The Climate Investment Funds: Policy Brief

Executive Summary

The climate finance landscape has evolved significantly since the establishment of the Climate Investment Funds (CIF) in 2008. This brief provides a synopsis of the Climate Investment Funds (CIF), evaluates their structure, financing, and goals considering the current challenges within the global climate and environment finance. The CIF, the largest multilateral climate finance mechanism is providing developing and middle-income countries with urgently needed resources to cope with the challenges of climate change and reduce their greenhouse gas emissions. CIF consists of programs focusing on clean technologies, access to renewable energy, climate resilience, and sustainable forestry. Therefore, the success of the CIF depends on how the funds tackle programmatic issues, enhance national climate investment plans, and respond to stakeholders’ interests and recent developments in the global landscape. Nonetheless, investor appetite, perception of the private sector involvement in development projects, and effective coordination with other climate funds remains a challenge.

Background

The CIF was established in 2008 to pilot the delivery of climate financing and has been a major provider of funds for climate investments across many regions over the past decade.[1] The CIF is the only multilateral climate fund that works entirely with six multilateral financial institutions (MFIs) as implementing institutions (AfDB[2], ADB[3], EBRD[4], IADB[5], IFC[6] and the World Bank[7]) and with the private sector. Since its inception, fourteen donor countries have supported the CIF with over $8 billion to realize its objectives.

The World Bank serves as the CIF’s trustee. Funds are distributed as grants, highly concessional loans, and risk mitigation instruments to recipient countries through MFIs.[8] The CIF benefits from the MFIs’ ability to leverage financing, mobilize other stakeholders, and standardize technical assistance in the area of policy. Accordingly, The CIF facilitates cooperation among MFIs, which benefits recipient countries, climate-friendly market growth, and the MFIs themselves.[9]

The CIF comprises of two trust funds: The Clean Technology Fund (CTF) and the Strategic Climate Fund (SCF), each with a specific scope, purpose, and governance structure. The SCF, a set of three distinct funds, is composed of the Pilot Program for Climate Resilience (PPCR), the Scaling Up Renewable Energy Program in Low Income Countries (SREP) and the Forest Investment Program (FIP).[10]

Both the CTF and the SCF are implemented through a partnership of the MFIs and governed by representatives from the donor and recipient countries. The responsibility of governance is to approve investment plans, programming, and allocation of resources; and to offer guidance, performance appraisal, and reporting. The organizational structure is evenly balanced between donor and developing countries.[11]

1.    Clean Technology Fund (CTF)

The organizational structure of the CTF is equally balanced between donor and developing countries. The Clean Technology Fund (CTF) provides financing for investments in innovative technologies and clean energy projects. The fund provides loans, grants, guarantees, equity and local currency financing at reduced market rates on a scale that is big enough to matter. Technical knowhow plus innovation reduces risk and risk reduction attracts investment. Furthermore, Every CTF dollar invested implies one-third ton of CO2 reduced or avoided and is making cleaner energy a more viable option around the world every day.[12] A CTF investment of $125 million helped to make one of Africa's largest wind farms a reality, creating enough energy to power eighty thousand homes in Morocco.[13] A CTF investment of 435 million helped to build the world's largest concentrated solar power plant in Morocco. On completion, it was estimated that it will supply power to 1.1 million Moroccan households.[14]

2.    Pilot Program for Climate Resilience (PPCR)

The PPCR became operational in January 2009. The $1.2 billion program provides a financing window to climate change adaptation and resilience building.[15] Using a two-stage, programmatic approach: a technical assistance stage - where the PPCR assists national governments in incorporating climate resilience into development planning across sectors and stakeholder groups; and an implementation stage - where it provides additional funding, in the form of grants to execute the plan and pilot innovative public and private sector solutions to demanding climate-related risks.[16] Since inception, 96% of PPCR’s funding ($962 million) has been approved for sixty projects in twenty eight countries for climate resilience and adaption programs across key areas – agriculture, infrastructure, water resources, coast management and urban development.[17]

3.    Scaling Up Renewable Energy Program in Low Income Countries (SREP)

SREP became operational in December 2009.[18] SREP aims to scale up the deployment of renewable energy solutions and expand renewable markets in the world’s least developed countries.[19] The SREP pilots and demonstrates the economic, social, and environmental viability of development pathways that do not intensify global warming. Program funding supports technologies such as solar, wind, bio energy, geothermal, and small hydro technologies. It promotes economic growth by working with governments to develop renewable energy markets, attract the private sector and explore productive energy use.[20] The fund has a strong preference for projects with strong poverty alleviation benefits.[21] With a current total pledge of $750 million, the SREP has committed a total of $410 million to thirty three projects.[22] SREP is one of the biggest global financiers of mini grids with a commitment of $200 million in fourteen countries.[23]

4.    The Forest Investment Program (FIP)

The Forest Investment Program (FIP), which became operational in 2010 supports developing country efforts to reduce deforestation and forest degradation and promote sustainable forest management that leads to emissions reductions and enhancement of forest carbon stocks (REDD+). The FIP supports initiatives for the reduction of greenhouse gas emissions causing deforestation, promotes sustainable forest use, institutional capacity-building programs and non-forest investments for the alleviation of pressure on the forestry sector.[24] The fund prioritizes programs that places indigenous peoples' rights and climate change resilience into their agenda[25] through a dedicated grant mechanism with a total pledge of $80 million.[26] Some key issues identified with the FIP include the sharing of responsibilities among implementing institutions, challenges in standardizing safeguards, ensuring accountability and consistency.[27]

A way forward for climate action

CIF activities and operations will continue to serve as workshops for related funds, new financing arrangements and mechanisms for developing sustainable solutions at global, regional and national levels. Moreover, the integration of CIF’s program funding into country-led investment plans is consistent with the Paris Declaration.[28] In addition, the robust governance structure with improved stakeholder engagement of the CIF, increases transparency and accountability among stakeholders. On the part of the MFIs, capacity to mobilize large co-financing arrangements, and possession of institutional expertise in climate issues will remain critical.

