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Financing Sustainability. Tibor Kludov á cz Industry Specialist, IFC. South Africa Energy Efficiency Workshop Johannesburg, May 24, 2012. Defining Sustainability Introduction to IFC IFC’s products IFC project examples A take-away. TOPICS. Defining Sustainability.

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financing sustainability

Financing Sustainability

TiborKludovácz

Industry Specialist, IFC

South Africa Energy Efficiency Workshop

Johannesburg, May 24, 2012

topics
Defining Sustainability

Introduction to IFC

IFC’s products

IFC project examples

A take-away

TOPICS
what is sustainability
What is “Sustainability”?

Sustainable development is a pattern of resource use that aims to meet human needs while preserving the environment so that these needs can be met not only in the present, but also for future generations;

The term was first used by the Brundtland Commission in 1987 which coined what has become the most often-quoted definition of sustainable development:

Sustainable development is a development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

slide6

Mainstream Sustainability

Generation of clean energy

More efficient use of limited resources

Renewable Energy (RE)

Energy

Efficiency (EE)

Cleaner Production (CP)

  • The same industrial OUTPUT with less environmental contamination and/or more efficient use of limited resources
  • Energy saving;
  • More efficient use of water;
  • Waste management;
  • Recycling;
  • Business process improvement;
  • Emission reduction;
  • Reduced noise pollution;
  • Etc.
  • Hydropower
  • Wind Power
  • Solar Energy
  • Biomass/Biogas
  • Geothermal
  • Biofuels
  • etc.

Same OUTPUT with less energy consumption or increased OUTPUT using the same amount of energy

Opportunities exists across all economic sectors: industry, commerce, transport, residential, public, tourism, services, agriculture, etc.

KEY ENVIROMENTAL BENEFIT: Avoided Greenhouse Gas (GHG) emissions

Carbon Finance

other sustainability areas
Other sustainability areas
  • ESCOFinance
  • Performance Contracting
  • Operating expense as opposed to CAPEX
  • Savings finance investment
  • GreenBuildings
  • EE/RE upgrades to existing buildings
  • New construction of green buildings
  • Green mortgages
  • Standard setting (green building codes)
  • Sustainable Value Chains
  • Sustainability in the value chain is increasingly seen as essential to long-term profitability
  • It has replaced monetary cost, value, and speed as the dominant value chain topic
  • Sustainable Trade
  • Short-term finance
  • IFC guarantees to support imports/ exports of EE/RE equipment
  • Very significant volume opportunity
world bank group
WORLD BANK GROUP

International Bank for Reconstruction and Development (IBRD - 1945)

International Development Association(IDA – 1960)

International Finance Corporation(IFC – 1956)

International Centre for Settlement of Investment Disputes (ICSID - 1966)

Multilateral Investment Guarantee Agency(MIGA - 1988)

ifc s purpose
IFC’s purpose

IFC’s Purpose is to create opportunity for people to escape poverty and improve their lives by

Promoting open and competitive markets in developing countries

Supporting companies and other private sector partners where there is a gap

Helping to generate productive jobs and deliver essential services to the underserved

In order to achieve its purpose, IFC offers development impact solutions through firm-level interventions (direct investments and advisory services), standard-setting, and business enabling environment work.

ifc at a glance
IFC at a glance
  • Launched in 1956: with an original mandatetosupport development by encouraging private investment
  • Owned by 181 member countries
  • Today:IFC is the world’s largest multilateral institution focused on private sector development and is the main driver of private sector development in the World Bank Group
  • Collaborates with other members of the group, including the World Bank (IBRD and IDA) and MIGA
  • Global: Headquartered in Washington, D.C.
  • Local: More than 100 offices worldwide in 81 countries
  • Staff:IFC has 3,449 regular staff, 54% based in field. 76% growth since FY01
strategic pillars
Strategic Pillars
  • Frontier markets (IDA countries, fragile and conflict–affected states, frontier regions in Middle Income Countries)
  • Building and maintaining long-term client relationships
  • Addressing climate change, and ensuring environmental and social sustainability
  • Addressing constraints to private sector growth in infrastructure, health, education and food supply chain
  • Developing local financial markets through institution building, use of innovative financial products and mobilization, focus on MSMEs
ifc s business units
IFC’s Business Units

