Climate Finance Facility

Climate Finance Facility

Project Overall Goal

Specialized lending facility designed to increase private investment in climate-related infrastructure projects in the Southern African Development Community (SADC) region. Concessional funding from DBSA to crowd in private co-investors.

Executive Summary

The CFF is the first developing country green bank. Initially developed in the United States, United Kingdom, and Australia, green banks aim to mobilize greater investments in climate-related infrastructure through the use of blended instruments. They are a crucial model for building climate finance capacity at the national and subnational level that can work with local capital markets, engage local commercial banks, and connect with local market intelligence to channel capital into country-led decarbonization.
The CFF, funded and housed by the DBSA and co-funded by the GCF, co-invests in climate projects alongside local commercial banks. It focuses on projects that are potentially viable but cannot attract market-rate capital at scale without credit enhancement. The CFF provides two credit enhancement instruments, which were developed based market outreach that identified constraints to financing smaller scale distributed clean energy and clean water projects. They are:

  • Loan tenor: due to Basel III regulatory constraints, local commercial banks cannot provide loan tenors over seven to eight years. The CFF does not face similar constraints and so can offer tenor extension for up to 15 years.
  • Perceived high investment risk of mitigation and adaptation projects: the CFF offers subordinated debt to crowd-in private investors.
    The CFF has five investment criteria that transactions must contribute to, including low-carbon infrastructure and climate-related goals, market transformation, technical and economic feasibility but inability to secure commercial financing, ability to demonstrate leverage and ability to crowd in commercial investment, and focus on addressing climate adaptation related goals, particularly related to water. The initial pipeline of the CFF is focused on South Africa, but it plans to expand to the other Rand-based economies (Namibia, Lesotho, Eswatini). As part of its GCF funding requirements, the CFF has impact goals including GHG reduction and ESS standards that include benefit to local communities with a focus on women and vulnerable groups.

Project Details

Tags:  Africa, Low Middle Income Countries, Mitigation and Adaptation, blended
Source of Capital:  National Development Banks, Bilateral, Multilateral & Development Finance Institutions
Project URL:  Download PDF

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