WB focuses on securitisation to scale climate finance: Banga

The World Bank is working with a club of 15 finance bosses to lower the risk of investing in climate projects in emerging economies and attract private capital for cutting emissions.

Ajay Banga, the World Bank’s president, said the Private Sector Investment Lab is focused on “figuring out a model of originate-to-distribute” that would allow for deep-pocketed investors to put up large sums for climate deals.The creation of a “securitizable asset class in these kinds of investments, where large pension funds, large players like BlackRock will find a very attractive place to put billions to work,” is a key target, he said at the Bloomberg Business Forum at COP28.

The creation of a “securitizable asset class in these kinds of investments, where large pension funds, large players like BlackRock will find a very attractive place to put billions to work,” is a key target, he said PSIL, which launched in June under the auspices of the World Bank, also includes BlackRock Inc.’s chief Larry Fink, AXA SA Chief Executive Officer Thomas Buberl and Noel Quinn, head of HSBC Plc.

The group is focused on specific approaches that the World Bank can implement after years of struggling to mobilize the vast sums of money needed to help developing countries adapt to climate change and transition to clean energy. The World Bank has also stepped up action on other fronts, including allowing some vulnerable countries to potentially pause debt repayments and hosting a fund for climate damages.

Shriti Vadera, who co-chairs PSIL, said the group is working on financial guarantees because these are “the most efficient and most well-known and used form of credit support.” The PSIL has looked at first-loss and whole-portfolio guarantees, said Vadera, who is chair of Prudential Plc.

The goal is for the World Bank to “create a much more simplified set of guarantee products that can be used across different markets,” she said.

Mark Carney, United Nations Special Envoy for Climate Action and Finance and the other PSIL co-chair, pointed to the constraints banks face under rules introduced after the 2008 financial crisis. They can be a hurdle to scaling climate finance in some of the riskier parts of the world. That’s why PSIL is also looking at the capital treatment of guarantees by regulators and supervisors, he said.

Carney, who is also the chair of Bloomberg Inc., said success will be judged by how much extra private finance can be mobilized. “We need to create as much financial firepower as possible,” he said.

Banga said developing efficient ways for public and private players to work together to scale financing is needed because “the reality is multilateral development banks around the world put together don’t have that type of money,” and neither do governments or philanthropies. Still, for investors and financiers, returns remain the key consideration.

“The trillions won’t come unless there’s a decent return for the risk because it’s ultimately money that has fiduciary duties to the investors whose money they invest,” said Shemara Wikramanayake, chief executive of Macquarie, said on a separate panel at the Bloomberg Business Forum.or the risk because it’s ultimately money that has fiduciary duties to the investors whose money they invest,” said Shemara Wikramanayake, chief executive of Macquarie, said on a separate panel at the Bloomberg Business Forum.

The World Bank Group (WBG) on Friday said it will increase the amount it spends annually on climate-related projects to 45 per cent of its financing over 2024 to 2025, up from 35 per cent now, as part of a policy overhaul to better respond to climate change.

In a statement, the WBG said, “With an ambitious financing package announced at COP28, the World Bank Group is helping people in developing countries better withstand the devastation of climate change and create a better world for their children and grandchildren.” The World Bank Group is pushing to do more to battle climate change and do it faster, devoting 45 per cent of its annual financing to climate-related projects for the fiscal year that runs from July 1, 2024, to June 30, 2025.

This increased ambition is more than just a laudable percentage-it’s putting to work more than $40 billion-around $9 billion more than previously programmed. In 2021, the Bank announced a goal to reach an average of 35 per cent by 2025 and is currently ahead of schedule, running at an average of 36.3 per cent since July 2022.

In October, the World Bank secured an ambitious-and expanded-mandate to create a world free of poverty on a liveable planet. The new climate pledge is a concrete example of the Bank delivering on that mandate.

In addition to boosting resilience and adaptation among those hardest hit by the effects of climate change, World Bank Group projects also will focus on safeguarding ecosystems and biodiversity to protect the health of people and the planet.