1st PDCI Conference Report - Practitioners` Dialogue on Climate

CONFERENCE REPORT OF THE 1ST
PRACTITIONERS’ DIALOGUE ON CLIMATE
INVESTMENTS (PDCI)
8-9 October, 2015 | Jakarta, Indonesia
implemented by
CONTENT
I.Introduction to the Practitioners’ Dialogue on Climate Investments
II.Conference at a glance: 1st PDCI in cooperation with the 3rd
Sustainable Business Dialogue
III.1st Practitioners’ Dialogue on Climate Investments
A.
Setting the context
B.Key note speech: Global funds - local challenges
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C.
Panel debate: Unlocking private climate investments
D.
Working phase
E.
Lessons learnt and concluding remarks
I. I NTRODUCTION TO THE PRACTITIONERS’ DIALOGUE ON
CLIMATE INVESTMENTS
HOW TO UNLOCK PRIVATE CLIMATE INVESTMENTS – ESTABLISHING A COMMON UNDERSTANDING
Effective adaptation to climate change and reduction of global greenhouse gas (GHG) emissions on a large scale
require the provision of substantial financial resources. A global green transformation will only succeed if private businesses increase investments in low-carbon and climate-resilient technologies, infrastructure, products and services.
Additionally, the financial sector needs to broaden supply of capital and adequate investment products. Rapid
re-thinking of business models and redirection of private financial flows at scale, however, will require smart public actions and the provision of enabling framework conditions. The Green Climate Fund (GCF) has taken major
steps to start supporting developing countries to adapt to the adverse effects of climate change and to reduce
GHG emissions.
ABOUT THE PRACTICIONERS’ DIALOGUE ON CLIMATE INVESTMENTS (PDCI)
In this context, the Practitioners’ Dialogue on Climate Investments (PDCI) aims to advance the understanding of
policy makers on how governments in developing countries and emerging economies can secure the participation of
private businesses and the financial sector in climate-resilient and low-emission growth.
The PDCI is one of few platforms in the context of the international climate negotiations, which facilitates cross-sectoral exchanges and networking between developing country climate negotiators, government officials from key
sectoral ministries and agencies, and decision makers from business and financial sectors. The international dialogue
process aspires to strengthen governments’ capacity to act and unlock private investments in renewable energy
projects, energy efficiency improvements and adaptation measures.
The Practitioners’ Dialogue on Climate Investments is implemented by the Deutsche Gesellschaft für Internationale
Zusammenarbeit (GIZ) GmbH on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ).
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II. C
ONFERENCE AT A GLANCE: 1ST PDCI IN COOPERATION WITH
THE 3RD SUSTAINABLE BUSINESS DIALOGUE
7 OCTOBER 2015 | 3RD SUSTAINABLE BUSINESS DIALOGUE
Together with its long-term partner, the Indonesian Chamber of Commerce and Industry (KADIN), the Deutsche
Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH hosted the 3rd Sustainable Business Dialogue on 7
October in Jakarta, Indonesia. This business dialogue provided a platform for exchange of experiences and ideas on
how to enhance sustainability in Indonesian industry and business. The event addressed policy makers and business
leaders in the areas of agro business, financial services, tourism and the manufacturing sector. More than 200 participants discussed strategies and best practices for sustainable business models in a regional context.
8 OCTOBER 2015 | 1ST PRACTITIONERS’ DIALOGUE ON CLIMATE INVESTMENTS (PDCI)
The 1st PDCI offered a space for stakeholders to present, discuss and further develop concrete initiatives, and innovative
ideas for solutions, which could mobilize private climate investment. Participants discussed policy approaches, financial
mechanisms and cooperation models to mobilize private investments in renewable energy projects, energy efficiency
improvements and adaptation actions. They had the opportunity to share good practices and lessons learnt from their
regional or national context. More than 120 participants from national governments, the business and financial sectors,
civil society and think tanks joined the discussion. In total, they represented 33 different countries from 6 continents.
The key objectives of the two day conference were to (1) discuss in-depth how to mobilize private investments in
the energy sector and climate change adaptation, (2) showcase concrete public sector concepts and initiatives to
unlock private investments in products or services which reduce GHG emissions or help individuals and institutions
to adapt to climate change and (3) provide space for peer-to-peer exchange on presented public measures and
stimulate further action.
9 OCTOBER 2015 | STAKEHOLDER WORKSHOP OF THE 1ST PDCI
Building upon the results of the working phase on 8 October, a core group of around 50 practitioners engaged in
an interactive stakeholder workshop on 9 October. In six different working groups they discussed challenges and
opportunities related to the mobilization of private climate investments.
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III. 1ST PRACTITIONERS’ DIALOGUE ON CLIMATE INVESTMENTS
A. SETTING THE CONTEXT – WELCOME REMARKS
In her introduction to the 1st Practitioners’ Dialogue on Climate Investments, Monica Jones, moderator at Deutsche
Welle TV highlighted the need to mobilize private climate investments in the context of sustainable and low-carbon
growth. In order to deliver low-carbon and climate-resilient solutions public and private resources need to go hand
in hand. She asked the audience how the 1st PDCI event could contribute to finding solutions to stimulate the needed private investments and how policy makers could support the transition to a low carbon economy.
In her opening statement, Ina von Frantzius, Counsellor and Head of Development Cooperation, Embassy of the
Federal Republic of Germany to Indonesia, Timor-Leste and ASEAN, welcomed the participants of the 1st PDCI
on behalf of the German Federal Government (BMZ). Ms. von Frantzius stressed the urgency to change the business-as-usual approach to investments since several hundred billion dollars per year are needed before 2030 to
stabilize GHG concentrations by the end of the century. Ms. von Frantzius stated that the German Government is
to double its public finance for climate change by 2020. She emphasized that this is only a small amount compared
to what is needed. Ina von Frantzius stressed the key role of private sector investments for a global low-carbon and
climate-resilient economic transformation and acknowledged the importance of public sector support to mobilize
these resources. According to Ms. von Frantzius, cooperation and knowledge exchange on climate technologies
are critical when it comes to forging public-private alliances for a transformational change. A global, cross-sectoral
dialogue process that engages practitioners and decision-makers from the public and private sector can be a way
forward to overcome challenges of mobilizing private climate investments.
