Mobilising capital for green

infrastructure investments

Kate Eklin, Policy Analyst

Climate, Finance & Investment Team

Environment Directorate, OECD

Our Common Future Under Climate Change:

Parallel session 4404:

Climate Finance: New sources, New instruments, More effects?

Paris, 9 July 2015

CONFIDENTIAL. This presentation is solely for the use of the intended audience. No part of it may be circulated, quoted or reproduced

without prior written approval from the OECD. This presentation represents the views of the author alone and does not represent opinions,

estimates or forecasts of the OECD or its member countries. This material was used during an oral presentation; it is not a complete

record of the discussion.

Demand

Supply

Outreach

Overview of OECD work on green

finance and investment

• Policy guidance on clean energy and

Investment Policy Reviews

• Overcoming barriers to international

investment

• The role of institutional investors

• Green investment banks

• Green bonds

• Tracking private climate finance

• OECD committees

• G20

• OECD events (Green Investment Financing

Forum, COP Investor Breakfast)

3

• Traditional barriers to infrastructure projects

• Specific investment barriers for green infrastructure:

Weak or non-existent carbon pricing

Lack of predictable policy environment (e.g. retroactive changes to feed-in tariffs for clean energy)

Regulatory and market rigidities that favour carbon-

intensive and fossil-fuel incumbency (e.g. in the electricity sector)

High financing costs

Outstanding policy restrictions to international trade

and investment

Barriers to investment in green

infrastructure

• Helping governments develop a

roadmap of actionable reforms to

remove country-specific barriers to clean

energy investment.

• Key issues to consider include:

o Investment policy

o Investment promotion and facilitation

o Competition policy

o Financial markets and financial

instruments

o Public governance

OECD Policy Guidance for Investment in

Clean Energy Infrastructure

Source: OECD, June 2015

Overcoming Barriers to International

Investment in Clean Energy

Source: OECD, June 2015

Key findings:

• Rise of hidden protectionism in solar PV

and wind energy in OECD and

emerging economies since 2008

increasing use of local-content

requirements (LCRs).

• Evidence suggests that LCRs have

hindered international investment in

solar PV and wind energy, in a context

of global value chains.

• LCRs have had mixed impacts at best

on local value added and job creation.

• Need international co-operation to

align trade and investment policy.

1% of large OECD pension fund assets invested directly

in infrastructure

LARGE OECD

PENSION FUND

ASSETS

USD 10 trillion

Source: OECD Global Pension Statistics, Global Insurance Statistics and Institutional Investors databases,

and OECD staff estimates.

* based on large OECD pension funds, covering $10+tn

* * BNEF estimates

<1%

INFRASTRUCTURE

INVESTMENT

(direct)

* <3%

. **

GREEN

INFRASTRUCTURE

INVESTMENT

(direct)

1. Understand and compare different investment channels available in practice and in theory;

2. Illuminate where investment is or is not flowing;

3. Highlight potentially promising channels

7

Mapping channels to mobilise institutional

investment in sustainable energy

OECD (2015) Institutional Investors and Sustainable Energy : Mapping Channels to Mobilise Institutional Investment in Sustainable Energy

Ensure a stable and integrated “investment grade” policy environment

Address market failures (incl. lack of carbon pricing & remove fossil fuel subsidies)

Provide a national infrastructure road map & pipeline

Facilitate the development of liquid financing instruments and risk mitigants

Promote market transparency, standardisation and improve data on infrastructure investment

Reduce the transaction costs of green investment

Establish a “green investment bank” or refocus existing public finance institutions

Weak & uncertain environmental,

energy and climate policies

Regulatory policies with unintended

consequences

Lack of information and

data to assess transactions and underlying risks

Lack of suitable financial instruments

and funds

Policy recommendations for overcoming barriers

and mobilising institutional investment in green

infrastructure

Sources: Kaminker, C. et al. (2013), “Institutional Investors and Green Infrastructure Investments: Selected Case Studies”, OECD Publishing, Paris.

