Innovating banking and finance for a sustainable future

Peer Stein - July 2016

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CONTENT

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Context: changing fundamentals

Changing finance

Innovation: the case for sustainable finance

The challenge

Outlook

The Challenge

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The Challenge – From Billions to Trillions

Sustainable Development Goals and Climate Change require trillions of dollars of investments- US$93 trillion in climate proof infrastructure investments until 2030- Up to US$500 billion per year for climate related investments in non-

OECD countries

Can the Financial Sector contribute to the solution?- Global banking assets: US$150 trillion- Global bond market: US$100 trillion

Context: Changing Fundamentals

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Image source: https://internationalrelationsdotnet.files.wordpress.com/2015/06/oilpricechart20002015.jpg

Renewables investments grow steadily

…even as oil prices fluctuate…

…and will continue growing.

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Rapid decline in cost of renewable energy

Newly installed capacity for solar doubling every 4 years, while demand structure is shifting towards residential and commercial PV

Changing Finance

Financial development matters

US independent oil and gas producers solvency ratios – stranded?

A number of global initiatives that impact the financial sector

• Equator Principles• UN PRI• G20 Global Partnership for Financial Inclusion & UNSGSA• COP21 follow-up• FSB Task Force on Climate Related Financial Disclosures• G20 Green Finance Study Group• ICMA Green Bond Principles (plus Social Bond Principles)• Sustainable Banking Network

The Sustainable Banking Network:A growing network of banking regulators/associations from 24 countries hosted by IFC

Innovation: The business case for sustainable finance

Renewable Generation Distributed Generation Industrial Efficiency

Urban Infrastructure Green BuildingsAgribusiness

The business case for growth and impact

IEA member countries avoided USD 5.7 trillion of energy expenditure since 1990 by energy efficiency investment alone. Benefits of improving energy efficiency extend well beyond financial savings, relating also to improved energy security, higher productivity for businesses and reduced greenhouse gas emissions;

OECD energy consumption is now as low as it was in 2000, while GDP has expanded by USD 8.5 trillion, an increase of 26%. This suggests that these countries have successfully decoupled economic growth from energy consumption growth, with energy efficiency being the main contributing factor;

Approximately 40% of the emissions reductions required by 2050 to limit global temperature increase to less than 2 degrees centigrade would potentially come from energy efficiency;

In 2012 energy efficiency investments were estimate at USD 310-360 billion globally. Investments in energy efficiency are set to keep growing, despite lower oil and gas prices, driven by more assertive and more comprehensive policies.

1Source: IEA Energy efficiency Market Report 2015

The growing market for energy efficiency financing

Vinte, Mexico

City Express, Mexico Costa Rica, Colombia

Canopus, Brazil

VBHC, India

FPT, Vietnam

Ciputra, Indonesia

CareMed, Lebanon

SAMHI, India

Bruck, China

IHS, South Africa Imperial, Philippines

Johnson Controls, China

Over 5,000 residential units have been certified to date. EDGE certifiers are now the largest green building network in the

world

FY16 to 19 Projections #

Homes

USD MM Investme

nt

Vietnam 25,308 2,821

Philippines 4,502 360

Indonesia 74,650 5,972

Colombia 3,217 257

Peru 3,058 245

Costa Rica 2,765 274

Panama 311 25

Brazil 10,960 877

South Africa 15,500 1,067

Ghana 450 36

India 126,362 18,705 Total 267,083 30,639

IFC is helping create a green building pipeline using EDGE

In 2007, Infonavit piloted green mortgages –i.e. providing an extra-credit (~$ 1250) to home owners for green-technologies . Over time, the product became extremely popular and mainstream for low income housing finance

By 2011, 75% of all originated home mortgages were green. In 2014, Infonavitdecided to issue only green mortgages. Their market share has also increased significantly (>12%) during the period.

Typical eco-technologies incorporated:• Energy efficient lamps• Solar water heaters• Low-flow water fittings• Efficient air-conditioning• Reflective paint; Insulation • Waste management facilities

Infonavit has granted over 1,000,000 Green Mortgage home loans, benefiting over three million people

MEXICO: Infonavit’s green mortgages

The market for green housing can take off quickly with the right incentives and focus

2015 Turkey

Green bonds for green construction finance

India

201?

$75m Subscription to Green Bonds

US$67m Debt

Green mortgages and green commercial and

residential buildings

2016

BANKSBUILDERS

Higher Resale Value

Lower Default RateQuicker Sale Lower Utility Bills

Higher Sale Price

BUYERS

Though no standard definition, a Green Bond is …

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The growing market for green bonds

Source: Moody's Investor Service, Bloomberg data, IFC compilation

$0.8 $0.4 $0.9 $4.0

$1.2 $3.1

$11.0

$36.6

$42.4

$13.7

$2.0 $5.2 $0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (Q1)

Gree

n Bo

nd Is

sued

(in

US$

bill

ion)

Total Green Bond Issuance (CMT) EM Financial Institutions

Estimated to reach $55 Bln

- Reported by CBI, the labelled green bond market had US$ 42.4 billion of new issuance in 2015

- Increasing involvement of EM issuers and their strong political commitment to grow local green bond markets

Outlook

What it takes to green the financial sector

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Banks – the 150 trillion dollar gorilla