Green banks can take different forms, but all are motivated by a public purpose—accelerating low-carbon, climate-resilient, and sustainable development. They can help countries secure climate finance and deploy capital into new markets and technologies. They can help international financial institutions align their portfolios with the Paris Agreement and the Sustainable Development Goals. And they can help domestic financial institutions understand the value of investing in sustainable projects and transitioning to a green financial system.
As the focal point for a country’s climate finance, a green bank can tap into new sources of domestic capital (e.g., pension funds and sovereign wealth funds) and international capital (e.g., multilateral development banks and climate funds). Analysis in this report shows that existing green banks have been able to use their limited, often public, initial capital to mobilize many multiples of additional private investment.
Rocky Mountain Institute’s State of Green Banks 2020 report showcases trends among both operational and emerging green banks. It includes an analysis of 61 institutions in 36 countries based largely on the data the report authors gathered through surveys and interviews, as well as on additional desk research. The report highlights successes, trends, and lessons learned from existing green banks and presents trends in countries seeking to set up new green banks. These trends include the technologies they will invest in, types of financial instruments they will deploy, capitalization strategies, and obstacles green bank champions face during the establishment process. Download the full report below. Meanwhile, here is an extract from the report, highlighting a case study of two green energy funds from Jordan and Rwanda.
National grant-based environment or green funds have proliferated in the past decade as governments have allocated budgets or sought international grants for climate and environment goals. But the limited supply of public funds is insufficient to achieve these goals. The experiences of Jordan and Rwanda show that there are different ways to address this challenge. In retaining the fund model, Jordan seeks to innovate within its constraints, while Rwanda is creating a new institution to expand the financial instruments available to it.
Jordan Renewable Energy and Energy Efficiency Fund
The Jordan Renewable Energy and Energy Efficiency Fund (JREEEF) is capitalized with government funding and mostly provides grants. Despite this limitation, the fund attempts to use its capitalization in innovative ways, showing the potential for a fund to act as a green-bank-like entity. JREEEF must navigate some of Jordan’s key challenges including high energy prices, insufficient energy production, a limited financial sector, and high percentage of unbanked population. It must do so while adding renewable energy capacity, improving energy efficiency, and increasing access to low-income populations.
To achieve these goals, JREEEF had to be creative. The fund worked intensively with local banks to help them understand the importance of renewable energy and increase their attention to the issue of insufficient clean energy penetration. JREEEF created partnerships with local banks that then became lenders in the fund’s programs, with JREEEF de-risking the loans.
For example, participants in JREEEF programs, such as developers or contractors, can get a loan from a partner bank with a loan guarantee or the interest on the loan subsidized by the fund. For a household solar program, JREEEF set up a system in which households can pay a participating contractor 70 percent of the installation cost—in cash, if they wish—while the fund pays the other 30 percent. This incentive lowers the barrier to low-income participation both by reducing the cost of solar energy and by allowing households without bank accounts to participate.
As it looks to expand its reach, JREEEF is considering additional approaches. For example, banks that use Islamic finance principles often have more public confidence than other private sector institutions. The fund also sees the flexibility of terms within Islamic finance as promising for sustainable development projects.
Rwanda Green Fund
The Rwanda Green Fund (FONERWA) was created to mobilize resources for environment and climate projects to meet Rwanda’s green strategy. Legally, FONERWA is only able to attract grant funding—a constraint that is not compatible with meeting Rwanda’s ambitious goal of mobilizing $11 billion in climate finance as part of its NDC. As a result, the fund, along with international partners, is developing the Rwanda Catalytic Green Investment Bank (RCGIB), a new green bank with a broader mandate to allow Rwanda to attract more kinds of finance.
As FONERWA CEO Teddy Mugabo put it, “We want to move in this direction [of the RCGIB] to be able to attract finance that goes beyond grants, and be able to…sufficiently attract the private sector so that we are able to implement our projects, which will help us achieve our NDC.” Alongside RCGIB, FONERWA can continue to operate as a fund and support nonclimate environmental projects