Reading and resources

“Leveraging” private sector finance, How does it work and what are the risks

This briefing helps explain the existing ways in which the World Bank Group attempts to use its investments to leverage additional investment from private actors, and briefly lays out some key risks associated with doing this. It explains what leverage is, how it works and which problems are related to it.

Bretton Woods Project and ‘Ulu Foundation (2010) “Out of sight, out of mind? The International Finance Corporation’s investment through banks, private equity firms and other financial intermediaries”

This paper analyses IFC lending through financial intermediaries, and finds a number of causes for concern, including a worrying lack of transparency, inadequate attention to social and environmental concerns, and a failure to link directly to proven developmental impacts. It sets out recommendations for a complete reformulation of the IFC’s approach.

Brown, J. and M. Jacobs (2011), “Leveraging private investment: the role of public sector climate finance ”, Overseas Development Institute

This briefing note focuses on “how public finance and risk mitigation instruments can remove the barriers to private sector investment and thereby leverage significant amounts of private capital for climate change mitigation.”

Brown J. et al. (2011) “Improving the Effectiveness of Climate Finance: A Survey of Leveraging Methodologies ”, Overseas Development Institute

A study that considers how to define and measure the “leveraging” of private sector climate finance.

Friends of the Earth USA (2013) Pro-poor Climate Finance: Is There a Role for Private Finance in the Green Climate Fund?

This report de-constructs notions of “leveraging” private finance and examines the track record of the private sector, private financiers and development finance institutions in developing countries. It concludes that private finance will be especially difficult to deploy responsibly in low and lower-middle income countries, as well as in marginalized communities in all developing countries. Further, private climate finance cannot be a substitute for direct public finance; adaptation in particular is likely to offer few commercially profitable opportunities for private financiers.

Pereira, J. (2012) Cashing in on climate change? Assessing whether private funds can be leveraged to help the poorest countries respond to climate challenges , Eurodad

This report looks at some of the main instruments that can be used to leverage private climate finance through financial intermediaries, and analyses data from some major development finance institutions (DFIs). It specifically assesses the role of financial intermediaries in low-income countries (LICs) and in supporting small and medium sized enterprises (SMEs) and looks into the main monitoring and accountability constraints when using financial intermediaries. It finds that financial intermediaries and existing investment instruments are very limited when it comes to targeting LICs and SMEs in sectors that are particularly vulnerable to climate change. It also finds a lack of transparency, making comprehensive monitoring difficult.

Reyes, O. (2013) Critical Issues for Channelling Climate Finance via Private Sector Actors, BOND

Policymakers are now exploring ways to encourage private sector finance for climate action in developing countries, i.e. investment in projects to reduce greenhouse gas emissions and build capacity to adapt to climate change impacts. This paper examines the evidence from existing channelling of development and climate finance via private sector instruments to identify the probable risks and benefits of such approaches.

Stadelmann, M., Castro, P., & Michaelowa, A. (2011). Mobilising Private Finance for Low-Carbon Development: Tackling Barriers to Investments in Developing Countries and Accounting of Private Climate Flows, Climate Strategies

This report looks at different tools for leveraging private finance, as well as looking at how to measure their impact.

Venugopal, S. and A. Srivastava (2012) Moving the Fulcrum: A Primer on Public Climate Financing Instruments Used to Leverage Private Capital

“Targeting public finance to leverage private sector capital can help meet the several hundred billion dollars of annual low-carbon investment required in developing countries,” according to this paper. It serves as a primer on how the public sector can employ different types of public financing instruments — whether loans, equity, or de-risking instruments — alongside policy and technical support to scale-up private sector investment in climate finance and clean energy.

Venugopal, S., A. Srivastava, C. Polycarp and E. Taylor (2013) Public Financing Instruments to Leverage Private Capital for Climate-relevant investment: focus on multilateral agencies

World Resources Institute study of how the World Bank Group, Global Environment Facility (GEF) and Clean Technology Fund seek to leverage private sector investment for climate-relevant projects.

Whitley, S. (2013) Five early lessons from donors’ use of climate finance to mobilise the private sector

A survey of private climate finance projects, which finds that most are funding targets “efficient” fossil fuel generation and solar power in middle-income countries, private sector intermediaries are often used to channel funds, loans are the most common “leveraging” tool, a lot of public support is tied to donor country industries, and that very little private finance has actually been mobilised to date.