Green Lending: Unlocking the opportunity in developing economies

The Global Climate Partnership’s investment manager responsAbility is dedicating a publication to the topic of green lending in developing countries. It analyses the opportunity, risks and entry barriers for financial institutions to develop a loan product for energy efficiency and renewable energy.

Emerging economies are where energy demand will grow the most over the coming decades. One way to mitigate climate change, in spite of increased consumption, is to encourage the use of energy efficient equipment as well as renewable energy.

This idea is at the core of green lending, i.e. loans that are dependent on environmental criteria for the planned use of funds. In developing economies, green lending is increasingly becoming a topic, especially for financial institutions eager to unlock business opportunities.

"Stronger partnerships can significantly lower the barriers to green financing – opening up enormous green lending opportunities in developing countries."

Luke Franson, Head Green Lending

In the area of green lending, GCPF works with financial institutions in over 20 countries. Together, these institutions have disbursed over 50,000 green sub-loans since the fund’s inception in 2009.

The survey conducted among green lending experts from around the developing world explores financial institutions’ motivations to engage in green lending and how they assess the market potential.

The key results:

  • Growing client demand makes financial institutions want to introduce green lending.
  • 80% of respondents expect high to very high growth opportunities in the field.
  • A lack of institutional capacity and know-how are the main challenges banks face.

Luke Franson, Head Green Lending for the GCPF at responsAbility and co-author of the study, advocates an intense cooperation with a knowledgeable partner when embarking on the green lending journey: “We are currently working with financial institutions in 18 countries worldwide. From this experience, we know that strong partnerships can significantly lower the barriers to green financing – opening up the enormous green lending opportunity in developing countries.”

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