REEEP reviews latest ODI report, "The role of multilateral climate funds in mobilising private investment"

07-07-2014, Vienna, Austria

The Overseas Development Institute (ODI), a UK-based independent think tank on international development and humanitarian issues, just published an interesting paper  investigating how Multilateral Climate Funds (MCFs) mobilise private investment.

 

The research team investigated 93 private finance interventions with a total volume of US$30.1 billion disbursed by five major climate funders: The Global Environment Facility (GEF), the Climate Investment Funds managed by the World Bank – Clean Technology Fund (CTF), Pilot Program for Climate Resilience (PPCR), and Scaling Up Renewable Energy Program for Low-Income Countries (SREP) – and the Global Energy Efficiency and Renewable Energy Fund (GEEREF) managed by the European Investment Bank.

Operations of the five Funds differ in scale and method: those targeting high volume investments provide guarantees (backstopping private investors), small concessional loans alongside large (domestic) public finance, or small grants for technical assistance alongside large loans; they will mainly focus on industrialised countries, emerging economies, and partly on middle income countries. CTF interventions start at US$500 million and target support from private and public sources equally, the GEF targets higher levels of private finance than any of the other Funds.  

In contrast, GEEREF and PPCR target investments below US$50 million and can also work in LDCs; they show a higher share of public co-finance and are able to focus on interventions with a shorter track record in the context of international finance.  

Interventions showed a surprising peak in 2011, with funding of over US$10 billion committed, while in all other years from 2009 to 2013 funding ranged between 3 and 6 billion. ODI evaluates the ratio between public and private investment raised across all funds at 1:0.8 – characterized by the authors as ‘low’. The ratio between MCF investments and private finance is significantly higher at 1:4 but the need for additional public finance drove the overall ratio down: the MCI share of all 93 interventions is at 9% while private investors contribute 35% and 56% stem from other public sources, such as domestic governments.

Individual projects can show quite a different picture with ratios public to private of up to 1:29. MCI contributions can play an important role in de-risking private finance and ensuring investments go ahead. To complement their investment strategies many MCIs also provide grants for Technical Assistance: for instance, GEF TA projects can address regulatory and institutional barriers, matching de-risking interventions of the CTF. From a technology point of view, wind and energy efficiency projects muster the highest level of private investment, compared to interventions on agriculture, transport or geothermal power.

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