In addition to other interventions, private finance must be leveraged through a strategic use of public resources if we are to achieve the necessary climate mitigation and adaptation investments, as well as facilitate increased access to clean energy for business and households and therefore help countries join the low carbon, climate resilient development path. Private finance is also key to delivering substantial developmental benefits, including a stronger financial environment, competitiveness and job creation.
The levels of investment needed to deliver a 2 degree world cannot be met by public finance alone – significant amounts of private investment will be key to achieving a sustainable, low-carbon transition.
Existing market failures and barriers prevent domestic financial institutions from providing debt financing to small and medium enterprises (SMEs) and households for low carbon technologies. Failures are evident on both the supply side (very limited range of credit options for energy efficiency/renewable energy investments) and the demand side (low levels of interest from SMEs and households). These include: low levels of awareness, high up-front costs, and a restricted range of suitable financing options, imperfect information and a lack of access to competitively priced debt.
What is being done?
GCPF is a Fund that provides finance for energy efficiency and small scale renewable energy projects in developing countries. It aims to increase the flow of finance to small and medium enterprises (SMEs) and households by creating a new partnership with the private sector, specifically by using public funds invested in to the Fund to leverage greater amounts of private finance.
The Fund tackles the barrier that appropriate finance is not available for SMEs and households for low carbon projects in developing economies. Public funds invested in GCPF provide a risk cushion (by taking first loss in the event of default) for private investors in the Fund. The aim is to build a successful track record and for local financial institutions gain experience in lending for low carbon projects.
GCPF was established by the German development bank KfW in 2011 and, to date has secured public sector investment from the Danish government and the German government. GCPF successfully secured investment from its first private sector investor (a German pension fund) in December 2012, and work is on-going to attract additional investment. The UK made a £30m investment into GCPF in 2013. The fund is still growing.
GCPF now grown to over $331 million USD. Operating in 12 countries; over 12,800 loans have been dispersed to SMEs and households.
GCPF is expected to deliver over 8 MtCO2, reduced or avoided over lifetime of the project, of which UK investment will contribute to over 2 MtCO2. GCPF is expected to leverage over £104 million public investment and over £72 million private investment over the lifetime of the project.
Links to further info
Find out more about the project on the GCPF website