Source · Select Committees · Foreign Affairs Committee
Recommendation 15
15
We welcome the part the UK Government has played in involving the private sector in...
Recommendation
We welcome the part the UK Government has played in involving the private sector in climate finance. We also recognise the breadth of support it offers to those wishing to make sustainable investments in Nigeria. However, the picture of multiple focal points and inconsistent policy decisions suggest that there is room for improvement. We heard how changes in Government aid spending had translated to cuts in green infrastructure development investment, putting the UK at a disadvantage. These create yet more uncertainty for investors. To stay competitive and to make rapid progress toward the goals of the Paris agreement, there is scope for the UK Government to streamline its approach: a) We recommend a review of the support of the various DFIs by the Government as well as their methodologies and mandates. Specifically: i) How DFIs can enter the project development process at an earlier stage to provide initial project development funding. ii) How investment risk thresholds for DFIs can be lowered and how to ensure target percentage rates of return can be used to encourage the support of riskier projects. iii) How the time taken to process project proposals can be reduced without compromising due diligence. iv) How the culture of DFIs can be more accessible to the private sector community whilst ensuring positive development outcomes–the desire to maintain a strong link between project outcomes and development outcomes must not present a barrier to the delivery of sustainable projects. b) We recommend that the mandates of enabling UK Government programmes are sufficiently flexible to adjust to the results of feasibility studies and changes in the project design–rather than requiring developers to shift to a different programme; and that investment initiatives which have flexible project funding pots be prioritised. (Paragraph 42) Lagos calling: Nigeria and the Integrated Review 41
Government Response
Acknowledged
HM Government
Acknowledged
We agree on the need to continue to assess how best to support investment. This issue has been heavily studied by the FCDO’s International Financial Institutions Department and Private Sector Department, who work closely with DFIs such as the Private Infrastructure Development Group. There are several reports and studies in this area, including one from Convergence, the report of DFI Working Group on Blended Concessional Finance for Private Sector Projects and there are initiatives such as the World Federation of Development Finance Institutions (WFDFI), the International Development Finance Club (IDFC), and The Finance in Common Summit (FICS) which is a partnership of public development banks. It is a complex area. As each set of investors has different criteria, there is inevitably some fragmentation. There are good examples of collaboration with DFIs and the FCDO, incorporating de-risking so that DFIs and, where appropriate, commercial capital can come in. BII and the FCDO have recently developed a new Climate Innovation Facility to deploy concessional and blended finance into nascent climate innovations and technologies that don’t require pure grant support but are too high risk for traditional investors. BII’s blending of concessional with more commercial finance will expand its set of development finance instruments to seed pioneering businesses and models – such as for climate resilient agri-tech or sustainable forestry solutions – that will mobilise other commercial investors into these climate ventures in the longer term. BII and the Gatsby Foundation have also recently published a report here on ‘Unlocking synergies between private sector development and development finance institutions’ to help bridge the gap between donor-funded technical assistance programmes and DFI investment. A recent blended climate finance example (business case here) is when the FCDO in Nigeria provided £10m of recyclable lower cost, first risk financing to co-invest alongside pension and insurance funds and InfraCredit, in off-grid energy projects aimed at increasing energy access which would otherwise be or are perceived to be too risky for the institutional investors. The first such project is investment in a domestic mini-grid. Future ones could include cold storage to reduce food waste at markets. The UK’s Financial Sector Deepening Africa (FSDA) programme is supporting InfraCredit with technical assistance to enable support for bonds in the affordable energy efficient housing sector. FSDA also supported One Watt Solar to issue a green bond for off-grid energy and One Watt Solar is now likely to issue a second green bond with less support. HMG is continuing support to the energy sector via the UK Nigeria Infrastructure Advisory Facility (UKNIAF) and the UK Partnering for Accelerated Climate Transitions. Through our UKNIAF programme, we are speeding up the project development process. This finds and screens projects from the Finance Ministry’s budget office and Bureau for Public Enterprise and States and helps develop them, then brings in private sector (but also DFIs such as African Development Bank and Islamic Development Bank), for example in relation to sustainable agri-processing zones, food storage or bus rapid transits. The UK’s Climate Finance Accelerator also helps coordinate financing in this space and there is a coordinator from the Department for Business, Energy and Industrial Strategy (BEIS) nationally determined contributions (NDC) programme in the Ministry of Environment and Ministry of Finance.