Mainstreaming framework conditions for environmental finance – the role of the public sector

Abstract

The term “environmental finance” in this paper refers to standard financing products of commercial banks for investments in clean technology. Investments in EE&RE products represent the main potential market for these. Whereas the existence of a potentially large market for investments in EE&RE is beyond doubt, its realization needs unlocking. In unlocking the market potential, the public sector has two roles to perform: (i) to introduce a set of incentive instruments to create a large-scale and long-term demand; and (ii) to coordinate the activities of actors (supply-side actions). Concerted CT deployment programs comprise an integrated package of environmental finance, together with “demand pull” and “technical supply-side” measures to create demand for investments. As incentive to include environmental finance in their product portfolios, banks may require the inclusion of a “bank engagement program”, comprising measures that reduce their risks, their costs of transaction and their costs of capacity building, during the market upstart phase. Successful programs are complex. Yet a large number of instruments exist to customize solutions to local conditions, and the know-how to design and implement integrated packages is becoming increasingly well-established.