NDF - Financing for climate change and development projects

Building a post-pandemic new normal, the Nordic way

Photo: Miguel Oliveira
27.10.2020

The Nordic countries have committed to a EUR 350 million capital increase for NDF designed to deliver Nordic values and much needed finance to fight climate change in developing countries.  

As the global climate crisis collides with the Covid-19 pandemic, the Nordic governments of Denmark, Finland, Iceland, Norway and Sweden are pledging to commit knowledge and new resources to build back better and greener. NDF with its agility and capacity to adapt is the ideal vehicle to deliver on this.

“The Nordics have always been committed to providing international development assistance and taking global climate leadership,” says Morten Blomqvist, NDF Board Chair. “So, having a climate fund that brings together the Nordics with similar mindsets and cross-cutting values is what plays into NDF’s unique strength.”

The joint Nordic voice on climate and development in the global financing arena is characterised by strong Nordic values of human rights, democracy and gender equality and is known to carry weight beyond the relative size of the countries it represents.

“But having a Nordic voice is not a merit in itself,” says NDF’s Managing Director Karin Isaksson. “We are not here just to talk about our values out loud. What’s more important is to use the Nordic voice to leverage our competencies, our resource base and our strong passion for finding fair and sustainable solutions.”

“Of course, we Nordics also have different priorities and opinions,” Blomqvist hastens to clarify, “but at the end of day our similar values empower us to take the right agile and bold decisions needed, through NDF, to tackle the climate crisis.”

NDF know-how needed
The new funding decision, which follows on from a favourable third-party evaluation of the organisation completed last year, is being seen as validation from the Nordic governments of the ongoing relevance and added value of the NDF mandate in delivering on their vision.

Isaksson’s experience in development finance and private-sector investment, including most recently a stint as Executive Director representing four Nordic countries at the African Development Bank, means she can vouch for the need for the catalytic and flexible financing NDF offers. 

With 30 years’ experience in development finance and 10 of those dedicated to climate finance, NDF has been steadily growing its knowledge and partner base. Now, backed by this capital increase, the organisation is well-positioned to play a central role in promoting the Nordic climate and development agenda over the coming 10-year capital release period. 

“The capital increase will be a real boost to NDF’s operations and represents a 50% increase on our current annual run rate,” Isaksson affirms, adding that “with our approach to working with public and private partners, co-creating projects and catalysing financing, we can achieve a lot.”

Leveraging and luring larger funds
During Isaksson’s earlier career working with development finance and investing in private sector, she recalls that investment decisions had to have the prospect of a positive financial return. “At NDF, we can complement other development finance institutions by coming in early at the high-risk, catalytic stage, giving us the ability to leverage and crowd in other financing.” Because of this NDF already has a reputation for being able to punch above its weight.

Blomqvist, whose career as a climate specialist spans a private-sector period at Denmark’s largest offshore wind provider, Orsted, and time in development aid at the World Bank and Oxfam, reaffirms NDF’s unique catalytic ability to develop new opportunities, including in advancing new market opportunities for climate adaptation.

Mitigation market maturing
“In climate financing we now have a more mature market when it comes to investing in renewable energy,” Blomqvist says, “It’s competitive and to a large extent we have business models in place that can also be inclusive and pro poor.”

The adaptation market on the other hand is still largely undefined and untapped. And Blomqvist sees NDF’s potential here as a key part of this recapitalisation story.

“As we slowly start to see the real consequences of climate change around the world, NDF’s new strategy of increased focus on adaptation can really help define what the new technologies and new business models are going to be,” Blomqvist asserts, “as well as mobilising public and private capital towards them.”

Having a grant element and catalytic financing also uniquely positions NDF to target pro-poor solutions in adaptation for the world’s most vulnerable populations.

Accelerating in Africa
Climate change disproportionately effects poorer people, especially women and girls in low-income and fragile states. Nowhere is this more pronounced than in Sub-Saharan Africa, where NDF is now expanding its strategic focus. As Blomqvist points out, Africa is highly vulnerable to climate change but also has the least amount of resources to adapt. For NDF that means putting money where it makes the most difference.

“NDF’s ability to step up climate financing where it is most needed presents a huge opportunity to accelerate our impact in supporting sustainable and climate-resilient growth and job creation while at the same time bringing Nordic values such as gender equality and environmental protection to the negotiating tables.”

As a case in point, in 2016, NDF provided equity and grant financing to the Africa Guarantee Fund to launch a climate-focused loan guarantee for small- and medium-sized businesses. In just two short years that fund was able to leverage the capital originally provided by NDF by a factor of 7:1, providing more than USD 50 million in direct financing in clean energy and climate-smart agriculture and creating an estimated 28,000 jobs.

Now in the context of a global pandemic, the new capital funding decision is coming at an opportune time.

“While the pandemic was not the impetus for the decision,” Isaksson clarifies, “in the urgent context of a COVID-19 economic recovery, it is further validation of the niche role that NDF can play at the nexus of climate change and development.”

“And accelerating our targeted climate support towards Africa and other vulnerable countries,” adds Blomqvist, “will advance NDF’s potential to add even more value through its catalytic climate financing model.”

Written by Laurel Colless

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