Finance

4.5 Creating public-private mechanisms The lack

important

of adequate public financing is barrier

to increasing also an the flow of green

investment. Public financing is justified by the positive externalities expected from a green economy and it can be important for leveraging private investment. For example, it has been established that US$ 1 of public investment spent through a well-designed public finance mechanism (PFM) can leverage between US$ 3 to US$ 15 of private sector money (UNEP & Partners 2009). However, simply having one or several disparate policies in place is not enough to catalyse a fresh supply of capital at scale. The example from India (see Box 9) shows that an array of well-orchestrated policy instruments, mechanisms and responsive institutions are needed to catalyse finance along the innovation continuum.

In 2009, UNEP and its partners explored which types of PFMs could be effective in mobilising funds from the institutional investors into low carbon infrastructure, particularly in developing countries (UNEP & Partners 2009). Five key barriers were identified, together with remedial PFMs. A case was made that investment-grade policies to mobilize the private financial sector for the energy revolution needed to be ambitious (Chatham House 2009) and should:

■ Adopt legally enforceable targets and schedules for the adoption of renewable energy on a rolling 15 year programme and within a framework for the stabilisation of global GHG emission concentrations;

■ Refocus energy policy: adopt full-pricing for non- renewables in a progressive schedule; provide a tapered support programme for renewables, gradually eliminating subsidies; and simplify and clarify the regime for renewable energy projects and carbon finance;

■ Align other policies, particularly transport, development, education with climate change policy;

■ Keep key financial institution decision makers well- informed about climate change and renewable energy technologies; and

4.6 Scaling up microfinance for a green economy

Opportunities for sustainable lending are also prevalent at the microlevel. In addition to its well-known success in helping to provide sustainable livelihoods and reduce poverty, microfinance has recently been extended to such areas as drinking water and sanitation and small-scale decentralised energy systems (see Box 10). Growing in maturity and tested by global economic crisis, the microfinance industry in recent years has seen higher intensity of credit and liquidity risks, along with greater competition, volatility and systems integrity issues as more financial intermediaries are involved. This underlines the need to move from crisis management to more systemic and comprehensive risk management systems as the industry matures. The experience also shows the importance of developing meaningful partnerships and alliances with organisations involved in the relevant industry, for example the agrifood, value chain (ADB 2008).

Microinsurance products provide the potential to help households, SMEs and other “micro agents” at local level to adapt to challenges such as climate change. For example, the first microlevel rainfall insurance in the world was launched in India in 2003, through close collaboration among BASIX, an Indian MFI (microfinance institution), the World Bank, and private insurers and reinsurers. The pilot scheme has been viewed as an impressive success because all the stakeholders gain: government by reduced relief payments and social problems, and easier budgeting; the insurer by fulfilling its social insurance quota; the MFI complements its client services and reduces the default rate on its loans; the poor farmers receive reliable protection for their income and assets; and overseas development agencies avoid disruption from emergency relief calls, and can claim speedier assistance for clients.

■ Ensure that multilateral and national public sector financial institutions support the transfer of renewable technologies adequately (UNEP FI 2004).

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