Director of the Green Climate Fund’s Private Sector Facility
Tony Clamp is the Director of the Green Climate Fund’s Private Sector Facility. He heads a team that works in partnership with countries and ‘Accredited Entities’* to support the implementation of projects in climate mitigation and adaptation. Together with FMO, which has been a GCF accredited entity since 2016, Clamp and his team worked on the design of two approved blended finance projects: Climate Investor One and the Green Growth Equity Fund in India.
Generating a bigger bang for our buck
Financing a rapid transition to achieve the Paris Agreement goals requires significantly more investments in a different set of low emission, climate-resilient assets. The Covid-19 crisis increases the imperative to scale up climate action before these goals are out of reach. Clamp: “It is critical to increase the ability of developing countries to realize their climate ambitions in the context of the pandemic without increasing their debt burden. There are trillions of dollars available looking for good yields to fund people's pensions. And there are many attractive investment opportunities in climate mitigation and adaptation, including in developing countries. However, the money doesn't naturally flow there. One of the tasks we have as GCF is to ‘prime the pump’: to de-risk opportunities and attract some of these funds.”
Why we blend
Many elements of climate projects can be attractive to investors. Clamp: “But you need quite a strong risk appetite to invest in climate adaptation projects for example, because this is an innovative and new sector. The GCF has the ability to work with partners and help mobilize capital at scale in many of these new but critical sectors.” The Green Climate Fund promotes private sector investment through concessional instruments, including low-interest and long-tenor project loans, lines of credit to banks and other financial institutions, equity investments and risk mitigators, such as guarantees, first-loss protection, and grant-based capacity-building programs. Blended finance is absolutely critical for GCF to achieve its goals. It can help attract commercial capital for high-risk, high-impact climate projects by covering part of the investment risk with concessional funding. Clamp: “With the right structure or blended finance design, we improve the risk-reward profile of low-emission climate-resilient investment in developing countries. This way, we can help make our investments go a lot further, and have a much bigger impact than with public finance alone. In the case of Climate Investor One, for example, GCF provided $100 million, and in doing so helped mobilize a total of well-over $800 million, including from private and institutional capital sources such as retirement funds.”
“Our challenge is keeping the balance between working to mobilize big capital.”
Green Growth Equity Fund in India with FMO
FMO’s Jim Brands and Rupali Gupta from EverSource Capital talk about the Green Growth Equity Fund that is backed by the Green Climate Fund. The Green Growth Equity Fund, managed by EverSource Capital, focuses on the energy value chain, water, waste and transport sectors that promote low carbon and climate-resilient initiatives in line with India’s climate objectives and Sustainable Development Goals. E Co. Sound bites is a podcast series about climate finance and project design for low carbon, climate-resilient programmes.
Listen to the podcast here
Many of the countries which GCF is mandated to support in their transition to renewable energy are very vulnerable. They don't have a financial ecosystem that is as well-established as in many developed countries. Clamp: “Inevitably, it takes a lot of work and a lot of perseverance to create bankable projects there. For example, you can install a wind or solar plant anywhere but somebody has to buy the power as well. In some places these projects need to be designed so that the reliability of an off-taker is guaranteed and to make sure that bankable payment mechanisms are in place.” On the organizational side there are challenges as well. Clamp: “GCF works with an established group of Accredited Entities with which it has agreements on governance, standards, gender and on environmental and social standards. However, we are not only working with the multilateral or big international banks. We also work with local entities (‘Direct Access Entities’) from the countries within our mandate. These are usually a lot smaller, and less experienced, and thus have less capacity. GCF needs to work harder to support these entities. Our challenge is keeping the balance between working to mobilize big capital, for the benefit of the countries alongside international entities such as FMO, but also working with some of the smaller groups on a country-by-country basis. It can take more time and take more effort, but it's very important in the development of those countries too. So we do both.”
Clamp’s advice on working with GCF
Alignment is key. Clamp: “The key to a good GCF project is making sure all parties are well-aligned. This means the fund manager, the individual investors in the fund and the countries where the climate investment is being made work together to ensure the funding is consistent with national objectives. If you have that, and you have the positive working relationships, things happen.”
Be patient. It takes a while going through the process. It can take a year to prepare the project, from the concept to approval by the GCF Board, which decides on whether to finance funding proposals.
Prioritize. Make sure a project is consistent with the objectives of the country's National Designated Authority, which is the government authority that acts as the interface between the country and GCF. Country considerations are critical.
Clamp: “The most exciting part of our work is that we’re generating a bigger bang for our buck by mobilizing other sources of private sector capital. And that is important given the size of the demand: even with all the funding available to entities such as GCF, there’s never enough for climate finance. One part of the dream is to structure GCF funding in such a way that it can help mobilize part of an estimated 130 trillion dollars under management by some of the biggest investors in the world, to support developing countries’ climate ambitions.”
The Green Climate Fund
The Green Climate Fund (GCF) was established by 194 governments to limit or reduce greenhouse gas emissions in developing countries, and to help vulnerable societies adapt to the unavoidable impacts of climate change. Given the urgency and seriousness of this challenge, the GCF is mandated to make an ambitious contribution to the united global response to climate change. The GCF is a critical element of the historic Paris Agreement and the world’s largest climate fund.