Introduction

Market factors such as resource scarcity and the need to mitigate climate change present an important opportunity for society. Growing demand for financing creates an opportunity for financial institutions (FIs) to expand product offerings to include sustainable finance.




New Environmental Business Opportunities

 Environmental and social risk management can help financial institutions identify market demands for new products that address environmental and social sustainability and to create new products accordingly.

An effective ESMS is not only important for risk management but can also help financial institutions identify market demands for new products that address environmental and social sustainability and to create new products accordingly. In turn, this can spur the financing of new technologies, initiate new partnerships and create a new client/investee bases.

Enhanced environmental and social management capacity can provide new business opportunities in areas such as energy efficiency, renewable energy, cleaner production, carbon finance and sustainable supply chains.

Introduction
Introduction
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Sustainable Business Opportunities Start Here

The products that FIs offer to the market when pursuing Environmental Business Opportunities are no different than traditional financial products. The difference is in how the products are marketed and how the lendees/ investees are incentivized.

When developing products related to environmental business opportunities FIs typically offer:

A simple financing scheme is the most common.

  • FIs use existing SME/commercial/retail products (no difference to non-EE projects in terms of financing).

Vendor financing

  • A sales partnership whereby the FI provides financing to the company who purchases equipment from the vendor and ESCO finance.

ESCO financing

  • Most advanced form of financing energy efficiency – ESCOs sell energy efficiency. Service driven approach – outsourcing of energy services.

Click here to learn more about ESCOs.

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Business Case

The integration of sustainability into management systems and practices brings tangible benefits, including new lines of business, new clients, greater access to financing, greater shareholder value, and improved reputation and goodwill.

According to IFC’s 2007 report Banking on Sustainability, which included a survey of 120 financial institutions in 43 emerging markets, the integration of sustainability into management systems and practices brings tangible benefits, including new lines of business, new clients, greater access to financing, greater shareholder value, and improved reputation and goodwill. Seventy-four percent of the commercial banks in the survey reported a reduction in risk as a result of considering environmental and social issues. Another 48 percent noted improved access to international capital, 39 percent benefited from improved brand value and reputation, 35 percent developed new business, and 26 percent benefited from improved community relations.

Business Case
Business Case

Growing demand for financing creates an opportunity for financial institutions to expand product offerings to include sustainable finance as well as mitigate environmental and social risks of their portfolio. Financial institutions are uniquely positioned to focus clients on sustainable energy opportunities and catalyze investment decisions.

The business case for environmental and social risk management and sustainable finance for financial institutions is clear:

  • Expanded market share through new business lines:
    • Innovative product/first mover advantage (greater margins, less competition)
    • Sell on value to customer, not pricing
    • Monetize existing client base, attract quality new clients
    • New marketing channels through vendor partnerships
  • Reduced risk profile of portfolio:
    • Lower credit risk
    • Mitigation of environmental risks
    • Lower liability risk
    • Client cost savings from efficiency gains (such as energy) as part of cash-flow
  • Reputation:
    • Reduce reputational risks
    • Positive image and market differentiation
    • Enhanced brand value
  • Improved access to international financing:
    • International financial organizations increasingly provide financial resources to financial institutions for targeted lending/investing in energy efficiency and renewable energy projects
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Portfolio Analysis and Market Scoping

FIs will conduct a needs assessment to narrow down the sustainable finance products to determine the most appropriate product to introduce based on the type of lending / investment and the composition of its portfolio clients or investee companies. In addition, FIs will conduct market scoping to analyze market conditions.

Portfolio Analysis and Market Scoping
Portfolio Analysis and Market Scoping

1) PORTFOLIO REVIEW

A portfolio review will identify existing clients of high energy intensity industries. Prioritizing a list of the top energy intensive industries will assist the FI in determining the most appropriate sustainable financing to offer. If the FI has an existing Environmental and Social Management System (ESMS), the portfolio analysis will be facilitated by the systems and organization of portfolio information already established.

To go to Developing an ESMS section, Click here.

2) MARKET SCOPING

A comprehensive analysis of market conditions is essential to determine whether a gap exists in the market that would be filled by the introduction of a sustainable finance product. Factors to consider are:

  • Energy security and fuel subsidies
  • Electricity market
  • Legislative drivers such as inclusion of renewable energy in the national energy policy or the presence of feed-in tariffs
  • Grid access – connectivity and reliability

Once relevant drivers are determined, the FI can offer financing to support market conditions or environmental legislation or subsidy programs.

The Sustainability Backgrounders in the Related Documents section have been developed to provide an initial idea of areas for analysis in these countries. Please note that the data in these documents may be out of date.

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Create a Pipeline

FIs can build partnerships to develop a pipeline of new business by engaging with relevant players in the market. Energy Service Companies (ESCOs), technology manufacturers and suppliers and other market aggregators may be interested in partnering with an FI to bring financing to existing or prospective clients.

By engaging in such partnerships with Energy Service Companies (ESCOs), technology manufacturers and suppliers and other market aggregators, FIs access a pipeline of new business in the sustainable energy space. In addition, partners bring technical expertise which will strengthen the market analysis and product development required by the FI.

There are two steps to creating a pipeline of potential business for your financial institutions’ sustainable financing. These can be accomplished either independently or with the support of partners.

  1. Portfolio Analysis
  2. Market Scoping
Create a Pipeline
Create a Pipeline

Creating a pipeline can be facilitated by developing a Environmental and Social Management System (ESMS). Click here to go to Develop an ESMS section.

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Case for Sustainable Business Opportunities

Market factors such as resource scarcity and the need to mitigate climate change present an important opportunity for society. Growing demand for financing creates an opportunity for financial institutions (FIs) to expand product offerings to include sustainable financ

Companies of all sizes are increasingly focusing investments on environmental improvements to their business for the following reasons:

  • Save money that can finance investments and improve competitiveness
  • Increase productivity and improve product quality
  • Access to electricity outside the grid improving reliability of supply
  • Compliance with environmental regulations and manage environmental risk

Growing demand for financing creates an opportunity for financial institutions (FIs) to expand product offerings to include sustainable finance. FIs are uniquely positioned to focus clients on sustainable energy opportunities and catalyze investment decisions. Increased environmental awareness and interest of borrowers to invest in energy saving and renewable energy projects presents untapped potential.

The Business case for FIs is clear:

  1. Expanded market share through a new business line:
    • Innovative product/first mover advantage= greater margins less competition
    • Products attractive to customers based on value more than pricing
    • Monetize existing client base, attract quality new clients
    • New marketing channels through vendor partnerships
  2. Improved risk profile of portfolio:
    • Energy cost savings as a part of cash-flow
    • Lower credit risk
    • Mitigation of environmental risks
  3. Enhanced image of the FI:
    • Positive image and market differentiation
    • Enhanced brand value
  4. Improved access to international financing:
    • International financial organizations increasingly provide financial resources to financial institutions for targeted lending / investment in energy efficiency and renewable energy projects.
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Asset Managers

Asset management is the professional management of various securities (shares, bonds and other securities) and assets (e.g., real estate) in order to meet specified investment goals for the benefit of the investors

Investors may be institutions (insurance companies, pension funds, corporations ) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g. mutual funds or exchange-traded funds).

