Blue-Green Investment Corporation

Document cover for Blue-Green Investment Corporation
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Blue-Green Investment Corporation

Barbados and the Caribbean lie on the frontline of climate change, where we will see some of the largest, earliest increases in sea levels and temperatures and where droughts and floods will become more devastating. Barbados has an ambitious and comprehensive "Roofs to Reefs" resilience agenda. But the Government of Barbados, like other Governments in the Caribbean, lack the necessary resources and the domestic financial sector lacks the necessary depth to finance adaptation to the changing climate and the transition to a more climate-resilient, low-carbon, energy, water and food secure economy. We estimate that the financing necessary to achieve climate resilience in Barbados alone is USD 2 billion or 40% of GDP. Since the costs of renewable energy have fallen and the Government enacted attractive renewable feed-in tariffs in 2019 and 2020, the main barrier to adopting more sustainable energy generation has been the upfront capital expenditure of solar, wind and waste to energy power. A similar dynamic exists in water conservation, low-carbon transport and food security.

Barbados is a highly indebted country, and the Government of Barbados is in an Extended Fund Facility of the International Monetary Fund with a limited ability to borrow. But the Government of Barbados recognises that failure to invest in resilience will worsen its debt position. The most significant contributor to increased debt levels recently has been the loss and damage arising from climate-related and other natural disasters and the necessary expense to protect the land and marine environment. Barbados and the Caribbean have relatively high levels of private savings compared to other developing regions. However, financial institutions are often headquartered abroad and take a "branch banking" approach. They primarily offer collateralised loans such as mortgages and car loans to a narrow set of borrowers. Outside of these areas, the high lending interest rates and relatively short tenors available are a significant challenge for financing resilience and sustainable projects, especially those that benefit low-income households or small businesses. Existing financing facilities do not match the scale needed to induce the green transformational impacts planned and required.

The Blue-Green Investment Corporation (BGIC) is a joint public-private sector effort to create a regional financing vehicle, initially focused on Barbados and then expanding to other Caricom countries, to overcome the existing financing challenges and constraints of climate change adaptation and mitigation. The BGIC specifically targets the private financing of several private and public initiatives for green, affordable, gender-inclusive housing, energy generation, water conservation, food security and low carbon transport. It will create an improved financing capacity and infrastructure that draws in other financing players like banks, credit unions, pension funds, and insurance companies and will build the wider community's awareness in support of a more resilient and sustainable Caribbean. These measures will induce a paradigm shift towards resilient livelihoods and low-carbon technologies, particularly for low-income, vulnerable households and the energy, housing, agriculture and transport sectors. The BGIC will become a significant institution for practical and strategic financing of climate change adaptation and mitigation policies and measures, supporting the Governments of Barbados, Guyana, and others to achieve national resilience and emissions reduction targets.

The BGIC will focus on initiatives that touch a large proportion of the public. Still, it will be wholesale in operation, financing green programs sponsored by other agencies or entities. In its first stage, the BGIC will, subject to investment criteria to be developed in the Funding Proposal, evaluate financing (1) 10,000 affordable, green homes for the homeless powered by renewable energy under the Government’s HOPE program, (2) PVs on 50,000 climate- resilient roofs for low-income households under the Government’s SHIFT program, (3) the water conservation capital fund of the Barbados Water Authority (4) the renewable energy, water conservation and food import reduction components of the Government’s BEST investment program for hotels, (5) charging stations for EVs, (6) a regional ferry service connecting Guyana to support regional food security and (7) a Caribbean carbon credits program for the cruise and airline industries. BGIC's direct beneficiaries will reach over 200,000 people. The BGIC will be able to target other sectors specifically or more generally through the financing of Green bonds and other capital market instruments. The BGIC presents an opportunity to drive significant GHG emission reduction – far above what is typical of GCF projects and programs – due to the lending facility's revolving nature and the institution's indefinite lifetime. While the BGIC is expected to repay the GCF's loan contribution within 15 years, it will continue to exist, attract funding from public and private, and drive transformational projects. Therefore, the BGIC is expected to result in higher resilience and GHG emission reduction than the numbers shown here.

PCA is seeking GCF grant resources to undertake the activities and studies identified in this PPF to perform analysis that will inform the design of technically and financially sound funding proposal that will be able to meet the requirements of the GCF while supporting the transformational potential and climate impact of the programme.

PPF support from the GCF is thus sought to fill in gaps in terms of information, stakeholder consultations, and assessment of potential adaptation options, and to develop the full Funding Proposal. The following PPF activities will be undertaken:

  • Feasibility study
  • Operational arrangements for BGIC, including institutional and governance structure
  • Legal services, including preparation for incorporation and capitalisation of BGIC
  • Funding Proposal with strong climate rationale
  • Programme-level Environmental and Social Management System (ESMS)
  • Gender assessment & Gender Action Plan
  • Stakeholder Engagement
  • Climate impact monitoring tool, including identification and monitoring of key performance indicators
  • Financial analysis
Cover date 04 November 2022
Document type Approved project preparation funding application
Pegasus Capital Advisors