SURVEY: MAPPING OUT THE LANDSCAPE OF GREEN LENDING
In a recently conducted survey, GCPF investment manager responsAbility asked green lending experts from around the developing world about their expectations and experiences in the area of green lending. Here are the findings:
1. #MOTIVATION: WHAT MOTIVATES BANKS TO ENGAGE IN GREEN LENDING
The main drivers are client demand and international support. Green branding opportunities and regulatory incentives tend to support the decision in favour of green investment.
“The most important change is in the knowledge of clients. Previously, most of them had no idea what energy efficiency financing is. Now they know a lot more about it.”
Luke Franson, Head Green Lending
2. #MARKETS: GREEN GROWTH OUTLOOK
The respondents see significant growth potential in the green lending sector within the next three years. Four out of five of the experts surveyed forecast high to very high growth rates.
“Several countries have acknowledged the potential of energy efficiency and have adapted the policy environment. Also, investors are more focused on this topic.”
Sebastian von Wolff, GIZ
3. #CHALLENGES OF SCALING UP GREEN LENDING
The survey results show that a lack of green lending expertise is seen as the most imminent threat to scaling-up energy efficiency finance. Surprisingly, low fossil fuel prices are not seen as an inhibiting factor to emerging green lending activities.
“The mindset of entrepreneurs who see capital expenditure as a waste and and not a measure to drive efficiencies is a challenge.”
Gustavo Adolfo Calderón Palma, Banco Pomerica
4. #SET-UP: GREEN LENDING – ALREADY MAINSTREAM?
For those respondents with a background in banking, green lending is already part of their daily routine. This is different for respondents with a background in consultancy.
“In Honduras, there is a market for green lending. The government has come forward with new laws and regulations to stimulate investment. Not everything is in place but things are moving in the right direction.”
Carlos Alejandro Mendoza Quinonez, Banco Atlantida
5. #RISK: SAME RISKS, MORE DIVERSE RETURNS
Green lending is a fixed-income business and, by its very nature, is therefore not perceived as being a higher-risk area than traditional loans. However, the return in this financial segment goes well beyond monetary aspects, according to the respondents.
6. #OPPORTUNITY: ATTRACTIVENESS OF GREEN LENDING
The manufacturing sector has traditionally been at the centre of green lending in the form of energy efficiency financing. However, respondents indicate that opportunities are arising also in agriculture, the service sector and real estate.
“Green lending is something that brings us together with local farmers and livestock owners. Together, we can in vest in the modernization of irrigation systems, saving lots of water and lots of energy for our clients. Often, energy costs can be reduced by as much as 40 %.”
Manoj Rawat, RBL Bank
7. WHICH #CLIENTS ARE LOOKING FOR GREEN LENDING?
Small and medium-sized businesses have traditionally been the focal point of green lending. However, the respondents highlight the fact that other client segments are now also opting for large-scale energy efficiency financing more and more frequently.
“Some clients find it hard to integrate energy audit requirements, so we have to be better at explaining to them why it is important.”
Mohammad Jahangir Alam, The City Bank
8. #INCENTIVES: TODAY‘S MARKET INCENTIVES FOR GREEN LENDING
One of the main drivers of today’s green lending business has been credit lines from public financial institutions. However, market incentives have diversified, according to the respondents of the survey.
“The lower costs of financing has been a good driver. In the past couple of years, there have been more funds on both the debt and equity side working on energy efficiency.”
Ivan Gerginov, Econoler
About the survey:
The interviewees come from financial institutions that already practice green lending or are about to introduce products in the field, as well as from consulting firms working with banks in emerging economies in the area of green lending.
Given the different perspectives of these two groups of respondents, survey results are listed for each group where available. Jointly, the responses provide an in-depth insight into the current dynamics of the green lending sector.