Mobilising climate finance at scale: Mobilising climate finance at scale:

Insights from Bank of America Merrill Lynchs $70 billion commitment

Abyd Karmali
Managing Director, BofAML
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Lima Climate Finance, August 2014
The financing challenge requires tailoring risk & reward for
different categories of investors
Many low-emission, climate resilient investments face policy, risk, cost,
and liquidity impediments
There is sufficient capital to invest, particularly among institutional and
retail investors
Different solutions necessary given diverse nature of gaps and investor
preferences
directly fund the outcome of an investment by increasing the return on
equity or debt
reduce risk in the financing cycle by increasing the likelihood of a project
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reduce risk in the financing cycle by increasing the likelihood of a project
reaching financial close and/or decreasing the cost of capital
provide seed capital for low-carbon business having strong social impacts
on top of the underlying emission mitigation
Investors perceive specific risks when evaluating sustainable energy
opportunities in emerging markets
Developer risk
PPA counterparty credit risks
Market Risks
PPA counterparty credit risks
Currency and rate risks
Concentration risk
Liquidity risk
Market risk
Business model and execution risk
Retroactive policy change risk
Sovereign risk
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Political Risks
Sovereign risk
Currency convertibility and availability
Repatriation and expropriate risks
Communication risk
Technology
Risks
Aversion to new platforms
Scale concerns
Our work co-chairing SE4ALL Finance reveals four investment
themes that could scale up finance for sustainable energy
Four broad investment themes both in OECD and emerging markets:
Green bonds Green bonds
Structures using Development Finance Institutions (DFIs) de-risking
instruments to mobilize private capital
Insurance products that focus on removing specific risks
Aggregation structures for small-scale opportunities
Potential to catalyse $120 billion of incremental annual investment by
2020 through these four themes.
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Largest constraint in emerging markets, particularly for energy access,
continues to be supply of high quality deal flow, but development-
related economic and social benefits compelling
Several sub-sets of investors could increase their exposure to
sustainable energy opportunities
Investors in:
Socially Responsible Investing (SRI) listed equities or fixed income Socially Responsible Investing (SRI) listed equities or fixed income
Emerging markets
Utility equities
Infrastructure
Investors based in emerging markets
Insurance companies and pension funds
Bank lenders Bank lenders
Bank lenders based in emerging markets
Impact investors including philanthropic capital
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Climate Finance in action: solar energy in Peru
In 2012, BofAML acted as sole underwriter for several bonds
The challenge: More than six million people in Peru lack access to electricity. The country has some of the
highest levels of solar energy in the world, but development of solar power plants is capital intensive.
The challenge: More than six million people in Peru lack access to electricity. The country has some of the
highest levels of solar energy in the world, but development of solar power plants is capital intensive.
In 2012, BofAML acted as sole underwriter for several bonds
issued by the Overseas Private Investment Corporation (OPIC)
raising $307.9m to finance several solar projects in Peru
OPIC used the proceeds to provide loans to Solarpack
CorporacionTecnolgica, Gestamp AsetymSolar and Grupo T-
Solar to finance construction and operation of a portfolio of
projects:
Tacna Solar and Panamericana Solar: two 20 MW solar power
projects with total project costs of approximately $251m
Majes and Reparticin: two 20 MW solar power projects with total
project costs of approximately $193m
All electricity generated in the new solar PV plants will be sold
to Perus national grid and will support the countrys initiative to
diversify its sources of power generation.
Transformational Finance Operations Employee Programs
Governance
Bank of America is deploying capital, capabilities and employees to
help finance low-carbon economy
Total of $21.6B completed
toward 10-year, $20B
commitment in < 5 years
$9.4B in energy efficiency
projects, $8.4B in low carbon
energy projects
Announced new $50bn
commitment providing advice
and investment solutions for
New 2015 operational goals
15% reduction in GHG from 2010
20% reduction in paper use
20% reduction in water use
GHG emissions reduced 14%,
water usage reduced 12% and
paper usage reduced 14% from
2010-2012
1,500+ My Environment
Ambassadors and 13,647
Friends worldwide
More than 195,000 hours
volunteered
Planned growth to 2,200
Ambassadors worldwide over next
year
Hybrid & EV Car subsidy
Strong risk management
key to delivering value to
clients
Risk management
framework embedded into
business practices
Environment Council
oversees global strategy
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and investment solutions for
clients on Energy Efficiency,
Renewable Energy, Transport,
Water & Waste
Arranged/financing largest
distributed solar project &
largest residential solar projects
in history
2010-2012
BAC #2 in global financial services
and only major bank to have
appeared in both CDPs Global 500
and S&P 500 Leadership Indices for
four years running
Developing future Sustainable
Supply Chain strategy
Hybrid & EV Car subsidy
program in US and UK
Ambassadors leading
successful e-waste amnesty
initiative in the region
Partnership with
organizations such as
Sustainable Energy For All
Initiative
Engagement with Green
Climate Fund as 1 of 2
active private sector
observers