Despite the absence of consistent regulator and stakeholder demand, listed companies are increasingly disclosing the carbon efficiency of their business activities. As a result, asset managers can review independent benchmarking of environmentally friendly opportunities before making investment decisions, and indexes such as the new S&P/IFC Investable Carbon Efficient Index can incentive portfolio investment flows to the most carbon-efficient companies by recognizing them with high ratings. Benchmarking and independent rating encourages carbon efficiency competition within sectors and can lead to new market-based incentives such as lower cost of capital and enhanced reputation among clients and customers.

Read more:

Emerging Africa Infrastructure Fund Case Study

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Commercial Banking

A banking institution (also referred to as a universal or commercial bank) can range from being a large Financial Institution with a highly visible brand name and an international presence to a small organization with a local presence.

The financing activities generally involve various types of lending, such as for corporate finance, housing, project finance, retail, short-term finance, small-medium enterprises, trade, and others. Alternatively, the focus of a banking institution may be only on specific transactions with clients that meet certain requirements and within certain industry sectors. Banking Institutions may also provide financial products with a focus on environmental business opportunities.

Banks can provide financing to business customers to improve cost-savings and operating efficiencies by providing lines of credit or loans for energy efficiency or renewable energy equipment. By factoring sustainability issues into their lending decisions, these banks can both develop profitable lines of business and help build a cleaner, greener future.

COMMERCIAL BANKING CASE STUDIES

Bank of the Philippine Islands Case Study

Yes Bank Case Study

ANZ Case Study

Tatfondbank Case Study

OTP Case Study

BBVA Banco Continental Case Study

AmeriaBank Case Study

Industrial Bank Case Study

Ceska Sporitelna Case Study

Itau Unibanco Case Study

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Institutional Investors

Institutional investors are organizations that pool large sums of money and invest those sums in securities, real property and other investment assets.

Institutional investors can also include operating companies that decide to invest profits in these types of assets. Typical investors include banks, insurance companies, retirement or pension funds, hedge funds, investment advisors and mutual funds.

Despite the absence of consistent regulator and stakeholder demand, listed companies are increasingly disclosing the carbon efficiency of their business activities. As a result, institutional investors can review independent benchmarking of environmentally friendly opportunities before making investment decisions, and indexes such as the new S&P/IFCI Carbon Efficient Index can incentive portfolio investment flows to the most carbon-efficient companies by recognizing them with high ratings. Benchmarking and independent rating encourages carbon efficiency competition within sectors and can lead to new market-based incentives such as lower cost of capital and enhanced reputation among clients and customers.

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Non-Banking Financial Institutions

Non-Banking Financial Institutions focus on financial transactions other than traditional banking and include: microfinance, leasing, and private equity funds.

MICROFINANCE

Microfinance institutions are organizations that provide loans to low-income clients, including micro-companies and the self-employed, who traditionally lack access to mainstream sources of finance from banking institutions. The loans are typically for small amounts (as little as US$ 100 or even less) targeting borrowers in developing countries and usually for a short term (a year or less). The loans are not secured by collateral assets as would be the case for Banking Institutions and require repayment in weekly installments rather than on a monthly basis.

Inherently, microfinance usually addresses economic, social and sometimes environmental issues. For example, electricity is a basic need that allows small businesses to make or process products. Microfinance can provide a rural community with access to electricity through development of renewable energy projects, such as small hydro or photovoltaic (PV) panels. Microfinance institutions have been pursuing environmental business opportunities for decades because they are integral to their business.

Read more:

Microfinancing Solar Panels in Jordan
Financing Small Hydro Schemes in Peru

LEASING

A leasing company provides a physical asset or service for use by a commercial client or individual for an established period of time (sometimes with provisions to purchase asset at the end of the contract) in return for regular payments, known as financial leasing. The lessee is the receiver of the assets or services under the lease contract and the lessor is the owner of the assets or provider of services. Leasing assets include passenger vehicles, light duty trucks, furniture, office equipment, appliances, and heavy equipment, such as earth movers, large machines, industrial equipment, ships, heavy duty trucks, and airplanes. In some cases, a leasing company both owns and services the leased physical asset and is responsible for installing and operating the asset, which is known as operational leasing.

A leasing company can lease all types of energy efficiency and renewable energy equipment including boilers, compressors and heating / cooling equipment or solar panels, solar hot water heaters etc. Leases can be combined with installation and maintenance contracts and performance contracts.

Read more:

Turkish Leasing Company Enters Energy Efficiency Financing Case Study

PRIVATE EQUITY FUND

Private equity funds make equity investments in companies (although sometimes other financial instruments may be used) for a longer term, with the goal of later selling the equity stake at a profit at the time of exit. A Private Equity Fund usually consists of a partnership with investors who are limited partners in the Fund, which is controlled by a general partner. Limited partners commit to provide funding when the general partner has identified an opportunity for investment, such as acquiring a controlling stake of a company. A Fund will typically make separate investments in several companies or projects over the life of the partnership. Investee companies or projects can encompass microfinance institutions, small and medium enterprises, and corporations and large-scale projects.

Private equity funds can strengthen the value of investee companies by investing in energy efficiency upgrades and technology replacements.. Alternatively, PE funds can invest in companies that manufacture or offer environmental related products or services. For example, some PE funds exclusively target energy efficiency or renewable energy equipment manufacturers.

Read more:

TunInvest Enhances Performance Through Sustainability Case Study
Axxess Capital Invests in Energy Efficiency Case Study

 

ENERGY SERVICE COMPANIES (ESCOS)

Energy Service Companies (ESCOs) provide customers with a means to reduce their energy use and demand through performance based contracting. The ESCO serves as a general contractor using standard overhead and profit margins and is capable of financing and guaranteeing its performance if it serves as a design/builder. The below list ranges from full-service/high risk contracts to low service/risk.

Full-Service ESCO: The ESCO designs, finances and implements the project, verifies energy savings and shares an agreed percentage of the actual energy savings over a fixed period with the customer. This is also referred to as the ‘Shared Savings’ approach in the U.S.

End-Use Outsourcing: The ESCO takes over operation and maintenance of the equipment and sells the output (e.g., steam, heating/cooling, lighting) to the customer at an agreed price. Costs for all equipment upgrades, repairs, etc. are borne by the ESCO, but ownership typically remains with the customer. This model is also sometimes referred to as Chauffage or Contract Energy Management.

ESCO w/ Third Party Financing: The ESCO designs and implements the project but does not finance it, although it may arrange for or facilitate financing. The ESCO guarantees that the energy savings will be sufficient to cover debt service payments. This is also referred to as Guaranteed Savings in the U.S.

ESCO Variable Term Contract: This is similar to the full-service ESCO, except that the contract term can vary based on actual savings. If actual savings are less than expected, the contract can be extended to allow the ESCO to recover its agreed payment. A variation is the ‘First Out’ model, where the ESCO takes all the energy savings benefits until it has received its agreed payment.

Equipment Supplier Credit: The equipment supplier designs and commissions the project, verifying that the performance/energy savings matches expectations. Payment can either be made on a lump-sum basis after commissioning or over time (typically from the estimated energy savings). Ownership of the equipment is transferred to the customer immediately.

