Climate change

Green investment banks

 

To leverage the impact of relatively limited public resources, over a dozen national and sub-national governments have created public green investment banks (GIBs) and GIB-like entities. GIBs are using innovative transaction structures, risk-reduction and transaction-enabling techniques, and local and market expertise to channel private investment, including from institutional investors, into domestic low-carbon, climate-resilient infrastructure.

WHAT'S NEW

  • Launch of the OECD report "Green Investment Banks: Scaling up Private Investment in Low-carbon, Climate-Resilient Infrastructure" on 31 May 2016 at the Clean Energy Ministerial parallel event “Green banks, green bonds: Recent clean energy trends for public and private financial institutions”, 13:00-17:00, by invitation only, Westin St. Francis, Olympic Room, San Francisco, California.

  • This parallel event, hosted by the U.S. Department of Energy, and featuring the Organisation for Economic Co-operation and Development and the Green Bank Network, brings together government and finance leaders to discuss how national, subnational and private financial institutions--including green banks--can drive investment in domestic clean energy projects. The discussion considers how such financial institutions can serve as a critical pathway for countries developing strategies for achieving national clean energy and emission reduction targets. The event includes case studies of recent transactions, including green bond issuances.

  • OECD and Bloomberg Philanthropies side event on GIBs at #COP21, December 2015. The event brought together senior officials from green investment banks and other key stakeholders to consider why GIBs and GIB-like entities are being created and how they are mobilising private investment.

 

POLICY PERSPECTIVES: Green investment banks: Leveraging innovative public finance to scale up low-carbon investment

Investment is growing in renewable energy and energy efficiency, but not quickly enough to get the world on track to achieve zero net greenhouse gas emissions globally by the end of this century. Mobilising investment from the private sector will be essential to meet climate change goals. Governments can find ways to make efficient use of available public funding to mobilise much larger pools of private capital.

The OECD report Green Investment Banks: Scaling up Private Investment in Low-carbon, Climate Resilient Infrastructure aims to provide policy makers with the first comprehensive study of publicly capitalised green investment banks (GIBs), examining the rationales, mandates and financing activities of this relatively new category of public financial  institution. It provides a non-prescriptive stock-taking of the diverse ways in which these public institutions are helping to leverage and catalyse private investment in domestic green infrastructure, with a spotlight on energy efficiency projects. Highlighting the role of GIBs within a broader policy framework to mobilise investment, the report also provides practical information to policy makers on how green investment banks are being set up, capitalised and staffed.

A GIB is a public entity established specifically to facilitate private investment into domestic low-carbon, climate-resilient (LCR) infrastructure. Using innovative transaction structures, risk-reduction and transaction-enabling techniques, and local and market expertise, GIBs are channelling private investment into low-carbon projects. GIBs are facilitating investment in such areas as commercial and residential energy efficiency retrofits, rooftop solar photovoltaic systems and municipal-level, energy-efficient street lighting.

PDF version

Many of the investments GIBs mobilise are undertaken in urban areas where 54% of the world’s population lived in 2014, and where 66% is projected to live by 2050.

Governments tailor their GIBs based on their unique national and local contexts. GIBs and GIB-like entities have diverse rationales and goals including meeting ambitious emissions targets, supporting local community development, lowering energy costs, developing green technology markets, creating jobs and lowering the cost of capital. Using a range of metrics, GIBs are measuring and tracking their performance. These metrics generally focus on emissions saved, job creation, leverage ratios (i.e. private investment mobilised per unit of GIB public spending), and – for those GIBs that are required to be profitable – rate of return.

GIBs are typically established in countries that do not have national development banks or other entities that are actively promoting private investment in domestic LCR infrastructure. They are relevant for both developed countries and emerging economies as a tool to help meet emissions, technology and infrastructure deployment and green investment targets. The creation of a GIB can send a signal to the marketplace and other countries that a country or region is seeking to become a leader in scaling up private low-carbon investments. To mount a serious effort to mobilise low-carbon investment and get on a path toward zero net emissions by the end of this century, governments need to consider how institutions like green investment banks can help them pick up the pace.

Additional information on green investment banks is provided in the OECD Policy Perspectives: Green investment banks: Leveraging innovative public finance to scale up low-carbon investment (PDF version).

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