Capital Markets Climate Initiative
Guidance on the government's CMCI programme to raise private funding for renewable energy projects in the developing world.
In order to support low carbon, climate resilient development; it is vital that we use public resources to leverage private investment. Private finance is key to achieving the level of investment necessary to deliver climate mitigation and adaptation, facilitate increased access to clean energy for business and households as well as to deliver 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.
The UK Government is leading the dialogue with the private sector (nationally and globally) to identify and remove barriers to investment. CMCI supports the ICF’s objective to drive innovation and new ideas for action and create new partnerships with the private sector to support low carbon climate resilient growth. It will also build global knowledge and evidence that low carbon climate resilient development supports growth and reduces poverty. In turn, by supporting governments to understand how to create long-term, self-sustaining low carbon and climate resilient markets by putting in place strong policy environments and frameworks, and supporting interventions to catalyse private investment, this should complement and strengthen the impact of other ICF investments in developing countries.
What is being done?
CMCI was established in 2010 and has created a strong public-private partnership to help mobilise and scale up private finance flows for low carbon technologies, solutions and infrastructure in developing economies.
There are over 80 participants in the CMCI network from investments banks, insurance companies, pension funds, development finance institutions, climate finance academics and think tanks, including: HSBC, Lloyds, Swiss Re, BT Pension, Blackrock, Climate Change Capital, London Stock Exchange, International Finance Corporation, European Investment Bank and the World Resources Institute.
Harnessing the expertise of its members, CMCI aims to:
Develop a common understanding of how public sector action can help mobilise private capital and encourage new markets in low carbon investments, for example, through the CMCI ‘Guidelines for Investment Grade Policy’ and the study into options to address policy risk in renewable energy projects in developing countries; Move from theory to practice by designing and testing new financing solutions to address the barriers to mobilising private capital in specific partner-developing countries. Specifically, CMCI provides an opportunity to ‘test’ UK ICF proposals that aim to engage the private sector, as well as to seek proposals from CMCI participants on how the public sector might support investments (the CMCI ‘Innovation Platform’).
Building on the success of the CMCI model, the UK has also been leading the development of the Global Innovation Lab for Climate Finance; an international platform that brings together senior public private representatives from the investment and development community to design, stress test and pilot climate finance instruments that will catalyse private investment in low carbon projects in developing countries. The UK has led the development of the Lab alongside the US and Germany. The Lab consists of major climate finance donors (France, the Netherlands, Denmark, Norway and Japan), as well as private investors, development finance institutions, multilateral development banks, and project developers. The Lab has been successful in identifying potentially transformational climate finance instruments that address the barriers to private investment: mitigating risk; supporting early stage project development; establishing aggregation platforms and supporting private investment in adaptation and resilience. The Lab is now supporting the implementation of these proposals.
CMCI allows us to market test ICF proposals and harness private sector expertise to better design and implement ICF proposals. CMCI builds a better understanding amongst all stakeholders of what works and what doesn’t work. Through the research funded and directed by CMCI, we are building the global evidence base on effective climate finance instruments and the barriers and solutions to mobilising greater private sector investment.
The Global Innovation Lab (funded and supported by CMCI) will harness private sector expertise at a global level and will identify the next generation of climate finance instruments; informing our ICF pipeline but also generating robust proposals for other donors and multilaterals (including, ultimately, the GCF) to consider for funding.