Equipment Leasing: Similar to supplier credit, the supplier receives fixed payments from the estimated energy savings. However, in this case the supplier owns the equipment until all the lease payments, and any transfer payments, are completed.

Technical Consultant (w/ Performance-based Payments): The ESCO conducts an audit and assists with project implementation. The ESCO and customer agree on a performance-based fee, which can include penalties for lower energy savings and bonuses for higher savings.

Technical Consultant (w/ Fixed Payments): The ESCO conducts an audit, designs the project and either assists the customer to implement the project or simply advises the customer for a fixed, lump-sum fee.

Read more:

Optima Energia Case Study

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Sustainable Business Opportunities by Industry Sector

Environmental Business Opportunities are often cross-cutting. However, the prioritized opportunities in which an FI may want to lend/invest will vary depending on the industry sector.

The nature of the operations common in the industrial sectors, such as whether the company’s operations are water or energy intensive or will generate significant quantities of emissions or effluents will help an FI to determine the related environmental business opportunity.

This section contains a summary of key environmental issues and related environmental business opportunities by industry sector.

To go to the section on E&S Risk by Industry Sector click here.

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Agribusiness and Food Production

The agribusiness and food production sectors are typically resource intensive and present opportunity for operating efficiency improvements.

Agribusiness and Food Production

 

The agribusiness and food production sectors are typically resource intensive and present opportunity for operating efficiency improvements. Environmental issues during the operational phase of various types of agribusiness and food production primarily include the following:

  • Wastewater and water management
  • Air emissions
  • Solid waste and by-products
  • Land use management
  • Crop and grain storage
  • Environmental impact throughout the supply chain

The agribusiness and food production sectors have numerous opportunities for cost-savings and efficiency throughout the production process. An analysis of what areas of the operations could be improved to generate savings and higher efficiency can be determined by exploring the following:

  • Increase water recycling and reuse and reduce water consumption
  • Increase cogeneration capacity
  • Increase energy from renewable sources
  • Improve waste heat recovery, steam efficiency or combustion efficiency
  • Responsibly managed biofuels from organic by-products (e.g. sugar cane, corn and methane from manure) for energy
  • Carbon credits sales
  • Transportation – increase use of efficient vehicles such as hybrids or electric
  • Greening of supply chain by addressing resource efficiencies of suppliers

For more information on E&S risks in agribusiness and food production sectors please refer to factsheets in Related Documents section.

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Chemicals

The chemical sector is resource intensive and presents opportunity for operating efficiency improvements.

Chemicals

 

The key environmental issues associated with chemical production activities typically include management of the following:

  • Air Emissions
  • Wastewater
  • Waste (solid and hazardous)

The chemicals sector has numerous opportunities for cost-savings and operational efficiencies. An analysis of ways to improve environmental performance can be determined by exploring the following:

  • Increase co-generation, waste heat recovery, and combustion efficiency
  • Increase wastewater recycling and reduce water consumption
  • Reduce amount of energy consumed or increase amount of energy from renewable sources

For more information on E&S risks in chemicals sector please refer to factsheet in Related Documents section.

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Forestry

The forestry sector is typically resource intensive and present opportunity for operating efficiency improvements.

Forestry

Environmental issues during the operational phase of various types of forestry primarily include the following:

  • Wastewater
  • Air emissions
  • Solid waste and by-products
  • Environmental impact throughout the supply chain

The forestry sector has numerous opportunities for cost-savings and efficiency throughout the production process. An analysis of what areas of the operations could be improved to generate savings and higher efficiency can be determined by exploring the following:

  • Increase water recycling and reuse and reduce water consumption
  • Increase cogeneration capacity
  • Increase energy from renewable sources
  • Improve waste heat recovery, steam efficiency or combustion efficiency
  • Reuse large quantities of organic by-products (e.g ) for energy
  • Carbon credits sales
  • Transportation – increase use of efficient vehicles such as hybrids or electric
  • Greening of supply chain by addressing resource efficiencies of suppliers

For more information on E&S risks in forestry sector please refer to factsheet in Related Documents section.

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General Manufacturing

The manufacturing sector is typically resource intensive and presents opportunity for operating efficiency improvements.

General Manufacturing

Environmental issues during the operational phase of various types of manufacturing primarily include the following:

  • Emissions to air
  • Water pollution
  • Energy consumption
  • Waste (solid & hazardous)
  • Environmental impact throughout the supply chain

The manufacturing sector has numerous opportunities for cost-savings and efficiency throughout the production process. An analysis of what areas of the operations could be improved to generate savings and higher efficiency can be determined by exploring the following:

  • Improve energy efficiency
  • Pollution control
  • Increase co-generation, waste heat recovery
  • Increase amount of energy from renewable sources
  • Increase water recycling and reduce water consumption
  • Use fewer raw materials to manufacture the product
  • Greening of supply chain by addressing resource efficiencies of suppliers
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Infrastructure

The infrastructure sector includes a wide range of activities that vary from medium to high environmental impact. Construction and decommissioning activities are typically resource intensive.

Infrastructure

Construction and decommissioning activities are typically resource intensive and present opportunity for operating efficiency improvements. Environmental issues during the operational phase of various types of Infrastructure projects primarily include the following:

  • Poor quality of construction materials / building materials
  • Air emissions
  • Wastewater discharge
  • Solid waste management
  • Transport, telecom

The infrastructure sector has numerous opportunities for cost-savings and efficiency improvements. An analysis of what areas of the operations could be improved to generate savings and higher efficiency can be determined by exploring the following:

  • Use environmentally friendly building / construction materials
  • Reduce and reuse construction waste
  • Increase water recycling and reuse of wastewater
  • Reduce air emissions by switching to alternate fuel sources for operating machinery
  • Increase use of efficient vehicles such as hybrids or electric vehicles for transporting materials
  • Transportation – increased use of efficient vehicles as hybrids or electric
  • Disposal of obsolete telecom equipment, use of renewable energy such as solar powered transmission towers

For more information on E&S risks in infrastructure sector please refer to factsheets in Related Documents section.

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Mining

The mining sector is typically resource intensive and present opportunity for operating efficiency improvements.

Mining

Potential environmental issues associated with mining activities may include management of the following:

  • Air Emissions
  • Water use
  • Waste (solid & hazardous)
  • Environmental impact throughout the supply chain

The mining sector has numerous opportunities for cost-savings and efficiency throughout the exploration, development and construction, operation, closure and decommissioning stages. An analysis of what areas of the operations could be improved to generate savings and higher efficiency can be determined by exploring the following:

  • Use of less carbon intensive fossil fuels or co-firing with carbon neutral fuels (i.e., biomass)
  • Increase energy from renewable sources
  • Increase wastewater recycling and reduce water consumption
  • Increase co-generation, waste heat recovery, and combustion efficiency
  • Greening of supply chain by addressing resource efficiencies of suppliers

For more information on E&S risks in mining sector please refer to factsheet in Related Documents section.

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Oil and Gas

The oil and gas sector is resource intensive and presents opportunity for operating efficiency improvements.

