International Center For Environmental Finance'

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International Center For Environmental Finance.
Series A Course 1 Sources of Funds for
Environmental Projects
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• The United Nations has estimated that the cost
  of reaching the Millennium Goal of halving the
  number of people without access to clean water or
  basic sanitation is an additional 100 billion
  per year.

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Sources of Funds

• National Budgets
• International Financial Institutions
• Donors
• Private Capital

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National Budgets

• In every country, the environment must compete
  for scarce central government funds with such
  high priority issues as national defense, food,
  public health, education, housing and economic
  development.

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International Financial Institutions

• The World Bank and all of the regional
  development banks combined do not have the
  financial resources to pay for clean water and
  clean air across the globe.

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Donors

• Donor countries can only provide a small portion
  of the funds needed for a clean environment. At
  present, they furnish about 3 billion a year for
  water and wastewater.
• In addition, the environment must compete for
  donors scarce funds with other issues such as
  food, public health, housing, and education.

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Private Capital

• Only private capital can provide the vast amounts
  of money needed to provide clean water and clean
  air to the billions of people on this planet.
• The world economy is approximately 35 trillion.
  As such, the 100 billion needed to reach the
  Millennium Goal represents about 3/10ths of 1.

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How to Access Private Capital
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Private Capital Requires

• High Returns on High Risks
• Low Returns on Low Risks

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High Returns on High Risks

• Environmental Projects Cannot Pay High Returns
• High Payments For Environmental
  Projects Mean Fewer Projects Will Get Built

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Low Returns on Low Risks

• Environmental Projects Must Pay Low Returns.
  Therefore, Environmental Projects Must Be Low Risk

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Private Capital Recognizes 2 Types of Risk

• Credit Risk
• Liquidity Risk

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Credit Risk

• Credit Risk is the Risk that the Investor will
  not be Repaid
• It is the Risk of Non-Payment

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Liquidity Risk

• Liquidity Risk is the Risk that the Investor will
  not be able to Sell his Investment Prior to
  Maturity
• An Investment with no Resale Value is Il-liquid

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Liquidity

• A liquid market is one with a large number of
  similar investment opportunities
• Therefore, to be liquid, environmental finance
  programs must be as broad-based as possible
  nationwide, not regional or local in scope.

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Liquidity

• A liquid market is permanent. Similar
  investments must be available every year.
• A liquid market cannot depend on the annual acts
  of a national legislature. To be permanent, an
  environmental finance program must be
  self-sustaining.

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• A permanent, nationwide, self-sustaining finance
  program where all projects can be funded is a
  system.
• Such a system will attract private capital.

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Accessing Private Capital

• To fund highly needed environmental projects,
  nations must be able to access the private
  capital markets.

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Accessing Private Capital

• The only way for nations to access the private
  capital market is to create permanent,
  nationwide, self-sustaining systems for financing
  environmental projects.