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Addressing Climate Risk: Financial Institutions in Emerging Markets

Addressing Climate Risk: Financial Institutions in Emerging Markets. Commissioned by DEG Co-launched with Ceres. Doug Cogan. Climate Risk Management. Sept. 16, 2009. Context.

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Addressing Climate Risk: Financial Institutions in Emerging Markets

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  1. Addressing Climate Risk: Financial Institutions in Emerging Markets Commissioned by DEG Co-launched with Ceres Doug Cogan Climate Risk Management Sept. 16, 2009

  2. Context • With expectations high for the global climate summit in Copenhagen at year-end, developing countries are in the spotlight. International negotiations will not be successful without buy-in from high emitters like China and India. Will create new terms for incentives and financial support offered to developing countries. • Developing world faces greatest risks from climate change – most vulnerable to physical risks from increased drought and flooding, but least resources to adapt. But also great opportunity to participate in carbon trading, leapfrog carbon-intensive infrastructure with clean tech. Financial institutions will play big role. • Report commissioned by DEG, a German Development bank. Surveyed 154 of their clients in emerging markets, 64 responded. Eight chosen as “best practices,” – follow up interviews conducted. • Report will be released Sept. 16th at DEG’s conference, and on Sept 17th by RMG and Ceres to press. This is a public report which will be available on RMG website and circulated to press. Example of RMG thought leadership on climate change for interested clients/prospects. Emily McAteer Emily.mcateer@riskmetrics.com

  3. Key Findings • A number of emerging market FIs are already taking steps to integrate climate risk considerations into the due diligence of project financing and investments. Commercial banks and investment funds are also growing increasingly interested in climate-related opportunities. • But there is much more to be done. The next step will be for FIs in developing countries to not only pursue investment growth areas, such as renewable energy and energy efficiency, but also to systematically account for climate change risk in all lending and investment decisions. • Key Highlights: • Nearly two-thirds of respondents acknowledge that climate change will impact their business • Majority have sustainability policies (67%) – 1/3 of these include climate change • No institutions are measuring emissions from financing and lending, although 1/3 of respondents consider climate in lending decisions.

  4. Best Practice Axxess Capital (South/Eastern Europe) Established Romania Industrial Energy Efficiency Company. Financed project to use wood waste as fuel source for central heating furnace. Center-invest Bank (Russia) Uses energy efficiency calculator to assess potential energy and cost savings of a project upfront. DLJ South American Partners (Argentina) Financed project to convert sawmill waste to fuel for biomass plant. Frontier Markets Fund Managers (Africa) Provided USD 15 million in financing for a geothermal power plant in Kenya. Global Environment Fund (Global) Manages over UDS $1 billion in PE investments in clean tech, energy efficiency, and timberland in emerging markets. Grupo Finterra S.A. de C.V. (Mexico) Board of Directors oversees environmental and social rating system. Rabo Equity Advisors (India) Invests in CDM projects and is growing this area of business. YES Bank (India) Dedicate Sustainable Investment Banking Group, provides advisory services for alternative energy.

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