GCPF raises additional USD 15m in Junior Shares

GCPF received a USD 15m investment in junior shares from BMWK – The German Federal Ministry for Economic Affairs and Climate Action, to finance projects that reduce carbon emissions in developing economies. With this investment, BMWK increased its commitment to roughly USD 95m.

Junior shares represent the ‘first loss tranche’ of GCPF; any losses experienced by the fund are deducted from the first loss tranche, effectively reducing the risk of investment for other investors. A higher junior-tranche volume allows the fund to grow in the future by increasing allowable volumes invested in other share classes as well as notes¹, and makes the fund more attractive to risk-averse private investors. Mobilizing private capital to finance climate change mitigation is a key objective of the fund and essential in reaching global net zero targets by 2050².

The climate fund tackles the shortage of financing for low-carbon projects in developing economies, which otherwise would be difficult to finance because of their scale or the inherent risks associated with

the projects. The fund was set up as a public-private partnership in 2009, when climate change was still an emerging topic. The fund focuses on financing energy efficiency and renewable energy projects for Small and Mid-Sizes Enterprises (SMEs) and private households, primarily in cooperation with local financial institutions, but also directly. Through its Technical Assistance Facility, GCPF provides know-how and project support for partner institutions to develop and scale their green lending portfolios. The fund has been managed by responsAbility since 2014.

Although USD 15m may not seem like a large amount, junior capital is difficult to raise, and is a critical element of a blended finance fund like GCPF. The additional investment by BMWK in GCPF demonstrates the relevance of the fund in providing climate solutions in developing economies and is based on the fund’s convincing long-term track record.

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[1] Limits to investments in mezzanine and senior shares as well as notes are determined by so-called risk ratios that set limits to the ratios allowed between different tranches of the fund as well in notes.

[2] https://www.weforum.org/agenda/2022/02/how-private-capital-can-be-leveraged-to-fight-climate-change/#:~:text=Feb%208%2C%202022,to%20meet%20global%20decarbonization%20goals.