Innovating banking and finance for a sustainable future
Peer Stein - July 2016
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CONTENT
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Context: changing fundamentals
Changing finance
Innovation: the case for sustainable finance
The challenge
Outlook
The Challenge
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The Challenge – From Billions to Trillions
Sustainable Development Goals and Climate Change require trillions of dollars of investments- US$93 trillion in climate proof infrastructure investments until 2030- Up to US$500 billion per year for climate related investments in non-
OECD countries
Can the Financial Sector contribute to the solution?- Global banking assets: US$150 trillion- Global bond market: US$100 trillion
Context: Changing Fundamentals
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Image source: https://internationalrelationsdotnet.files.wordpress.com/2015/06/oilpricechart20002015.jpg
Renewables investments grow steadily
…even as oil prices fluctuate…
…and will continue growing.
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Rapid decline in cost of renewable energy
Newly installed capacity for solar doubling every 4 years, while demand structure is shifting towards residential and commercial PV
Changing Finance
Financial development matters
US independent oil and gas producers solvency ratios – stranded?
A number of global initiatives that impact the financial sector
• Equator Principles• UN PRI• G20 Global Partnership for Financial Inclusion & UNSGSA• COP21 follow-up• FSB Task Force on Climate Related Financial Disclosures• G20 Green Finance Study Group• ICMA Green Bond Principles (plus Social Bond Principles)• Sustainable Banking Network
The Sustainable Banking Network:A growing network of banking regulators/associations from 24 countries hosted by IFC
Innovation: The business case for sustainable finance
Renewable Generation Distributed Generation Industrial Efficiency
Urban Infrastructure Green BuildingsAgribusiness
The business case for growth and impact
IEA member countries avoided USD 5.7 trillion of energy expenditure since 1990 by energy efficiency investment alone. Benefits of improving energy efficiency extend well beyond financial savings, relating also to improved energy security, higher productivity for businesses and reduced greenhouse gas emissions;
OECD energy consumption is now as low as it was in 2000, while GDP has expanded by USD 8.5 trillion, an increase of 26%. This suggests that these countries have successfully decoupled economic growth from energy consumption growth, with energy efficiency being the main contributing factor;
Approximately 40% of the emissions reductions required by 2050 to limit global temperature increase to less than 2 degrees centigrade would potentially come from energy efficiency;
In 2012 energy efficiency investments were estimate at USD 310-360 billion globally. Investments in energy efficiency are set to keep growing, despite lower oil and gas prices, driven by more assertive and more comprehensive policies.
1Source: IEA Energy efficiency Market Report 2015
The growing market for energy efficiency financing
Vinte, Mexico
City Express, Mexico Costa Rica, Colombia
Canopus, Brazil
VBHC, India
FPT, Vietnam
Ciputra, Indonesia
CareMed, Lebanon
SAMHI, India
Bruck, China
IHS, South Africa Imperial, Philippines
Johnson Controls, China
Over 5,000 residential units have been certified to date. EDGE certifiers are now the largest green building network in the
world
FY16 to 19 Projections #
Homes
USD MM Investme
nt
Vietnam 25,308 2,821
Philippines 4,502 360
Indonesia 74,650 5,972
Colombia 3,217 257
Peru 3,058 245
Costa Rica 2,765 274
Panama 311 25
Brazil 10,960 877
South Africa 15,500 1,067
Ghana 450 36
India 126,362 18,705 Total 267,083 30,639
IFC is helping create a green building pipeline using EDGE
In 2007, Infonavit piloted green mortgages –i.e. providing an extra-credit (~$ 1250) to home owners for green-technologies . Over time, the product became extremely popular and mainstream for low income housing finance
By 2011, 75% of all originated home mortgages were green. In 2014, Infonavitdecided to issue only green mortgages. Their market share has also increased significantly (>12%) during the period.
Typical eco-technologies incorporated:• Energy efficient lamps• Solar water heaters• Low-flow water fittings• Efficient air-conditioning• Reflective paint; Insulation • Waste management facilities
Infonavit has granted over 1,000,000 Green Mortgage home loans, benefiting over three million people
MEXICO: Infonavit’s green mortgages
The market for green housing can take off quickly with the right incentives and focus
2015 Turkey
Green bonds for green construction finance
India
201?
$75m Subscription to Green Bonds
US$67m Debt
Green mortgages and green commercial and
residential buildings
2016
BANKSBUILDERS
Higher Resale Value
Lower Default RateQuicker Sale Lower Utility Bills
Higher Sale Price
BUYERS
Though no standard definition, a Green Bond is …
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The growing market for green bonds
Source: Moody's Investor Service, Bloomberg data, IFC compilation
$0.8 $0.4 $0.9 $4.0
$1.2 $3.1
$11.0
$36.6
$42.4
$13.7
$2.0 $5.2 $0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (Q1)
Gree
n Bo
nd Is
sued
(in
US$
bill
ion)
Total Green Bond Issuance (CMT) EM Financial Institutions
Estimated to reach $55 Bln
- Reported by CBI, the labelled green bond market had US$ 42.4 billion of new issuance in 2015
- Increasing involvement of EM issuers and their strong political commitment to grow local green bond markets
Outlook
What it takes to green the financial sector
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Banks – the 150 trillion dollar gorilla