,LilyBurge(ClimateBondsInitiative),NamitaVikas,SudhaMeiyappan(auctusESG)andLorenaGonzalez(ODI).OurthankstoPTSMIcolleaguesforgenerouslyengagingintheresearchandprovidingcommentsanddata.TheauthorsgratefullyacknowledgethegenerousfinancialsupportoftheCIFF.Theviewsexpressedarethoseoftheauthorsanddonotreflectthoseofthefunder,ODIortheinstitutionsanalysedinthispaper.AbouttheauthorsSamanthaAttridgeisaSeniorResearchFellowatODI.Shespecialisesinblendedfinance,nationaldevelopmentbank(NDB)andDFIinvestment.Shehasdeepunderstandingandknowledgeintheuseofdevelopmentfundstode-riskprivateinvestmenttomobiliseprivatefinance,andthestrategies,operationsandimpactmeasurementandmanagementofNDBandDFIinvestment.Between2009and2016,shewasHeadofDevelopmentFinanceattheCommonwealth.PriortothatshewasDeputyDirectorofSovereignDebtManagementandCapitalMarketDevelopmentconsultancyatCrownAgents.SheholdsaMaster’sdegreeinDevelopmentEconomicsfromtheSchoolofOrientalandAfricanStudies(SOAS).SheisalsoaCharteredAccountant(ACA)withtheInstituteofCharteredAccountantsinEnglandandWales(ICAEW)andqualifiedwithPricewaterhouseCoopers.BiancaGetzelisaResearchOfficeratODI.Herresearchandadvisoryworkfocusesonprivatesectormobilisationinthecontextofmultilateralandnationaldevelopmentbanks,aswellasdevelopmentfinanceinstitutions.PriortojoiningODI,BiancaworkedattheWorldBank’sInternationalFinanceCorporation(IFC)andTCX.BiancaholdsaMaster’sdegreeinDevelopmentEconomicsfromtheJohnsHopkinsSchoolofAdvancedInternationalStudies(SAIS).ArchieGilmourisaSeniorResearchOfficeratODI.Heworksonenergytransitionsandclimatefinance,aswellasotherclimate-relatedsubjectsincludinglossanddamage.HegainedaMaster’sinEnvironmentalTechnologyfromImperialCollegeLondonafterworkinginthehumanitariansectorintheMiddleEast.ODIPolicybrief4Contents1Introduction..........................................................................................62Transformingenergysystems–thefinancialchallenge.......................8Challengestomobilisingprivateinvestment.........................................82.1.1Highcostofcapital........................................................................82.1.2Uncommercialrisk-adjustedratesofreturn...................................82.1.3Lackofbankableinvestmentpipelineatscale..............................9RoleofNDBsinovercomingfinancialchallenges................................93Fourmobilisationroles.......................................................................10NDBsasmobilisers............................................................................103.1.1Greenbondissuance..................................................................113.1.2Pooledportfolioapproaches.......................................................123.1.3Loansyndication.........................................................................12NDBsasblendersofconcessionalfinance........................................13NDBsaspipelinedevelopersofcleanenergyprojects......................15NDBsaspolicyinfluencersshapingconduciveframeworksandpromotingsustainablefinance...................................................................164IncreasinginternationalclimatefinancechannelledthroughEMDENDBs........................................................................................................17GreenClimateFund...........................................................................195RecommendationsfortheG20..........................................................23References...............................................................................................25DisplayitemsFigure1Mitigation,sourcesofclimateflows,average2019–2020..............7Figure2Adaptation,sourcesofclimateflows,average2019–2020............7Figure3Greenbondsissuedbynationaldevelopmentbanksinemerginganddevelopedmarkets,2014–2022.........................................................11Box1SDGIndonesia1:ablendedfinanceplatformtoscalesustainableinfrastructureinvestment...........................................................................14Box2Projectdevelopmentgrantstosupportgeothermaldevelopment16Figure4Levelofclimatefinanceconcessionalitybyprovider,average2019–2021..........................................................................................................18Figure5Concessionalfinancebyproviderandinstrument,average2019–2021..........................................................................................................19Figure6Cumulativedisbursementsfrommajormultilateralclimatefundsto2022..........................................................................................................20Figure7CumulativeGCFfundingtointernationalandnationalentities....21Figure8GCFapprovedanddisbursedfinancingtointernationalandnationalentities,2015–2023...................................................