Billy Hindra, Secretary Directorate General for Climate Change Control of the Ministry of Environment and Forestry,
Indonesia, opened the event on behalf of the Indonesian government. Mr. Hindra outlined Indonesia’s important
role in fighting climate change. The country is severely impacted by the effects of climate change (e.g. by shifting
rainfall patterns, sea level rise, loss of biodiversity and raising temperatures). At the same time, Indonesia is one of
the world’s largest emitters of greenhouse gases, mainly due to deforestation, forest fires and the degradation of
peatland. According to Mr. Hindra, Indonesia needs to implement a profound and long-lasting economic policy
reform to initiate the shift to a low-carbon economy. The recently submitted INDCs will set the right path to a low
carbon future.
Frédéric Wils, Project Manager of the “Practitioners’ Dialogue on Climate Investments“, Deutsche Gesellschaft für
Internationale Zusammenarbeit (GIZ), introduced the rationale of the PDCI. He stated that according to the World
Economic Forum, approximately $5.7 trillion need to be invested annually in green infrastructure by 2020.
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This enormous challenge comprises shifting 5$ trillion of annual investments from business-as-usual assets to
investments in clean energy infrastructure, low-carbon transport, energy efficiency and forestry business and at
least 0.7$ trillion per year to cover the incremental costs to make this shift happen. Considering these figures, the
$100 billion annual goal from 2020 onwards is only a small amount of the $5.7 trillion sum. Both public and private
climate finance flows need sustained growth to ensure that we get on a pathway to meeting investment needs in
2020 and beyond. Mr. Wils finished by stressing: “The PDCI can set the stage to facilitate cross-sectoral exchange
and networking between decision-makers from government and the business and financial sectors. The dialogue
strives to strengthen governments’ capacity to act and unlock private investments in renewable energy projects,
energy efficiency improvements and adaptation measures.”
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III. 1ST PRACTITIONERS’ DIALOGUE ON CLIMATE INVESTMENTS
B.KEY NOTE SPEECH: GLOBAL FUNDS - LOCAL CHALLENGES
HOW
TO CHANNEL GLOBAL CLIMATE FINANCE TO UNLOCK PRIVATE INVESTMENTS
IN LOW-CARBON AND CLIMATE-RESILIENT GROWTH?
In a video keynote speech, Samy Ben-Jaafar, the Director of the Private Sector Facility of the Green Climate Fund
(GCF) elaborated on the question how the GCF could stimulate the business and financial sector to invest in renewable energy projects, energy efficiency improvements and climate change adaptation measures. The Private Sector
Facility (PSF) of the GCF uses innovative tools and concessional funding to promote private sector investment in
low-carbon and climate-resilient activities. To support SMEs in acessing climate finance, the PSF will also establish
a SME Pilot Programme.
Samy Ben-Jaafar explained that international businesses and especially investors still have to fully acknowledge climate change impact risks as a clear operational risk in their value chains and investment portfolios and the need for change of investments practices.
Central banks and rating agencies will have to play a central role in
creating awareness of banks and financial markets for such risks
and appropriate risk management approaches. Mr. Ben-Jafaar also
stated that the potential return on investment in climate mitigation and adaptation projects is greater in the developing world than
anywhere else and that the PSF will promote private sector investment in low-carbon and climate-resilient by various approached,
including de-risking investments, aggregating groups of projects
into single investment vehicles, supporting new climate-related
technologies and capacity building and awareness raising measures.
Mr. Ben-Jaafar named two additional barriers for private climate
investments: (1) the complex climate finance language and (2)
missing accounting standards. He stressed the need for common
accounting standards, improved monitoring, reporting and a more
simple language. He outlined the importance of mainstreaming climate change issues in financial institutions. Mainstreaming could
encourage financial institutions to divert resources from high-carbon options to climate-compatible interventions.
According to Mr. Ben-Jaafar, the GCF will address the existing institutions, instruments and regulations to unlock private investments
in low-carbon and climate-resilient growth. Future resources will
derive from domestic and international, private and public financial
markets.
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“In order to unlock private climate
investments, trust needs to be established. Structure as a substitute for
trust is too costly in the long-run.”
“We need to invite central banks to
the negotiation table (COP21) in order
make investments in low-carbon and
climate-resilient growth a top priority.”
III. 1ST PRACTITIONERS’ DIALOGUE ON CLIMATE INVESTMENTS
C.PANEL DEBATE: UNLOCKING PRIVATE CLIMATE INVESTMENTS –
STAKEHOLDER PERSPECTIVES
Mr. Ben-Jaafar’s keynote speech opened up the debate on how to unlock private climate investments. H.E. Ngedikes
Olai Uludong, Ambassador of the Republic of Palau to the European Union and Ambassador on Climate Change,
Assaad W. Razzouk, Chairman of the Board of the Association for Sustainable & Responsible Investment in Asia
(ASrIA) and Alejandro Miranda Velázquez, Principal Executive of the Directory of Environment and Climate Change
at the Development Bank of Latin America (CAF) discussed ways to create a supportive environment for capital
flows in sustainable and responsible investments. The panelists agreed that 100 billion USD per year by 2020 which
industrialized countries promised to deliver after the Copenhagen Summit in 2009 will not be sufficient to fight
climate change. Nevertheless, delivering this pledge would send the right signals to developing countries and could
be understood as a “confidence building exercise”.
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According to Mr. Razzouk, financial markets are going to play a key role in driving climate investments since they
influence the corporate and public sector. It is more likely that financial markets will send the right signals before
governments do. However, the question on how to involve financial markets into supporting climate change mitigation and adaptation still remains unsolved. Mr. Razzouk indicated that BRICS states will play an important role in
stimulating and supporting a transition to a renewable energy future. It is also expected that the main contribution
to climate investments will be delivered by the private sector, which is able to provide technologies and innovations.
