Finnfund: There is a global urgency for climate financing

Despite major cuts in Finnish development aid, the country’s government proposed and the parliament approved an injection of EUR 130 million for development financing. The Finnish Fund for Industrial Cooperation Ltd., or Finnfund, a state agency for financing long-term industrial investments in developing countries, intends to invest most of the money in projects that fight climate change while also reducing poverty.

Finnfund is a long-standing customer of NIB. Last year, NIB provided a new loan facility, totalling USD 40 million, to lend on to projects in the agency’s pipeline. A similar agreement for the same amount was signed in 2010. The financing is earmarked for projects in developing countries that involve investments and technologies from Finnish growth-oriented companies seeking to internationalise their operations.

The agency was established by the Finnish government in 1980 to assist Finnish businesses in investment projects in developing countries.

“We aim to provide long-term risk capital for private sector business projects that ultimately are generating major environmental or social benefits in developing countries”, says Jaakko Kangasniemi, Finnfund’s CEO.

During 2015, Finnfund selected seventeen new investments, totalling EUR 73 million, for financing. All in all, the agency is currently financing 163 projects in 33 countries.

“The terms of our financing are market-related. We are ready to share risks by providing long-term financing for promising projects in challenging markets, where commercial financing is hard to obtain”, Mr Kangasniemi continues.

The fund selects private investment projects in the manufacturing sector, forestry, agribusiness, power generation, telecommunications and services. Each project is being thoroughly assessed for its potential effects on host country’s economy, different stakeholder groups and society in general.

“We use three major criteria to select eligible projects: profitability, development effects, and economic and social responsibility. We expect that our involvement will help increase the investee company’s profitability and create jobs. Nine out of ten new jobs are created in the private sector.”

“Another key objective is to introduce modern technologies and increase the quality of the output”, Mr Kangasniemi explains.

Finnfund’s average investment is between 5 and 10 million euros. Although as defined by its mandate, the agency may choose to finance somewhat riskier projects in riskier countries, the agency poses stringent environmental and social responsibility requirements on its clients.

Finnfund prioritises investments in environmental technologies, such as renewable energy and energy efficiency thus slowing down climate change. For example, Finnfund is financing several climate-related projects and renewable energy ventures in Latin America, Africa and Asia. In Honduras, Finnfund is investing in a solar power plant that uses technologies supplied by ABB in Finland. Finnfund is also a shareholder in Africa’s largest wind farm, the Lake Turkana project in Kenya. The foundations of its 370 turbines will be produced in Finland.

Despite major cuts set out in Finland’s 2016 budget for many avenues of development aid, the government is allocating a EUR 130 million hike for development financing. This is the amount planned for Finnfund to manage.

“We are expecting the increase of our financial resources to take place in 2016. The government obviously deems strengthening Finnfund’s position as being a good way of using public funds. The taxpayers’ money channelled through Finnfund gives returns”, says Mr Kangasniemi.

“There is a global urgency to finance climate friendly investments, and we will certainly remain active in this field in the coming years. Both the expected capital increase and the financing we have received from NIB are certainly serving this purpose.”

“Fund allocations will be made to projects that fulfil NIB’s and Finnfund’s mandates. We expect that a major part of the funds will be used for solar energy projects with Finnish technology. Also loans to small Finnish manufacturing companies’ foreign investments are likely to be included”, Mr Kangasniemi concludes.