Germany is prepared to put more money into “green finance” projects in Asia as it helped launch a new ADB initiative, one of the country’s senior politicians told Emerging Markets on Wednesday.
Speaking after a seminar in which the scale of the development financing challenge in Asia came into clearer focus, Thomas Silberhorn, parliamentary state secretary at the Federal Ministry for Economic Cooperation and Development, said: “We are pleased to be able to launch this Asia Climate Finance Facility to really boost investment in green financing in Asia.”
He pointed out that China has set up a study group on climate action within the G-20 group, of which the former currently holds the presidency.
“We follow very carefully these efforts because Germany will be the next president of the G-20 and we are keen on getting the results of the study group. We are prepared to do more, to invest more in Asian countries, according to the findings from the study group.”
The Asia Climate Finance Facility (ACliFF) will begin operations in 2017 and will leverage public and private sector investment in climate change mitigation and adaptation in support of the goals of the COP21 Paris Agreement.
It will assist developing countries in Asia and the Pacific with new and innovative co-financing measures, including guarantees and climate risk insurance, to support their commitments to reduce greenhouse gas emissions, as well as for investment in resilience.
INVESTMENT OPPORTUNITY
ACliFF will start with at least $100m in capital, of which €30m ($34m) will come from Germany. “We are hoping that this will mobilise up to $500m in total investments,” said Hans Joachim Fuchtler, Germany’s governor at the ADB.
He added that there was a “lot of cheap money is available because of the low interest rates [and] this money is looking for investment options”.
Fund managers told Emerging Markets there was a strong appetite among investors for green bonds and similar instruments.
Jan-Markus May, investment director, fixed income at Fidelity International, said that green investment in China represented “a huge opportunity with enormous upside growth. I’m not sure investors realise the potential of it quite yet.”
Peter Munroe, head of investor relations in the debt capital markets division of the European Investment Bank said there was a significant and growing appetite for green bonds.
Germany’s KfW Development Bank is having considerable success in mobilising green finance, board member Norbert Kloppeburg told Emerging Markets.
“For example, in KfW we have raised green bonds for approximately $4bn so far and we have invested in green projects. We have found that we can repay our bonds, so that means it works.”
Kloppenburg suggested that national development banks such as KfW could “catalyse” private sector funds into green and other forms of infrastructure financing by offering guarantees on private sector lending and also helping poorer countries cover the difference between the cost of developing power or other services and what consumers can pay for such services.
It will be a “long time” before borrowers can go directly to local capital markets to raise finance for infrastructure and other forms of financing, he said.
Development banks could act as intermediaries on behalf of borrowers who needs funds and lenders who are nervous of unprotected exposure to developing countries, he suggested.