Overview of The IFC Earth Fund
Platform
GEF Assembly, May 2010
The IFC Earth Fund Platform
Objective
How?
Governance
•“Leverage GEF and other funding for the creative and
innovative use of risk mitigation instruments and technical
assistance to transform markets through
•(i) the testing, development and establishment of new
technologies, financial products/structures and business
models, and
•(ii) the scale up of previously supported tested initiatives”
•Supporting Programmatic and Individual Market Transformation
initiatives:
•Removing barriers that impede wider private sector
participation in a particular context, preventing faster, more
widespread or more long-term sustainable adoption of
technology, financial products, business models that address
Climate Change and/or conserve Biodiversity.
•Investments and Advisory Services
•In order to address conflicts of interest and ensure donor funds
are invested with the same care as if they were IFC’s:
•IFC has a dedicated team that reviews project eligibility,
structures and supervises Earth Fund projects
•A separate Investment Review Committee approves the use of
the Earth Fund funding; a representative of the GEF Secretariat
participates in the meetings.
2
GEF Earth
Fund
US$30M
IFC
US$10M
IFC Earth Fund Platform
US$40M
Eligible Investment &
Advisory Services
Projects
Market Transformation: Testing and Scaling up
Testing
Innovative Financial
Structures / Business
Models
-Tools to incentivize listed companies in
emerging markets to disclose and
improve their carbon efficiency (e.g.
Carbon Efficiency Index)
- Information tools for institutional
investors invest in Climate Change PE
Funds
Scaling-up
-Incentives for FIs to lend to EE & RE:
- Performance bonus
- Risk sharing facility / first loss
- Extended tenors
- Concessional pricing
- Advisory Services to FIs, technical
service providers and end users to
promote EE investments
- Advisory Services to develop light rail
PPP
Technology
Commercialization
- Cleantech venture capital Pilot
- Subordinated & deferrable debt for
RE (Solar)
- Support to companies to undertake
CP audits
3
IFC Earth Fund Projects Overview
# Projects Reviewed
IS
22
AS
29
Total
49
# Projects approved
IS
51
AS
5
Total
10
Amounts Approved(US$ M)
IS
26.01
AS
5.8
Total
33.82
Approved Projects Leverage (US$ M)
202.2
Approved Projects Leverage Ratio - GEF
7.3x3
# Projects rejected by IRC
1
One US$2 million project as been dropped after approval. Another US$5 million project might also be dropped. It does not include one US$5 million investment project that
obtained conditional approval and is currently on-hold.
2 US$28.5 from GEF and US$5.3 from IFC FMTAAS contribution to the IFC EF Platform
3 US$207.5 million (3rd parties co-financing + IFC FMTAAS)/ US$28.5 million of GEF financing
1
4
IFC Earth Fund Projects Overview (cont.)
Project – General
Description
Instrument
Country
Market Barriers Targeted
GEF
Leverage Ratio
Loan + Performance
Bonus
1.0
Vietnam
- FIs’ high perceived risks
-Lack of access to long term liquidity by FIs
-High upfront costs to set up new business
24.0x
Equity
2.0
China
-High technology costs
-Lack of financing for small cleantech company
6.0x
SE Fund
Debt Fund
5.0
Sub-Saharan - Lack of financing due to investors’ high perceived
Africa
risks to lend to SE projects in Africa
Cleantech Pilot Fund
Equity
5.0
Solar Plant
Subordinated Loan
CP Facility
EE AS
EE Lending
Cleantech investment
IS
US$ M
1
9.0x
Global
- Lack of equity financing due investors’ high
perceived risks to invest in venture cleantech
3.0x
13.0
Bulgaria
- Regulatory risk limits size of senior debt and
sponsor’s return
7.4x
Grant
5.0
Global
- Companies’ lack of capacity and information
- High upfront costs
- Lack of financing due to FIs’ lack of expertise
73x (1.2x)
Grant
0.2
Indonesia
- FIs’, companies’ and service providers’ lack of
capacity and information
4.2x
Grant
0.3
Global
- Lack of information about listed companies
carbon emissions
3.6x
RECIPPE – Info tool for
institutional investors
Grant
0.2
Global
- Institutional investors’ lack of information about
risk-return of climate change sectors
- High upfront costs to set up information tool
4.4x
Amman LRS
Grant
0.4
Jordan
Lack of government capacity to develop and
execute light rail PPP
3.0x
AS Carbon Index
3
Project has been dropped after approved due to difficulties with other shareholders.
million project request from EF. Initial commitment of US$5 million due to funding constraints. Next US$10 million to be committed in two subsequent tranches if
funding available
4 1.2x is ratio of third parties co-financing (US$6 million) to Earth Fund funding (S$5 million). However GEF is funding US$0.15K and IFC FMTAAS is funding US$4.8 million;
therefore the leverage ratio to GEF is 73x
5 100% funded by IFC FMTAAS. Ratio is IFC FMTAAS contribution to other co-financing
1
3US$15
5
5
4
Project Example: Promoting EE lending in Vietnam
Market Barriers
Earth Fund Intervention
•No lending to EE projects due to
•FIs’ high perceived risk as a
result of track record and
technical expertise
•FIs’ limited access to long term
funding
•US$1 million loan with performance
bonus (PB) to leading FI,
complementing a US$24 million IFC
loan to be on-lent to EE projects
•PB equivalent to 2% of the FI’s
portfolio to encourage it to build a
US$50 portfolio
•The FI will only receive the PB if it
builds a minimum portfolio of US$25M
and 50% is with SMEs
•The FI is also receiving AS from IFC
•This is the first of 3-4 interventions in
the country
To transform the market
•Track record established for the
viability of commercial EE
financing to SMEs
•Increased capacity of FIs to
lend to EE projects
•Demonstration effect to
encourage replication by other
local FIs
The Process:
Negotiation and structuring
of the investment
Dec 09: IFC Approves
US$24M loan
Negotiation of legal
documentation
Feb 10: EF investment May 10: Legal Agreement with client
approved
signed
6
Lessons Learned
Approval
Process
• Delegated authority significantly reduces approval time (less than 2 months
between IFC’s and EF’s approval)
• The independent Investment Review Committee has played a key role to guarantee
the best use of donor funds, providing advise on project design and financial
structures, and protecting the donor’s interests vis-à-vis other financiers, including
IFC
Project
origination
• Need for a clear criteria for eligible activities in projects where IFC works with
financial intermediaries
• Generating a strong pipeline for investments took longer than for advisory services;
however, in the last months we have experienced a big ramp-up in the demand
from investment departments
Structuring
of donor
funds
• Need to engage with IFC teams and clients early in the negotiations to ensure
donor funds adequately help address market barriers and are properly structured
• Subsidy should be defined on a project by project basis to address specific market
barriers and ensure “minimum concessionality”
7