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Climate Finance Facility Case Study

Convergence

The Development Bank of Southern Africa’s (DBSA) Climate Finance Facility (CFF) is a specialized lending facility designed to increase private investment in climate-related infrastructure projects in the Southern African Development Community (SADC) region, which faces significant climate mitigation and adaptation challenges. The CFF is the first time the “green bank” model has been applied to an emerging market. Green banks are public, quasi-public, or non-profit entities established specifically to facilitate private investment into low-carbon, climate-resilient infrastructure. This landmark facility offers significant proof-of-concept value to middle- and low-income countries seeking to scale up the private investment required to meet commitments laid out under the Paris Agreement.

The CFF will deploy capital to fill market gaps and crowd in private investment, targeting projects that are commercially viable but cannot attract market-rate capital from local commercial banks at scale without credit enhancement. The Facility will start by utilizing two main credit enhancement instruments: (i) long-term subordinated debt and (ii) tenor extension. The CFF will prioritize investment opportunities based on target country needs and priorities identified in Nationally Determined Contributions (NDCs) under the Paris Agreement and to meet the United Nations Sustainable Development Goals (SDG) goals. The CFF will primarily target South Africa as well as other Rand-based countries, including Namibia, Lesotho, and Eswatini. The CFF raised an initial $110 million, with DBSA and the Green Climate Fund (GCF) as the two anchor funders.

The structuring and launch of the CFF offers insights for other practitioners developing or investing in green banks, including the importance of specialized partners when replicating existing models in new markets, leveraging local institutional infrastructure, early and continuous engagement with target co-investors, and approaches to ensure additionality of financing activities.

    Date
    28 Jun 19
    Type
    Case Studies
    Region Focus
    Southern Africa
    Sector Focus
    Agriculture, Energy
    Sub-Sector Focus
    Agriculture Finance, Climate Resilient / Sustainable Agriculture, Energy Efficiency / Emissions Reduction, Green Finance, Off-Grid Energy, Renewable Energy, Waste Management Infrastructure, Water Infrastructure