Overview - Climate finance: International business opportunities
The Canadian Trade Commissioner Service at Global Affairs Canada defines climate finance as local, national or transnational financing for projects and programs that help developing countries mitigate the effects of, and adapt to climate change. The financing may be drawn from public, private, and alternative sources.
As of 2016, an estimated US $383 billion had been mobilized in climate finance globally by public and private actors in developed and developing countries. Developed countries committed to mobilize US $100 billion annually to address the needs of developing countries at the 15th Session of the Conference of the Parties to the UN Framework Convention on Climate Change.
Sources of international climate finance
While dedicated international climate funds do exist, such as the Global Environment Facility, Green Climate Fund, and Climate Investment Funds, climate finance is circulated more broadly throughout the development finance ecosystem. Climate relevant funds are available through international financial institutions (IFIs), multilateral development banks (MDBs), bilateral and national agencies, private investors and financiers, and non-profits. These are often accessed through offices at a regional and local level.
Opportunities for Canadian companies can generally be derived through either public sector or private sector channels. The public sector channel refers to the securing of a contract through a public procurement process for an initiative that is made possible through climate dedicated or climate relevant finance. The private sector channel entails securing financing, through a grant, debt, equity, or guarantee, for a climate related project from an IFI or other intermediary.
Experience has shown that climate finance can mitigate risk, close knowledge and capability gaps, and improve regulatory and legal frameworks in developing countries, in order to catalyze market development and facilitate private sector investment. The presence of climate finance has also helped leverage larger capital and investment finance towards the implementation of climate projects abroad.
How to identify and leverage climate finance: Public sector channels
Climate finance through the public sector channel is accessed through public procurement opportunities originating from developing country governments, climate funds, IFIs and intermediaries. Specific opportunities can be identified through sources such as:
- Procurement aggregation platforms – subscription/membership services (e.g. UN Development Business, Devex, DevelopmentAid)
- Procurement notices posted directly on IFI and Climate Fund websites
- Advertisements and requests for procurement posted in-country in local newspapers, the official gazette (if applicable), and/or government websites (for smaller sized procurements)
Best practices for public sector procurement
When looking at public sector channel opportunities, it is important to understand the applicable procurement processes and guidelines. It is also advisable for companies to focus efforts in areas where they have the strongest track record and have a good understanding of the local business culture. Identifying appropriate local partners early is crucial, as they are in high demand, and Expressions of Interest and Technical Proposals are evaluated according to pre-determined criteria with as much as 20% allocated to local partners. Partnering with other international companies on procurement projects can also greatly enhance the chance of success.
How to identify and leverage climate finance: Private sector channels
The private sector channel provides financing, through a climate fund, IFI or intermediary, for a climate related project. Respective funding criteria and portfolios of products/services can be found on climate fund, IFI or intermediary websites in order to identify funding prospects.
Best practices for private sector projects
Having a sound and well documented international business strategy at the start can help identify early barriers and opportunities, while keeping an eye on profitability.
There may be a need to develop climate-specific argumentation when presenting business cases. Funders will need to understand the link between proposed investments and anticipated climate impacts. It is also helpful to pay attention to the language and specific policy mandates of IFI or climate funds when developing and communicating the project proposal (e.g. gender equity, job creation, poverty alleviation etc.).
It is important to understand the conditions and due diligence requirements of prospective financial partners. These often include social and environmental assessments, and compliance with safeguard policies, particularly in the case of finance channeled from public sources.
A strong understanding of national legislation, norms and standards, as well as climate change policies and commitments, will ease navigation and compliance with national regulations. A stable in-country presence is often required to assist with administrative, political and financial negotiations.
Future partners, clients, stakeholders and funding agencies will require evidence of implementation capacity and can conduct lengthy due diligence on applicant companies and partners. Demonstrating compliance with fiduciary standards is expected.
While private sector channel opportunities follow intensive requirements, it becomes infinitely easier to secure climate funding once a company has successfully completed an initial project. Reputation is key.
Please visit the Trade Commissioner Services’ Climate Finance-Business Development website to learn more about international climate finance sources and opportunities: www.Canada.ca/TCS-Climate-Finance
Interested in accessing climate finance? Here are some initial steps:
- Scope your project and define its potential climate benefits.
- Contact the Trade Commissioner Service through your regional office in Canada for advice and connections to trade commissioners in local markets that can offer introductions to potential local partners.
- Familiarize yourself with rules, regulations and laws in the host country.
- Initiate discussions with funders and investors and identify requirements.
- Identify potential sources of climate finance applicable to your project.
- Formulate international business plans and funding requests.
