Originally published on Climate Action on November 30, 2023. Original Publication: Paulo Martelli on the blended finance solutions FinDev Canada offers to mitigate climate change - Climate Action
Ahead of COP28, Climate Action caught up with Paulo Martelli, Chief Investment Officer at FinDev Canada, to discuss the blended finance solutions FinDev Canada offers to mitigate climate change.
Can you tell me more about FinDev Canada’s climate finance portfolio and in particular the sustainable infrastructure projects you are involved in?
Before jumping into our climate finance portfolio, allow me to give you a quick overview of FinDev Canada. We are Canada’s bilateral development finance institution, supporting development through the private sector in emerging markets and developing economies with financing, investment, blended finance solutions and technical assistance.
FinDev Canada promotes sustainable and inclusive growth by contributing to low-carbon and climate-resilient economies, market development to support quality job creation, access to finance, products, and services that raise living standards and add value to local and regional economies; and mainstreaming gender equality to support women’s economic empowerment, reduce inequalities, and drive business performance.
Despite being just a few years old, we’ve joined with partners to finance a number of different transactions that support the transition to a low or no-carbon future. So far, we have invested USD 835 million, 29% of which is concentrated on climate finance, and we have committed to increasing that number to at least 35% by 2025, in alignment with our Climate Change Strategy.
Some of the examples of climate finance projects and platforms we are supporting include:
- Climate Investor One (CI1), an innovative blended finance that focuses on renewable energy projects in emerging markets across Africa, Asia and Latin America, financing approximately twenty renewable energy projects including onshore wind, solar, and run-of-river projects, increasing renewable energy capacity thus contributing to avoided carbon emissions;
- CIFI, one of the clients we were able to support during the COVID-19 crisis, a non-bank financial institution in Latin America and the Caribbean that specializes in structuring and financing private sector, middle market, infrastructure projects. CIFI bridges the gaps between local SMEs and international investors to finance the building of renewable energy projects, including solar, wind, mini-hydroelectric and biomass power plants, as well as water and sanitation infrastructure, contributing to the reduction of CO2 emissions;
- Maranatha solar, a solar energy power generation project in the Dominican Republic that will provide clean, cost-competitive electricity to the equivalent of an estimated 6,000 households annually and will feed directly into the country’s national grid; and
- Genneia, our first investment in Argentina and first direct financing in sustainable infrastructure. This independent power producer based in Argentina will be able to add 200 MW of renewable energy generation capacity in the country by constructing two greenfield renewable energy projects, one solar and the other wind. Genneia is the leading renewable power generation company in Argentina operating a diverse portfolio of power plants across the country, managing 24% of the country's installed wind energy capacity and 8% of its installed solar energy.
What innovative blended finance solutions does FinDev Canada offer to mitigate and adapt to climate change?
One of the initiatives that we are most excited about ahead of COP 28 is Gaia, a $1.48 billion climate-focused blended finance platform expected to reach a first closing in Q2 2024, that will enable the financing of adaptation and mitigation projects in emerging markets, reaching nearly 20 million direct and indirect beneficiaries across 25 developing and emerging markets.
This platform, supported by FinDev Canada, MUFG and the Green Climate Fund (GCF) aims at deploying its public-private financing capacity into meaningful low-carbon, climate adaptation and mitigation assets, across a range of climate change vulnerable countries, at a scale and scope far beyond the conventional appetite of its constituent financing partners.
The main activity of Gaia consists in the creation of an innovative blended finance platform, including a de-risking mechanism through a junior concessional debt tranche, a second-loss tranche and foreign exchange hedging, allowing to scale climate finance from institutional investors in Emerging Markets. A parallel Technical Assistance facility will also be developed as part of this platform. GAIA’s flexible approach is designed to enable investments in multiple sectors to respond to context-specific development and climate priorities.
Gaia will directly contribute to several UN SDGs, in particular SDG 5 (gender equality), 6 (clean water and sanitation), 7 (affordable and clean energy), 9 (industry, innovation and infrastructure), 11 (sustainable cities and communities), 13 (climate action), and 17 (partnerships for the goals).
Does disclosing against the TCFD framework ensure transparency within DFIs and can the increased awareness of activities ultimately encourage disclosure from other institutions?
Frameworks that allow for strong measurement and accountability in terms of climate action are fundamental to evaluate the progress and the contributions organizations are making towards net-zero. While we are seeing increased commitments from different actors in the public and private sector, and the financial sector has made tremendous progress over the past few years in integrating sustainability considerations into decision-making processes, standardized reporting is increasingly needed to evaluate whether we are on the right path.
TCFD offers a standardized approach which leads to data that stakeholders can easily assess and compare. This data on climate risks and opportunities is also a great tool for investors that are increasingly interested in these risks to make investment decisions.
As DFIs, we hope that leading by example we can encourage other financial institutions to adopt this framework, not only in terms of standardized reporting but also in application of TCFD recommendations.
The extent to which similar practices will be further adopted by other institutions will depend on a wider understanding of the business case behind this: implementing TCFD recommendations and enhancing climate-related disclosures allows organizations to increase their resilience to climate risks and impacts, improve investor confidence and protect revenue or increase income.
As a DFI what outcomes do hope to see from COP 28?
COP 28 offers a unique opportunity to drive increased actions and commitments that can get us closer to the ambitious goals of the Paris Agreement and the SDGs.
Right now, we are facing massive investment gaps to get us to those targets: according to Convergence, current estimates place the global annual investment required to meet the climate goals set out by the Paris Agreement at $5 trillion, with at least $1.6 trillion required per year in developing countries alone.
For that reason we are particularly looking forward to ensuring people know about our role as DFI committed to enabling climate mitigation and adaptation, engaging with partners (public and private) to discuss how to structure blended finance opportunities which support sustainable infrastructure initiatives that can lead to net-zero and nature-positive climate impacts, and more broadly promoting dialogue around how all players need to come around the table to consider how best to address the existential threats of climate.
We are hoping to come out of COP 28 with further opportunities to play our role in mobilizing private investment towards these goals in the years to come. We all recognize the urgency of climate action and know what the path forward should look like. COP 28 is the time for all of us to show leadership and act at the scale needed to achieve the ambitious goals of the SDGs and the Paris Agreements. The time is now.