Mr. Razzouk also stressed the need for developing countries to make necessary political changes and create an enabling environment for climate investments.
H.E. Ngedikes Olai Uludong emphasized the importance of establishing a new binding international climate agreement as the outcome of COP 21 in Paris. As a representative from AOSIS, “Alliance of Small Island States”, Ambassador Olai Uludong stated that small island states often lack clout in international negotiations, whilst being among
the first to suffer from rising sea levels and the other effects of global warming. Small islands states are often passed
over by investors and large corporations and have limited ability to fund climate change mitigation or - even more
important - adaptation measures by using own domestic financial sources. Ambassador Uludong therefore called
for developed countries’ support to AOSIS governments to create favorable national regulatory frameworks and
climate policies which attract private investments to small island states.
Mr. Velázquez shared experience of the Development Bank of Latin America (CAF) in incentivizing the development
of climate change mitigation and adaptation projects. The CAF launched several instruments, including a warranty
mechanism to reduce risk of low-carbon projects. This raised an interest among the Latin American governments
to cooperate and establish new programs that could unlock private climate investments. Mr. Velázquez also noted
that it is necessary to create an enabling environment for capital flows in sustainable and responsible projects. In
this regard, the PDCI platform could help to facilitate the dialogue between policy makers and their private sector
counterparts to explore new investment opportunities to tackle climate change.
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III. 1ST PRACTITIONERS’ DIALOGUE ON CLIMATE INVESTMENTS
D. WORKING PHASE
PHASE I – ADVANCING PUBLIC INCENTIVE SCHEMES
Feed-in tariffs or tax breaks for energy efficiency equipment are widespread instruments to stimulate private investments in renewable energy and energy efficiency. However, there is still a lack of experience on how to incentivize
climate resilience measures. The participants discussed the importance of public incentives schemes in the development of a domestic market for climate-friendly technologies, products and services. The discussion also emphasized
the need to design incentives which can be adjusted to in different national contexts.
Impulse: Public incentive schemes 2.0
Andy Schroeter, CEO & Founder, Sunlabob Ltd., Laos
Mr. Schroeter emphasized that public incentive schemes can only be
successful in the long-term, if they are designed in a forward-looking
way and if all parties involved continuously uphold their roles. In the
case of rural electrification, local end-users, private sector product
and service providers, and government authorities need to be interested and encouraged to maintain a solution for programs’ long-term
viability. According to Mr. Schroeter, a sustainable option would be to
drive private sector to invest into construction of alternating current
(AC) grid systems, which can be used for many years to come.
Andy Schroeter also stressed that public incentive schemes need to be tailored to each country’s unique
context and circumstances and should always ensure that climate investments are contributing to achieving
broader development goals.
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GROUP 1.1: HOW CAN GOVERNMENTS INCENTIVIZE PRIVATE INVESTMENTS IN ADAPTATION
MEASURES AND PRODUCTS?
With prospects for return on investments unclear or unexplored for most businesses, private investments in climate
change adaptation remain limited. Public incentive measures can help to stimulate investments by placing key issues on corporate agendas and reducing investment risks. The session started with a presentation about incentive
schemes that attract private investments. The participants discussed the role of the business sector in driving investments into climate change adaptation measures. They also exchanged opinions on how public incentive schemes
can reduce investment risks. The discussion further focused on the importance of stakeholder engagement and a
dialogue between various sectors to ensure appropriate actions.
Idea for solution
Johannes Puy, Business Unit Manager, Mörk Water Solutions, Germany
Mr. Puy highlighted the following incentives that need to be in place to make private investments feasible: (a) transparent, long-term and publicly guaranteed feed-in tariffs, especially for solar photovoltaic solutions, (b) overall water tariffs per m³ to increase efficiency of water usage, (c) build–operate–transfer (BOT) models, (c) duty free imports
that reduce investment costs for renewable energy hardware, (d) bilateral insurance against risks and financing models for small scale projects (0,2 – 2 million USD). In general, incentives should be straightforward and transparent in
application.
Johannes Puy further elaborated on basic criteria for foreign investments, which included:
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Stable political environment;
Long-term strategy of government and (local) authorities (e.g. with regard to the share of water supply);
Good bilateral relationship and visa policies;
Transparent tax structure;
Knowledge of authorities (e.g. of contracting or operation models) and availability of local partners;
Reliable infrastructure (energy, water, roads, information).
Key results of the discussion
The working group emphasized the importance of consistency in interpretation and enforcement of regulatory provisions to stimulate private investments. The participants agreed that a successful dialogue between the public and
the private sector depends on a common language, meaning the language of business case, value, cost, profit, and
return on investment. Participants also stressed the need for more precise information and quantitative data about
the impacts of climate change and vulnerability. They underlined the important role of the public sector in building resilience and implementing adaptation measures. The governments could facilitate the mobilization of private
sector investments by changing their procurement practices and by supporting climate resilient goods and services.
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GROUP 1.2: WHAT IS A COST EFFECTIVE POLICY MIX TO PROMOTE PRIVATE INVESTMENTS
IN RENEWABLE ENERGY SOLUTIONS?
The portfolio of available policy instruments aiming at promoting private investments in renewable energy has
evolved constantly. Today there are more varied instruments which are integrated with other policy sectors like
infrastructure or employment policies. While such diversity allows for differentiated and potentially more effective
policy frameworks, it becomes increasingly challenging to identify the ideal policy mix for a given market. Hence, in
times of limited public budget, the topic of policy effectiveness is becoming more and more important.
Challenges, risks and barriers
Working Group 1.2 identified numerous risks and barriers for private investment in renewable energy. These risks
include limited grid access for renewable energies, electricity prices that do not cover costs and high payment risk.
For example, if customers do not pay their electricity bills, this can results in low financial credibility of the underwriter of the power purchase agreement (PPA), monopoly in vertically integrated electricity markets as well as too
high tariffs (i.e. FiTs) that could scare off investors and developers. Additionally, problems with the quality of equipment, lacking knowledge on renewable energy technology and non-transparent, lengthy licensing and permission
processes might present obstacles for renewable energy investment.
