Temasek: Blended finance can make transition projects bankable
Embracing new and innovative financing instruments such as blended finance is important for unlocking much-needed capital to help companies transition to net zero, Steve Howard, vice chairman of sustainability at Temasek told AsianInvestor recently.
Emerging economies especially those in Asia face several barriers to accessing finance for decarbonisation projects. This includes a lack of developed financial infrastructure and limited access to capital markets," said Howard.
Financing the transition to low or no carbon emissions requires financing projects that tend to be unbankable or marginally bankable.
“The cost of finance for emerging economies is also often higher compared to developed countries”, says Howard.
Transition finance is gaining traction with Asian asset owners, AsianInvestor has previously reported.
Several asset owners have said they are embarking on decarbonisation plans as well as keen to participate in transition financing opportunities.
Temasek also recently said it is ready to work with carbon-intensive businesses to transition.
“But there are inherent risks to this transition, including binary risks associated with early-stage investments," said Howard.
PUBLIC- PRIVATE PARTNERSHIPS
One way to mitgate some of those risks is to make use of blended finance, which combines public and private capital to mobilise financing for projects that are marginally bankable.
Howard believes that “the use of blended finance and the taking of first-loss positions by multilateral development banks can make marginally bankable projects, bankable.”
Other asset owners such as insurer Prudential have also flagged blended finance as a tool to help a just and inclusive transition to a low-carbon economy across Asia's emerging markets.
The Singapore government is already exploring how to develop a new vehicle to catalyse blended finance in Asia by working with partners around the region.
This could range from collaborating with government agencies to Singapore-based infrastructure financings vehicles like Clifford Capital and Pentagreen Capital, as well as commercial banks and multilateral development banks like the Asian Infrastructure Investment Bank (AIIB), the Asian Development Bank (ADB), and the World Bank.
“With more recognition of how sustainability is becoming important for growth in returns, we will likely see more capital providers and asset owners embrace green investments,” he said.
“This includes funding not just large-scale and bankable decarbonisation projects, but also innovative, yet nascent, technologies that have the potential to drive deep decarbonisation impact. That is why we invest in early-stage companies and form new partnerships that trial new solutions.”
PHILANTHROPIC CAPITAL
Philanthropists and philanthropic organisations contributing to decarbonisation efforts and sustainable development are also getting more attention in the island city of Singapore.
Howard believes in the power of this capital.
"We hope to see more multilateral development banks, concessionary and philanthropic capital providers come forward to provide first-loss capital to fund critical development needs. This will help catalyse capital and make other parts of the financing structure accessible for many decarbonisation projects," he said.