Collaboration among development institutions can catalyze more green investments in the developing world
By Brian O’Hanlon, Director of Business Development, Political and Sovereign Risk
Last week, I joined OPIC President and CEO, Elizabeth Littlefield and OPIC Chief of Staff John Morton for an unprecedented event in the world of development finance. CEOs and representatives from 15 development finance institutions (DFIs) met in Frankfurt, Germany to discuss how to scale up climate finance in developing countries. The event, which was co-sponsored by OPIC and the German DFI KfW, marked the first time that a group of DFIs met to explore ways to cooperate in addressing the challenge of climate change by accelerating the transition to the green economy.
President Littlefield emphasized that, despite significant achievements to date, it would only be through deeper cooperation that the DFI community could reach its potential in assisting our governments meet the challenge of climate change. The talks concluded with an agreement among these groups to enhance their collective efforts to support green investments in emerging economies.
Why is this significant? Largely, because of the unique role development institutions play in promoting investment in developing countries. Like OPIC, DFIs around the world catalyze private investment in regions where private financing may not be available. They know how to leverage limited finance resources, how to stretch public dollars, and how to mitigate the risk of doing business in some of the world’s most challenging business environments. In my role in OPIC’s insurance department, I’ve seen many promising renewable resources projects move forward with the support of political risk insurance. OPIC was the first public or private institution to provide political risk insurance to a forest carbon offset project, designed to limit deforestation. The agency has also provided political risk insurance to protect investors in projects to rehabilitate municipal water purification systems in Ghana, rebuild a flour mill that was destroyed by the earthquake in Haiti, and build affordable housing with sustainable materials in Liberia.
Individually, development finance institutions such as OPIC are a powerful force for addressing major development challenges around the world. In recent years, OPIC has increasingly focused on renewable resources projects from wind and solar power to sustainable agriculture, which comprise a large and growing share of the agency’s global portfolio.
Collectively, however, the world’s development institutions can do much more. The 15 organizations represented at last week’s meeting in Frankfurt constitute a powerful finance block, having committed more than $18 billion in green finance in 2012 alone. Last week, we engaged in a frank discussion about the role we could play not just in supporting green investments but the need to limit investments in the most highly polluting fossil fuels.
For me, the biggest take away from the conversation is that the oft cited disconnect between addressing energy poverty and supporting green finance is a false choice. While OPIC supports a wide range of projects to bring electricity to many parts of the developing world, Littlefield often stresses that development must focus on people and the planet. OPIC has rapidly grown its portfolio of renewable resources projects and in 2012, committed $1.6 billion in finance and insurance to a range of renewable resources projects from wind, solar and biomass power, to clean water and sustainable agriculture.
Yet these results, however impressive, are only a fraction of what could be achieved if DFIs around the world harnessed our collective resources towards a common goal. Last week’s meeting was one of the first steps towards this exciting, but vital journey.
DFIs and DBs represented in the meeting: AFD – Agence Francaise de Developpement; France; BIO – Belgian Investment Company for Developing Countries, Belgium; BSTDB – Black Sea Trade and Development Bank, CDC Group, UK; DEG Deutsche Investitions- und Entwicklungsgesellschaft, Germany; FINNFUND – Finnish Fund for Industrial Cooperation; FMO – Netherlands Development Finance Company; IFU – The Investment Fund for Developing Countries of Denmark; JICA – Japan International Cooperation Agency; KfW Development Bank, Germany; Norfund – Norwegian Investment Fund for Developing Countries; OeEB – The Development Bank of Austria; OPIC – Overseas Private Investment Corporation, U.S.; SOFID –Sociedade para o Financiamento do Desenvolvimento, Portugal; VEB – Vnesheconombank, Russian Federation (in alphabetical order).