MUFG, partners launch $1.5 billion climate finance platform

  • GAIA to help scale up finance to developing countries
  • FinDev Canada among public, private, philanthropic backers
  • Expects to impact nearly 20 mln people across 25 countries

PARIS, June 22 (Reuters) – Mitsubishi UFJ Financial Group (8306.T) and partners including Canada’s development finance body have launched a $1.5 billion platform to help drive climate-focused investment into developing and emerging countries.

The new venture, dubbed GAIA and announced at the Summit for a New Global Financial Pact in Paris on Thursday, aims to blend private sector investment with concessional capital from public and philanthropic groups.

Alongside FinDev Canada, the platform is backed by various UN bodies as well as public, private and philanthropic groups, and hopes to impact nearly 20 million people across 25 countries, the group said.

Getting more money to the poorer countries bearing the brunt of climate-related natural disasters so they can better prepare to withstand them at the same time as moving to a low-carbon world is a central aim of the summit and global climate talks.

To-date, though, flows of capital have been low and focused mainly in developed countries, Christopher Marks, MUFG’s Head of Portfolio Solutions, Innovative Finance & Growth Markets for Europe, the Middle East and Africa, told Reuters on the sidelines of the conference .

As of 2019-2020, the total global climate finance was $653 billion, well below the estimated annual need of $4.3 trillion by 2030, data from the Climate Policy Initiative showed, with developing countries getting less than a quarter.

“The structure and activities of GAIA are intended to respond to the main obstacles and barriers limiting privately-financed investments in climate adaptation and mitigation projects in emerging markets,” Marks said.

Specifically, it aims to provide support such as long-term loans in both hard and local currencies, mitigating risk by offering different tranches and hedging local currencies to make them more appealing to institutional investors.

Including such features would allow GAIA to target multiple sectors and jurisdictions and attract institutional investors that would not normally invest on their own, Marks said.

“A key feature of the platform is the ability to target smaller projects – which are outside the appetite of independent investors,” Marks said. After proving the concept, it is hoped that the model can be scaled up and used in other countries.

In addition to projects in renewable energy and low-carbon transport, financing would also be made available to sometimes overlooked sectors such as water and waste management, sustainable agriculture, coastal rehabilitation and nature-friendly construction.

A total of 70% of the GAIA funds would be dedicated to climate adaptation projects, and a minimum of 25% to the least developed countries (LDCs) and Small Island Developing States (SIDS), in recognition of their vulnerability to climate change.

“Our ability to structure solutions which address mitigation and adaptation depends heavily on how well the public and private sector can work together to bring critical financing options to the table,” said FinDev Chief Investment officer Paulo Martelli in a statement.

“GAIA is an important – and innovative – step in that direction and demonstrates the potential that is unlocked by bringing multiple players together in support of a common, global problem.”

Editing by Philippa Fletcher

Our Standards: The Thomson Reuters Trust Principles.

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