Ideas for solution and key results of the discussion
Wei-nee Chen, Chief Corporate Officer, Sustainable Energy Development Authority, Malaysia
Kabil Dahmani, Director, General Committee of the State’s Budget Administration, Ministry of Finance, Tunisia
The contributors elaborated that in order to promote private investments in renewable energy solutions grid access
for renewable energies should be guaranteed by law. They also noted that in many countries thermal power plants
are already depreciated and run on operating costs. Therefore, policy makers need to ensure the profitability for
not-yet-depreciated fossil fuel power plants. At the same time they need to avoid installing new fossil fuel capacity.
Mr. Dahmani stressed the need for capacity building of independent energy regulators. He also noted that addressing barriers in a systematic and integrated way is a a key factor to create a business environment that enables attractive renewable energy investment. More private investments would reduce pressure on scarce public resources and
allow halting the increase in energy prices. Mr. Dahmani further mentioned the need to liberalize electricity markets.
During the discussion, several participants emphasized that policy makers should ensure the implementation and
enforcement of laws and regulations related to renewable energy investments. It is important not to rush changes
and focus on long-term strategic planning of renewable energy policies.
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GROUP 1.3: WHAT ARE BEST PRACTICES TO INCENTIVIZE ENERGY EFFICIENCY MEASURES
IN PRIVATE COMPANIES?
Idea for solution: Incentivizing energy efficiency in the building sector
Emad A. Hassan, Energy Advisor to the Minister of Tourism, Egypt
Mr. Hassan presented his proposal on how the Egyptian government can incentivize energy efficiency through offering interest-free loans to the hotel sector and allow for repayment to be in sync with the actual occupancy patterns.
He linked the reason for this initiative to two main issues; the first is the negative impact on natural resources associated with the rising trend in beach tourism activities, and the second is the paradox created as a result of reduced
occupancy rates along with a planned increase in operational costs as energy subsidy gets reformed. In order to
emphasize the government role in supporting economic development and to support a vital sector such as tourism,
demand for renewable energy sources and energy efficiency measures would be stimulated through a partnering
approach with hotel owners to increase dependency on green energy.
Through a customized financial scheme, the Egyptian government would cover two thirds of the hotels’ green investments in the form of a zero per cent interest loan and allow them to repay in a pattern reflecting their occupancy
rates. As a first step, the government intends to implement a pilot project for six to ten hotels with a focus on two
technologies – LED lighting and solar water heaters. According to Mr. Hassan, it would take between 20 and 38
months to repay the loans assuming occupancy levels of 50 per cent. Hotels could further introduce new technologies such as PV electric generation. As a second step hotels in off-grid areas would install PV (as an independent
power producer) and switch from conventional use of diesel to using a hybrid between diesel and solar energy. In
this case, the government would cover the incremental costs between commonly used diesel and the costs of purchasing electricity from PV. The investment would be repaid back to the government within four to six years.
Mr. Hassan added that Egypt also has a green certification program (Green Star Hotel) for hotels. This scheme along
with the proposed initiative would support a sustainable move towards greener practice, thus attracting sustainable
tourists.
Key results of the discussion
Vicente Co, Vice President, Philippine Plastics Industry Association stated that equipment suppliers would also need
such incentive schemes. He stressed that Philippine industry has made similar experiences when trying to shift operational costs to the public sector. The particular case of zero interest rates is perceived as rather unique though.
Hence, it is generally crucial to also engage the private sector as an investor. The benefit of this example is that the
lending process is not based on specific timelines.
K. S. Venkatagiri, Head of the energy and climate change activities at the Sohrabji Godrej Green Business Centre
of the Confederation of Indian Industry (CII), India referred to the example of of the ‘green building movement of
India’. Supported by a bank, a pilot project for measuring a green building footprint raised significant awareness
throughout India. The approach allowed reducing operational costs for energy and water and increasing energy
efficiency in buildings. The project has now been extended to schools, hospitals and private homes.
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WORKING PHASE II
PHASE II – ADJUSTING REGULATORY FRAMEWORKS
Private sector actors such as companies, banks and investors consider reliable, stable and smartly designed laws and
regulations a necessity for climate investments. During working phase II, participants presented specific ideas on
how regulatory frameworks should be designed to facilitate private sector investments.
Impulse: Why regulatory frameworks matter so much
Marlina Efrida, Director, Banking Research Department , Indonesian Financial Services Authority/ Otoritas Jasa Keuangan (OJK)
Mrs. Efrida began her speech by stressing that many of the existing regulations were designed in order to safeguard the interest of different economic
sectors. This results in unclear and ineffective regulatory frameworks. She
emphasized that particularly Indonesia as a developing country, a growing
economy and a sensitive ecosystem is in need for strong regulations. According to Mrs. Efrida, Indonesians
would be more effective in adapting to climate change under the top-down approach, such as the issuance
of government regulations.
Marlina Efrida introduced the “Roadmap for Sustainable Finance in Indonesia” as a successful example for
the Indonesian top-down approach. The aim of the Roadmap is to determine which measures need to be
taken to improve the sustainability of finance in Indonesia, and to have these implemented by 2024. It contains a detailed work plan for the period of 2015-2019, which will apply to all institutions that fall under
the authority of the OJK, namely banks, the capital market and non-bank financial institutions. Before the
Roadmap was issued, sustainable finance had a low priority for financial services institutions in Indonesia.
However, with the development of the Roadmap, they have shown enthusiasm in participating in the capacity building program conducted by the Indonesia Financial Sector Authority (OJK). Mrs. Efrida mentioned
that the OJK will issue a regulation on sustainable finance in 2016. With the existence of such regulation
it is expected that financial services institutions will increase their business portfolio in green sectors, such
as renewable energy, energy efficiency, sustainable agriculture, fisheries, and green building. Moreover, the
regulation is also expected to create competition between financial services institutions.
Mrs. Efrida stressed the importance of implementing an effective internal and external supervisory system.
