Germany to provide $33mn to hedge climate investments in Africa
Summary
The Long-Term Foreign Exchange Risk Management instrument was created to address currency and interest rate risk.
The German Environmental Ministry announced during the ongoing United Nations climate conference (COP21) in Paris that it will provide €30 million ($32.7 million) to the Currency Exchange Fund (TCX) to be used for innovative and hedging instruments for Sustainable Energy for All (SE4All) projects in sub-Saharan African countries.
Currency risk is one of the biggest barriers to investment in renewable energy and climate adaptation and mitigation projects in developing countries. Because of underdeveloped capital markets in most SSA countries, most projects are financed in a foreign currencies. And since most projects are long-term and revenues are often in local currency, there is huge risk in recouping investments if a local currency loses its value.
The Long-Term Foreign Exchange Risk Management instrument was created to be implemented by TCX and International Finance Corporation (IFC) of the World Bank to address currency and interest rate risk. TCX is a special purpose fund that hedges the currency and interest rate mismatch in cross-border investments between international investors and local borrowers in frontier and less liquid emerging markets.
The German Environmental Ministry said the fund will be channeled through KfW Development Bank beginning in 2016. The fund is expected to mobilize up to $1.3 billion and achieve up to 500,000 tonnes of CO2 emissions reductions per year from 2016 to 2025.
“My warmest thanks to the German Government and taxpayers for their trust in our ability to make a difference,” CEO of TCX, Ruurd Brower, said in a speech at the Lima-Paris Action Agenda. “With their help, TCX will protect US$1.3 billion worth of investments in the coming years.”
Related
-
Access Bank promotes sustainability awareness and impact
The ongoing pandemic presents a learning opportunity to improve sustainability in all its dimensions.
-
Brazil receives $96 million climate fund for reducing deforestation
Brazil reduced over six billion tonnes of tCO2e of emissions from cutting deforestation between 2006 and 2015.
-
Europe must become a global climate power
The urgency of the climate crisis demands that the EU turn its world-leading climate agenda into foreign policy.
Sustainable Development Section Sponsor
-
Access Bank Plc ...Financing the future
Most Popular
_Charging__Power_Grid_-_300x350-202501141447571577.jpg)
