Case study by Finance in Motion

In the spirit of showcasing leadership and raising standards of responsible investment among all our signatories, we are pleased to publish case studies of all the winning and shortlisted entries for the PRI Awards 2020.

Give a brief overview of your project, its objectives, and why you decided to undertake it. 

The Green for Growth Fund (GGF) is an impact investment fund that mitigates climate change and promotes sustainable economic growth. It does this by investing in measures that reduce energy consumption, resource use and CO2 emissions in the European Neighbourhood Region, across Southeast Europe, the Caucasus, and the MENA region. Often faced with high-energy intensity, obsolete equipment, building stock in need of renovation, low awareness related to energy efficiency and its economic and environmental implications, the GGF’s target countries are in critical need of investments. 

Established in 2009, the GGF was designed as an open-ended private debt fund with assets of over €670 million. The fund was initiated by Germany’s KfW Development Bank and the European Investment Bank, with strong support from the European Union and German Federal Ministry of Economic Cooperation and Development. It was one of the first specialised vehicles to invest in renewable energy, energy efficiency, and resource efficiency measures. It pioneered layered fund structures that use publicly funded contributions to provide a first-loss tranche, and mobilise private capital towards green investments. This blended finance model provides a risk cushion for private investors, even when investing in relatively challenging geographies.  

The fund works through local financial intermediaries that disburse loans to individuals and businesses for measures to improve energy-and-resource efficiency.  

It also invests directly in renewable energy projects, such as the largest solar park in Egypt.  

The Technical Assistance Facility, funded by institutional donors and a share of the fund’s income, operates hand-in-hand with the fund, complementing its investments with on-the-ground support and capacity-building activities to bring energy efficiency, renewable energy and improved resource management into the mainstream. 

Please describe the scale of the project, financially and in impact terms. 

GGF’s growing investor base comprises 22 donor agencies, international financial institutions, and private institutional investors. With total commitments of nearly €700 million, the GGF has mobilised over €150 million in private capital towards green finance since its inception. 

During its first decade, the fund provided debt financing to 81 partner institutions across 19 markets in Southeast Europe, the Caucasus, and the MENA region. It has unleashed €1bn in green finance to over 36,000 clients, to help them reduce energy-and-resource consumption and expand the use of renewables. Financed measures range from installing rooftop solar panels and insulating houses to making industrial production processes more energy efficient. 

GGF also contributes to commercial renewable energy projects, many of which are the first of their kind in their country. To date, the GGF has supported over 1000MW of project capacity across its regions of operation. 

Collectively, these investments are now saving over 3.6 million MWh of energy, reducing emissions by over 920,000 tons of CO2, and contributing to more than 500,000 tons of water, waste, and input materials avoided/treated each year. 

In parallel, the GGF Technical Assistance Facility has implemented more than 350 projects with project volume of €14.5 million since inception. Through its activities it has supported 91 partners and trained over 6,600 people. 

Describe the process of delivering the project, including any challenges and how these were overcome. 

Financial institutions are at the core of GGF’s investment approach as they play a vital role in mainstreaming energy-and-resource efficiency and renewable energy investments by providing targeted financing to households, businesses, projects and public entities. The fund works closely with partner financial institutions to promote green finance as a viable business line. 

GGF also provides direct financing to selected renewable energy projects in its regions of operation, where well-structured project finance opportunities are scarce. In this way, the GGF is achieving a big impact by helping open up markets for commercial renewable energy development. 

GGF also provides financing to other types of non-financial institutions, such as:  

  • producers and vendors of energy-and-resource efficient technologies 
  • energy service and supply companies  
  • public sector entities for improved infrastructure and services.  

GGF gives close support to develop green finance products, train partner staff, build awareness of green finance within a partner institution, and offer assistance to end-clients for green investments, promoting sustainable growth. 

How successful has the project been and how have you measured this? What have you learned from this project that can be applied more broadly? 

To date, the fund has saved an average of 58% in energy, and 60% in CO2 across its portfolio - over-performing on its targets. To monitor its environmental impact, the fund employs an online tool, eSave, which allows users to verify eligibility for standard energy-and-resource efficiency measures as well as report individual projects financed by the GGF credit line. Depending on the scale and nature of the project, specialised consultants are engaged to assess the potential positive environmental impact. 

When it was created, the fund’s mandate was to invest in renewable energy and energy efficiency in the Western Balkans. Much has been added in the intervening years, including:  

  • Expanding from Southeast Europe into the Eastern Neighbourhood Region, followed by the MENA region. 
  • Pushing deeper into the real economy to stimulate new investments on the ground.  
  • Broadening the definition of green finance to include important measures at the nexus between energy and improvements in water, waste and material management. 

The GGF’s experience can provide a number of valuable lessons for the industry. Its ability to expand into new regions, reach out to more beneficiaries, and target a broader set of technologies and sectors has been thanks in large part to the fund’s blended finance structure.  

The risk capital made available by the combination of public and private funding has given the GGF the necessary flexibility to innovate and take on new challenges. 

Moreover, the GGF’s approach to working via a network of local financial institutions that on-lend the money to end beneficiaries has proved to be an efficient way to deploy mobilised funds and achieve impact at scale.