Leveraging private finance through public finance: Role of international financial institutions

Abstract

An active participation of the private sector is necessary along with the public sector to successfully finance the low-carbon economic development to address the global climate change problem. However, the private sector perceives a higher risk in this endeavour because financing low-carbon economic development involves investing on new and emerging technologies with high market uncertainties and risks. The international financial institutions (IFIs) could play a major role in leveraging the private finance for low-carbon technologies by offsetting or sharing the risks. They have already launched various initiatives in this direction. During the 2011-2016, IFIs allocated US$23.01-US$28.35 billion, accounting for more than 20% of their annual portfolios, for climate change mitigation and adaptation related activities through various instruments including grants, soft loans and guarantees or insurances. IFIs efforts to leverage private finance for low-carbon economic development are expected to increase further in the coming years.