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2 Why is adding immediate cash relief into bond contracts impactful? The implication is that concessional finance must be made available for such situations, yet commonly, vulnerable countries that are not among the poorest countries have no access to concessional finance because these funds are targeted at the poorest countries. Furthermore, money is useful to help households cope immediately after a disaster (or better yet, immediately before, if early warning is available), so disbursement mechanisms need to be automatic. Negotiating new loans can take valuable time [1]. For this reason, adding clauses into bond contracts that provide immediate cash relief in the event of a large natural disaster or pandemic can have major impact.
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3 When can debt-for-climate swaps be useful? A novel way of providing quasi-insurance to vulnerable countries is to facilitate their access to debt-for-climate swaps, especially when grants are not otherwise accessible. IMF research suggests that debt-for-climate swaps make sense when climate adaptation is efficient and when fiscal risks are high but debt is not necessarily unsustainable [1].
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4 What are the policy priorities of debt-for-climate swaps? Inserting liquidity clauses into sovereign bond contracts, triggering the suspension of debt service payments in the event of a natural disaster or pandemic, as piloted by Barbados.

Barbados has included natural disaster and pandemic clauses in its bond contracts. These clauses provide immediate liquidity in the event of a large adverse shock. The immediacy of the cash relief adds significantly to the value of these clauses. While Barbados has not paid a premium for the addition of these clauses, it would be preferable to have a system-wide approach with such clauses made standard for all development bonds, including those issued by development finance institutions like the MDBs [1].

Reviewing criteria for allocation of grants and concessional aid to include vulnerability as well as income level of the recipient.

Small islands in particular may have income levels that are too high for them to access concessional funds under existing rules yet they are among the most vulnerable countries to climate-related disasters and need mechanisms of global solidarity when disasters hit [1].

Availing of debt-for-climate and debt-for-nature swaps to make appropriate investments while limiting debt accumulation [1].
Establishing a global Loss and Damage Facility to pay for climate-related disasters while ensuring that contributions are additive to existing ODA.

One way of doing this is to use the proceeds from a global 2% cess on fossil-fuels as a source of finance for the Facility [1].

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5 How to avoid countries taking on additional debt from the big push strategy To recap: a big push strategy will inevitably require countries to take on additional debt. Despite current fiscal stress, there is a strategy that is consistent with the big push but that requires reform of the international financial architecture.

Technical fixes for each of these strands of strategic debt management are available. The political will to align the practices of multiple financing agencies to this strategy will be a crucial ingredient for success [1].

First, there must be an improvement in the provision of liquidity in the event of economic downturns or natural disasters [1].
Second, new borrowing must be on affordable terms, best intermediated through multilateral and bilateral official financial institutions [1].
Third, provision must be made for global solidarity to share the costs of climate-related disasters when they strike small countries that are especially vulnerable [1].
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7 How is additional finance important to emerging markets & developing countries meeting their investment programmes? Emerging markets and developing countries will not be able to finance the scale of long-term investment programmes necessary to meet their climate and development goals without mobilising significant additional private capital – at least $1 trillion a year.

The majority of this investment is needed in capital-intensive clean energy assets – such as wind, solar PV, batteries, electric vehicles and hydrogen electrolysers – and other low-carbon solutions for energy systems, transport, buildings and agriculture. These ‘new climate economy’ assets have relatively high upfront investment costs and lower operating and fuel expenditure compared with traditional assets over time [1].