While having strong regulations, it is crucial that they do not hinder but rather support innovation. Coordination is needed to complement regulations and supervision, so Mrs. Efrida. According to her, sustainable finance incentive schemes need to be developed in good coordination with the government, financial services
institutions, the business sector and donors. The implementation of the Roadmap is a joint effort of the OJK
and at least seven ministries, the Indonesia Stock Exchange and law enforcement agencies.
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GROUP 2.1: HOW TO ADJUST BANKING REGULATIONS TO PROMOTE CLEAN ENERGY
INVESTMENTS?
The adjustment of banking regulations is a strategic approach to incorporate the financial sector in the transformation process towards low-carbon and resource-efficient economies. Banks contribute to sustainable development
through introducing internal environmental standards, becoming environmentally friendly companies and by using
“green” standards in their investment decisions. At the same time, the introduction of banking regulations promoting clean energy investments is a significant departure from the approach of many banks, which rely on voluntary
codes of conduct as it concerns the integration of sustainability issues into their business practices. Examples of
green banking regulations from different national contexts were presented and discussed.
Idea for solution: Introduction of Green Banking Guidelines in Pakistan
Muhammad Saleem, Additional Director, IH & SME Finance Department, State Bank of Pakistan
The State Bank of Pakistan has taken up green and sustainable banking as a special developmental area to promote
environmental and social considerations in banking practices. Dr. Saleem introduced green banking guidelines that
have been developed by the State Bank with the support of GIZ Pakistan. The example demonstrated how modified banking regulations can increase access to finance for clean energy investments. Dr. Saleem stated that the
important role of central banks and other financial oversight authorities in the transformation process towards a
low-carbon and resource efficient economy is still neglected. Central banks have a significant responsibility to influence corporate environmental discipline through financial policies and guidelines. An increasing number of Asian
countries are taking this shift into account and introduce green financial regulations. Dr. Saleem stated that central
banks can influence investments through mandatory or non-mandatory regulations and guidelines. Central banks
are able to lower the risks through Capital Adequacy Requirements (CAR); lower classification standards (e.g. are also
able to increase the period of default); decrease the cash reserve ratio (CRR) which leads to more liquidity with banks
to lend to clean energy investment; and lower equity to finance (e.g. reduce the debt ratio). Furthermore, central
banks can provide credit risk sharing facilities and create an enabling environment for the development of a capital
market for green bonds. Through banking regulations central banks can encourage the development of innovative
financial mechanisms and act as catalysts for commercial banks.
Idea for solution: Monitoring the financial services industry - The Indonesian Financial Services Authorita
(OJK)
Edi Setijawan, Deputy Director, Banking Research Department, Indonesian Financial Services Authority/Otoritas
Jasa Keuangan (OJK)
Edi Setijawan presented the mandate of the Indonesian Financial Services Authority (OJK) which acts as a monitoring institution that oversees the financial sector. OJK performs its regulatory and supervisory duties over financial
services activities in banking, capital markets, and non-bank financial industries sectors. With efficient regulations
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OJK can encourage Financial Service Institutions (FSIs) to increase their financial support to clean energy projects.
Edi Setijawan emphasized that regulations have to be clear and able to boost FSIs to strengthen their risk management and governance. Awareness raising and capacity building of FSIs employees have become a top priority, OJK
implemented a training program for approximately 300 FSIs employees. According to the participants, there seems
to be a trend in which central banks and financial authorities are starting to respond to the challenges posed by climate change by requiring adequate management and disclosure of climate risks from financial firms. All participants
agreed that capacity building for banks is needed.
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GROUP 2.2: MANDATING PREPAREDNESS: HOW TO SET STANDARDS FOR CLIMATE-PROOF
INFRASTRUCTURE?
The private sector invests in, builds and runs critical infrastructure which is potentially at risk from extreme weather
events. It provides products and services that contribute to making infrastructure more resilient to the impacts of
climate change. In many cases business continuity depends on resilient infrastructure to bounce-back from shocks.
At the same time, public and private sector have a common interest in climate-proofing infrastructure. Participants
discussed how to put in place effective regulation for preparedness that reduces risks for companies and investors
and improves the business case for adaptation investments.
Idea for solution: Caribbean Climate Online Risk and Adaptation Tool (CCORAL)
Carlos Fuller, Caribbean Community Climate Change Center (CCCCC), International and Regional Liaison Officer,
Office of the Executive Director, Belize
Carlos Fuller presented the example of The Caribbean Climate Online Risk and Adaptation Tool, an online support
system that can be used to prepare a climate risk management report. CCORAL is open access and ready for use by
any organization in the Caribbean to see all kinds of activities through a ‘climate’ or ‘climate change’ lens, and to
identify actions that minimize climate related loss and take advantage of opportunities.
He explained that the tool is a voluntary based standard that utilizes vulnerability studies, assessments of future
emission scenarios and present climate. The results of this assessment can be further used in decision-making process to fully consider climate risks in the operations of an organization as well as to mainstream climate change in
national development planning. Mr. Fuller further noted that by using CCORAL, decision makers can demonstrate
to investors, banks, insurance companies and other development partners that their activities consider climate resilience. This will further increase interest of the private sector in supporting green projects.
Idea for solution: Green Building Certification
Prasetyoadi, Deputy to Chairperson, Green Building Council Indonesia
Prasetyoadi introduced the Green Building Council (GBC), a non-government and non-for-profit organization which
issues Green Building Certification or GREENSHIP in Indonesia through an online assessment tool. GREENSHIP is
still a voluntary instrument that sets a basis for a possible future sustainable Indonesian building standard.
According to Mr. Prasetyoadi, there is a market opportunity for certification projects in real estate sector in Indonesia. Currently, the certification is widely used for commercial buildings, but the standards can be also used to
conduct certification of other types of buildings. Mr. Prasetyoadi also emphasized that further incentives from the
government are needed in order to establish a green building standard. It is important to raise awareness among
consumers, representatives of the banking sector, insurance companies and other stakeholders.
