WHAT IS THE FINANCIAL INNOVATION LAB?

Leveraged co-financing from public and private sources has emerged as a policy priority among international environment and development agencies.

The Financial Innovation LAB is a place to exchange ideas about financing techniques for climate change mitigation and adaptation investments.

Our main objective is to create investment vehicles and financial structures that maximize private sector leverage and optimize the use of donor’s funds, such as the (Clean Technology Fund, Global Environmental Facility, Green Climate Fund and more).

Why climate change investments are perceived as being riskier? Most important reasons: high up-front costs, new technologies, uncertain market demand, long term-horizon of investments, policy bias favoring incumbents.

Our key premise is that public money should not be used for direct investing, but for de-risking. That is, donor’s resources should be carefully applied to absorb certain risks that constrain private sector involvement in green financing.

For this purpose, we combine a variety of financial tools, such as guarantees, blended loans, first loss structures, insurance vehicles, etc.

Juan A. Ketterer

THE TOOLBOX OF DE-RISKING INSTRUMENTS

Financial:

Guarantees and insurance products

  • (Partial) Credit Guarantee
  • Performance Guarantee and insurance
  • Project Completion
  • Political Risk
  • Policy and Regulatory Risk

Debt Subordination

Loan Loss Reserves (first loss)

Currency Risk

Cornerstone/Subordinated Equity

Public Investment Funds

Non Financial:

  • Contractual Provisions
  • Regulatory Provisions
  • Technology Norms and Standards
  • Third party validation and Verification
  • Access to Information, Knowledge-Sharing
  • Advance Market Commitment
  • Institutional Development and Capacity-building

Hello, Welcome to the IDB!

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