Oil and Gas

Potential environmental issues associated with oil and gas development projects include the following:

  • Air emissions
  • Wastewater discharges
  • Solid and liquid waste management

The oil and gas sector has numerous opportunities for cost-savings and efficiency throughout the development and refining processes. An analysis of what areas of the operations could be improved to generate savings and higher efficiency can be determined by exploring the following:

  • Increase co-generation, waste heat recovery, and combustion efficiency
  • Increase wastewater recycling and reduce water consumption
  • Reduce amount of energy consumed or increase amount of energy from renewable sources

For more information on E&S risks in oil and gas sector please refer to factsheet in Related Documents section.

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Power

The power sector is resource intensive and presents opportunity for operating efficiency improvements.

Power

The key environmental issues associated with utility activities driven by power generation typically include management of the following:

  • Air Emissions including Green House Gas (GHGs)
  • Water Use
  • Waste water discharges

The power sector has numerous opportunities for cost-savings and operational efficiencies. An analysis of ways to improve environmental performance can be determined by exploring the following:

  • Use of less carbon intensive fossil fuels or co-firing with carbon neutral fuels (i.e., biomass);
  • Use of combined heat and power plants (CHP) where feasible
  • Improve energy efficiency through use of higher energy conversion efficiency technology.
  • Opportunity for selling carbon credits
  • Increase water recycling and reduce wastewater discharge by investing in closed-cycle, recirculating cooling water system (e.g., natural or forced draft cooling tower), or closed circuit dry cooling system (e.g., air cooled condensers).
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Retail and Services

Overall, the retail and services sector is widely considered to have low impact on natural resources and few environmental issues.

Retail and Services

However, there are opportunities in the Retail and Services sector for efficiency improvements and cost-savings particularly in the hotel, restaurant and retail businesses. Potential environmental issues associated with the retail and services sector include:

  • High overhead cost for lighting, heating/heat and water use
  • Lack of efficiency in the transportation of goods
  • Environmental impact throughout the supply chain

The retail and services sector has numerous opportunities for improvements particularly for the hospitality industries. An analysis of what areas of the business could generate savings and higher efficiency can be determined by exploring the following:

  • Energy efficiency measures through lighting and heating/cooling systems.
  • High efficiency washers / dryers for laundry
  • Energy & water conservation programs for clients of hotels / restaurants.
  • Greening of supply chain by addressing resource efficiencies of suppliers
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Sustainable Business Opportunities by Type

Financial Institutions (FIs) can address environmental issues faced by portfolio companies by offering various financial products such as credit lines or equity investments conditional on the company meeting eligibility criteria. The first step is to understand the types of environmental opportunities around which FIs can structure their financial offerings.

The opportunities typically require the lendee or investee company to integrate technologies into their operations which will lead to cost savings and operating efficiencies. These technologies may require the purchase of new equipment or may simply require the replacement of inefficient light bulbs or better heating / cooling systems management.

Sustainable Business Opportunities by Type
Sustainable Business Opportunities by Type

The following are the types of environmental opportunities that may exist in the FI’s existing portfolio or may present opportunity to access new markets / clients.

  • Energy Efficiency – Reducing per unit energy consumption through increased efficiency.
  • Renewable Energy – Generating electricity or heat from sun, wind, biomass, geothermal or hydro resources.
  • Cleaner Production – Minimizing waste and emissions from industrial processes and maximizing product output.
  • Carbon Finance – Carbon finance provides financial resources to projects or programs generating greenhouse gas (GHG) emission reductions that are verified and sold on the global carbon market.
  • Sustainable Supply Chain – Management of environmental and social issues throughout the supply chain and incorporating sustainability standards between off-takers and suppliers while maximizing product output providing access to finance to small suppliers.
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Carbon Finance

Carbon Finance is earned by making investments in generation of greenhouse gas emission reductions that can be traded in carbon markets.

Common Carbon Finance project types include cleaner production projects and projects that increase energy efficiency or generate power from renewable resources. FIs could participate actively in carbon markets in various ways:

  • Offering advisory services to clients entering or active in carbon markets, including marketing, structuring, transacting, and sales of carbon (i.e., over-the-counter and auctioning),
  • Offering targeted financing to companies with GHG emission reductions projects and programs that generate a stream of carbon finance income,
  • Selling emission reductions in the carbon market which they aggregate and purchase from portfolios of clients with smaller-scale GHG emission reductions projects,
  • Making equity investments in companies that originate and transact GHG emission reduction projects and programs that earn carbon finance payments, and
  • Receiving emission reductions in addition to interest payments as part of upside-sharing agreed with clients that generate carbon credits.
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Carbon Finance in Australia and Pacific

Australian financial institutions are beginning to capitalize on the opportunity to develop a carbon finance business to compliment the projects they lend or invest in.

WESTPAC & AGL PARTNER ON CARBON TRADING

Westpac announced another first for the bank and for Australia recently, by taking part in a carbon trade with energy company AGL. The trade is the first to be conducted under the forthcoming Australian Emissions Trading Scheme (AETS), which for the first time establishes a price for carbon allowances to be traded.

Under the deal, Westpac purchased 10,000 tonnes of Carbon Dioxide equivalent (CO2-e) from AGL for delivery in February 2012 at a price of $19 per ton. At the end of a year, companies that have generated more emissions than their permits allow will have to enter the market and buy additional permits to match their emissions, or face stiff financial penalties. Companies which have generated fewer emissions can sell their remaining permits to generate additional revenue.

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Carbon Finance in Europe

European governments have been at the forefront of developing policies and mechanisms to support carbon trading and European financial institutions are increasingly investing in a variety of emission reduction projects eligible under the Kyoto Protocol and the EU Emissions Trading Scheme (EU ETS).

CAISSE DES DÉPÔTS AND FORTIS BANK PIONEER EUROPEAN CARBON FUND

In April 2005, Caisse des Dépôts and Fortis Bank partnered to form European Carbon Fund (ECF) pioneering the development of European private sector investment funds dedicated exclusively to carbon. ECF raised €142m from 14 investment-grade financial institutions, thus bringing together bankers, insurers and environmental experts to invest in emission reduction assets.

ECF contributes to the financing of projects that help fight climate change by reducing greenhouse gases emissions across the world. The main purpose of ECF is to invest in carbon assets, which are market-based greenhouse gases emissions reduction instruments from the Kyoto Protocol and the European Union emissions trading scheme.

Since inception, ECF has been successfully managed by the Carbon Finance Team of Natixis Environment & Infrastructures (Natixis E&I), a specialized alternative asset management company of Natixis. Natixis E&I and its subsidiary Natixis E&I Luxembourg have over €800m of assets under management invested in 5 funds.

Over the past four years, Natixis E&I has originated more than 65 million tonnes (mt) of CO2 equivalent from a variety of emission reduction projects eligible under the Kyoto Protocol and the EU Emissions Trading Scheme (EU ETS).

Find out more at www.europeancarbonfund.com

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Carbon Finance in Latin America and Caribbean

Latin American and Caribbean financial institutions are expanding their investment solutions' offering to promote innovation in the market and respond to the quest for lower Greenhouse Gas (GHG) emissions.