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He stressed the need for capacity building for engineers and middle-management staff in the construction or real
estate industry. The presenter noted that it is also important that occupants of buildings are informed about the
standard. Further, it is not only about how you design and construct a green building but how to maintain it properly
to ensure resource efficiency and a sustainable building operation. The financing of the retrofitting of existing buildings is another important challenge with regard to energy efficiency in the building sector. The operational budget of
many older buildings is not sufficient to finance the needed resource efficiency measures and, therefore, innovative
financing solutions need to be developed.
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GROUP 2.3: HOW TO DEVELOP A MARKET FOR STAND-ALONE RENEWABLE ENERGY SYSTEMS?
The business case for deploying off-grid renewables in rural areas has never been stronger. Renewable energy
technologies are increasingly cost-competitive, often turning them into the first-best economic option for off-grid
electrification vis-à-vis diesel-fired generation or kerosene-based conventional lighting in rural areas. Decentralized
renewables present an immense opportunity to expand climate friendly, reliable and cost-effective electricity supply
in rural and peri-urban areas. During the SEED Africa Symposium 2015, the PDCI network engaged in discussions on
how to shape renewable energy markets in order to mobilize private climate investments in Africa. Public and private
sector practitioners discussed how to design enabling policies to support the development of renewable energy
markets in Africa. Building on the results of the discussions in Nairobi, participants presented and further discussed
concrete ideas on how to develop a market for stand-alone renewable energy systems.
Idea for solution: Photovoltaics (PV) solutions in Tanzania
Hamis Mikate, Managing Director, Ensol Ltd., Tanzania
Hamis Mikate introduced measures for the further development of the market for solar PV solutions in Tanzania:
•
•
•
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Further development of supply chains, improved channeling of products and services from manufacturers and
distributors, wholesalers, retailers to the last mile enterprise in villages;
Development of short- and long-term capacity building programs to ensure technicians are available to support
installation and maintenance of solar PV systems on the ground;
Establishment of an enabling and competitive market environment to make sure that products and services are
affordable to the large population;
Enforcement of quality control, establishment of reporting institutions and setting up awareness raising campaigns for consumers on the difference between good and low quality products. According to Mr. Mikate, the
business community should conduct self-monitoring and quality controls in order to develop a sustainable
market for stand-alone renewable energy products.
Idea for solution: Sustainable solar energy market
Jay Patel, Vice President of Business Development, Village Energy, Kenya
Mr. Patel stated that in order to build a sustainable solar energy market, it is important to develop localized technical
expertise and a robust supply chain of spare parts and batteries. Otherwise, the lack of affordable, fast servicing or
maintenance options could prove to be an anchor on the adoption of solar PV systems by consumers and businesses.
According to Mr. Patel, measures could include:
•
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Deployment of national, mandatory technician training and certification standards;
Creating a solar importer program to allow companies that meet certain requirements (such as employing certified technicians) to import batteries duty free;
Scale up solar training programs and courses in secondary, vocational, and tertiary institutes.
WORKING PHASE III
PHASE III – INTRODUCING EFFECTIVE FINANCIAL MECHANISMS
Sufficient liquidity exists in financial markets around the world and individual as well as institutional investors are
looking for investment opportunities. Despite this encouraging picture, private investments in renewable energy
or energy efficiency measures have not reached their potential yet. In addition to public incentive schemes and
adequate regulatory frameworks, effective financial mechanisms minimizing investment risks and improving return
on investments are needed to unlock additional private climate investments. During working phase III, participants
discussed the possible design of financial mechanisms for leveraging private climate investments and the crucial role
of policy makers in this process.
Panel discussion: Mobilizing, leveraging, catalyzing – different financial mechanisms, same challenges
Niranjali Amerasinghe, Associate, Sustainable Finance Centre, World Resources Institute, United States
H. E. Diann Black-Layne, Ambassador, Department of the Environment, Ministry of Health and the Environment,
Antigua and Barbuda
Assaad W. Razzouk, Chairman of the Board, Association for Sustainable & Responsible Investment in Asia (ASrIA)
The panelists presented their experiences in using different financial mechanisms which aim at leveraging private investments in renewable energy projects, energy efficiency improvements and climate change adaptation measures.
They outlined challenges, opportunities and solutions with regard to the design of financial mechanisms and laid the
groundwork for the subsequent working group discussions.
By 2050, greenhouse gas emissions in South-East Asia are set to triple (IEA, 2013), due to growth in energy consumption, predominantly coal and oil based technology roadmaps and the shift of industrial production to resource-intensive production centers like Indonesia, the Philippines and Vietnam. At the same time, governments in the region increasingly recognize that the transition to a green growth can be an important economic opportunity. To
implement green growth strategies, public and private finance flows need to be channeled towards climate change
mitigation and adaptation investment needs (ASrIA – AIGCC, 2015).
Against this background, Assaad Razzouk, Chairman of the ASrIA-Board, outlined the risks and opportunities associated with climate change and low-carbon investments for Asia’s financial institutions. He elaborated how international climate funds such as the Green Climate Fund as well as regional development banks could succeed in
mobilizing additional private funds from commercial investors in Asia.
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Diann Black-Layne described key characteristics of investments into climate-resilience measures in the infrastructure sector based on the example of Antigua and Barbuda. She emphasized the challenge of attracting private adaptation investments due to often large upfront costs, long payback times and unclear profits of resilience measures.
She stated that any private investments in climate adaptation technologies and services will require long-term capital from public sources at appropriate financing costs. The Green Climate Fund could become a key player not only
for mobilizing private investments in mitigation activities but also to prototype climate-resilience measure funded
by public and private finance.
Niranjali Amerasinghe elaborated on how public finance can catalyze private sector investment at the national level
and how the GCF could facilitate public and private investments for transformational climate finance. She stated
that the accreditation procedure of the GCF ongoing implementation process should strongly focus on national
priorities. Mrs. Amerasinghe illustrated the procedure of the GCF. She elaborated that the GCF has recently begun
providing more information, however, the accreditation and proposal approval processes still need to be made more
transparent. She stressed that the GCF has to strengthen national institutions to access climate finance.
