Six innovative financial instruments created by the Climate Finance Lab to assist developing countries to tackle climate change.
1. The Western African Initiative for climate smart agriculture.
- it is facility to support the uptake of climate-smart agricultural practices through the provision of technical assistance and subsidized-rate loans or guarantees for smallholder farmers’ organisations and agribusinesses. By mobilizing public and concessional capital, it is able to provide subsidized interest rate loans to smallholders’ organizations and agribusinesses of ticket size below US$ 1 million, thus making credit more accessible.
Impact: At scale, it has the potential to improve the food security of 90,000 smallholder farming households in the region and convert over 185,000 hectares to climate-smart agriculture. The fund can also contribute to mitigating up to 2 million tonnes of CO2 emissions a year, which is equivalent to over 4 billion miles of driving.
2. Blockchain Climate Risk Crop Insurance
- it is a digital platform for standardized crop insurance for smallholder farmers in Africa, which increases their resilience to climate change by enabling transparent, timely, and fair payouts in extreme weather events.
For farmers, the instrument reduces transaction costs during the processing of claims. The Lab estimates that in the long-term, an integrated insurance platform model can reduce the costs required to issue a policy by up to 41%, enabling a premium reduction of up to 30%. Reduced claim cycles, from 3 months to 1 week, and increased transparency also build trust amongst stakeholders. On the supply side, by creating templates for blockchain-based insurance products, the platform gives third parties (insurers and beyond) the tools to create their own customized insurance product, enabling them to offer weather-indexed crop insurance at scale.
Impact: At scale, the instrument can potentially mobilize up to US$ 6 to 10 billion in annual premiums. Sub-Saharan Africa provides the best opportunities for replication, especially Burkina Faso, Senegal, and Mali in West Africa and Kenya, Uganda, and Rwanda in East Africa. There is also significant potential in South Asia (India, Bangladesh, and Nepal) and Southeast Asia (Cambodia, Thailand, and the Philippines).
3. Solar Securitization for Rwanda
-It is an initiative that pools loans from multiple solar developers into a tradable, asset-backed security, freeing up capital for expanding the solar home system market. It will increase the developers’ ability to leverage and allow for a rapid expansion of the solar market, meeting the clean energy access needs of African households.
Impact: The first issuance will be sized at US$ 9 million and will enable the deployment of solar home systems for 175,000 households. At scale, the instrument can reach US$ 100 million in size in Rwanda alone, targeting 2 million households, and later be expanded to other East African countries with similar energy access and economic/institutional conditions.
4. Restoration Insurance Service Company
-it invests in mangrove conservation and restoration in areas with high-value coastal assets, protecting blue carbon and reducing flooding and property damage risk.
Globally, mangroves protect more than 18 million people and lessen the flood damage to coastal properties and assets by more than US$ 82 billion a year. At the same time, mangroves provide enormous mitigation benefits, storing up to 10 times more carbon on a per-area basis than terrestrial forests. However, approximately half of the world’s mangroves have been lost in the last 50 years.
Impact: At scale, RISCO could generate more than US$ 200 million for mangrove protection, avoiding emissions equivalent to the annual electricity use of over 2 million homes.
5. Breathe better bond initiative
-It is an innovative bond issued by local governments in developing countries, which is paired with technical assistance. Proceeds are used to invest in projects that reduce both air pollution and greenhouse gas emissions. Specifically, the bond proceeds will fund projects across different sectors such as waste, solar generation, and electrification of transit.
Impact: If implemented in the ten emerging market cities with the most potential, the Breathe Better Bond Initiative could mobilize US$ 4 billion for climate-friendly urban infrastructure projects.
- it deploys clean cooling technology at scale in emerging markets, by lowering upfront equipment costs and aligning incentives for the most efficient operations and maintenance.
Global cooling demand is projected to triple by 2050, and phasing out HFC coolants in accordance with the Kigali Amendment to the Montreal Protocol has the potential to reduce warming by 0.4-0.5ºC through 2100. Limiting emissions from air conditioning and cooling systems is critical to achieving global climate goals. Space cooling accounts for 10% of global electricity consumption, and fugitive emissions of refrigerants like hydrofluorocarbons (HFCs) can have 200-20,000 times the global warming potential of carbon dioxide.
Impact: it saves up to 23% of cooling costs for customers and reduces emissions from electricity use and coolant leakage by up to 49% while providing significant profits for both technology and finance providers.