Infrastructure & Natural Resources

Manufacturing, Agribusiness & Services

Global Financial Markets

slide14

To date IFC has provided US$1.8 billion support to local banks for sustainability finance…

Country: Russia, 2006

IFC investment: total $150M line of credit to date with 5 partner banks to support EE investments in SME’s

Country: China, 2006

PFIs: Industrial Bank, Bank of Beijing and Shanghai Pudong Development Bank

IFC investment: $350M in risk sharing facilities to support emissions reduction loan portfolio of more than $500M

Country: DR, 2010

Banco BHD

$20M SME line of credit

Countries: Czech Rep., Slovakia, Hungary, Estonia, Latvia, Lithuania, Serbia, Bosnia & Herzegovina, 2003

PFIs: Multiple banks

IFC investment: $321M in lines of credit and guarantee facilities

Countries: Egypt, Algeria, Libya, Morocco, Tunisia, 2012

Maghreb Private Equity Fund

IFC investment: $3.2M for SE

McKinsey (2011): $0.9-1.7 trillion annual investment needed

Country: Mexico, 2010, 2009

PFI: Water Capital, Vertice

IFC investment: $17.5 M of equity to WCAP. $20M line of credit to Vertice for energy efficient housing

Country: Philippines, 2010

Bank of Philippine Islands

IFC investment: $22M RS Facility to support portfolio of EE and RE loans

Country: Turkey,2009, 2011

PFI: YapiKredi Leasing

IFC investment: $75M line of credit

PFI: Akbank

IFC investment: $75 M line of credit

Country: Colombia, 2012

Bancolombia

IFC investment: $50M risk sharing facility

Country: Thailand, 2012

Mitsubishi UFJ Leasing EE

IFC Investment: $37M in risk sharing facility to support up to $70M in EE leases

Country: Costa Rica, 2010

S6 M line of SME line of credit to Promerica

Country: Brazil, 2005, 2008

PFIs:Banco Real & Unibanco

IFC investment: $80M in line of credit

Country: Peru, 2007

PFI: BBVA Banco Continental

IFC investment: $30M line of credit

Country: South Africa, 2011

Merkantile Bank

IFC investment: $20M SME EE credit line

.

Country: Argentina, 2011

Banco Galicia

IFC investment: $40M in line of credit for agri-business

14

ifc s investment products
IFC’s Investment Products

Type 1.

Type 2.

Financial Products

  • Risk positions at the level of the FI:
  • Equity;
  • Credit lines;
  • Subordinated debt;
  • Currency swap;

Local Financial Institution

Bank Loans to Sustainability Projects

  • Risk positions at the level of the underlying assets:
  • Guarantees;
  • Portfolio Risk Sharing;
  • Mezzanine instruments.

Loan A.

Loan B.

Loan C.

Portfolio of Sustainability Projects

ifc s advisory services
IFC’s Advisory Services
  • Potential Elementsof an AS Program
      • Development of a sustainability strategy
      • Sustainability training to bank staff
      • Technical support for product development & transaction processing
      • Market outreach & pipeline development
      • Energy audits
      • Assistance related to monitoring & reporting on results and environmental impacts
      • Identifying and developing opportunities for carbon finance

Advisory Services Program

Funding

Financial Products

Technical Advisor

Local Financial Institution

Funding

Bank Advisory

Loans to Sustainability Projects

Loan A.

Loan B.

Client Advisory

Loan C.