With many institutions channeling climate finance, the GCF has an opportunity to identify what is unique about its
role, and how it can improve or add to what countries are already doing. For example, achieving a paradigm shift in
developing countries requires more than simply identifying a good climate project or program. According to Mrs.
Amerasinghe, it requires understanding the development, investment and climate context of a country, aggregating
and prioritizing activities with potential, and identifying the financial arrangements.
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GROUP 3.1: INVESTING IN RESILIENT SUPPLY CHAINS – HOW TO FORM PARTNERSHIPS
FOR FINANCING SMES?
A key climate risk factor which is typically identified by large companies and investors is limited resilience of MSMEs,
especially in exposed developing countries and emerging economies. MSMEs tend to have limited capacity for business continuity planning, risk management and financing adaptation measures. Therefore, investing in this aspect
of MSMEs’ operations clearly combines a business case for resilience along supply chains with a public interest to
strengthen socioeconomic resilience. The aim of the working group was to look at existing examples of partnerships
for financing MSMEs and explore successful modalities and opportunities for further piloting and scaling up.
Idea for Solution: IISD partnership related to the rice value chain in Uganda
Anne Hammill, Director, Resilience, International Institute for Sustainable Development (IISD)
Ms. Hammill elaborated on the partnership with the Centenary Bank in Uganda which offers financing in the agricultural sector. Through direct interactions with the farmers the bank encourages savings and sets incentive schemes
for post-harvest. Ms. Hammill noted that partnerships with CSOs and research institutions play an important role in
translating the information on climate risks in value chains to various actors. It is critical to develop an interactive,
iterative learning culture throughout the process. The prerequisites for building resilience along supply chains are
transparency and accountability of information (e.g. through reporting) as well as robust administration practices.
Idea for Solution: Conservation of water within the Indonesian hotel industry
Naning Adiwoso, Chairperson, Green Building Council Indonesia (GBCI)
Mrs. Adiwoso described how the GBCI approach can help to conserve water within the Indonesian hotel industry.
Tourism is an important sector of the Indonesian economy. Around 10 per cent of the working population is employed in the resource intensive hospitality industry. Although, water is a scare resource in many parts of Indonesia,
there is no regulation for its use. Investors can either buy water directly from the government or drill for own sources. The hotel industry makes up 40 per cent of water wasted in Indonesia. Hence, GBCI advocates for sustainable
management of freshwater resources. It provides advisory services and tools to improve efficiency of water use.
Since the hotel industry is not able to finance water-saving and recycling technologies on their own, there is a need
to build partnerships with providers of these technologies and services.
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Idea for Solution: Oil Palm Smallholder Farmers in Central Kalimantan
Leela Raina, Analyst, Climate Policy Initiative (CPI), Indonesia
Ms. Raina presented the results of the CPI report on “Opportunities for Increasing Productivity & Profitability of
Oil Palm Smallholder Farmers in Central Kalimantan”. Due to growing pressure for sustainable palm oil production
many companies got involved throughout the oil palm value chain and took on significant commitments. It will be
critical to increase productivity in order to reduce pressure for expansion into forest areas while meeting production
targets. Ms. Raina suggested that part of the solution lays in a multi-stakeholder approach aligning incentives of
private business groups, governments and farmers. The initiative has worked towards building the capacity of PILAR
– Palangka Raya Institute of Agricultural Research and supporting a multi-stakeholder working group in Central
Kalimantan. Given smallholder farmers manage 20 per cent of company oil palm plantations in Central Kalimantan,
increasing their productivity and integration into value chains, coupled with ensuring their plantations are located on
environmentally suitable lands, is of increasing importance. According to the CPI report, it is possible through more
integrated smallholder plantation management in the form of cooperative schemes.
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GROUP 3.2: HOW DOES A HIGH-IMPACT FINANCIAL INSTRUMENT FOR ENERGY INVESTMENTS
LOOK LIKE?
Particularly for renewable energy investments, many governments have implemented new financial instruments
seeking to minimize investment risks and maximize leverage for additional financing through public-private partnerships. Working group 3.2 exchanged experiences on existing financial instruments and discussed how the PDCI
could support the dialogue and knowledge sharing in this field.
Idea for Solution: Incentivizing policies for renewable energy projects
Tuul Galzagd, Director of Eco Banking Department, XAC Bank
Mrs. Galzagd emphasized that renewable energy projects require higher upfront investments than conventional energy projects due to the use of capital intense technologies. In addition, green businesses need intensive planning
and detailed analysis before a business case can be developed. Incentivizing policies and subsidies such as tax breaks
should be introduced to make projects financially viable and to create renewable energy markets. According to Mrs.
Galzagd, long-term, low-interest concessional loans should be made available to businesses and green project developers to cover a part of the upfront investments. Many renewable energy projects like PV plants need 10-20 years to
finance. Governments or commercial banks should offer guarantee funding to the private sector. In order to support
green businesses, standards for financial instruments need to be introduced. Mrs. Galzagd elaborated that in 2014, the
Mongolian Banking Association approved and agreed upon such sustainable finance principles.
Key findings of the discussion
During the discussion, Ms. Gampp from Basel Agency for Sustainable Energy (BASE) stressed that for BASE in particular, it is important to develop market driven business models and incentivize investments in renewable energy
and energy efficiency. She elaborated that proper market assessments should be conducted before initiating projects. It is crucial to understand market mechanisms as well as financing schemes that are in place.
Mr. Pazos, CEO from Kuber Energy emphasized that larger projects are often highly capitalized and can rely on
professional staff while many smaller projects face difficulties in the planning phase due to insufficient and insecure
funding opportunities. Therefore, insurance, performance guarantees and bankable power purchase agreements
(PPAs) are very important. In Indonesia, PPAs in USD for smaller projects were recently introduced.
Belynda Petrie, CEO of One World – a sustainable development consultancy, based in South Africa – shared One
World’s experience and lessons learnt from the implementation of renewable energy programs. She stressed that
newly introduced policies need to be pragmatic in order to work. By involving the private sector from the beginning,
policies could be established in a quicker and more ambitious way (e.g. reference to the feed-in tariff in South Africa
which was proposed and rejected in favor for a competitive bidding process in 2011).