................................22ODIPolicybrief5AcronymsAFAdaptationfundDBSADevelopmentBankofSouthAfricaBNDESBrazilianDevelopmentBankCRFCarbonReductionFundDFIDevelopmentfinanceinstitutionDMDevelopedmarketEMDEsEmergingmarketanddevelopingeconomiesESGEnvironmental,socialandgovernanceETMEnergyTransmissionMechanismFESFundodeEnergiaSustentávelFIFinancialinstitutionsGCFGreenClimateFundGEFGlobalEnvironmentFacilityGFANZGlasgowFinancialAllianceforNetZeroGHGGreenhousegasIDFCInternationalDevelopmentFinanceClubIFIInternationalfinancialinstitutionIPCCIntergovernmentalPanelonClimateChangeJETPJustEnergyTransitionPartnershipKPIKeyperformanceindicatorsLCCRLow-carbon,climate-resilientMDBMultilateraldevelopmentbankNDBNationaldevelopmentbankNAFINNacionalFinancieraRDBRegionaldevelopmentbankPPPPublic–privatepartnershipPTSMIPTSaranaMultiInfrastrukturSFRSustainablefinanceroadmapUNFCCCUnitedNationsFrameworkConventiononClimateChangeODIPolicybrief61IntroductionTheglobaleconomymustundergoafundamentalandurgentstructuraltransformationtoshifttolow-carbon,climate-resilient(LCCR)growthtoreachanetzeroworldby2050.Tolockthisin,countriesmustinvestincleanenergyinfrastructureandmobilisehugesumsofcommercialcapitaltofinanceit.Thescaleofthechallengeishugeandwellknown.By2025,emergingmarketanddevelopingeconomies(EMDEs)(excludingChina)willneedtoinvest$1trillionperyearinsustainableinvestment(Songweetal.,2022).Since2014,theG20hasfocusedonthemobilisationofprivatecapitaltosupportLCCRgrowth1butinternationalprogresswiththisagendahasbeenfaroffthepaceneededtosupportEMDE’sfinancethistransition.Nationaldevelopmentbanks(NDBs)havebeenkeyplayersinthisendeavour,buttodatehavelargelybeenoverlookedandunderutilisedbytheG20andtheinternationalcommunity,wheremuchoftheconversationhascentredonmultilateralandregionaldevelopmentbanks(MDBsandRDBs),developmentfinanceinstitutions(DFIs)andthemobilisationofinternationalprivatecapital.NDBsarethelargestpublicproviderofmitigationfinance(Figure1)2andthesecond-largestproviderofadaptationfinance(Figure2).3AverageannualNDBclimateflowsbetween2019and2020represented22%($129.1billion)and31%($15.5billion)oftotalmitigationandadaptationfinancerespectively.Intermsofmitigation,NDBflowsarealmosttriplethosefromMDBsanddwarfthe$2billionfrommultilateralclimatefunds.EMDENDBsplayacriticalroleinmobilisingprivateinvestmentincleanenergy,notonlyinternationalprivatecapitalbutperhapsmoreimportantlydomesticprivatecapitalwhichsupportsthedevelopmentofdomesticcapitalandsustainablefinancemarketsmorebroadly.ThislatterpointisoftenoverlookedbutiscriticalgiventheminisculeportfolioallocationstoEMDEsbyOECDinstitutionalinvestors1Forexample,thedevelopmentoftheG20infrastructureasanassetclassroadmapandthecreationoftheGlobalInfrastructureHubin2014,theadoptionoftheG20HamburgPrinciplesin2016,wheretheG20endorsedatargetofincreasingMDBprivatefinancemobilisationby25–35%by2020from2016levels,andtheG20discussionsonMDBreformandtheG20sustainablefinanceroadmap(SFR)developedin2021toscalesustainablefinance.2TheflowscapturedbyCPI(2022)arethosefromnationaldevelopmentfinanceinstitutionswhereasinglecountryownstheinstitutionandthefinanceisdirecteddomestically.Forthepurposesofthisanalysis,thesearelargelyNDBs.3MDBs,whicharethelargestprovidersofadaptationfinance,accountfor36%($17.6billion)offlowsonaveragebetween2019and2020.ODIPolicybrief7(OECD,2021)andtherecentexodusoflargeglobalinvestorsfrominternationalinitiativessuchastheGlasgowFinancialAllianceforNetZero(GFANZ)andtheNet-ZeroInsuranceAlliance.Figure1Mitigation,sourcesofclimateflows,average2019–2020Source:ClimatePolicyInitiative(2022)AccesstointernationalclimatefundsbyEMDENDBs,especiallyconcessionalcapital,iskeytosupportcountries’transitionandtomobilisethescaleofprivateinvestmentrequired(Griffith-Jonesetal.,2020).However,directaccesshashithertobeenthepreserveofthemultilateralsystem,largelybypassingEMDENDBs,eventhoughtheseactorspossessanunrivalledknowledgeoflocalmarkets,whichmeanstheyarewellplacedtounderstandriskandpriceit,andhavelong-standingrelationshipswithlocalpublicandprivatesectorswhichtheycanleveragetooriginateanddevelopinvestmentopportunities.Figure2Adaptation,sourcesofclimateflows,average2019–2020Source:ClimatePolicyInitiative(2022)FullyharnessingandintegratingEMDENDBsintodomesticandinternationalpolicyframeworksanddiscussionswillhelpshifttheneedle.TheIndianG20financetrack,whichhasprioritisedfinancingclimateaction,offersanopportunitytodothis.ThispolicybrieffocusesonEMDENDBs’roleinoneaspectofthistransition–supportingthetransformationofnationalenergysystemsandthemobilisationofprivatefinancerequired.ItbrieflyoutlinesthefinancingchallengeandtheroleofNDBsinovercomingthesebarriers(Section2).Itthenoutlinesfourkeymobilisationroles,highlightingthecriticalimportanceofblendedfinanceandaccesstoODIPolicybrief8internationalclimatefinance(Section3).Section4