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8 How does inflation affect emerging markets ability to attract global finance? Rising inflation and interest rates will make it increasingly difficult for EMDCs to attract global financial flows for investment in the short term [1].
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9 What innovative structures have emerged to support investment in transforming energy systems in EMDCs? Africa50, which drives innovative cooperation between private sector, governments, IFIs and DFIs to execute large projects [1].
The Amundi Planet Emerging Green One is another good example: a $2 billion fund with a $256 million cornerstone commitment from the International Finance Corporation (IFC), aimed at increasing the capacity of banks in emerging market to fund climate-smart investments. Climate Fund Managers (CFM) is another, proving the value of replication to reduce transaction costs and get to scale quickly [1].
CFM launched the ‘Climate Investor One’ for renewable energy in 2017 and ‘Climate Investor Two’ for water and oceans in 2021. Both are blended funds for Africa, South East Asia and Latin America, with aggregate capital commitments of $1.8 billion to these two themes. These structures use a mix of public and private-sector funding, commitments from DFIs and an export credit agency guarantee to mobilise institutional capital [1].
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10 How are the Central Banks helping with regulating sustainable investments? The Central Banks and Supervisors Network for Greening the Financial System (NGFS) has provided helpful analytical and technical support to underpin central banks’ decision-making.
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11 What’s the Network for Greening the Financial System (NGFS) have? It’s a network of 120 central banks and financial supervisors representing the majority of global emissions.
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12 Are people donating money to support developing countries? Yes, in 2018 cross-border private philanthropy from all sources was about $70 billion, $48 billion of which came from the United States.
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13 What steps could the Central Banks take to ensure that risks are managed? These could include lowering capital requirements for sustainable financial products through a Green Supporting Factor (GSF), or a Brown Penalising Factor (BPF) applied to those financial products with high sustainability risks.
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14 Are the developing countries investing in green infrastructures? The South-South cooperation on infrastructure has been growing rapidly, including through the China-led Belt and Road Initiative (BRI). Even though, most of the financing has been for traditional infrastructure there is great scope for expanding and transforming South–South cooperation on climate action.
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15 How are Central Banks moving to guarantee their own net zero commitments? There is a persistent perception of conflict between the need for central banks to act on climate and core mandates of price stability. To overcome this, governments should update central banks’ mandates and remits to bring them in line with their own net zero commitments.
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16 How’s the UK giving an example? In 2021, the Treasury’s remit letter enabled the Bank of England to explore the net zero alignment implications for its operations.
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17 What’s the commitment of the International Development Finance Club members to develop non-OECD countries? The International Development Finance Club members based in non-OECD countries inputted $1.7 billion and $2.2 billion in 2019 and 2020 respectively, a decline from the $4.1 billion committed in 2018.
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18 Have the IFF and MDBs already modelled innovative financing mechanisms? Yes, The IFF provides a highly efficient way to use sovereign commitments to support MDBs. For example, when shareholders pay 15 cents of cash (paid-in capital) to an IFF financing vehicle, alongside a sovereign guarantee, it could produce $4 dollars in loans for financing development in the form of non-concessional loans provided by MDBs to middle-income countries – an overall leverage rate of 27 times.
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19 Who has a principal focus on sustainable infrastructure?      Asian Infrastructure Investment, New Development and the Latin American Development Bank.
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20 Who proposed the new Task Force?      UN HLEG (High-Level Expert Group)
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21 What is the financial crisis regulation introduced in response to?      The 2009-10 financial crisis.
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22 What is required for financial actors?      Aligning investment mandates with resilience goals, outside of climate risk disclosure.
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23 What does the financial sector cannot achieve alone?      Alignment. A supporting policy framework is also needed.
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24 What does the Global Energy Alliance for People and Planet (GEAPP) aim to provide?      More than $10 billion to focus on fossil fuel transitioning, grid-based renewables, and distributed renewables.
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25 What can be a driver for change in the real economy?      The financial sector.
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26 What is the net zero transition?      It means cutting greenhouse gas emissions to as close to zero as possible, with any remaining emissions re-absorbed from the atmosphere, by oceans and forests for instance.
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27 What is the scope of private philanthropy?    To fund projects in developing countries. Up until now they mainly supported the health and education system but, in recent years, it has extended to climate finance too.
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28 What some examples of investment in climate finance?    The $100 million Bezos Fund and the Rockefeller Foundation commitment to mobilise $750 million for low-carbon energy in developing countries are two noteworthy examples.
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29 What does the Global Energy Alliance for People and Planet (GEAPP) aim to do over the next decade? To unlock $100 billion in public and private capital to enhance energy access, tackle climate change and, creating jobs.
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30 What is the Alliance for People and Planet?    It’s an important partnership which brings together philanthropic institutions, development finance institutions and country partners to accelerate investment in green energy transitions and renewable power solutions in developing and emerging economies worldwide.
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31 What is the Paris Agreement’s Article 2.1c? It’s the article that sets the goal of making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.
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33 What is the UNFCCC agenda on the Paris Agreement’s Article 21c? To articulate a vision on sustainability that is consistent, credible and adopted by all countries and institutions.