Establish pre-conditions for institutional investment

9

(1) Institutional investors are largest investors in the $100 trn bond markets

Sources: Bank for International Settlements, OECD Pension and Insurance Statistics

(2) Asset allocation favours bonds – especially for insurers

% asset allocation of institutional investors in OECD (2014) Global bond markets evolution 2001-2013

1. A guide for policy makers

2. History, composition, and key actors involved in the market.

3. Definitions and the emerging market architecture for transparency and disclosure.

4. Merits of issuing and investing in green bonds.

5. How the green bond markets might evolve globally, and the policy levers that are important to their success.

6. Quantitative estimation of the potential growth, contribution to climate mitigation scenarios and evolution of particular components of the market.

7. Potential of green bonds to mobilise institutional investment from an asset allocation perspective.

10

Forthcoming green bond research will

contain the following elements:

11

OECD work on Green Investment Banks

Green Fund South Africa

Green Fund Japan

Clean Energy Finance

Corporation (CEFC) Australia

GreenTech Malaysia

Connecticut Green Bank

New York Green Bank

Green Energy Market Securitization (Hawaii)

New Jersey Energy

Resilience Bank

UK Green Investment Bank

Technology Fund

Switzerland

Masdar United Arab

Emirates

Green investment banks are:

• domestically-focused public institutions

• that use limited public capital to leverage or “crowd-in” private capital,

• including from institutional investors,

for low-carbon and climate-resilient infrastructure investment

Source: Eklin et al. (forthcoming) OECD

Thank You OECD Work on Financing Climate Change Action:

http://www.oecd.org/env/cc/financing.htm

kate.eklin@oecd.org

ANNEX

Outcomes

• Towards a Green Investment Policy Framework published in 2012

• Series of case studies undertaken in 2012-2014 in the clean energy,

sustainable transport and energy efficiency sectors

• Green Investment Policy Frameworks in Practice (2016, forthcoming)

will provide guidance on how GIPFs can best be tailored to different

sectors and country contexts

GIPFs and energy efficiency

• Will include a case study on energy efficiency in France

• Considers France’s energy efficiency targets, thermal regulations for

buildings, public and private financing instruments for efficiency

investments, initiatives for building capacity

14

Green Investment Policy Frameworks in

Practice

Source: OECD analysis. Kaminker, C., et. al (2015 forthcoming) Institutional Investors and Sustainable Energy Infrastructure: Mapping Channels and

Approaches to Mobilise Capital,

Source: OECD analysis. Kaminker, C., et. al

(2015 forthcoming) Institutional Investors and

Sustainable Energy Infrastructure: Mapping

Channels and Approaches to Mobilise Capital,

No public disclosure of

pension fund investment in

green bond funds available

Ch

an

ne

l to

access c

lean

en

erg

y in

vestm

ent

UN

LIS

TE

D (

Direct)

INT

ER

ME

DIA

TE

DLIS

TE

D (

Direct)

Investment destination: Project or company

PROJECTPURE-PLAY

CORPORATES

Deb

tE

qu

ityD

eb

tE

qu

ityD

eb

tE

qu

ity

Un

lis

ted

Wind -

Offshore

Wind -

Onshore

Solar - PV Solar - CSP

Diversified

Sustainable Energy

Biofuels

Waste to Energy

Wind - Diversified

Deb

tE

qu

ity

Lis

ted

Solar - CPV

No public disclosure of pension

fund investment in green bond

funds that include corporate and

project bonds available

Sustainable energy projects

have not yet independently

listed on public markets

Technology Key

UN

LIS

TE

DLIS

TE

D

A E

C G

D HNo public disclosure of pension

fund investment in specific

corporate green bonds available.

Many issuances noted to have

significant institutional investor

interest such as EDF Energies

Nouvelles

Hydro

Biomass

2 8

1

2

15

19

18

16

17

3728

15

1

2

3

4

58

7

6

9

1011

15

1213

14

23

24

20

21

22

25

2627

No public disclosure of pension

fund investment in index funds or

ETFs available

29 32

30 31 33

34

35 3638

40 39

42

41

53

61

62

63

47

46

45

43

B F

68

67

6564

44

48

49

66

50

51

52

54

Geothermal55

56

57

58

59

60

Source: OECD analysis. Kaminker, C., et. al

(2015 forthcoming) Institutional Investors and

Sustainable Energy Infrastructure: Mapping

Channels and Approaches to Mobilise Capital,