IAF Evaluation and Experience

An external review of the IAF was completed in 2000 by B. Jamet, formerly head of Energy Efficiency lending at EBRD. The review provided clear recommendations for further refinement of the facility and specifically addressed the means of influencing decision-making processes within financial institutions.

The approach to building sustainable energy investment capacity within a financing organisation, needs to be flexible as different institutions follow different 'product development' paths. To enter a new sector, some banks first focus on creating the right policies while others focus on training personnel. Learning 'hands-on' by taking first investments is another approach, while others develop entire investment funds. The IAF thus needs to recognise the opportunities available with each new clients and flexible enough to respond to the specific needs of a particular institution.

Further experience from the IAF has shown that information provided to a financial decision-maker is as important and the manner it is provided. The financier should be able to select the "messenger" (i.e., the consultant) and define the work to be completed (i.e., the Terms of Reference). Otherwise the advice they receive is less likely to be followed. Further, documentation prepared for technology or policy decision-makers are generally not appropriate for the finance sector.

Financiers are not used to seeking support from a UN institution. Therefore, much of the work in setting up the IAF has been to build credibility with banking sector clients. This has included the establishment of rapid administrative procedures that can operate within a bank's short proposal evaluation cycle.

Banks have evaluation procedures that typically take from 3 to 6 months to advance a project from pre-screening to a final investment decision. To be effective, the IAF must therefore be able to provide expertise in a 1 to 3 month timeframe. UNEP has structured the IAF to follow an accelerated approval and administration procedure that requires 10 days to approve a request, and a further 5 days for contracting.

In a broader sense, pursuing change in a financial institution takes time and commitment at all levels. To be successful across the institution, changes are often needed in the incentive structure. Although the CEO may desire sustainable energy investment activity for its policy implications, loan officers are often focused on narrower targets, such as simply meeting the traditional benchmarks of rapid loan disbursement with minimal risk. Without stronger incentives, loan officers may pay only limited attention to sustainable energy investments.

Changing the way a financial organisation considers new investments therefore requires both better information and new mandates to combine social and environmental factors - both risks and returns - as integral measures of economic performance.