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32 What is the main obstacle to the delivery of the Paris Agreement's Article 2.1c? The problem is that finance flows remain heavily misaligned and inconsistent.
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33 What are some challenges with mobilising private finance for EMDCs The complexities and transaction costs to moving at the scale and speed needed – especially to crowd in mainstream investment – require targeted action to reduce the cost of capital and tackle real and perceived geographical-, technology- and project-specific risks in EMDCs. To design targeted solutions to these challenges, the risks faced by the private sector must be disaggregated at specific points of the project lifecycle by different types of investors/private sector actors [1].
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34 How would you categorise the private sector risks for mobilising funding for EMDCs Phase 1. Pre-feasibility/feasibility – lack of funding for project preparation and development.Project preparation is a critical part of translating opportunities into realised investments. Limited funding and capacity for project preparation – or difficulty accessing existing project prep facilities – is a major constraint to scaling private investment in EMDCs [1].
Phase 2. Construction – lack of effective risk mitigation.The construction phase of the project lifecycle requires managing traditional risks including permitting, delays, contractor risk, technical issues, and so on. In advanced economies, these can often be insured against or taken on as a commercial risk. However, in EMDCs these risks can be higher – or perceived as being higher – especially when working with new partners. For smaller scale projects, such as smaller scale renewables installations, local developers may not have the balance sheet strength necessary to absorb such risks [1].
Phase 3. Operation – barriers to mobilising large pools of institutional capital.Unlocking pools of large-scale, long-term capital to refinance operational projects can be delicate. It moves financing of the project onto players who generally have less appetite for risk and who are often unfamiliar with these markets. At this stage, it is essential to address three issues: (i) better data; (ii) aggregation; (iii) standardisation and benchmarks [1].
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35 What are the cross-sectional risks for private sector actors in EMDC financing? Weakness of investment climate. This is particularly the case in energy investment and stems from policy uncertainty, which translates into offtake risk and creditworthiness risk of key players (e.g. utilities). Uncertainty around sustainability policy, energy subsidies and carbon pricing can exacerbate such risks.
Exchange rate risk. This arises because infrastructure projects by their nature often have currency mismatch between cost (in hard currency) and revenues (in local currency); this risk is often significant because of high sovereign risk premia in EMDCs.
Asymmetric information on EMDCs. Lack of familiarity of global private sector financiers and investors with EMDCs’ markets leads to an inability to estimate risk, or at best an over-estimation of risk. This translates into high perceived risk across the project cycle.
Pipeline. Lack of a significant high-quality pipeline of investable projects in a country makes it difficult for a global private sector player to make a comprehens
Scale. The weakness of the pipeline often implies that the scale of investable projects is not sufficient for a private sector player to take an initial commitment as this comes with significant upfront costs, which may not be recouped if the pipeline does not materialise.
Lack of data. Investors need data to assess risk. If it cannot be measured, it cannot be managed. Lack of standardised taxonomies and accessible data often prevents investors from being able to progress.
Lack of risk mitigation instruments. When facing unmanageable risks, investors need to be able to access fit-for-purpose and simple risk mitigation instruments. Fragmentation and lack of suitable instruments will prevent investors from investing. This generates risks for the global financial system and for recipient countries
Mobilisation. MDB incentive structures create a risk of ‘crowding out’ private capital instead of driving co-investment and mobilisation of additional private capital. This can lead to hoarding assets as opposed to using MDB capital to de-risk projects and unlock private investment.
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3 What pipeline architecture does LSE suggest for developing financing solutions for EMDCs? Private sector proactivity in committing to investing and gaining experience in EMDCs.Commit to increase, over time, the amount of investment in EMDCs and gradually absorb more of the risk through private sector balance sheets. Actively increase on-the-ground presence in countries to access, standardise and share data and information to reduce perceived risk.
Active participation to strengthen investment climate.Engage with MDBs and governments on country platforms to help identify priorities in investment climate and policy reform.
Pipeline development.Scale up the Global Infrastructure Facility (GIF) to expand the pipeline of bankable sustainable infrastructure projects, utilising its links with both the MDBs and the private sector to develop stronger partnerships on project development. This scaleup should focus on streamlining engagement, bringing the private sector in earlier in the preparation of projects and design of financing solutions.
Data standardisation and sharing.Create shared, standardised datasets to minimise the cost of accessing information for risk assessment across the project cycle in key sectors, especially energy. Open and share datasets that can help with risk assessment, such as the GEMs datasets – where members (mostly IFIs for the moment) contribute anonymised data on credit events and in return gain access to aggregate GEMs statistics on observed default rates.
Help design risk mitigation instruments and achieve scale.-Exchange rate risk: Donor-funded mechanisms to provide hedging instruments in geographical locations where they do not exist is a priority, as the private sector will not be able to invest otherwise.

-Policy risk: Depending on the type of risk – which may be generic credit risk or offtake risk – liquidity mechanisms supported by a development bank, similarly to what has been suggested by investor and asset manager Meridiam, can be potentially effective. -Intermediation costs: Aggregation to generate an opportunity sufficiently large for institutional investors is an essential element to generate financial flows at scale. Reducing intermediation costs and some provision of first loss guarantees for risks that have not been managed upstream, and therefore cascade into aggregate instruments, will in most instances still be essential to reduce the cost of capital, particularly in the current environment

Stronger partnerships on MDB optimisation.MDBs incentives should be aimed at mobilising external finance effectively, as opposed to lending volumes.
Improve blended finance structures and cooperation.Blended finance can play a key role in unlocking and financing climate investments given the risks and the long-term nature of returns.
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