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
-
Electrolux sets new emissions reduction target following CDP recognition
Electrolux said it has a new target to cut its carbon footprint in half by 2020.
-
Nigeria's climate progress after COP28
Access Bank, as a key player in the financial sector, has been playing a key role in supporting Nigeria's climate finance ...
-
Nigerian woman activist speaks at UN Paris climate talks
Offers remarks on gender and threats to ecosystems and communities.
Sustainable Development Section Sponsor
-
Access Bank Plc ...Financing the future
Most Popular