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GROUP 3.3: HOW DOES AN EFFECTIVE FINANCIAL MECHANISM TO FINANCE ESCOS LOOK LIKE?
The market for energy efficiency projects in the industrial and services sector is potentially large. However, it is
difficult to access long-term credits to support the implementation of energy efficiency projects by energy services
companies (ESCOs). In this context, the objectives of the session were to (a) exchange experience on using existing
financial mechanisms, to (b) discuss how the PDCI could support the discussion on financial mechanisms and financing ESCOs and to (c) share knowledge and identify possible fields of action for the PDCI.
Idea for solution: ESCO projects in Philippines
Corazon Conde, Group Head, Consulting, and Association of Development Financing for Institutions in Asia and the
Pacific (ADFIAP) in Philippines
Corazon Conde shared her experience on ESCO projects with the Development Bank of the Philippines. She stressed
the need for capacity building among financiers to create a market for energy efficiency (EE) products. She also noted that the creation of supporting agencies and the development of governmental regulations should be based on
an analysis of the existing obstacles in EE business. As a next step, options for financing this business models should
be considered.
According to Mrs. Conde, support from different stakeholders for green projects such as ESCO is needed: multilateral and bilateral partners, funding agencies, development institution and national governments play an important
role. Other financing options include International Climate Finance, Green/EE financing programs, grants and guarantees.
She noted that key elements that can influence the involvement of the private sector in financing of ESCO projects are advocacy, awareness raising, governmental commitment and improved regulatory framework conditions.
Governmental support is a key for success of ESCO startups. A market for ESCOs only exists where standards and
regulations for sustainable production and energy use are in place and enforced.
Idea for solution: ESCO market, value and business model
Alejandro Velasco, CEO and expert for Quality Energy Solutions in Colombia and Germany
Mr. Velasco focused on re-thinking of the value creation of the ESCO market and the business model for energy
efficiency. He stated that in order to support the development of ESCO companies, one needs to increase capacity
building in energy management in the industry. Promoting and offering such capacity building would be a step forward for ESCOs to get funded or to get incentives from the government and the private sector.
He noted that the role of banks, financial institutions and the government to support the financing of technology
will be critical. Mr. Velasco further stressed that traditional ESCO programs, projects, and its business models still
lack significant improvement and need for more advocacy and public awareness.
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GROUP 3.4: WHAT CAN BE THE ROLE OF BUSINESS NETWORKS IN SUPPORTING PRIVATE
CLIMATE INVESTMENTS?
Starting with the introduction of an example from Latin America and the Caribbean, this session focused on the role
of business networks in supporting climate investments. Peer-learning platforms and tools that work for the needs
of companies struggling to devise effective adaptation strategies are key to supporting business in understanding
the risks and opportunities resulting from climate change. This in turn is a necessary starting point to drive private
climate investments that are strategic, effective and sustainable by being tied into core management processes and
linked to overall business strategy.
Idea for solution: Business network on climate change
Maria Virginia Vilariño, Energy & Climate Coordinator, Business Council for Sustainable Development Argentina
(CEADS)
Ms. Vilariño presented the approach of the Latin American and the Caribbean Business Network on Climate Change.
The main idea of the network is to facilitate cooperation between business organizations on the climate agenda by
offering a platform for knowledge-sharing, capacity building and regional positioning. Ms. Vilariño pointed out that
in face of pressing climate change issues that affect the business sector, it is necessary to look for opportunities how
business can engage in providing sustainable solutions for low carbon societies. It is essential to strengthen capacity
for climate change management in the business sector and ensure sharing of knowledge in order to improve learning curves and reduce implementation costs.
Ms. Vilariño illustrated an approach for climate risk analysis and adaption planning which includes the following
steps for identifying local climate impacts: analyzing past, present and future impacts considering adaptation actions,
conducting costs analysis and prioritization, developing an adaptation plan and micro action plans. This approach
was tested in different business sectors in countries of Latin America and the Caribbean. Further, the presenter noted
that there is a need to assist companies in building technical capacity to understand and address climate risks. Public
investments in basic infrastructure can be a pathway to unlock private investments. There is a need for a platform
where the private sector can engage with policy makers and influence public policies.
Key points discussed by the working group included how an approach like the example presented can be replicated
elsewhere and what should be done at the governmental level to promote such initiatives and their potential to
unlock private investments in addressing the risks of climate change.
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III. 1ST PRACTITIONERS’ DIALOGUE ON CLIMATE INVESTMENTS
E.
LESSONS LEARNT AND CLOSING REMARKS
During the final plenary session, participants shared ideas and insights discussed in different working groups. The
panelists noted that the discussions brought together many inputs from different perspectives, particularly on how
sustainable business models work in different countries and how regulatory frameworks and better political standards could be successfully implemented.
The participants appreciated the opportunity to reflect each other’s work by presenting and discussing policy approaches, financial mechanisms and cooperation models that could mobilize private investment in renewable energy projects, energy efficiency improvements and adaptation measures. By working in small expert groups, participants managed to define specific investment challenges, present new business opportunities, and last but not least
defined the particular role of governments in overcoming barriers to investment.
In his closing speech, Frédéric Wils, Project Manager of the Practitioners’ Dialogue on Climate Investments (PDCI),
expressed his appreciations for the active discussions and laid out how the discussion results of the 1st Practitioners’
Dialogue on Climate Investments will determine the design of the PDCI process in 2016. Mr. Wils concluded by
emphasizing that the PDCI in 2016 will offer opportunities for continuous physical and online exchange between
climate negotiators, government officials from key sectoral ministries and agencies, and decision-makers from the
business and financial sectors. The PDCI will continue to assist stakeholders to advance concrete concepts and initiatives in the area of renewable energy, energy efficiency and adaptation to climate change.
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9 OCTOBER 2015 – PDCI STAKEHOLDER WORKSHOP
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