illustrateshowEMDENDBshavetheleastaccesstointernationalclimatefinancedespitemobilisingthelargestsumsofclimatefinance($145billionaverage2019–2020).ItconcludesbyurgingtheG20toexplorehowtobetterengageEMDENDBsinG20processesandofferssomesuggestionsonhowthiscouldbedone.ThebriefalsomakesanumberofrecommendationsonhowtheG20SustainableFinanceRoadmap(SFR)shouldbeadaptedtorecognisetheroleofEMDENDBs.2Transformingenergysystems–thefinancialchallengeShiftingtoLCCRgrowthpathwaysrequiresanurgentandradicaltransformationofenergysystems,attheheartofwhichwillbetheneedtoscalecleanenergyinvestment.Successwilldependontheabilityofcountriestocreatecommercialmarketsincleanenergywhichcanmobilisethevastprivatecapitalrequired.ThisisnotaneasytaskforanycountrybutisespeciallychallengingforEMDEs,whosecapitalmarketsarenotwell-developedandwhosepublicfinancesarestretched.ChallengestomobilisingprivateinvestmentThreemainissuesthwarteffortsbytheG20(e.g.focusarea4intheSFR)andthebroaderinternationalcommunitytomobilisetherequiredprivateinvestment.2.1.1HighcostofcapitalCleanenergysystemsoftencallforlargeupfrontinvestmentwithlongpaybackperiods,requiringlong-termfinancing.Thisisnotwidelyavailable.Ifitisavailableitisoftenextremelyexpensive,threateningprojectbankability(e.g.affordabilityissues).2.1.2Uncommercialrisk-adjustedratesofreturnTherearealargerangeofriskswhichcanimpedecommercialinvestment(Attridgeetal.,2020).Political,policyandregulatoryuncertaintyoftenarisesfromalackoflegalframeworksforindependentpowerproducers,unfavourabletransmissionaccessODIPolicybrief9and/orfossilfuelsubsidieswhichcreateanunevenplayingfield.Technologicalriskishighforfrontierrenewableenergytechnologiesastheyareuntested(e.g.batterystorage,hydrogen,floatingsolar).Evenprovenandcost-effectivetechnologiessuchassolarcanbeperceivedasriskyifthereislittleexperiencewiththeminanewcontext.Sometechnologieshavehighenvironmental,socialandgovernancerisks,suchasgeothermalenergyorlarge-scalehydropower.Macroeconomicriskcanbehigh,especiallyforeignexchangerisk,whenequipmentisimportedandpaidforinhardcurrencyduringconstructionandfutureoperationalrevenuesaredenominatedinlocalcurrency.Creditriskcanbehighduetothepoorcredit-worthinessofutilityoff-takers.Theserisksinisolationorcombinedoftenresultinuncompetitiverisk-adjustedratesofreturn(i.e.thereturnsaretoolowforthelevelofrealorperceivedrisks).2.1.3LackofbankableinvestmentpipelineatscaleMobilisingvastsumsofcommercialcapitalassumesthatthereisapipelineofinvestableassetsatscalewhichcanunderpinmobilisationproductsandvehiclestargetedforexampleatinstitutionalinvestors.RoleofNDBsinovercomingfinancialchallengesGiventheirdevelopmentmandateandfinancingmodels,4NDBscanplayakeyroleinovercomingsomeofthesefinancingbarriers.Theycan:1.Providelonger-term,moreaffordablefinancingthanisavailableinthemarket(e.g.patientfinance)toaddresscostofcapitalissues,forexamplethroughthedeploymentofseniorloanswithalongertenororothernon-commercialterms.2.Takeonhigherriskthanmanycommercialinvestorsanddeployarangeofrisk-mitigationcapitaltoshifttherisk-adjustedrateofreturntomakeitcommercial,forexamplebydeployingsubordinateddebt,mezzaninefinance,equityinvestment,guaranteesandinsurance.3.Useprojectdevelopmentfacilitiesusuallyfundedbygrantstodevelopabankablepipelineofcleanenergyprojects.4InmanycasesNDBscanaccessfinanceatlongermaturitiesandmorecheaplythancommercialfinanciers.ODIPolicybrief103FourmobilisationrolesNDBscanplayfourkeyrolesinmobilisingcleanenergyprivateinvestment:asmobilisersofprivatefinance;asintermediariesblendinginternationalclimateandpubicdevelopmentfinance;aspipelinedevelopers;andaspolicyinfluencers.Theserolesarecloselylinkedandreinforceeachother(Griffith-Jonesetal.,2020).NDBsasmobilisersNDBscanmobiliseprivateinvestmentatthetransactionorinstitutionallevel.Transaction-levelmobilisationreferstosituationswheretheNDBhasmobilisedprivateinvestmentintoanoverallfinancingpackageforaprojectorbusiness(e.g.,co-investmentinequityordebtdeals,loansyndication,andrisksharingthroughguaranteesandinsurance).Institutional-levelmobilisationreferstomobilisationasaresultofNDBbalancesheetleveraging(e.g.,greenbondissuance),investmentmanagementofcommercialcapitaland/orthedeploymentofpooledportfolioproducts(TahirandRobinson,2023).5Generally,itisattheinstitutionallevelwherethelargestsumsofprivatefinancecanpotentiallybemobilisedinsupportofthecleanenergytransition.Thisbriefhonesinonthreeapproacheswhichhavethelargestpotentialtomobiliseatscale:greenbondissuanceandpooledportfolioapproachesattheinstitutionallevel,andloansyndicationatthetransactionlevel.5ForagoodoverviewofmobilisationapproachesseeGregory(2023).ODIPolicybrief113.1.1GreenbondissuanceOneofthemostcommoninstitutionalapproachesistheissuanceofgreenbonds.Source:ClimateBondsInitiative(2023).Notes:EM=developmentbankslocatedinemergingmarkets;DM=developmentbankslocatedindevelopedmarkets.ForEMandDMclassificationseeCBIlistedgeographies.This‘green’leveragingofEMDENDBbalancesheetshastwobenefits:itenablesNDBstosignificantlyscaletheir‘green’investmentcapacitywithouttheneedforfiscaltransfersorequityinjection;anditsupportsthedevelopmentoflocalcapitalmarketsandenablesNDBstomobiliselocalinstitutionalinvestorswhohithertomaynothavebeeninvolvedwithgreeninvestmentproducts.ThisroleisfurtherdiscussedinSection3.4.In2022EMDENDBsissued$11.4billioncomparedto$14billionbyDMNDBs.Startingfromazerobasein2014,therehasbeensignificantgrowthinEMDENDBissuance,anditappearstobecatchinguponDMNDBissuance(Figure3).Inthelasttwoyears,theaverageissuancesizeforEMDENDBshasgrownbyamultipleof2.5–3,andtheaverageissuancesizehasbeenlargerthanDMNDBs.ThisgrowthisindicativeoftheincreasingappetiteofprivateinvestorsinEMDEsfor‘green’andsustainableinvestment.ItalsodemonstratesthepioneeringroleofNDBsinthedevelopmentofdomesticgreenbondmarkets,helpingprivateinvestorsfeelmorecomfortableinthisspaceandpavingthewayforsubsequentissuancebyotherfinancialinstitutions(FIs)orcorporates.6Thishassupportedthedevelopmentofdomesticcapitalmarketsmore6SometimeswithcreditenhancementsupportfromtheNDBforcorporatebondissuancetofundinvestmentincleanenergy.Forexample,PTSMI’screditenhancementsupportfortheissuanceofa$52.4millionbondbyalargeIndonesianhydropowercompanyraisedtheinitialcreditratingfromA-toAAA,whichhelpedmobiliselocalinstitutionalinvestmentintothiscompany.0102030405060$0$5$10$15$20$25EMDMEMDMEMDMEMDMEMDMEMDMEMDMEMDMEMDM201420152016201720182019202020212022NumberofdealsAmountissued(USDbillion)Figure3Greenbondsissuedbynationaldevelopmentbanksinemerginganddevelopedmarkets,2014–2022ODIPolicybrief12broadly,reducesforeignexchangeriskfortheNDBandmobiliseslocalcurrencyinvestmentincleanenergyprojects.Greenbondsareuseofproceedsbonds(meaningtheytrackandreportontheuseofproceeds).Anewdevelopmenthasbeensustainabilitylinkedbonds,whicharegeneralpurposebondswithspecificsustainability-linkedtargets(KPIs),wherethereisausuallyapenaltyassociatedwithnotmeetingtheKPIs,suchasastep-upclausewherethebondinterestrateincreases.PTSMIisapioneerinthisspaceandiscurrentlymarketingafive-year$0.5billionsustainabilitylinkedbondtoprivateinvestors.ThemarginpricingisstillbeingdeterminedbuttherewillbetwoKPIs.OnewillfocusontheevolutionofPTSMI’sgreeninvestmentportfoliooverfiveyearsandthesecondwillfocusonstafftrainingonsustainablefinance.3.1.2PooledportfolioapproachesPooledportfolioapproachesenableNDBstoaggregateprojectsandstructureinvestmentproductstomeettheneedsofinstitutionalinvestorsintermsofticketsizeandriskappetite.Theseproductscanbestructuredindifferenttrancheswithdifferingriskprofiles.Blendedfinancecanbeusedforthehigher-risktranches.BrazilianDevelopmentBank’s(BNDES)pooledfundFundodeEnergiaSustentável(FES)mobilisesprivatecapitaltoacceleratecleanenergyinvestment.FESismanagedbyaprivatefundmanager.Itpoolsfinancefromdifferentsourcesincludingprivateinvestorsandstrategicallyinvestsinrenewableenergyprojectsinlinewiththefund’sinvestmentguidelinesandobjectives.Throughthefund,BNDESfinancestheconstructionofcleanenergyprojectsandsecuritisestherevenueflowsonceassetsareoperational.3.1.3LoansyndicationLoansyndication7isaverycommonapproachtofinancinglargecleanenergyinfrastructureinvestment,wheretheloanrequiredistoolargeforoneinvestor.Ithasprovedeffectiveinmobilisinglocalprivateinvestment(e.g.commercialbanks)andisespeciallyusefulwherecapitalmarketsarenotwell-developed.TheapproachallowsNDBstodiversifyriskontheirbalancesheet,therebymanagingbalancesheetexposurelimits,andleveragelargerfinancingpackagesforrenewableenergyinvestment.TheapproachalsoexploitsoneofthekeycomparativeadvantagesofNDBs,namelythesoftenhancementtheirinvolvementinthesyndicationplays,givingreassurancetolocalprivateinvestorswhoarenotfamiliarwiththeassetclassorsub-sector.ThisreassurancecanstemfromtherelationshipoftheNDBwiththegovernment,its7Alendingprocessinwhichagroupoflendersprovidesfundstoasingleborrowerorproject.UsuallytheNDBistheleadarrangerandlenderofrecord.IntheseA/Bloanstructures,theNDBprovidesaseniorloanfromitsownbalancesheetandretainsaportionoftheloan(‘A’portion)foritsownaccountandsellstheremainder(‘B’loans)toprivateinvestors.ODIPolicybrief13technicalexpertiseanditsenvironmental,socialandgovernanceduediligence,whichalsoreducestransactioncosts.NacionalFinanciera(NAFIN)hasusedloansyndicationtoscaleprivatecleanenergyinvestmentinMexico.NAFINtooktheleadinearlyroundsofsyndicationfinancinginthewindenergymarket,butwasabletostepbackascommercialsyndicationmarketsdeveloped.NDBsasblendersofconcessionalfinanceAsexplainedinSection2,muchcleanenergyinvestmentinEMDEsrequiressomeformofblendedconcessionalfinancetoaddresshighcapitalcosts/affordabilityconcernsand/orshifttherisk-adjustedrateofreturn.AlthoughsomegovernmentsprovidetheirNDBswiththiskindofconcessionalfinance,blendedfinanceisoftenmainlyfundedbyexternalconcessionalclimatecapital–underscoringtheimportantroleofconcessionalcapitalandtheneedtochannelitthroughEMDENDBs.Atthetransactionlevel,blendedconcessionalfinancecanbeusedinmanydifferentwaystomakeinvestmentinhigh-riskprojectsorcorporatesviable,forexamplebyboostingreturns,reducingriskorimprovingaffordability(Attridge,2022).8EMDENDBscanalsouseblendedconcessionalfinancetodeployportfolioapproacheswhicharemoreattractivetodomesticandinternationalinstitutionalinvestors.8SeeAttridge(2022)foradetailedoverviewofhowDFIsuseinstrumentstoachievetheseobjectives.ODIPolicybrief14Box1SDGIndonesia1:ablendedfinanceplatformtoscalesustainableinfrastructureinvestmentSource:PTSMITherearemanygoodexamplesofblendedfinance,illustratingnotonlyhowimportantconcessionalclimatefundsaretoEMDENDBs,butalsohowablendedfinanceapproachrootedinagovernmentNationallyDeterminedContribution(NDC)ornetzeroplancankickstartthedevelopmentofcleanenergymarkets.SDGIndonesia1,forexample,isa$3.2billionblendedfinanceplatformtoscalesustainableinfrastructureinvestment,especiallyrenewableenergy,providingdevelopment,de-risking,debtfinancingandequityfacilities(seeBox1).ThisenablesPTSMI,whichmanagestheplatform,toprovideend-to-endrenewableenergyinfrastructurefinancing.BlendedfinancewillalsoplayacriticalroleintheJustEnergyTransitionPartnerships(JETPs)establishedthroughtheG20,UNFCCCCOPandotherinternationalfora.In2022,theIndonesiangovernmentappointedPTSMItomanageIndonesia’sJETP,theEnergyTransmissionMechanism(ETM).PartofthisinvolvesmanagingablendedfinancemechanismfundedbytheIndonesiangovernment,9commercialinvestors,philanthropies,multilateralandbilateraldevelopmentandclimatefinance.TheETMconsistsoftwofunds:thecleanenergyfundtosupportthescalingofrenewableenergyfundedbySDGIndonesia1andtheCarbonReductionFund(CRF),anearlyretirementfundingmechanismforcoal-firedpowerstations.TheCRFwilluseconcessionalcapitaltorefinanceandreducethecostofcapitalofcoal-firedplants,sotherequiredrateofreturnoninvestmentcanberealisedsoonerandplantsretiredearlierthantheendoftheirusefuleconomiclife.Wherepossible,potentialcarboncreditrevenuewillbeusedtoaccelerateearlyretirement.9PTSMIhasproposedgovernmentfundingof$700millionwhichwillbeblendedwithothersourcesoffinanceincludinginternationalclimatefinance.ODIPolicybrief15PTSMIispilotingoneprojectundertheCRFwhileawaitingthelaunchoftheofficialenergytransitionroadmap.AspartoftheSouthAfricanJETP,theDevelopmentBankofSouthAfrica(DBSA)hasannounceditsintentiontolaunchanewblendedfinancefundtosupportthedevelopmentofthegreenhydrogensector,the‘SA-H2Fund’.SA-H2aimstomobilise$1billionfromarangeofpublicandprivateinvestors(bothdomesticandinternational)tofundthedevelopmentandconstructionoflarge-scalegreenhydrogeninfrastructure.NDBsaspipelinedevelopersofcleanenergyprojectsThelackofbankableprojectsisacriticalbarriertoscalingcleanenergyinvestment.Localcommercialbanksrarelyhavetheexpertisetoundertakeprojectpreparationorthefundingtofinanceit.ManyNDBscanhelpovercomethisconstraintbyprovidingtechnicalexpertiseandfundingforearly-stageprojectpreparation(andde-risking)throughprojectdevelopmentfacilities.Thesefacilitiescoveractivitiesfromconceptualisationandfeasibilityanalysistodealstructuringandtransactionsupporttogettheprojecttofinancialclose.Theycanalsohelpfundprojectexpensessuchasfeasibilitystudies,ESGassessmentsandviabilitystudies.NDBsworkcloselywithnational,stateandlocalgovernmentbuildingtheircapacityinthisarea.Agoodexampleofthiskindofsupportandtheimportanceofconcessionalclimatecapitalcanbeseeninthegeothermalsector(Box2).FormanyNDBsthesefacilitiesareoftenfundedbyexternalconcessionalresource(oftengrants),includinginternationalconcessionalclimatefinancefromtheGCF,aswellasdomesticfiscalbudgets.ThisunderscorestheimportanceofexternalconcessionalcapitalandtheneedforthistoflowdirectlythroughNDBstosupporttheirprojectdevelopmentcapabilities.ThereisaveryclearmobilisationpathwherebyNDBscanhelpbuildapipelineofgreenprojects,aggregatetheseandissuegreenbondstofinancetheircontinueddevelopment.Onceoperationaltheseassetscouldbesecuritised,whichwouldallowNDBcapitaltoberecycledandsupportthedevelopmentofdomesticcapitalmarkets.ODIPolicybrief16Box2ProjectdevelopmentgrantstosupportgeothermaldevelopmentGeothermaldevelopmentishighlyrisky,involvingsignificantcapitalexpenditureonexplorationwithoutknowingwhatthegeologicalresourceavailableis.Theupfrontcostcanbebetween35%to40%ofthetotalprojectcost,andwithoutresourcecertaintytheprivatesectorisunlikelytoundertakeexploration.NDBssuchasNAFINandPTSMI,inpartnershipwithdonors,climatefundsandMDBs,haveusedinnovativeinstrumentssuchasconvertible/contingentgrantstohelpaddressexplorationrisk.Ifdrillingisunsuccessful,thesunkcostsarefundedbyexternalgrantfinance(e.g.GCF,CTF)orinthecaseofPTSMIthegovernmentgeothermaldevelopmentfund.Ifthedrillingissuccessfulthegrantconvertstodebtwhichisrepaidbythedeveloperbeforeconstruction,oroncetheplantgoesintooperation.Source:Attridge(2020)TherolethatNDBscanplaycanbeseenmostclearlyintheprojectdevelopmentfacilityundertheSDGIndonesia1(Box1).Thisistheplatform’slargestfacility,totalling$2.4billionfundedbygrantfinanceof$24.6millionandconcessionaldebttotalling$2.3billion.PTSMIalsomanagesaProjectDevelopmentFacilityassignedfromtheMinistryofFinance,whichhassupportedthedevelopmentof20majorpublic–privatepartnerships(PPPs)insectorsincludingwaterandsanitationandtransportation.NDBsaspolicyinfluencersshapingconduciveframeworksandpromotingsustainablefinanceNDBsplayanimportantcomplementaryroleaspolicyinfluencers,helpingtoshapebroadandspecificpolicyframeworkstoencourageandchannelprivateinvestmenttosupportthecleanenergytransition.Thisisacriticalrolegiventhatpolitical,policyandregulatorybarriersarefrequentlycitedasmajorimpedimentstocleanenergyinvestment.AgoodexampleistheadvisoryroletheDBSAplayedinthedevelopmentoftheRenewableEnergyIndependentPowerProducersProgramme(REIPPP).TheDBSAadvisedinthestructuringoftheprogrammeandprovidedtechnicalsupporttothegovernmentduringitsimplementation,includingthefundingandestablishmentoftheIndependentPowerProducerOfficeintheDepartmentofMineralResourcesandEnergy.DBSAhasalsoprovidedinputintothedevelopmentofSouthAfrica’sIntegratedResourcePlan(IRP)andhasprovidedtechnicalexpertiseonissuessuchasgridintegration,financingandregulatoryframeworks.ODIPolicybrief17WithregardtotheIndonesia’sETMcountryplatform,PTSMIwillplayacriticalpartinsupportingthetransitionbeyondthefinancialroledescribedabove.AsplatformmanagerandimplementerPTSMIwillcoordinatewithstakeholderstodevelopthetransitionframeworkintheelectricitysector;conductcomprehensivestudiesonthefiscalsupportrequired;formulateafinancingplanintegratinggovernmentfiscalsupportandothersourcesofde-riskingfacilitiestomobilisenon-statefinancing;andimplementactions,activitiesandinvestmentstosupportthetransition.EMDENDBscanhelptheG20advanceitsSFR(G20,2021)andsupportthescalingupofsustainablefinance.Asnotedabove,manyNDBsaredevelopinggreenfinanceproductsandadoptinggoodpractices(e.g.focusarea1oftheSFR).NDBsareoftenthefirsttodevelopandissuegreenbondframeworksandpublishgreenbondimpactreports.Forthistohappeneffectively,projectsandactivitiesneedtobebackedupwithsufficientandstandardiseddatabasedoninteroperableandinternationallyaligneddisclosurestandardsandtaxonomiesclassifyingsuchinvestments.Indevelopingthesepioneeringprogrammes,NDBscanworkcloselywithfinancialregulatorstoshapeandsupportthegreeningofdomesticfinancialsystems.Forexample,PTSMIhasworkedwiththeIndonesianFinancialServicesAuthority(OJK)todevelopitsSustainableFinanceRoadmapPhaseII(2021–2025)andthefirstiterationofIndonesia’sgreentaxonomy.PTSMIisalsoinvolvedindevelopingthesustainablefinanceecosysteminIndonesiaaspartoftheSustainableFinanceTaskForcefortheFinancialServicesSector.4IncreasinginternationalclimatefinancechannelledthroughEMDENDBsAsoutlinedabove,internationalclimatefinancecanhelpNDBsreducecapitalcosts,maketherisk-adjustedrateofreturncommercialandfundprojectdevelopmentfacilities.Giventheirlocalknowledgeandconnections,EMDENDBsarewell-placedtopoolODIPolicybrief18multiplesourcesofinternationalclimatefinanceatthecountrylevelandblenditinamorestrategicandcatalyticway,notonlytomobiliseinternationalprivatefinancebutperhapsmoreimportantlytomobilisedomesticinstitutionalinvestors.ThemobilisationoflocalcapitaliscriticalascurrentlyverylittleOECDinstitutionalcapitalisinvestedinEMDEs(OECD,2021),andasinternationalmembersoftheGlasgowFinancialAllianceforNetZeroandtheNetZeroInsuranceAllianceleavetheseinitiatives.WhilesomegovernmentsprovidetheirNDBswithconcessionalcapital,manyarereliantoninternationalclimatecapital,especiallyconcessionalcapital,buthavelittleaccesstosuchfinancing.ThegrowthofclimatefundscouldbeakeyleverforEMDENDBstoaccessconcessionalclimatefinance.AsidefromDACdonors,multilateralclimatefundsaretheproviderswiththelargestshareoftheirclimateportfoliodirectedviaconcessionalflows(Figure4).Onaveragebetween2019and2021,concessionalflowsaccountedfor85%ofclimatefunds’totaladaptationfinanceand62%oftotalmitigationfinance.ThesefiguresdwarftheshareofconcessionalfinancingbyMDBs,whooverthesameperiodprovided37%ofadaptationfinanceand14%ofmitigationfinanceviaconcessionalmeans.Figure4Levelofclimatefinanceconcessionalitybyprovider,average2019–2021Source:AuthorcalculationsbasedonOECD-ClimateFinanceDatabaseCurrentUSDprices.DataforIDFCmembersisbasedonIDFCGreenfinancingreports(2022).DataforIDFCmembersincludesallmembers,OECDandnon-OECD.Moreover,theconcessionalportfoliosofinternationalclimatefundsbearthelargestgrantelementamongallproviders(Figure5).Grantsarethemostflexibleandcheapestsourceoffinancing,allowingNDBstodecidehowtodeployconcessionalclimatecapitalfor92%14%62%31%97%37%85%31%8%86%38%69%3%63%15%69%0%10%20%30%40%50%60%70%80%90%100%DACmemberMDBsClimatefundsIDFCmembersDACmemberMDBsClimatefundsIDFCmembersMitigationAdaptationConcessionalNon-concessionalODIPolicybrief19maximumcatalyticeffect(e.g.projectdevelopmentand/orblendedconcessionalfinance).EventhoughmultilateralclimatefundsareasmallpartofthearchitecturetheyareanextremelyvaluablesourceofcatalyticclimatefinanceforEMDENDBs.However,mostofthesemultilateralclimatefundshavebeencapturedbythemultilateralsystem(e.g.MDBs,RDBs,DFIsandUN).TheydonotflowthoughEMDENDBs,despiteNDBsarguablybeingverywell,ifnotbetter,placedtodevelopandoriginatecleanenergyprojects,priceriskandintermediateinternationalclimatecapital.Figure5Concessionalfinancebyproviderandinstrument,average2019–2021Source:AuthorcalculationsbasedonOECD-ClimateFinanceDatabase.CurrentUSDprices.DataforIDFCmembersisbasedonIDFCGreenfinancingreport(2022).DataforIDFCmembersincludesallmembers,OECDandnon-OECD.GreenClimateFundUnlikemanyothermultilateralclimatefunds,theGCFseekstopromotecountryownershipanddirectaccessbynationalauthorities,andassuchishighlyrelevantforEMDENDBs.Indeed,theGCFhasaccreditedmorenationalandregionalentitiesthananyothermultilateralclimatefund.Itisalsonowthelargestmultilateralclimatefund,bothintermsoffundingapprovedandfundingdisbursed(Error!Referencesourcenotfound.).Sinceitsestablishmentin2010,GCFhadapprovedfundingtotalling$12billionasofMay2023,29.2%ofwhichhadbeendisbursed.Despiteamandatefocusingondirectaccessbynationalauthorities,thevastmajorityofGCFfundingiscommittedtointernationalfinancialinstitution(IFI)-accreditedentitiessuchasMDBs,RDBsorinternationalorganisationssuchasUNagencies(Figure7).Togethertheseinstitutionsaccountforthelion’sshareofGCFapprovedfunding(75%).Thiscapturebyinternationalentitiesmirrorsthe48%67%12%87%36%62%10%73%2%1%3%1%0%1%50%33%84%13%64%38%89%27%0.4%0%10%20%30%40%50%60%70%80%90%100%DACmembersMDBsClimatefundsIDFCmembersDACmembersMDBsClimatefundsIDFCmembersMitigationAdaptationDebtinstrumentEquity+sharesGrantMezzaninefinanceODIPolicybrief20captureofmultilateralclimatefundsmorebroadlybytheseinstitutions.Forexample,nationalentitiesreceivedjust11%ofallclimatefinancingfromUNFCCCfunds(i.e.GEF,AFandGCF),althoughinterestinglytheAFbroughtina50%portfoliocaponinternationalentitiesin2021(UNFCCC,2022).Figure6Cumulativedisbursementsfrommajormultilateralclimatefundsto2022Source:ClimateFundsUpdate(2023).DatacurrentasofDecember2022(GCFIRM)$2,377$1,806$931$735$589$586$540$530$486$2,223(GCF-1)$666$-$500$1,000$1,500$2,000$2,500$3,000$3,500GreenClimateFund(GCF)CleanTechnologyFund(CTF)GlobalEnvironmentFacility(GEF4)PilotProgramforClimateResilience(PPCR)AdaptationFund(AF)AmazonFundGlobalClimateChangeAlliance(GCCA)LeastDevelopedCountriesFund(LDCF)GlobalEnvironmentFacility(GEF5)OthersDisbursements,US$millionODIPolicybrief21Figure7CumulativeGCFfundingtointernationalandnationalentitiesSource:AuthorcalculationsbasedondatafromGCFOpenDataLibraryinquiriesandtheINSE/AFDPublicDevelopmentBankdatabasefromXuetal.(2021)Note:Datacurrentasat8June2023,IFIs=internationalfinanceinstitutions,IOs=internationalorganisations,NGOs=non-governmentalorganisationsTheGCFhasmadeeffortstoeaseconstraintsondirectaccessbynationalentities,resultinginyear-on-yearincreasesinapprovedGCFfundingfornationalentitiesuptoandincluding2020(withtheexceptionof2019).However,fundinglevelshavedeclinedeachyearsince2020anddisbursementrateshavebeenzerosince2022(Figure8).ThisisdespiteaconcertedpushintheGCFreplenishmentroundone(GCF-1)tobringonboardmorenationalandregionaldirectaccessentities,andsuggeststhatmoreneedstobedonetoeaseburdensomeprocesses.NDBsaccountfor62%offundingthathasbeenapprovedatthenationalentitylevel.SixteenNDBshavebeenaccreditedbutonlysixhavereceivedapprovedfunding(IDCOL,DBSA,NABARD,KDB,EIF,FDB).MostofthishasgonetothefirstfourNDBsinthatlist.ODIPolicybrief22Figure8GCFapprovedanddisbursedfinancingtointernationalandnationalentities,2015–2023Source:AuthorcalculationsbasedondatafromGCFOpenDatainquiries.Notes:Datacurrentasat8June2023.Nonationalentitieshadanyfinancingapprovedin2023.