The Development Bank of Southern Africa’s (DBSA) Climate  Finance Facility (CFF) is a specialized lending facility designed to increase private investment in climate-related infrastructure projects in the Southern African Development  Community (SADC) region, which faces significant climate mitigation and adaptation challenges. The CFF is the first time the “green bank” model has been applied to an emerging market. Green banks are public, quasi-public, or non-profit entities established specifically to facilitate private investment  into low-carbon, climate-resilient infrastructure. This landmark facility offers significant proof-of-concept value to middle- and low-income countries seeking to scale up the  private investment required to meet commitments laid out  under the Paris Agreement.

The CFF will deploy capital to fill market gaps and crowd in  private investment, targeting projects that are commercially viable but cannot attract market-rate capital from local commercial banks at scale without credit enhancement. The  Facility will start by utilizing two main credit enhancement  instruments: (i) long-term subordinated debt and (ii) tenor extension. The CFF will prioritize investment opportunities based on target country needs and priorities identified in  Nationally Determined Contributions (NDCs) under the Paris Agreement and to meet the United Nations Sustainable  Development Goals (SDG) goals. The CFF will primarily target South Africa as well as other Rand-based countries, including Namibia, Lesotho, and Eswatini. The CFF raised an initial $110 million, with DBSA and the Green Climate Fund (GCF) as the two anchor funders.

The structuring and launch of the CFF offers insights for other practitioners developing or investing in green banks, including the importance of specialized partners when replicating existing models in new markets, leveraging local institutional  infrastructure, early and continuous engagement with target co-investors, and approaches to ensure additionality of financing activities.  

Climate Finance Facility Case Study

Authored by Convergence