Development banks also have a major indirect or direct influence through the conditionalities they tie their funding to and through the due diligence they practice, for instance when they fund private corporations. They also provide technical assistance to public and private institutions. The three categories of institutions can collaborate in defining standard protocols for green due diligence, and work on standards and goals for sectors in which they have a major influence, such as municipal finance, transport, and energy. Domestic and some international DFIs play a major role in municipal finance and housing. These are two critical areas for the green economy: developing green practices for local municipalities and greening the housing sector, especially social housing.
The shareholders of the private sector dedicated DFIs, or the private sector arms of development banks, could consider promoting even further their traditional role in incubating and developing nascent green markets. Given the shortage of equity, a barrier even higher for green activities than access to credit, this could include additional support for cleantech private equity and green VC funds in developing countries. They could also play a greater role in further influencing the private banking sector, providing dedicated credit lines to green market activities at low interest rates and incentives for public and commercial banks to move their services towards green economy goals.
At the international level, some – such as the World Bank – focus solely on sovereign finance, which is
Box 12: Caisse des Dépôts and its long-term investment model
The group Caisse des Dépôts, a French public financial institution, is defined by law as a long-term investor serving the public interest and economic development. It has integrated ESG criteria upstream in its investment decision making process, as well as in its shareholder’s activities through a constant dialogue with the companies listed on the stock exchange market in which it holds shares. The Caisse des Dépôts model is now widely recognised. A first global forum gathering the main public financial institutions comparable to Caisse des Dépôts was held in Morocco in early 2011 to examine the potential of this model to be replicated and address long-term economic needs.
What characterises long-term investors such as Caisse des Dépôts is their robust capital base, which enables them to absorb short-term financial fluctuations. As such, they are in a position to address green economy financing challenges from R&D to production. They can foster innovation by financing platforms that gather research centers and private companies in order to value technological breakthroughs in the fields of eco- innovation and renewable energies. Long-term investors also have the capacity to finance projects yielding revenues only as of five to ten10 years. Caisse des Dépôts has created such a platform and since
2008 is implementing a € 150 million investment plan in several fields, such as photovoltaic solar energy, biomass, windmills, and water power, to contribute to France’s efforts to cut its GHG emissions by 20 per cent.
The bank has also joined forces with other long- term investors in the framework of the Long-Term
Investment Club and created with its partners – Cassa Depositi e Prestiti, KfW Bankengruppe, and the EIB – two investment funds in the infrastructure sector. One of them, the 2020 Marguerite fund for energy, climate change and infrastructures, is dedicated to the EU-27 zone and committed to invest in renewable energies for 35 to 45 per cent of the total size of the fund. The other, InfraMed, is focused on the Union for the Mediterranean zone. The management of both follow a philosophy of long-term investments, which means:
■ The investments are stable for 20 years and no core sponsor may transfer its shares during the lock- up period of 10 years;
■ The investments are stable for 20 years and no core sponsor may transfer its shares during the lock- up period of 10 years;
■ The incentives of the advisory team are based on long-term performance criteria and are fully consistent with the general principles of long-term performance endorsed by the G20; and
■ In terms of governance, a good balance between the interests of the investors and the autonomy of the advisory team is sought. For the InfraMed fund, strict ESG criteria are applied on the basis of the EIB requirements.
The experience of European long-term investors could serve as a basis for building up a doctrine for responsible public investment in the green economy.