How can limited public funds be used most efficiently to stimulate large amounts of private investment in clean energy and resilient, twenty-first century infrastructure?
This was the key question addressed at the Fifth Annual Green Bank Congress in New York City as part Climate Week NYC and alongside the United Nations General Assembly. The event was attended by 175 governmental officials, investors, bankers, researchers and advocates.
See full agenda, presentations and photos here.
Green banks are publicly capitalized, domestically focused financial institutions specifically established to stimulate the private investment in clean energy and other green infrastructure. The first green bank was launched in 2011 in the United Kingdom and in the years following, the U.S. states of Connecticut, New York and Rhode Island as well as the countries of Australia and Japan followed suit. In the emerging markets, Malaysia has been a pioneer with GreenTech Malaysia.
The Congress was held at the offices of law firm Shearman & Sterling and was hosted by NY Green Bank and Connecticut Green Bank in partnership with the Green Bank Network, a global membership organization of green banks coordinated by Natural Resources Defense Council and the Coalition for Green Capital.
The initial cohort of green banks is all grown up, and new ones are on the way
The current membership of the Green Bank Network comprises institutions at the vanguard of the green bank movement. At the Congress, the network announced that, collectively through June 2017, its members had closed transactions expected to mobilize more than US$29 billion in public and private capital for clean energy projects, putting them on pace to exceed their collective goal of US$40 billion by 2019. Members are mobilizing as much as 10 dollars in total investment for every dollar of public capital invested in clean energy projects.
The green bank model is evolving and spreading. The Green Investment Group (formerly UK Green Investment Bank) has been privatized. NY Green Bank announced its plans to begin offering support services to emerging U.S. green banks as well as an initiative to invest third party capital in clean energy projects outside of New York. Connecticut Green Bank announced that it is the 2017 recipient of Harvard’s prestigious Innovations in American Government award and will also help to replicate the green bank model in the U.S. Meanwhile, new green bank creation efforts are underway in several U.S. states and cities as well as in countries in Africa, Asia and Latin America.
“The green bank model is such that there is no single green bank model”
During the first session of the Congress, Caroline Angoorly, Chief Operating Officer of NY Green Bank, and Bert Hunter, Chief Investment Officer of Connecticut Green Bank, underscored that because each green bank’s commitment to local market transformation gets translated into unique local strategies and policies, there really is no single green bank model. NY Green Bank, for instance, has used an open solicitation process to generate financing strategies from the market that have the potential to scale. In contrast, Connecticut Green Bank has taken a programmatic path to scale by developing distribution channels for standardized solar loans and leases to decrease risks and transaction costs.
Green banks can be a critical node of the climate finance landscape
Paul Bodnar of the Rocky Mountain Institute proposed that a new cohort of emerging market green banks could be a nexus for climate finance that both channels foreign investment and mobilizes domestic savings in support of green projects. In addition to streamlining climate finance, Rob Youngman of the OECD emphasized that green banks can serve as trusted advisors to governments on whether the policy environment is conducive to clean energy investment.
During a session on how public capital can stimulate private investment, Maria Netto of the Inter-American Development Bank described how that institution is working to “green” the products and portfolios of development banks in Latin America. Barbara Buchner of the Climate Policy Initiative explained how tailored green products help local private financial institutions increase lending to green projects.
Takafumi Okamoto of Japan’s Green Finance Organization described how Japan’s green bank makes equity investments in order to improve the management of small and medium clean energy enterprises while increasing their borrowing capacity and promoting local economic development.
City-level green banks will be key to mobilizing the necessary finance in cities
Doug Sims of Natural Resources Defense Council kicked off a session on city-level green banks by noting that since cities account for 70% of our greenhouse gas emissions, they play an outsized role in determining how and whether Paris climate targets can be met. Kenroy Quellennec-Reid described how the London Green Fund, one of the city-level green banks that have sprung up in this context, was formed to help meet the city’s ambitious emissions targets.
Susan Leeds of the New York City Energy Efficiency Corporation explained how the nonprofit finance company combines engineering and financial expertise with innovative lending models to deliver clean energy solutions for buildings. As reported by Julia Langer of Toronto’s Atmospheric Fund, the Toronto model focuses on demonstrating the viability of new technologies through demonstration projects. Tommy Wells related Washington, D.C.’s plans for a city-level green bank to tackle clean energy and green stormwater infrastructure.
The private sector sees important an role for green banks
Private sector conference participants—financiers and developers—described how green banks can address stubborn market barriers to further scaling green existing technologies and cover some of the risks of ushering in new technologies and business models. Laura Stern of solar developer Nautilus Solar noted that green banks can cover certain costly yet low probability “pinhole” risks present in solar projects and provide trusted, credible advice to policymakers on the impact of policy changes on markets.
Oliver Yates, former head of Australia’s Clean Energy Finance Corporation and now back in the private sector at Macquarie, indicated that a great strength of green banks is their ability to invest flexibly relative to commercial banks to address a wide variety of financing gaps. Similarly, Ralph Cho of Investec emphasized green banks’ usefulness as “first movers” able to underwrite early projects featuring new technologies that banks cannot address due to regulatory requirements.
Jay Koh of Lightsmith Capital and the Global Adaptation and Resilience Investment Working Group urged green banks and other financial institutions to look beyond clean energy and energy efficiency and to embed notions of reliability and climate resilience into due diligence and investment strategies.
Emerging markets are seeing emerging green banks
In his keynote, Howard Bamsey, Executive Director of the Green Climate Fund (GCF) applauded the success of the green bank model in the developed world and expressed hope for replicating that success in the developing world, where the GCF is focused. Because GCF capital has a higher risk tolerance than commercial sources it could be used to capitalize green banks. In fact, multiple countries are developing proposals to the GCF to do just that.
Andrea Colnes of the Coalition for Green Capital further set the stage for the emerging markets discussion by stressing that most future energy demand growth will be in emerging markets and that green banks can help ensure that the supply of energy is clean and affordable.
Preeti Sinha of YES Bank and Anjali Jaiswal of NRDC reported on India’s efforts to mobilize private finance to support India’s ambitious renewable energy targets through private banks like YES and public financing agencies like the India Renewable Energy Development Agency.
Juan Ladrón de Guevara of Chile’s Climate Change Agency and Jorge Márquez Garcia from BANOBRAS, Mexico’s largest development bank, described efforts to apply the lessons of the green bank model to create green bank platforms within existing development banks in Latin America. Also working through an existing development bank, Jonathan First of the Development Bank of Southern Africa presented the bank’s efforts to develop a climate finance unit that will use credit enhancements to attract private capital.
Dr. Chai Qimin of China’s National Development and Reform Commission outlined the sizable amount of green finance innovation transpiring at China’s provincial level.
The packed room and vibrant discussions at the 2017 Green Bank Congress demonstrated that green banks are emerging from their nascent phase and are poised to play a key role in increasing the flow of private capital committed to transformative green investment.