$0$500$1,000$1,500$2,000$2,500$3,000InternationalNationalInternationalNationalInternationalNationalInternationalNationalInternationalNationalInternationalNationalInternationalNationalInternationalNationalInternational201520162017201820192020202120222023US$MillionsApprovednotDisbursedAmountDisbursedLinear(InternationalTrendline)Linear(NationalTrendline)ODIPolicybrief235RecommendationsfortheG20TheG20iswellplacedtosupporttheintegrationofEMDENDBsininternationalandnationalpolicyframeworksandpromoteamorecatalyticuseofscarceconcessionalclimatefinance.ThecurrentIndianandfutureBrazilianG20PresidenciesareopportunemomentstoleadthischargegiventhatIndiahasjustsetuptheNationalBankforFinancingInfrastructureandDevelopmentandBrazilhasaverylargedevelopmentbank,BNDES.RecommendationsfortheG20anditsmembercountriestoconsiderinclude:1.TheG20couldexplorehowitcouldengagemoresubstantivelywithEMDENDBsandtheFinanceinCommonmovement.AfirststepcouldbeinvitingregionalDFIassociationstoparticipateintheG20FinanceTrackworkinggroupsonInternationalFinancialArchitecture,theInfrastructureWorkingGroupandtheSustainableFinanceWorkingGroup.OpportunitiescouldbeexploredtolinkthistotheFinanceinCommonSummit.2.TheG20SFRshouldbeadaptedtorecognisetheroleofEMDENDBsandleveragetheiruntappedpotential.Theseactionscouldinclude:I.G20membercountriescouldexplorebilateralopportunitiestopartnerwithEMDENDBstoidentify,structureanddelivercleanenergyinvestmentincludingchannellingmoreoftheirbilateralclimatefinancedirectlythroughEMDENDBs.II.G20membercountriescouldensurethatwhererelevanttheirNDBsareintegratedintonationalNDCornet-zeroplansandhaveacleargreenmandate.III.AspartoftheG20SFRandasshareholdersofMDBs,RDBsandDFIs,G20membercountriesshouldtasktheseinstitutionstomaptheircurrentengagementwithEMDENDBsandexploreopportunitiestostepthatengagementup.ThisshouldincludechannellingmoremultilateralclimatefinancedirectlythroughEMDENDBs,workingwiththemtosupportthedevelopmentandoriginationofcleanenergyprojects,supportingblendedfinanceplatformsatthecountrylevel,ODIPolicybrief24developinglocalcapitalmarketsandbuildingthecapacityofEMDENDBs.IV.TheG20couldinvitetheGCFtoworkwithregionalDFIassociationstoreviewaccreditationbarriers;explorehowtoprioritiseEMDENDBaccreditationanddevelopnewformsofaccessforEMDENDBs;andspeeduptheapprovalanddisbursementofNDBprojects.ODIPolicybrief25ReferencesAttridge,S.(2022)‘Thepotentialsandlimitationsofblendedfinance’inU.VolzandD.Schoenmaker(eds)ScalingupsustainablefinanceandinvestmentintheGlobalSouth.CentreforEconomicPolicyResearch(https://cepr.org/publications/books-and-reports/scaling-sustainable-finance-and-investment-global-south#external_424345_424356).Attridge,S.(2019)‘Howtogetclimatefinancetoflowthroughnationaldevelopmentbanks’.ODIBlog(https://odi.org/en/insights/how-to-get-climate-finance-to-flow-through-national-development-banks/).Attridge,S.,Xu,J.andGallagher,K.(2020)Pilotingandscalingupcleanenergytransitions:theroleofdevelopmentfinanceinstitutions.AFD(https://www.afd.fr/en/ressources/piloting-and-scaling-clean-energy-transitions-role-development-finance-institutions).ClimateBondsInitiative(2023)'MarketData'(www.climatebonds.net/market/data).ClimateFundsUpdate(2023)'Dashboard-ClimateFunds'.ClimateFundsUpdate(https://climatefundsupdate.org/data-dashboard/).ClimatePolicyInitiative(2022)'Globallandscapeofclimatefinance:adecadeofdata'.CPI(www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-a-decade-of-data).GreenClimateFund(2023)'Projectsapproved,disbursed'.OpenDataLibraryinquiries.GCFOpenDataLibrary(greenclimate.fund).GriffithJones,S.,Attridge,S.,andGouett,M.(2020)Securingclimatefinancethroughnationaldevelopmentbanks.ODIReport.(https://odi.org/en/publications/securing-climate-finance-through-national-development-banks/).Gregory,N.(2023)TakingstockofMDBandDFIinnovationsformobilizingprivatecapitalfordevelopment.PolicyPaper290.WashingtonDC:CenterforGlobalDevelopment(https://www.cgdev.org/sites/default/files/taking-stock-mdb-and-dfi-innovations-mobilizing-private-capital-development.pdf).IDFC–InfrastructureDevelopmentFinanceCompany(2022)IDFCGreenFinanceMapping2022.IDFC(www.idfc.org/wp-content/uploads/2022/11/idfc-gfm-2022-full-report-final.pdf).OECD–OrganisationforEconomicCo-operationandDevelopment(2021)Mobilisinginstitutionalinvestorsforfinancingsustainabledevelopmentindevelopingcountries.Paris:OECD(https://www.oecd.org/dac/financing-sustainable-development/Mobilising-institutional-investors-for-financing-sustainable-development-final.pdf).Songwe,V.,Stern,N.,Bhattacharya,A.etal.(2022)Financeforclimateaction:scalingupinvestmentforclimateanddevelopment.IndependentHigh-LevelExpertGrouponClimateFinance.LondonSchoolofEconomicsandPoliticalScience(www.lse.ac.uk/granthaminstitute/publication/finance-forclimate-action-scaling-up-investment-for-climate-and-development/).Tahir,W.andRobinson,M.(2023)‘Understandingmobilisation’.BIIDiscussionPaper(https://assets.bii.co.uk/wp-content/uploads/2023/03/13125506/Understanding_Mobilisation.pdf).UNFCCC–UnitedNationsFrameworkConventiononClimateChangeStandingCommitteeonFinance(2022)‘TechnicalReport:FifthBiennialAssessmentofClimateFinanceFlows’.UNFCCC(https://unfccc.int/topics/climate-finance/resources/biennial-assessment-and-overview-of-climate-finance-flows).ODIPolicybrief26Xu,J.,Marodon,R.,Ru,X.etal.(2021)‘WhatarePublicDevelopmentBanksandDevelopmentFinancingInstitutions?Qualificationcriteria,stylizedfactsanddevelopmenttrends’ChinaEconomicQuarterlyInternational1(4):271–294.
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