Published on November 23, 2007
GEF Engagement with the Private Sector: GEF Engagement with the Private Sector Overview of the Session : Overview of the Session Why engage with the private sector? GEF strategy for engagement Definition of the private sector in GEF projects Profile of private sector participation Types of stakeholders (multi-national groups, national companies, trade associations) Typical Focal Area interventions Sectoral approach - links to global environmental benefits Financial instruments used Project examples Final Thoughts What are the Benefits of Engaging with Private Sector?: What are the Benefits of Engaging with Private Sector? For GEF: Private investment flows > ODA Transfer state of the art technology Sustainability and Replication often depend on functioning markets For the private sector: GEF funds can reduce risk GEF funds enable access to new markets Raise business’ environmental image GEF leverages partner cofinancing GEF Strategy for Engagement:: GEF Strategy for Engagement: Indirectly through removal of barriers to promote market transactions: Creating market conditions for certain activities (eg. firms now able to sell SHS or ELP) Helping firms enter an untested market (eg. Providing guarantees to FI who make credit available) Directly as eligible project proponents or direct beneficiaries (eg. Incremental cost financing to firms investing in ecotourism businesses) Through procurement allowing private firms to bid on supply of GEF equipment and services Definition of GEF Private Sector Projects: Definition of GEF Private Sector Projects Private sector enterprises with commercial viability as goal mainly involved in project component, sometimes overall project proponents Public sector led project that creates more effective market conditions for attainment of global environment benefits Projects to assist private landowners establish private reserves or protected areas on their land for conservation/sustainable use of forests (presently only in Latin America and the Caribbean) Profile of GEF Private Sector Projects (Findings from M&E Study): Profile of GEF Private Sector Projects (Findings from M&E Study) 10% of GEF projects, 17 % of GEF grants allocated Co-financing ratio of 3.7 but private sector contribution only 0.67 IFC claims 5 – 11 times leverage of GEF funds and average World Bank co-financing ratio is 6:1 In only half of projects does private sector contribute significant resources or assume substantial risk Projects are almost entirely climate change and biodiversity, in 2:1 ratio Typical Focal Area Interventions: Typical Focal Area Interventions Climate Change EE: ESCOs; Efficient Lighting Products RE: Solar PV; Transport: Fuel cell buses (new) Biodiversity Ecotourism and mass tourism Agro-forestry commodities, agriculture, fisheries, non-timber forest products, banking Certification for coffee and cocoa Private lands conservation Payment for environmental services IW: Ship waste; Water conservation; POPs: Alternative Pesticides; PCB substitutes Financial Instruments in GEF Projects: Financial Instruments in GEF Projects Grants: To stimulate markets Promote certification, standard setting and labeling (eg. Logos for ELP, labels for biodiversity friendly products. Consumer or producer awareness campaigns (workshops, surveys, media, etc.) TA to promote new market mechanism such as ESCOs and cover other development costs. To provide a degree of subsidy to some investments. Financial Instruments in GEF Projects: Financial Instruments in GEF Projects Non-Grants Partial credit guarantees: eg. to an FI to provide credit for ESCOs or PV end users Contingent financing: where repayment depends on certain financial and performance targets, eg. Ecotourism. Loans: at concessional or market rates Equity funds: similar to traditional equity/venture capital fund where GEF cofinancing used to leverage private investment in potential profitable project. Project Examples (will vary according to national circumstances): Climate Change : Project Examples (will vary according to national circumstances): Climate Change Kenya, India, Morocco: PVMTI (IFC) To accelerate sustainable commercialization of PV technology. TA provided to develop sustainable and replicable business models with proponents, grants (up to 10%), soft loans, partial guarantee and equity financing provided to finance projects. Project Examples (will vary according to national circumstances): Climate Change : Project Examples (will vary according to national circumstances): Climate Change Kenya: Removal of Barriers to Energy Conservation and EE in SMEs (UNDP) Financed capacity building and awareness of EE among business owners, develop business plans for EE investments, implement demonstration projects. EE investments expected to follow. Efficient Lighting Initiative (IFC) In 7 countries including South Africa to accelerate development of the market for EE lighting technologies. Financed consumer awareness of CFL, educational programs in schools, capacity building in energy industry, pilot projects, M&E, and project development Similar previous projects successfully implemented in Poland, Mexico, Thailand and Jamaica. Project Examples (will vary according to national circumstances): Climate Change: Project Examples (will vary according to national circumstances): Climate Change Uganda Energy for Rural Transformation (World Bank) Part of a larger program of private sector led rural electrification and and ICT sector development GEF to strengthen private sector capacity to develop and undertake RE projects and FI to evaluate financing proposals. Financing to project sponsors through investment subsidies and debt/equity from FI. Grid related power from small RE sources eg. Sugar mills for sale to third parties; Installation of PV systems in homes public health, educational, water insitutions and rural enterprises Project Examples (will vary according to national circumstances): Biodiversity: Project Examples (will vary according to national circumstances): Biodiversity Payments for Environmental Services Costa Rica Ecomarkets (World Bank) Incentives to private landowners to conserve biodiversity through payments for environmental services Payments for forest conservation that achieve: GHG mitigation through carbon storage; hydrological services; biodiversity conservation; scenic beauty. GEF contributed to national Fund from which payments made and for strengthening supporting organizations. Govt contributes dedicated tax revenues to Fund. SME FUNDECOR (IFC): GEF provides loans to Fund for advanced payments to landowners for wood harvested in forests and plantations certified under the Greenseal program. Project Examples (will vary according to national circumstances): Biodiversity: Project Examples (will vary according to national circumstances): Biodiversity SME Program (IFC) Supports ecotourism operations in Honduras, Guatemala, Tanzania and Zimbabwe Provides concessionary loan financing through financial intermediaries who on lend to SMEs. Project Examples (will vary according to national circumstances): Biodiversity: Project Examples (will vary according to national circumstances): Biodiversity Coffee and Cacao certification schemes mainly in Latin America but also in Uganda (Kibale Coffee). Creation of a label such as “organic” “fair trade” “biodiversity friendly” through which producers would obtain a premium price on world markets. Achieve biodiversity goals, eg. maintenance of biodiversity shade, adopt or maintain biodiversity conservation friendly practices. GEF grants financed technical assistance to farmers and creation of the labeling scheme. Final Thoughts : Final Thoughts Role of government? critical Enabling environment for private sector development must be in place: Legal and regulatory framework, pricing and incentives, financial and banking systems Careful, clear and transparent selection of financial partners as well as provision of incentives to achieve GEF objectives. Importance of the private sector itself providing co-financing .