While these benefits exist, co-ordination between the CIF and the other new climate finance vehicles (e.g. the Global Environment Facility, Green Climate Fund, bilateral funds), intersections, competing objectives, and lack of collaboration may affect financing activities. While addressing climate change with market-based solutions, some have expressed concerns about the inadequacy and inconsistency for meeting these needs, given that the private sector may be motivated by undue commercial interests at the expense of social and environmental protection.[29] Limited access to finance, due to extreme risk inherent in developing countries, continues to be a barrier for attracting new capital from investors. Given the critical role of the CIF, it should continue to pursue opportunities to meet existing needs of beneficiaries and sustain momentum in climate action. It should also continue to engage with private actors, seeking investments in forestry and adaptation.

REFERENCES

[1] Climate Investment Funds (2020a) History of the CIF. Available at https://www.climateinvestmentfunds.org/timeline-cif

[2] African Development Bank (2020) “Climate Investment Funds” Available at https://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/climate-investment-funds-cif

[3] Asian Development Bank (2020) “Climate Investment Funds” Available at https://www.adb.org/sites/default/files/publication/41762/adb-climate-investment-funds.pdf

[4] European Bank for Reconstruction and Development (2020) “Climate Investment Funds” Available at

https://www.ebrd.com/downloads/research/factsheets/7830_CIF1.pdf

[5] Inter-American Development Bank (2020) “Climate Investment Funds” Available at https://publications.iadb.org/publications/english/document/The-Inter-American-Development-Bank-and-the-Climate-Investment-Funds.pdf

[6]International Finance Corporation (2020) “Mobilizing Climate Finance” Available at https://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/climate+business/priorities/mobilizing_climate_finance

[7] The World Bank (2020) “CIF at 10” Available at https://www.worldbank.org/en/news/feature/2019/02/05/cif-at-10-a-milestone-for-climate-finance

[8] Climate Investment Funds (2020b) Finances. Available at https://www.climateinvestmentfunds.org/finances

[9] ibid

[10] Lattanzio, Richard (2013) “International Climate Change Financing: The Climate Investment Funds (CIFs),” Page 3, Available at https://fas.org/sgp/crs/misc/R41302.pdf

[11] Climate Investment Funds (2020c) Governance. Available at https://www.climateinvestmentfunds.org/governance

[12] Climate Investment Funds (2020d) 2019 Annual Report, Page 12. Available at https://www.climateinvestmentfunds.org/cif_enc/sites/cif_enc/files/CIF_Annual_Report.pdf

[13] Climate Investment Funds (2012) “Clean Technology Fund – Morocco” Available at https://www.climateinvestmentfunds.org/sites/cif_enc/files/meeting-documents/ctf_morocco_0.pdf

[14] Nielsen, Arthur (2016) “Morocco to switch on first phase of world’s largest solar plant” The Guardian, 4 February 2016. Available at https://www.theguardian.com/environment/2016/feb/04/morocco-to-switch-on-first-phase-of-worlds-largest-solar-plant?CMP=twt_gu

[15] Climate Investment Funds (2020e) “Pilot Program for Climate Resilience” Factsheet, Page 2. Available at https://www.climateinvestmentfunds.org/sites/cif_enc/files/knowledge-documents/ppcr_factsheet.pdf

[16] Lattanzio, Richard (2013, 10)

[17] Climate Investment Funds (2020e, 4)

[18] Lattanzio, Richard (2013, 11)

[19] African Development Bank (2020) “Scaling Renewable Energy Program for Low-Income Countries” Available at https://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/climate-investment-funds-cif/strategic-climate-fund/scaling-up-renewable-energy-program-in-low-income-countries-srep

[20] The World Bank (2014) “Scaling Renewable Energy Program” Available at https://www.worldbank.org/en/country/armenia/brief/srep

[21] Climate Funds Update (2020) Scaling the Renewable Energy Program for Low-Income Countries. Available at https://climatefundsupdate.org/the-funds/scaling-up-renewable-energy-program-for-low-income-countries/

[22] Climate Investment Funds (2020f) “Scaling Renewable Energy Program for Low-Income Countries” Factsheet, Page 4. Available at https://www.climateinvestmentfunds.org/sites/cif_enc/files/knowledge-documents/srep_factsheet.pdf

[23] ibid

[24] Climate Investment Funds (2020g) “The Forest Investment Program” Fact Sheet, Page 2. Available at https://www.climateinvestmentfunds.org/sites/cif_enc/files/knowledge-documents/fip_factsheet.pdf

[25] UNEP-Regatta (2020) “Forest Investment Program (Strategic Climate Fund)” Available at https://www.cambioclimatico-regatta.org/index.php/en/financing-opportunities/item/programa-de-inversion-forestal-fip-2

[26] Climate Investment Funds (2020g, 4)

[27] Forest Peoples Programme (2020) “Forest Investment Programme (FIP)” Available at https://www.forestpeoples.org/en/work-themes/global-finance-trade/forest-investment-programme-fip

[28] OECD (n.d.) “The Paris Declaration on Aid Effectiveness and the Accra Agenda for Action” Available at https://www.oecd.org/dataoecd/11/41/34428351.pdf

[29] Bank Information Center, et al (2006) “How the World Bank’s Energy Framework Sells the Climate and Poor People,” 2006, Available at https://www.bicusa.org/en/Article.2954.aspx