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“Climate” or “Green” Investment Banks
The financing needs for mitigation are huge, and we need that financing to flow quickly. The mobilization of funds at the scale required will depend on significant risk-sharing by the public sector, and the intelligent use of regulatory and organisational powers available to governments to enhance returns.
Special purpose State financial institutions, modelled on International Financial Institutions or State infrastructure banks in Europe and East Asia, will play important enabling roles in mobilizing private investment for public policy purposes.
Such Climate or Green Investment Banks would link project developers with investors, and with relevant government agencies.
Green Banks could provide services by:
- Origination and funding, such as structuring projects with government or bank guarantees, funding projects directly, or arranging funding from other banks.
- Capital Raising. This might involve issuing Climate Bonds to institutional and retail investors or raising equity for special purpose investment vehicles.
- Working with government agencies to find ways to reduce transaction costs and risk profiles of needed projects.
- Industry mobilisation, in particular aggregating and packaging projects into investment vehicles suitable for institutional investors.
- Negotiating government guarantees.
- Championing and facilitating renewable and clean tech investment.
- Providing advisory services for bond issuance.
- Cut red tape for large renewable energy projects.
National institutions along these lines have been proposed recently in the US and the UK; the UK Government announced a public commitment to setting up a Green Investment Bank in 2011.
Climate Investment Banks are also needed at a multi-lateral level. While existing institutions, such as the European Investment Bank, the World Bank, or the Asian Development Bank, have significant climate-related lending programs. However, they also maintain lending programs that support carbon-intensive activities, such as the development of new power plants. A change in their objectives to exclude carbon-intensive lending would help shift them towards becoming Climate Investment Banks.