ITAÚ UNIBANCO LAUNCHES CARBON INVESTMENT FUNDS

In line with its vision to address climate change, Itaú Unibanco offers investment solutions that promote innovation in the Brazilian market and respond to the quest for lower Greenhouse Gas (GHG) emissions. The launch of Fundos Itaú Ecomudança in 2007, which earmarks 30% of the management fee for projects aimed at reducing GHG emissions, was followed by the launch of the first Brazilian investment fund linked to a carbon credit index, Fundo Itaú Índice de Carbono.

The Bank provides diversified investment opportunities for all people concerned about climate change seeking financial returns and an alternative to offset impacts. By expanding the offer of environmental funds, with Fundo Itaú Índice de Carbono, Itaú Unibanco stimulates the development of the carbon credit market and contributes to tackling climate change with the hopes that other banks will follow suit.

One of the projects supported by Fundos Itaú Ecomudança (Farol do Sol) provides the community of fishermen in the southern Patos Lagoon, in Rio Grande do Sul, with solar lanterns to replace gas lanterns for fishing shrimp at night. The replacement improves the quality of work and contributes to increase income and reduce poverty. Another initiative supported by the Funds is EcoPommer Sustainable Project, which seeks a technology that enables better management of waste in 373 laying hen farms in the region of Santa Maria do Jetibá, in Espírito Santo.

Download full report Essence of Sustainability from Related Documents section.

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Carbon Finance in Sub-Saharan Africa

Banks in Sub-Saharan Africa are taking on the role of broker as they increase the number of loans they are making to projects that present potential for generating carbon credits that the bank can buy and sell on the carbon market.

JPMORGAN CHASE SUBSIDIZES STOVES IN AFRICA TO EARN CARBON CREDITS

JPMorgan is subsidizing the distribution of efficient cooking stoves in Africa because the new, improved stoves save fuel and produce less carbon dioxide than traditional stoves. JP Morgan generates carbon credits that can be sold to companies or individuals who want to offset their own emissions.

JPMorgan will expand its support for cook stoves from Uganda into Kenya, Ghana, Cambodia and beyond. Each stove is estimated to reduce carbon dioxide emissions by two to three tons a year; each ton generates a credit worth $10 or $15 a year, and potentially more, for the bank. Instead of financing a single emissions-trapping project, JPMorgan and its partners are enabling thousands and, potentially, millions of small transactions. Similar projects that aggregate lots of small transactions are in the works.

In exchange, the bank gets carbon credits that it sells to such buyers as Land Rover UK, which promises to offset the carbon emissions of its new vehicles, and Aviva, a big British insurance company. Climate Care also sells offsets to consumers who want to mitigate their personal emissions.

Read the full story here

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Cleaner Production

Cleaner Production is the introduction of revised processes, management, and housekeeping practices through the business cycle with an emphasis on reducing waste and pollution at the source.

WHAT IS CLEANER PRODUCTION FINANCING?

Cleaner Production

It is capital investment in technology to cut manufacturing costs, by reducing consumption of resources such as energy, water or raw materials and by reducing waste. Cleaner Production initiatives increase profitability by reducing both direct input costs and clean-up expenses.

Compared to the conventional “end-of-pipe” approach to pollution-abatement investments which increase both capital and running costs, cleaner production initiatives yield payback of 3 to 24 months usually because process re-engineering cuts ongoing operating costs as well as pollution. Cleaner production also has the potential to improve quality, resulting in higher value-added products and improved competitiveness.

Cleaner Production
Cleaner Production
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Energy Efficiency

As global demand for energy rises, so will the consequences of climate change. Investments in energy efficiency can generate substantial economic and environmental benefits while promising increasing financial returns.

Energy Efficiency

Energy efficiency finance is a financial product offered by financial institutions (FIs) for the purpose of financing energy efficiency projects. An energy efficiency project aims at 1) reducing energy consumption for the same level of production or services; or 2) increasing productivity and creating more products/services output with the same level of energy consumption.

Opportunities exist across all economic sectors: industry, commerce, transport, residential, public, tourism, services and agriculture. Examples from the manufacturing sector include process upgrades such as improvements in heating and cooling equipment, and examples from the housing sector include building envelope improvements such as upgrades to windows and insulation.

An energy efficiency project can include funding for companies that produce energy efficiency equipment (such as solar water heaters for example) or provide energy efficiency services (ESCOs).

Energy efficiency projects often cover a large portion of housing renovations. They also comprise a large part of investments in micro small or medium enterprises.

Therefore, most FIs find that they already have a large pipeline of energy efficiency projects awaiting financing but are unsure as to how to evaluate the risks associated with them.

Once the pipeline is evident, FIs develop eligibility criteria that borrowers must meet in order to qualify for the loan or investment.

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Energy Efficiency in Asia

Energy efficiency opportunities abound in Asia and FIs are actively pursuing opportunities to finance and invest in this space.

BANK OF THE PHILIPPINE ISLANDS (BPI) FINANCES ENERGY EFFICIENCY PROJECTS

In an effort to minimize power costs, Corfarm, a 15,000-head pig farm north of Manila constructed a methane capture and electricity production facility.

Needing financing, the company applied for and got a $1 million loan from the Bank of the Philippine Islands (BPI). BPI President Aurelio Mantinola III is glad his bank, one of the country’s largest can help farmers in the Philippines. Pioneering in sustainable energy finance affirms BPI’s commitment to environmental protection. “IFC helped our bank’s staff to better understand the energy efficiency and renewable energy segments, and we are in advanced negotiation with IFC on a risk sharing agreement that will help us build a robust and sustainable portfolio,” Montinola said. The program is based on the idea that financing sustainable energy projects is both good business and useful in fighting climate change. Supported by the Global Environment Facility, it works with banks, technology and equipment vendors, end-users, regulatory agencies, and market-awareness partners to promote sustainable energy.

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YES BANK FINANCES SUSTAINABLE ENERGY IN INDIA

YES Bank, an entrepreneurial commercial bank in India, is one of five of India’s largest banks that have developed energy efficiency lending programs targeting small and medium enterprises. “Financing for Bundled Small-scale Rural Renewable Energy and Energy Efficiency Ventures in India,” and was developed by YES Bank’s Agribusiness, Rural & Social Banking (ARSB) and Sustainable Investment Bank (SIB) Teams. The goal of the project itself is to develop new credit practices financing bundles of small-scale renewable energy and energy efficiency ventures in rural and peri-urban India.

In the first transaction, YES Bank provided financing in the amount of approximately €15 million Euros to a bundle of 25,000 farming households across the states of Maharashtra, Gujarat and Rajasthan in a deal to finance the purchase of energy-efficient drip irrigation systems, with a loan averaging about 594 Euros per household.

YES Bank has become a thought leader in responsible banking and sustainability integration. Beyond energy efficiency lending, YES Bank measures its direct GHG emissions footprint.

Read full story here.

 

INDUSTRIAL BANK EXTENDS CLEANER PRODUCTION FINANCING IN SMES IN CHINA

Industrial Bank financed 46 energy efficiency and greenhouse gas emissions reduction projects, for a total loan amount of 900 million Chinese renminbi ($126 million). This initiative is expected to help reduce 5 million tons of carbon dioxide emissions a year, the equivalent of replacing ten 100-megawatt coal-fired power plants in China.

