Best Practice Report


Mobilizing investment / The financing gap / Overcoming barriers to investment

Overcoming barriers to investment

Significant financial and non-financial barriers facing private sector investors in green growth projects that have been well documented (Polycarp et al., 2013; IEA, 2011; OECD, 2011a; CDKN, 2013; Liebreich and McCrone, 2013; Sierra, 2011; WEF, 2013; and Stadelmann et al., 2011), include:

•  Higher costs of green technologies
•  Technology development risks
•  Distortionary subsidies
•  Lack of liquid debt and equity markets
•  Lack of consumer finance
•  Information gaps and asymmetries
•  Skills gaps/limited technical expertise.

The OECD (2012a) identifies three key investment conditions for green growth that would mitigate these barriers, which can be facilitated by public interventions, notably:

i)  Generating investment opportunities;
ii)  Improving return on investment, including boosting returns and limiting costs; and
iii) Mitigating risks faced over the lifetime of the project.

The case studies examined in the following sections demonstrate the range of options available to governments in both the governance, form of public funding, and financial instruments used for green growth. They illustrate the clear link between stage of market development and policy instrument. Early market development tends to be supported by grants and direct investment. As the market matures public financial support shifts to risk mitigating financial measures and then on to structural supports such as technical and contractual assistance, until finally the commercial financial sector is sufficiently engaged for public finance to be phased-out. The stage of market development can refer to the specific technology and/or the financial market maturity. In some countries, the financial markets may be relatively immature for lending to all green sectors. In others, this may be true only for relatively unproven technologies.