Green Finance Facility (GF2)
South Africa requires US$107 billion[1] annually to meet its 2030 climate goals. With approximately 92%[2] of power generation coming from locally sourced coal, South Africa’s energy sector is a clear priority for climate-smart infrastructure finance and, as one of the largest polluters, municipalities have the greatest potential to reduce the country’s carbon footprint.
Domestic financial institutions and institutional investors are well-positioned to provide local-currency funding for the infrastructure projects needed to accelerate the transition. But a guarantee facility is required to improve the credit rating of projects, particularly those involving novel technologies.
Market failure
Various risks act an investment barrier to crowd-in local and international private sector investors for infrastructure-related projects in the emerging economies; commercial and political risks specifically translate to high financing costs, leaving the economics for projects unviable.
In fact, it is often projects with adverse climate impacts that continue to be built due to perceived cheaper long-run costs, locking in further emissions for decades to come, with less economically developed countries set to suffer disproportionate financial and social losses due to climate change. This drives a lack of specific focus on climate-friendly projects with existing facilities, which risks locking in further long-term emissions. A climate and social justice lens are essential for all future investments.
The Green Finance Facility (GF2)
GF2 is designed to de-risk investments by financial sector stakeholders, particularly long-term institutional investors, into climate-smart infrastructure projects sponsored by municipalities. It changes the perception of risk associated with these projects by raising the credit rating of the project sponsor to make financing possible by local investors in local currency.
By focusing exclusively on climate-smart infrastructure and blending public and private funds to achieve scale and sustainability, the GF2 is designed to crowd-in primary, catalytic capital.
The GFI’s unique GF2 solution :
Uses impact-based public money to seed a facility to de-risk investment and crowd-in local and international private sector investors that provide long term competitively priced funding.
Currency convertibility/availability risk for USD/EUR funded projects in commodity-based economies and potential nationalisation risk which discourages local currency investment accessing local debt capital markets (DCM).
The facility will have a specific mandate to invest into clean infrastructure projects, alleviating long-term impacts of climate change on less economically developed countries.
Supporting the funding of projects that mitigate or adapt to climate change in middle and low-income southern hemisphere countries.
