Catalytic Finance Initiative | Global

The Catalytic Finance Initiative (CFI), launched by Bank of America in 2014, is moving beyond green business-as-usual to innovative capital deployment for high-impact clean energy and sustainability investments. These investments include energy efficiency and renewable energy, which help to reduce greenhouse gas emissions.

In 2016 the Catalytic Finance Initiative expanded to 12 partners that have collectively mobilized approximately USD 10 billion across more than 25 innovative and high-impact climate mitigation and sustainability-focused investments. In doing so, the Catalytic Finance Initiative de-risks such opportunities for other investors, as well as highlights the possibility of innovative new products and financial structures that can catalyze a greater flow of capital and a scale-up of solutions.

Key facts

  • Bank of America helped a new global impact private equity fund solely focused on the United Nations Sustainable Development Goals – reach its target capital raise of USD 2 billion. The fund works with entrepreneurs in a variety of sectors and geographic regions, including education, climate smart agriculture, and clean energy, to drive positive and measurable societal and environmental impact including reducing emissions of greenhouse gases.
  • Bank of America structured and co-arranged Europe’s largest ever renewable energy bond, for an offshore wind farm in the North Sea to help secure ongoing financing for 288 MW of wind from a pioneering offshore wind farm. Part of the challenge involved fine-tuning the structure into seven different tranches of debt to fit the needs of 43 different investors with differing risk and return requirements.
  • Bank of America’s Foundation provided grants of USD 1 million to GivePower’s off-grid solar lighting programs for schools in Nicaragua, Haiti, Mali, Kenya, Uganda, Nigeria, Nepal, Ghana, Malawi, Senegal and Burkina Faso. The goal is to provide 1,500 schools off-grid solar lighting. The partnership is also planning to install a smaller number of larger mini-grids to provide significant power to entire villages.
  • Bank of America provided a USD 10 million loan to the New York City Energy Efficiency Corporation (NYCEEC) to expand its financing of innovating energy efficiency projects in buildings throughout New York and enabling the NYCEEC to provide more loans to a broad range of commercial, multi-family and other buildings for energy efficiency improvements.

The problem

One of the biggest global challenges society faces is directing enough capital to clean energy investments to speed up the transition to a low-carbon energy system and sustainable economy. It takes public, private and other partnerships like communities, non-profits, and NGOs to address this global issue.

Presently, it is estimated that trillions of dollars will need to be spent annually to achieve the Paris Agreement’s two-degree goal, which is more than one company or one government can do

alone.

The solution

Bank of America launched the Catalytic Finance Initiative to direct an initial USD 10 billion in capital to high-impact clean energy investments. It focuses primarily on climate mitigation, though investments also enhance climate resilience, especially in emerging and developing countries.

It is de-risking specific sectors, such as on-grid residential solar and off-grid solar, helping to enable new, innovative financing structures, and demonstrating the dual financial and social returns possible through private equity investments in early-stage clean energy companies. By demonstrating success in each of these deals, they are attracting a greater capital flow to sustainability projects that will enable them to scale up and have greater impact for climate mitigation and adaptation.

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Credit: GivePower Foundation

Helping the planet

The Catalytic Finance Initiative works with a range of partner financial institutions to find impactful, innovative deals in sectors deemed too high-risk for traditional investors, bringing partners the opportunity to reduce risk and unlock necessary capital to scale needed solutions on a global reach.

Those solutions include expanding capacity of, and the market for, renewable energy to stabilize and reduce global greenhouse gas emissions and mitigate the worst impacts of climate change. Additionally, it is about expanding access to clean water and clean energy in emerging markets, enabling them to continue their economic growth on a sustainable foundation that recognizes the importance of socio-economic factors as well as environmental ones.

Helping people

The deployment of capital to high-impact sustainability projects is resulting in greater good for society not just through business opportunities and job creation, but also social and infrastructure progress as well as economic mobility in under-served areas. Examples from this initiative span a wide range from investing in private equity, structuring new debt market securities, commercial lending, arranging green bonds and catalytic use of philanthropic capital.

For example, in India, Bank of America provided two grants to the Professional Assistance for Development Action (PRADAN) to set up solar micro-grids in 14 off-grid tribal villages in Gumla and Khunti, Jharkand, reaching 700 households while also supporting clean drinking water in six villages. This grant provides energy access to one of the least developed States in India, offering opportunities to enhance livelihoods, sustainable agriculture, and better access to water.

Spillover effect

Each Catalytic Finance Initiative deal is undertaken with the intention that it can be replicated and scaled up. For example, the International Finance Corporation (IFC) Forestry Bond where Bank of America served as a placement agent was a first of its kind deal. The benefits of this will enhance the ecology and livelihood of the Kasigau Corridor in East Kenya while providing a return for investors. While this is the first such Forestry Bond, it can be replicated elsewhere.

Similarly, under the Catalytic Finance Initiative, Bank of America designed long-tenor (18-year) debt market securities focused on the distributed U.S. residential solar market to enable institutional investors to obtain long-term exposure to renewable energy assets in a diversified security. This model has been shown to be scalable and replicable. Having already completed transactions for two residential solar project developers, Bank of America is now working with partners in Catalytic Finance Initiative to see how this can be applied to India.

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