A Dialogue Platform for Inclusive
Green Growth Investment:
Expanded Stocktaking for the G20 Development Working Group
Alan Miller & Aditi Maheshwari
Climate Business Department
7 July 2013
Stocktaking Overview
• IFC asked to expand 2012 stocktaking exercise: provide insights on
how the Dialogue Platform on Inclusive Green Investments could
engage new stakeholders e.g. institutional investors.
 160 publications and documents reviewed and summarized
 IGG finance flows mapped and sectors, geographies, technologies
underserved by private finance identified.
 7 case studies providing lessons learned across sectors on structuring
investments; addressing barriers; and ensuring a supportive policy and
enabling environment.
 Portfolio analysis on innovative mechanisms to leverage private finance and
how to scale them up.
 Studied initiatives to engage institutional investors to identify best practices
and gaps to inform approaches to be adopted by the DPIGI.
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Constraint: absence of an agreed definition of
“Inclusive Green Growth”
.
• Difficult to track, quantify, and evaluate – and to
define asset categories for investment
• Broad working definition used in this paper -investments that support economic growth in a
clean, resilient and sustainable manner;
• “Inclusive” component focuses on base of pyramid
(BOP), low-income countries, or such subsets of
population within other developing countries.
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Domestic Finance Dominates Global Historical Clean Energy
Investment Flows
Source: Green
Investment
Report: The Ways
and Means to
Unlock Private
Finance for
Green GrowthG2A2, (2012)
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Key Findings
• Literature Review: No one-size-fits-all policy prescription
 Need effective policies to create investment-grade environments / compensate
for market failures;
 Importance of predictability and policy-certainty for investors.
• Mapping IGG Finance Flows: Flows not tracked as IGG & difficult to
disaggregate due to absence of consistent definitions.
 Dominant source of funding for green investment is domestic or local finance in
all regions;
 Private sector accounts for the lion’s share of total investments.
• Case Studies: While financing is necessary for success, it is often
not the primary barrier to greater IGG investment.
 Poor policies, inadequately proven technologies or business models, or lack of
consumer awareness and acceptance may be primary barriers.
 Local factors and market considerations can make replication and scaling up
even successful models complicated, resource intensive, and time-consuming.
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Key Findings
• Understanding Leverage: No universally accepted definition.
 Development banks can play a significant role in financing green investment
and leveraging private sector resources to do so.
 IFC experience: each dollar it invests leverages over four private dollars.
 Greater leverage with well-established, lower risk technologies; in newer areas
concessional finance can often nudge investment.
• Institutional investors: A diverse, highly differentiated group
subject to very different regulatory and management environments.
 Introducing new asset classes or investment themes takes time and resources
to overcome perceived risk and embed in decision making process.
 Most yet to include sustainability and development in investment strategies
due to numerous barriers identified – some initial signs of change.
 While fiduciary duty remains overriding objective some developing country
pension funds and their regulators are beginning to be more willing to consider
the broader socio-economic context in which they operate e.g. South Africa.
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Institutional Investors: Decision Making
Manage US$75 trillion in assets in OECD alone, yet allocations to
direct infrastructure investments are <1%, with green
investment even smaller.
• Rely on chain of service providers for decision making.
• Drivers: fiduciary duty, probability of investment
making targeted returns, and function of the
investment in balancing the portfolio.
• Conservative: seek large, low-risk, liquid, long-term
investments that deliver steady income streams
matched to their liabilities.
• Requires a clear pipeline of investable products.
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Sustainability Needs to be an Integral, Targeted Part of
Financial Investment Strategies
Source: Returns in Low-yield times: Alternatives for returns in a low interest rate environment, Allianz Global Investors, 2013
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Barriers to Investment
• Lack of an economic business case
• No material weight (if any) on “inclusive”
• Inconsistent terminology used
• Policy uncertainties
• Developing country risks
• Lack of track record
• Liquidity concerns
• Investment time horizons
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Domestic and South-South Investing Offers Opportunities
Top Pension Funds Assets by Regions (2006 – 2011) in US$ billions
Source: OECD Pension Markets in Focus http://www.oecd.org/daf/fin/private-pensions/PensionMarketsInFocus2012.pdf
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Mapping Progress by Investor Initiatives Toward Filling
Gap Between Investor Interest and IGG Investment Needs
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Broad Framework Objectives for the DPIGI
Key Objectives
1. To fundamentally change the investor
mindset from “green investments lose
money” to “the transformation to a green
economy presents opportunities and is
fundamental to preserve long-term economic
growth.”
2.
To increase investor support for
industry initiatives that call for the policy
and regulatory change needed to support
inclusive green investments.
3.
To encourage effective government
action on policy and regulatory changes that
will drive investments that support inclusive
green growth.
4. To build or catalyze global platforms to
facilitate IGG investment and ensure that
capital is deployed efficiently (with minimal
transaction and agency costs) and at the
scale necessary to meet the challenge.
Issues for Possible Exploration by DPIGI
• Exploring initiatives most likely to address BOP and IGG issues:
 The case studies – new technologies, new business models, and information
provision – all have precedents in developed countries but relevance for the
developing world, especially, least developed countries.
• Scaling up existing activity:
 Green investment is currently taking place within existing policy
frameworks and without special incentives. These activities provide a
baseline for short-term opportunities to scale-up.
• Tapping the institutional investor community:
 Change investor mindset recognize green investment is fundamental to
preserving long-term economic growth. Call for policy & regulatory change
to support investor initiatives and facilitate the efficient deployment of
capital for green investments.
• Shifting metrics of financial return to development dividends:
 Financial returns omit many broader and longer-term development
considerations. How can the two be combined to the benefit of all?
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