The majority of these loans are to small and medium enterprises that are implementing energy efficiency projects such as industrial boiler retrofitting, wasted heat recovery, co- and tri-generation projects for district heating, power saving, and optimization of industrial energy uses. Implementation of these projects are expected to reduce carbon dioxide emissions by more than 3.5 million tons a year, the equivalent of emissions from all 70,000 taxis currently running in Beijing for three years.

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Energy Efficiency in Australia & Pacific

Growing awareness amongst FIs about the potential for financing residential and industrial energy efficiency improvements in Australia & the Pacific.

ANZ OFFERS LOANS FOR ENERGY EFFICIENT HOUSEHOLDS

ANZ in New Zealand is partnering with EnergySmart Limited to provide interest free or interest subsidized loans to customers to install energy efficiency features such as ceiling and floor insulation, clean household heating, draught proofing and energy efficient light bulbs.

The offer is part of the New Zealand Government’s EnergyWise Homes initiative to encourage consumers to install energy efficiency measures and is available to homeowners earning less than $100,000 and who own a home built before 1978.

Energy Smart is New Zealand’s leading provider of energy efficiency solutions for homes.

Read more here.

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Energy Efficiency in Europe

Financial institutions have been financing energy efficiency projects in Europe for decades and there are many examples of banks, private equity funds and other investors profiting from performance improvements brought about by energy efficient technology. Here are a few examples:

TATFONDBANK LAUNCHES ENERGY EFFICIENCY FINANCING

The Adonis suit company had been named one of the top suit manufacturers in Russia however the competition got tougher and Adonis began looking for ways to cut costs and improve operating efficiencies. The pressing machines used by Adonis were not optimal for pressing thinner fabric and used too much electricity.

Adonis approached Tatfondbank for financing, since the bank had recently launched a new financial product aimed at financing energy efficiency projects. The bank proposed Adonis get an energy audit of the factory’s operations. The auditors identified that Adonis could cut per unit energy costs by 43% by modernizing its lighting system and using steam energy. Tatfondbank lent Adonis approximately $58,000 and the pay back is expected to be less than 2 years.

 

OTP BANK PROFITS ON ENERGY EFFICIENCY PROJECTS

OTP identified a significant business opportunity for municipal energy efficiency in Hungary. In particular, there was an untapped opportunity for energy savings in municipal buildings and since OTP was the market leader in municipal finance, this was an obvious fit. Through the centralized procurement process OTP got access to municipalities without the extra transaction cost of case-by-case procurements. The Energy Service Company (ESCO) structure was well-known to OTP therefore the bank linked up with an ESCO. However, the particularly large and long exposure to a very small ESCO required the Bank to get extra risk protection to commit to a US$ 250 million program. OTP got risk capital from IFC, who designed its structure to the specific needs of OTP Bank.

Street lighting, indoor lighting and heating renovation of municipal buildings were a few energy efficiency retrofits that enabled OTP to disburse $29 million to over 2000 municipal renovation projects. It is estimated that the OTP municipal energy efficiency loans resulted in a savings of over 2000 tons of carbon and over 9 million kWh of electricity.

 

TURKISH LEASING COMPANY ENTERS ENERGY EFFICIENCY FINANCING

The leasing company was attracted by the opportunity to expand SMEs’ access to finance and promote energy efficiency among SMEs in Turkiye. Since the leasing company has up to 33% of its portfolio eligible for EE/RE leases, energy efficiency presents potential to service the needs of existing clients while offering a new product to SMEs. EE financing is a strategic approach whereby leasing companies can take a leadership position in a new market while growing its volume and scaling up.

Leasing to SMEs is helping them gain access to critically-needed term finance for non-EE projects as well. Leasing companies have traditionally been one of the key providers of term finance for SMEs, and this initiative will help make term finance available to more SMEs by working with an SME-focused leasing company. Term finance is appropriate for small projects and EE equipment finance where a lack of collateral typically exists.

The leasing sub-projects are expected to reduce energy consumption for the relevant industries i.e. light industries (textile, printing, food), power and heat generation etc.) as well as in industrial and commercial buildings. Reduced energy consumption is an important national priority in the interest of reducing dependence on imported energy. Investments in energy efficiency offer a cost effective way to meet growing energy demand while reducing emissions.

Partnerships with equipment manufacturers, electric and heat distribution companies and (ESCOs ) Energy Service Companies present other models for leasing companies to enter the market. As the energy efficiency market grows in Turkiye, other leasing companies will follow the lead and expand their offering to include energy efficiency financing to SMEs.

 

AXXESS CAPITAL INVESTS IN ENERGY EFFICIENCY

Axxess Capital manages over EUR 220 million in private equity investments in Southern and Eastern Europe through two managed funds: The Romanian American Enterprise Fund (RAEF) and The Balkan Accession Fund (BAF). RAEF was established in 1995 by the U.S. Congress to support the development of the private sector in Romania through direct equity investments and loans and maintains a special focus on the financial services sector. BAF is a regional fund launched in 2005 to take advantage of investment opportunities offered by the EU accession of Romania and Bulgaria in 2007, but also targets selected transactions in the Western Balkans, Moldova and Ukraine.

While both funds have maintained a long-term policy for managing the environmental risks of investments, recently RAEF has seen increased potential in the developing energy efficiency and renewable energy sectors locally. In 2004, RAEF established a project company, Romanian Industrial Energy Efficiency Company (RIEEC), which develops and operates on-site co-generation power systems for industrial consumers. The cleaner power has not only demonstrated environmental benefits but has also enabled clients to reduce energy production expenses by as much as 60 percent.

The RIEEC investments have demonstrated to Axxess Capital the potential for additional growth in the area of low-carbon power generation. In fact, more than 30 percent of Romania’s electrical generating capacity is more than 25 years old and only 20 percent is less than 15 years old. The investment required to upgrade the country’s generation capacity is estimated at USD 4-5 billion over the long-term, with USD 900 million for modernization of transmission and distribution systems alone. While much of this investment is likely to be in large-scale infrastructure, RAEF is also exploring smaller projects using alternative fuel sources. In 2008, RAEF approved financing for a start-up developing wood waste as a fuel source for central heating furnaces.

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Energy Efficiency in Latin America and Caribbean

Financial institutions in Latin America and Caribbean are focusing attention on clean energy projects, many of whom are realizing that their portfolio presents a wealth of opportunity to finance energy efficiency projects with existing clients. BBVA was one of the first to tap this potential.

BBVA BANCO CONTINENTAL

In 2007, BBVA Banco Continental (Peru), a signatory Bank of the Equator Principles and the second largest commercial bank in Peru – set out to become a financial sector leader in energy efficiency (EE) and natural gas conversion (NGC) projects. In less than two years the Bank disbursed US$34.7 million in 69 projects, primarily to small and medium enterprises for clean energy projects.

The opportunity for BBVA to develop a clean energy product line arose from:

a) A partnership with the International Finance Corporation, IFC, a member of the World Bank Group, helped the Bank build its capacity and project pipeline as well as create viable and sustainable credit product for small and medium enterprises (SMEs) seeking financing for energy efficiency and small-scale hydropower projects.

b) The launch of two national programs to promote natural gas conversion throughout the industrial sector, CENERGIA and CAMISEA. These programs. These programs, and in particular CAMISEA for expanding access to cleaner, less expensive natural gas, creating immediate opportunities for companies to upgrade / replace equipment and invest in broader energy efficiency production equipment.