Portfolio of Sustainability Projects

cipa climate change investment program
CIPA – Climate Change Investment Program
  • IFC’s Advisory Services program with the overall aim to increase the capacity of the financial sector in South Africato finance energy efficiency (“EE”), renewable energy (“RE”) and cleaner production (“CP”) projects. Increased lending activity is expected to result in a reduction in Greenhouse Gas (“GHG”) emissions.
  • CIPA’s objective:
  • Increase internal capacity of partner FIs in providing financing for sustainability;
  • Increase the number of Energy Service Companies (ESCOs) and other energy market intermediaries and strengthen their capacity to develop bankable projects for FIs to finance;
  • Catalyze market demand for EE/RE/CP by creating public awareness, dissemination of information international experience and best practice, and bringing market players together.
chuee project china

ANNEX: IFC Project Examples

CHUEE Project - China
  • Deal Size and Structure
  • 50% Risk Sharing Facility coupled with Advisory Services to Banks
  • A total of US$ 1.1 billion in sustainable energy investments facilitated in 127 projects
  • Two participating banks - Industrial Bank of China and Bank of Beijing
  • Typical technologies and projects
  • Technologies: heat/gas recovery, power generation, efficient production systems
  • Projects: US$4.5 million (avg) projects with medium/large industrial companies (steel, chemical, cement, power)
  • GHG emissions avoided: 14m CO2 tons per year

For Informational Purposes Only

russia sustainable energy finance program
Russia Sustainable Energy Finance Program
  • Program goals
  • Established in 2005 as an advisory program to advance capacity building of local FIs and market players (consultants and vendors) and to work on the country's regulatory framework and to promote education for Small and Medium Enterprises in sustainability
  • Results to date
  • 5 partner banks who have launched dedicated SE finance products
  • US$100 million for sustainability projects in the SME sector
  • Average project size: US$ 200,000
  • Over 2 million tons of CO2 reduction over the lifetime of the projects
  • Support to the development of the Russian Law on Energy Saving and Improving Energy Efficiency
  • Development of specific FI tools for SME sustainability lending (SME energy efficiency calculator)
bbva peru energy efficiency project
BBVA PERU Energy Efficiency Project
  • Project results
  • US$ 35 million credit line to BBVA in Peru for EE and RE projects
  • Directed to SME projects (average project size US$ 371,000)
  • Several industrial sectors participating
  • Full utilization within 1.5 years
  • US$ 25 million for EE and US$ 10 million for RE
  • GHG emission reductions 31,463 t CO2 equivalent per year
  • Consultants helped develop pipeline and product
ceska sporitelna czech republic
Leading Czech bank looking for new market opportunities in 2003-2004

IFC identified SEF potential in Czech market (10m people) of $7.3 bn/6years

Bank embraced opportunity and developed FINESA (Financing Energy Saving Applications) with IFC assistance

FINESA means:

Product with defined internal procedures

Targeted marketing strategy and sales

Dedicated Energy team, dealing with sustainable energy projects centrally, supporting credit officers and branches sales people

CS now leading bank in Czech SE market

Ceska Sporitelna – Czech Republic

For Informational Purposes Only

hungary school renovation program

US$92m

OTP Bank

Risk Sharing

US$250m in financing

  • Project Impacts
  • US$ 250 million financing for municipal ESCO deals (lighting, heating)
  • Improved health, safety and learning condition for children
  • Electricity saved on scale of a medium-sized power plant
  • Lower energy costs benefit municipal budgets
  • Reduced gas import dependence for Hungary
  • New GE factory established in Hungary for the purpose of the program

ESCO

Municipality

Suppliers/

Contractors

Project Implementation

Hungary School Renovation Program
slide27
Why?
  • Expanded market share through new business line
      • Significant, yet untapped market opportunity
      • Innovative product/first mover advantage = greater margins/less competition;
      • Monetize existing client base, attract quality new clients
  • Improved risk profile of portfolio
      • Reduced capital charge on the portfolio
      • Improved cost profile and competitiveness of portfolio clients
      • Mitigation of environmental risks
      • Lower risk during early stage of learning curve with AS Program
  • Positive social and environmental impacts
    • Positive image and market differentiation by being “green”
    • Enhanced brand reputation and other PR benefits
      • Consolidate leading role in innovation within the Colombian financial market
slide29

Thank You !

TiborKludovacz

Sustainability & Climate Finance Specialist

International Finance Corporation

Global Financial Markets – Sub-Saharan Africa

14 Fricker Road, Illovo 2196

P.O. Box 41283, Craighall 2024

Johannesburg, South Africa

Tel: (+27-11) 731-3016

Fax: (+27-11) 268-0074

Email: tkludovacz@ifc.org