How can private sector actors use ICIEC for climate action, serving member countries’ ESG agendas? Here we highlight initiatives that will help Egypt, in particular, achieve its Vision 2030 goals concerning the environment.
Development financiers have long identified mobilizing private capital as a fundamental way to achieve the net zero goals in the Paris Agreement. While the developed countries are trailing behind their Nationally Determined Contributions (NDC) of $100 billion per year, multilateral export credit and investment risk insurers like ICIEC have a pivotal role in bridging the gap.
Private sector engagement in climate finance requires credit enhancement, which ICIEC is uniquely positioned to do through its sustainability policies and access to its member country’s national and subnational bodies, which engage with relevant climate action projects and transactions. Private sector development is one of the main pillars of the ICIEC’s strategy. Embedding commercial opportunities and helping corporates and banks make a material difference to support positive climate outcomes is something that risk mitigation tools can facilitate.
The swift response to the COVID-19 Pandemic has provided a roadmap to address long-term credit and political risk insurance solutions for climate mitigation and adaptation. While the Pandemic has elevated public health and infectious diseases as an immediate concern and risk, the long-term threat of climate change was overshadowed by the Pandemic in the last two years. With the war in Ukraine, the understanding of climate and political risk is again being re-evaluated, casting a spotlight on sustainable energy and energy security.
Spotlight on Egypt
Ahead of COP27 in Sharm El-Sheikh in November, all eyes are on Egypt, not only because it is the host for new climate negotiations but for charting out ambitious climate blueprints under Egypt’s Vision 2030 – aimed at building a diversified, competitive, and balanced economy, and the Integrated Sustainable Energy Strategy (ISES) 2035.
Egypt is a founder member of IsDB Group – total Group funding accessed by Egypt amounting to US$17.8 billion to date – and has seen several new climate initiatives being launched. Among the latest is a Memorandum of Understanding (MoU) between ICIEC and El-Sewedy Electric, which provides a framework for joint action in promoting climate action and water projects. Under the terms of the MoU, ICIEC, which is the insurance arm of the IsDB, will work with El-Sewedy Electric to identify, assess and manage climate and water risks and opportunities; exchange essential information, expertise, and resources; extend training and capacity-building opportunities, and organize joint seminars and workshops.
Private capital mobilisation
Counted among the top megatrends in trade and development finance, climate change is both a threat and a potential opportunity if looked at the right way. Private banks such as the Egypt-based Commercial International Bank are incorporating the climate agenda into all their financing mandates, fundamentally changing their business model to manage risk and moving away from the traditional path of seeking insurance to mitigate climate risk. To meet the SDG goals by 2030, an estimated cost of $5 to $7 trillion annually is required, which presents itself as a business opportunity for private capital looking to invest with impact and high returns in emerging and low-income economies.
Most member states of ICIEC are low-income and developing countries, so it is challenging to attract private capital. The hurdles are high-risk perception and a lack of bankable deals. ICIEC has been working on developing bankable projects and vehicles, serving the OIC member states’ climate agenda. For instance, ICIEC’s Green Sukuk Insurance Policy will allow Sukuk issuers to attract capital for ‘green’ projects better. The product will be particularly valuable for issuers in ICIEC’s low-income and developing country members who are susceptible to struggles with poor credit ratings and, consequently, attract less private capital for climate action.
Egypt presents itself as a positive case study, demonstrating a blueprint for sustainable development in the renewable energy sector in other OIC countries. ICIEC has facilitated several renewable projects in the country by providing much-needed insurance cover, which has the potential to crowd in private capital. Recently, ICIEC provided a seven-year Breach of Contract and Political Risk Insurance (PRI) cover under its Foreign Investment Insurance (FII) Policy to the UAE-based Alcazar Energy for its US$68 million equity investment in the Benban Solar Complex in Aswan. The complex involves constructing and operating four 50 MW solar power plants, providing the generated electricity to the Egyptian national grid under a 25-year power purchase agreement.
Central to Egypt Vision 2030 is achieving the net zero targets in the Paris Agreement. The country’s renewable energy strategy – particularly ICIEC’s bespoke insurance cover – has the potential to be replicated in other IsDB member countries, with factors such as maximization of local content, proactive government support, and generation of employment.
A ‘just transition’ is the need of the hour in MENA countries, in particular, where the impact of climate change will be disproportionately felt. Credit and political risk insurance is integral to enabling this transition, which also factors in the ‘S’ (social) in ESG.
This is a digest of a prestigious panel convened by ICIEC on June 3, 2022, at the IsDB Group’s Private Sector Forum, which ran at the IsDB’s 47th Annual Meetings in Sharm El-Sheikh, Egypt. The panel had representatives from Commercial International Bank, Indonesia Infrastructure Guarantee Fund, Africa Finance Corporation, El-Sewedy Electric, and UNDP Egypt.
To watch the entire panel, Credit and Political Risk Insurance in Facilitating Climate Action, view here:
