Rio+20 Business Focus: Strengthening Financial Institutions towards a Low Carbon Economy

By Sabrina Heckler & Marjan Stojiljkovic

Climate change poses a global fundamental challenge. Measures to facilitate the necessary structural changes of energy supply and use around the world are manifold and require the engagement of the financial industry.

Through its International Advisory Services Department the Frankfurt School of Finance and Management aims to embed UNEP’s green economy agenda in financing institutions’ operations.

This led to the creation of the Frankfurt School – UNEP Collaborating Centre for Climate and Sustainable Energy Finance (the Centre). As the public sector’s financial input is quite limited, it is one of the Centre’s main goals to support the private sector in developing countries, transition countries and least developed countries (LDCs) to finance mitigation and adaptation measures.

The Centre’s overall approach to prepare Financial Institutions (FIs) to serve the rapidly growing market for energy efficiency and clean energy production is to address internal deficiencies and barriers.

These often include a lack of ‘know-how’ and capacities, (e.g. a lack of competencies and abilities of people and organizations) preventing engagement in clean energy production. In order to help FIs overcome these obstacles the Centre provides custom solutions reflective of the local conditions and the individual aims and goals of the FIs, taking into account their future strategic positioning.

To encourage practicing greener business models among Micro, Small and Medium Enterprises (MSMEs) the Centre places a strong focus on analysing the unique challenges of the MSME sector considering the needs and requirements of individual countries.

Market studies and assessments provide the backbone for the Centre’s aim to create a sustainable strategy for FIs to follow and facilitate the transformation towards a low carbon economy. Technical Assistance (TA) is provided in the following areas:

• Amendment of regulations, procedures and documentations in the partner FIs towards a low carbon finance lending goal;

• Training of bank staff (both in the management and front-line). These trainings are carried out in a series of class-room and on-site coaching sessions designed to communicate a basic understanding of green finance lending (risks, risk assessment, loan assessment, lending strategy etc.) The Centre’s consultants exceed these basics and train other stakeholders on the project, such as suppliers and service companies of green energy products;

• Development of customized tools and programmes for low-carbon technology lending (e.g. tools for the monitoring, reporting and verification of emission reductions);

• Organisation of marketing support to low carbon technology lending;

• Business strategy creation to attract lending and expand low-carbon technology utilization.

An example of this approach is the “Taizhou Commercial Bank (TZB) Energy Small Business Efficiency Lending Programme” which is part of the Centre’s “Climate Finance Innovation Facility” (CFIF).

With this project the Centre supported the establishment of energy efficiency (EE) lending for the MSMEs clients of TZB through delivery of customized TA. This included a detailed market analysis on EE lending potential and opportunities, EE loan product design, EE loan lending strategy implementation, development of EE measurement tools (energy and CO2 saving tool) , through delivery of staff trainings and on-site advisory services, all designed to render TZB’s business activities less harmful to the environment.

These measures are designed to offer MSMEs the benefits of effective energy usage, cost reduction, new investment opportunities and a greener business environment.

A flagship project in the area of elaboration and field-testing of new financial instruments and products is the Centre’s “End-User Finance for Access to Clean Energy Technology in South-East Asia” (FACET).

Also, “National Climate Finance Institutions Support Programme” (NCFISP) predominantly engages capacity building and ‘know-how’ necessary to access climate funds. Further collaborative project examples include the African “Seed Capital Facility” (SCAF) and the “Indonesia Solar Loan Programme” (ISL) that aim to commercialise and streamline RE investments leading to the mitigation of greenhouse gasses (GHG).

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