Australia and the Green Climate Fund: Supporting new climate investments
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Good morning. It's a pleasure to be back at the Emissions Reduction Summit.
I'd like to start by acknowledging the Wurundjeri people, who are the traditional custodians of this land, and pay my respects to their Elders both past and present.
Overview of the GCF
The Green Climate Fund is the world's largest multilateral fund dedicated to supporting developing countries to respond to climate change. It was capitalised with just over USD10 billion and has an ambitious mandate, aiming to promote the paradigm shift to low-emissions and climate resilient pathways. The GCF's work is also closely aligned with the 2030 Agenda for Sustainable Development and the Paris Agreement.
Australia has had a long engagement with the Fund. We have pledged AUD200 million to it and we hold a seat on its Board. I have also served as Co‑Chair of the Board for three out of the last five years.
Using the Fund's public sector resources to support much greater private sector investment was at the very centre of what we wanted to achieve with the Fund. We wanted the GCF to be an institution that accelerated access to new markets by taking risks other would not.
To lead this work, the Board established a Private Sector Facility within the Fund, and equipped it with a range of financial instruments, including equity, debt, guarantees, and grants. I'm pleased to have the Head of the Private Sector Facility, Ayaan Adam, here with me today.
The GCF's focus on working with the private sector is one of the main drivers behind Australia's contribution to it. Our development policy recognises that economic growth is the most sustainable way to reduce poverty and lift living standards. As such, it makes private sector-led development a key priority of our aid program.
Progress over the last 12 months
It has been a busy 12 months for the Fund. The Board approved over USD2 billion for 43 projects and programs, up from USD168 million for eight projects since I spoke here last year.
Critically for Australia, the Fund has also committed USD542 million to the Asia-Pacific, including USD251 million to the Pacific.
The Fund has now committed over USD1 billion through its Private Sector Facility. That portfolio alone is expected to help unlock USD41 billion in on-ground investment.
Private Sector Facility investments
The portfolio includes a number of programs that demonstrate innovative approaches to mobilise private sector investment. These include:
- guarantees to underpin first of their kind energy efficiency green bonds in Latin America
- equity to support climate smart agriculture in Madagascar, and
- concessional loans and technical assistance grants to support renewable energy reverse auctions in Egypt and Argentina.
I'd like to highlight one specific programme in particular: the European Investment Bank's Global Energy Efficiency and Renewable Energy Fund NeXt, or 'GEEREF' [Jee-ref] NeXt.
As many of you will know, equity plays a critical role in the development of infrastructure assets. It has risk-bearing and long-term capital features that are essential for bringing projects from early stage development to operation.
With this in mind, GEEREF NeXt seeks to establish a USD750 million fund-of-funds to invest first-in cornerstone equity into around 20 sub-funds. These sub-funds are expected to make around 200 renewable energy investments totalling USD30 billion in renewable energy and energy efficiency in emerging markets.
GEEREF NeXt aims to attract USD500 million from institutional investors and features a two-tier capital structure, with the GCF investing USD250 million in subordinated equity to improve the risk return profile for institutional investors.
Under this structure, the GCF will essentially forgo its interest, allowing private sector investors to receive significantly higher returns. The capital of private sector investors will also be repaid before the GCF, offering a first loss-type protection and enhancing the IRR of private sector investors.
Looking forward, the Fund continues to seek innovative, high impact, paradigm-shifting proposals. From the Australian Government's perspective, we want to see a strong GCF pipeline in the Asia-Pacific – where there is significant opportunity, but few GCF private sector investments to date.
The Fund works through a wide range of partner institutions, known as 'Accredited Entities', that can submit funding proposals. Forty-eight entities have been accredited to date, including multilateral development banks, UN agencies, commercial banks, NGOs, and national and regional institutions in developing countries.
Several of these are active in our region, including the Asian Development Bank, World Bank, and the UN Development Program.
Underlying the Fund's ongoing commitment to working with the private sector, the GCF recently issued a request for proposals that leverage private sector investment at scale. USD500 million has been allocated to this initiative and applications can be received by both existing accredited entities and other entities that wish to seek accreditation.
The request will be open until 30 August and can be accessed from the GCF website. If you have a project or program idea that will leverage private sector investment at scale, then I strongly encourage you to consider responding to the request.
Colleagues, the GCF is still a relatively young institution, and we continue to learn as we go. But we are proud of what we've achieved to date, and look forward to continuing to work with the private sector to open new markets and help fund at scale new climate investments.