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OPTIMA ENERGIA’S NOVEL BUSINESS MODEL HELPS MEXICAN HOTELS REDUCE ENERGY COSTS

Optima Energia is a Mexican energy service company that provides energy services including an in-depth analysis of the property, designing an energy efficient solution, installing the required equipment and maintaining the system during a contract period of typically 10 years while at the same time financing the investments.

One of Optima Energia’s business lines is an energy service company (ESCO) that provides energy efficiency solutions and the financing to carry them out. This area of the firm specializes in helping hotels in Mexico achieve energy savings with a business model that has proven effective in other countries, but is only now beginning to catch on in Mexico.

The way it works is that Optima enters into performance-based contracts with its clients to implement an energy efficiency project. The resulting savings in energy costs generated by the project are used to pay back Optima’s capital investment. Additional savings generated are split between Optima and the client.

The work is expected to have a broader impact as well as the success of Optima’s engagements with its hotel clients will encourage more hotels in Mexico to consider such initiatives for their facilities, as well as firms in other industries such as manufacturing and public services that have large physical plants.

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Energy Efficiency in Middle East and North Africa

Energy efficiency opportunities abound in Middle East and North Africa and fund managers are actively pursuing opportunities to finance and invest in this space.

TUNINVEST ENHANCES PERFORMANCE THROUGH SUSTAINABILITY

Cogitel, a manufacturer of flexible packaging solutions for the food and beverage industry in North Africa, reported losses in 1997 and TunInvest, a leading private equity fund in North and Sub-Saharan Africa, viewed Cogitel’s short-term setbacks as an ideal opportunity for a turnaround investment. With TunInvest’s capital and expertise, Cogitel obtained a new quality certification and quickly return to profitability.

Cogitel achieved a number of value-creating environmental objectives throughout TunInvest’s involvement with the company. Prior to TunInvest’s investment, Cogitel’s environmental policy was focused on reducing its amount of source packaging (product inputs) and waste production. While these were laudable policies, TunInvest used its strong relationship with company management to expand Cogitel’s environmental initiatives even further.

Beyond the financial gains from the investment, TunInvest worked with Cogitel’s management to create a culture of sustainability throughout the company. TunInvest raised the awareness of Cogitel’s management to environmental and social issues and explained their links to the company’s financial performance.

Download Cogitel Case Study from Related Documents section.

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Energy Efficiency in North America

Financial institutions, mainly banks, are actively differentiating their product offerings by making consumer loans available for energy efficiency products. Unique energy efficiency offerings for business loans are emerging as a way to retain existing business clients and attract new clients.

ROYAL BANK OF CANADA (RBC) OFFERS ENERGY SAVER LOANS

RBC is extending interest rate discounts to clients purchasing energy efficient products or equipment for their home or business. Qualifying environmentally-friendly purchases may receive a 1% discount or a $100 home energy audit rebate on a fixed rate installment loan over $5,000.

This innovative and “green” financing solution can help consumers, both individuals and businesses save on energy costs while saving on borrowing costs.

Read more here

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Renewable Energy

Only a few renewable technologies are price-competitive with oil and carbon fuels; however, the pricing gap is decreasing rapidly due to technological advances and the price of fossil fuels. As a result, investments in renewable energy technologies are on the rise and companies are pursuing financing options.

WHAT IS RENEWABLE ENERGY FINANCING?

Renewable Energy

It is financing for renewable energy projects that increase the provision of electricity generated from sources that are natural, rapidly replenished and essentially inexhaustible such as sun, water, wind, organic materials or the earth’s inner energy. This includes financing projects for both on-grid and off-grid applications.

In addition to project finance for renewable power generation projects, financial institutions (FIs) may also lend to the industrial sector for large initiatives such as co-generation projects, municipalities for up-grading public facilities, and the retail and commercial sectors.

Many countries have established subsidies or market mechanisms to support renewable energy investments such as direct grants, generation quotas, feed-in tariffs, emissions trading or state concessions. In markets where some of these mechanisms are in place, renewable energy financing is a potentially viable business for FIs.

CHARACTERISTICS OF RENEWABLE ENERGY TECHNOLOGIES

Renewable Energy
Renewable Energy

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Renewable Energy in Asia

Investment in renewable energy is on the rise in Asia, in particular in the microfinance space where the vast majority of borrowers are without access to electricity from the grid.

MICROFINANCE FOR RENEWABLE ENERGY IN BANGLADESH

Grameen Shakti is a sister organization of Grameen Bank with its focus on renewable energy. This is unusual internationally as most financial institutions invest in a portfolio of traditional fossil fuel systems along with an attempt to bring in renewables whenever possible. However it is a little less remarkable when it is seen that the vast majority of rural villages in Bangladesh are without any form of electricity.

Grameen Shakti has established a number of specific programs to implement its goals in renewable energy. These consist of:

  1. Solar Home Systems (SHS) Program- where homes are provided with photovoltaic roof collectors for a small amount of electricity, mostly for lighting.
  2. Wind Power Program- where larger scale systems are being trialed on some coastal locations.
  3. Hydro Program – where mini and micro hydro systems are being investigated in some hilly areas.

Grameen Shakti operates on the same principles as Grameen Bank.

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Renewable Energy in Europe

European companies have been leading the way on development of renewable energy technologies, governments have implemented progressive policies to support renewable energy as an alternative to traditional fossil fuels, and financial institutions have been global leaders in financing renewable energy projects. Here are a few examples:

ARMERIABANK PROFITS OFF SMALL HYDRO LOANS

Highlighting the importance of promoting the renewable energy sector for overall economic development, Ameriabank is providing long-term funding for 8 small hydro power plant projects in Vayots Dzor, Gegharkunik and Lori regions of Armenia with overall installed power of 26.08 MWt and expected output of 80.6 mln KWtph.

The small hydro power plant financing project will enhance local power generation capacities and diversify power supply sources by reducing CO2 emissions and shifting from dependence on imported fuel.

Download full story here

 

CESKA SPORITELNA BANK FINANCES WIND POWER IN BOHEMIA

Ceska Sporitelna financed SVEP A.S. for a start-up project to build a 2 MW Wind Power Plant in the Krusne hory mountains, North Bohemia. The expected annual electricity production of the power plant is 4,958 MWh, which translates into an estimated reduction of GHG emissions by 5,652 tons annually based on the Czech country mix of electricity generation.

The plant is already fully operational and the local authority has issued a temporary license that permits the operation of the wind converter selling the electricity generated to the local distributor, provided that the wind converter operation does not cause any perturbations in the distributor’s grid and that the noise levels stay under the current law. This permit will expire in November 2005 and if the converter complies with the requirements settled by the local authority then a definitive license will be issued.

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Renewable Energy in Latin America and Caribbean

Investment in renewable energy is on the rise in Latin America and Caribbean, in particular in the microfinance space where the vast majority of borrowers are without access to electricity from the grid. Here's a case study of financing a small-scale hydro project in Peru.

