How can green banks collaborate internationally to scale up private financing to meet the challenge of climate change? A new international organization, the Green Bank Network, hopes to lead the way.
During the Paris climate conference, six green banks and two nonprofit organizations jointly announced the opening of the network on Dec. 7. The network will accelerate clean energy installations and mobilize private investments worldwide.
According to Jeffrey Schub, executive director of Coalition for Green Capital (CGC), three main objectives of the network are to share information and know-how among green banks, to help create more green banks, and to leverage more private capital. “The goal of the network is to get more capital and investments into clean energy.”
The six participating green banks are Connecticut Green Bank, Japan’s Green Fund, Malaysian Green Technology Corporation, UK Green Investment Bank, NY Green Bank, and Australia’s Clean Energy Finance Corporation.
Currently, Malaysia, Australia, Japan, UK, South Africa, Japan and Switzerland have established national green banks or similar entities. In the United States, Connecticut, Hawaii, New Jersey, and New York have built state green banks.
How was the network created?
Discussions in the United States and Europe coalesced during the past year to build the new network’s foundation of collaboration.
Schub said CGC first thought of this idea during its Green Bank Academy in February 2014. Gathering policy makers from 12 states, CGC held an in-depth discussion on the establishment and the operation of green banks.
“One of the key takeaways of this meeting was that there needed to be centralized platform to gather more information and to share information more efficiently among green banks,” Schub said.
Separately, Organisation for Economic Co-Operation and Development (OECD) has organized multiple yearly conferences on green banks in Paris. These events are each called the Green Investment Financing Forum. The latest meeting was in May 2015.
The OECD discussion this year also called for the creation of a global green bank “club” which Schub said will “be a central place to share information hopefully help generate more investments for and with the green banks.”
Starting in the spring of 2015, the UK Green Investment Bank conducted a survey asking a group of green banks around the world to gather more detailed information about the international green bank organizations and to identify an online platform in the hub to share information.
As these green banking stakeholders compared notes, conversations about an international network took place and the concept took root.
What activities will the network begin first?
Leveraging existing data, CGC and NRDC plan to design a functioning business model for the network during 2016.
“Over the last few years, CGC has gathered a lot of information about green banks around the world,” Schub said. “Over the next year, CGC and NRDC will have long list of tasks, including defining the relationships of the existing green banks to the network; coherently organizing and presenting green bank information on the online platform; and building out the network to build engagement from development finance institutions, private investors, and public policymakers – in addition to the green banks themselves.”
Situations are different among different countries, so loan products may vary based on location. However, there is still a great deal of know-how green banks can share – from the guidance principles and underwriting criteria to organizational structure and contract framing.
How do green banks catalyze private investment?
Green banks are usually public or quasi-public financial institutions that provide support to green projects in a specific nation or state by leveraging limited public funds to mobilize private investment.
Typically established by governments, green banks develop innovative financial instruments to address the barriers to clean-energy financing. These barriers include lack of performance data and risk management tools.
To solve these problems, green banks provide both preferable loans and risk mitigation resources – such as loan loss reserves or loan guarantees as credit enhancements – to attract private investors.
The green bank model is quite new. The first state green bank, Connecticut Green Bank, was established in 2011. The first national one, UK Green Investment Bank, was established in 2012.
Green banks leverage private capital powerfully. Leverage ratios for green banks show the ratio of the level of public investment to the resulting level of private investment. The leverage ratio for UK Green Investment Bank was 1:3 in 2014. The ratio for the Connecticut Green Bank has reached 1:10.
Note: Jeffrey Schub is a member of the Clean Energy Finance Forum’s advisory board.