UNCDF steps up to meet the challenges of financing solutions for the green and blue economies

On the sidelines of the High-Level Political Forum (HLPF) recently held in New York, Ms. Preeti Sinha, Executive Secretary, UN Capital Development Fund (UNCDF), delivered opening remarks at the “Financing Solutions for Green and Blue Economy Investments: Building Back More Resilient and Inclusive Economies” session.

In her address, Ms. Sinha pointed out that before addressing the barriers, specifically as they relate to the Least Developed Countries (LDCs), it is important to understand the challenges and the opportunities. While the populations in the LDCs are typically the most severely impacted by climate change, these populations are also the frontier markets of today and growth markets of tomorrow.

The barriers that prevent financing in these markets include lack of knowledge and data, different investment scale needs, lack of standards and reporting criteria, insufficient financial resources, high perception of financial risks, lack of critical scale for business and investment pipelines, and lack of private sector engagement. These challenges are exacerbated by the widening gap in the development finance architecture; businesses and projects remain undercapitalized because they are too large for microfinance, yet too small and too risky to be served by commercial financial institutions. Equally, similar opportunities in green and blue economy financing are unable to scale, with commercial and environmental impacts continuing to be unrealized.

Ms. Sinha went on to say that to better face the barriers and incentivize private investment in blue and green economies, we need to ensure that public capital is used catalytically in order to mobilize and de-risk more private investment. This calls for a concerted effort to establish innovative structures and investment vehicles that can crowd in commercial investment.

UNCDF has been involved with the Global Fund for Coral Reefs (GFCR). The blended finance approach of the Fund is delivering blended solutions of public and private finance to support pipeline development for reef-positive businesses and innovative financial tools to address the coral reef funding gap. In the first year of operation the GFCR unlocked over USD150 million and developed a global portfolio of programmes supporting reef-positive business models. The Fund has launched five country programmes in the Bahamas, Fiji, Indonesia, Papua New Guinea, and Philippines, as well as two regional programmes. The 15 additional programmes underway for launch in 2022 and early 2023 will be operational in Colombia, Brazil, Malaysia, Mozambique, Solomon Islands, Sri Lanka, and Viet Nam among other markets.

“UNCDF together with UN Environment Programme and UN Development Programme is proud to be a founding member of the Global Fund for Coral Reefs. Collectively we have a tremendous opportunity to prove that barriers standing in the way of blue and green economy projects can be surmounted,” noted Ms. Sinha.

One example of the GFCR’s work comes from Fiji. UN partners through the GFCR are working with Matanataki, a local incubator to establish and incubate a sanitary landfill including an associated recycling facility and fertile factory; notably through the of use grant funding and UNCDF-supported concessional loans on top of technical assistance. This project has circular economy elements at its core to promote connectivity between the different interventions while addressing local drivers of coral reef loss.

Through the provision of technical Assistance, the landfill to serve the Western District is being designed with:
• Utilization of organic waste, which accounts for up to 70% of Fiji’s waste stream, to serve as input into natural fertilizer production for the sugar cane sector;
• Solar panels to power operations;
• Coordination from hotel sector for plastics collection; and
• Formal positions for poor, local waste-pickers, supporting improved livelihoods.

Additionally, for “missing middle” projects in the 46 LDCs– those that are more mature, but not yet ready for commercial finance – UNCDF through the BRIDGE Facility provides catalytic concessional loans and guarantees from its own balance sheet as growth capital. With a high-risk appetite and concessionality in its loans and guarantees, the BRIDGE Facility fills a gap in the international development finance architecture by providing finance for small enterprises and projects that are unable to access finance from other financial institutions. UNCDF has issued 30 loans and guarantees of which nearly 45% are green and blue economy projects.

Through a joint initiative with UNDP and UNCDF, the Gambia is building a 10.5W solar power plant, which is being supported through the NAMA Facility. UNCDF’s role is to deploy a guarantee mechanism of approximately USD10 million to de-risk private sector investment and attract commercial capital to the project. The NAMA Facility has the potential to remove over 300,000 tons of Co2 over the lifetime of the project.

All of these interventions have the potential to demonstrate waste management and circular economy projects in Small Island Developing States (SIDS) and LDCs that aim to scale with private sector investment.