FINANCING SMALL HYDRO SCHEMES IN PERU

The objective of the project is to improve the living standards of the rural population in Peru by implementing Small Hydro Schemes (SHS), forming sustainable electricity services and promoting the productive use of energy. Its purpose is to promote a financial model that combines subsidized credits with technical assistance and an appropriate management model. The project is aimed at meeting small energy requirements in isolated rural areas that are impossible to serve with conventional electricity grids.

The project is based on two agreements with the Inter-American Development Bank. Under the first agreement for the period between 1992 and 1998, ITDG (Intermediate Technology Development Group), now called Practical Action, received a reimbursable contribution of USD 400,000 to establish the “Revolving Fund”. A second agreement was signed in 2000, increasing the revolving fund by USD 200,000 and recommending the establishment of new management models and the promotion of productive and business activities capable of generating employment and income. The financial model with the “Revolving Fund” combines a soft loan that includes technical assistance with joint financing by different institutions.

The implementation of SHS has both replaced and prevented the installation of diesel systems, which is a more affordable technology for rural populations. The CO2 emissions from burning fossil fuels have, therefore, been reduced. In addition, the use of electricity has replaced the traditional use of candles and kerosene burners that not only contaminated people’s homes but were also health hazards.

Currently, the revolving fund consists of about USD 600,000; 31 loans worth USD 880,000 have been granted for 28 SHS and 50 single-family photovoltaic schemes, and more than 2,000 rural families have benefited from the project.

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Renewable Energy in Middle East and North Africa

Although MENA continues to be the world's richest oil region, Jordan is one of the most energy insecure countries in MENA with limited indigenous energy resources and relies almost entirely on imported resources to meet its' energy needs.

MICROFINANCING SOLAR PANELS IN JORDAN

Energy costs in Jordan are very high with adverse social and economic impact. To help low-income Jordanian households, Tamweelcom, the leading microfinance institution in the region, offers energy efficiency loans to facilitate the purchase of solar panels.

Tamweelcom entered the segment to contribute to improving the environment and leverage its distribution channels to serve its clients. Tamweelcom has successfully piloted loans for household solar panels to heat water and is currently developing suitable policies and procedures as well as a business plan for the product. The cost of such solar panels ranges from $700 to $1,000 depending on the size with electricity cost saving pays for itself in 2-3 years. Tamweelcom expects to extend 1,500 EE/RE loans each year.

Tamweelcom serves its clients through 17 branches, covering the different Jordanian governorates, and staff of 199 people (90 of whom are loan officers). Tamweelcom is considered one of the best MFIs globally. Tamweelcom extends its loans using both the individual and group lending methodologies and targets micro and small entrepreneurs.

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Renewable Energy in North America

North American financial institutions are increasingly integrating Climate Change into their corporate strategies and creating new lending and investment products and services to increase business in the renewable energy and energy efficiency space.

BANK OF AMERICA

Bank of America announced in March 2007 a $20 billion ten-year climate change initiative to encourage development of environmentally sustainable business practices through lending, investing, philanthropy and the creation of new products and services. On September 10, 2010 Bank of America announced it is ahead of schedule on its 10-year, $20 billion business initiative as Bank of America has directed $8.4 billion through lending, investing, capital markets activity, philanthropy and the company’s own operations.

The environmental business initiative is comprised of hundreds of transactions in 45 states, the District of Columbia, Canada and markets across Asia and Europe. Lending and investment includes $2.2 billion in equipment financing for energy efficiency projects and renewable energy projects in solar, wind, biomass and biofuel technologies for both utilities and end users and $2.8 billion in commercial real estate banking, financing projects relating to LEED® (Leadership in Energy and Environmental Design) certification, ENERGY STAR, brownfield redevelopment and the use of renewable energy tax credits.

SCOTIABANK GROUP FINANCES WIND FARMS

Scotia Capital, which represents the wholesale banking business of the Scotiabank Group, actively supports the development of renewable energy via the financing of wind, hydro, solar, geothermal and other clean energy projects. Scotia Capital is helping promote the renewable energy sector and attract investor interest by offering extensive expertise to clients in the area of renewable energy, including investment opportunities, industry trends, public policy and economic analysis of the sector.

In 2009, Scotia Capital acted as a joint lead arranger on a $202 million financing and provided interest rate swaps for Viento Funding II, a portfolio of three wind farms located in Texas, Nebraska and New Mexico. The farms are commercially operating base load providers with a generating capacity totaling 305 MW. The portfolio is owned by Edison Mission Energy which, through its subsidiaries, engages in developing, acquiring, owning or leasing, operating, and selling energy and capacity from independent power production facilities.

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Renewable Energy in Sub-Saharan Africa

Sub-Saharan Africa presents tremendous untapped potential for supplementing fossil fuel use with renewable energy. In urban centers, grid access to electricity is typically unreliable and patchy and most rural communities lack access at all. Therefore, renewable energy can be a reliable alternative to address basic human needs and improve economic development.

KENYAN GEOTHERMAL PROJECT FINANCING REDUCES CO2

Emerging Africa Infrastructure Fund (“EAIF”) managed by Frontier Markets Fund Managers Limited (“FMFML”), a Mauritius incorporated fund management company jointly owned by Standard Bank Group, FMO (The Dutch Development Bank) and Emerging Markets Partners (“EMP”) has reinforced its credentials in the project finance sector with its role in the Olkaria III Project.

This is the first privately owned geothermal plant in Africa attracting financing of USD $15 million. The Olkaria III Geothermal Power Plant is situated in the Olkaria geothermal steam field, in the Rift Valley Province, roughly 100 km northwest of Nairobi, Kenya. The project consisted of the development of the geothermal field (including drilling of wells with a capacity of 58 MW) and the construction and implementation of a 13 MW facility, followed by an additional increase in generation capacity to 48 MW. The project also contributes very positively to the targets of international climate change policies and can replace 120,000 tons of imported oil, mitigating approximately 200,000 tons of CO2 emissions per year.

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Sustainable Supply Chain

Sustainability in the supply chain has become an increasing area of focus for large companies or off-takers caused by competitive pressures arising from new environmental regulations, labor standards, energy costs, and government and consumer demands.

Competitive pressures triggered by new environmental regulations, labor standards, energy costs, and government and consumer demands are leading many large companies (off-takers) to incorporate sustainability standards into contractual relationships with suppliers to reduce operating risks and ensure profitability and growth. Suppliers able to meet these high value added standards are likely to enjoy increased demand in domestic and import markets and even more competitive pricing.

WHAT IS SUSTAINABLE SUPPLY CHAIN FINANCE?

It is capital investments by growers to improve farming techniques and raise the quality of their produce to meet the growing demand for organic, certified and sustainably-produced goods in global markets.

Local financial institutions can partner with global buyers to provide access to finance at competitive terms and tenors for micro- and small and medium enterprises (MSMEs) that lack the necessary finance and technical skills to improve environmental and social management and operating performance.

THE ROLE OF FINANCIAL INSTITUTIONS

Many suppliers, especially micro, small and medium size enterprises, rely on traders that make funding available to support short-term and pre-export cash flow needs as they do not have access to the formal financial sector.

Re-shaping the financing flows in supply chains by involving financial institutions and allow them to play a more significant role would have a huge development impact at the level of the micro, small and medium size producers.

The needs and deliverables of the financial institutions are summarized below:

Sustainable Supply Chain
Sustainable Supply Chain
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