The Norwegian government has decided to set up a new climate investment fund to be managed by Norfund. The goal is to contribute to avoiding greenhouse gas emissions, by investing in renewable energy in developing countries.
Clean energy is Norfund’s largest investment area. This priority has been set based on the knowledge of how a lack of access to energy is a key constraint for businesses in low-income countries, and how essential reliable and affordable energy is for business activity and job creation.
However, investments in renewable energy in developing countries are also key to limit the climate crisis, meaning that Norfund’s contributions also to avoiding emissions have steadily gained more attention.
The average return on Norfund’s clean energy investments has been 6.2% since inception.
The renewable energy projects of Norfund’s investees since the fund’s inception in 1997 contribute annually to 9 million tonnes of CO2 in avoided greenhouse gas emissions. That is equivalent to almost one fifth of Norway’s annual emissions, or all Norwegian road traffic.
Proposal in the state budget
In the state budget for 2022, the Norwegian government proposed to establish a climate investment fund for developing countries. The government proposed to allocate 10 billion NOK over five years. The financing will come from the state budget and Norfund. The government proposed that the fund should be managed by Norfund.
According to the proposal, the Climate Investment Fund will contribute by reducing or avoiding greenhouse gas emissions from the power sector, especially from coal power plants, through investments in renewable energy in developing countries. The fund will trigger investments that would not otherwise be realized and provide risk-relieving capital.
The fund may use appropriate financial instruments (equity, loans, guarantees, etc.) to achieve the purpose. The fund’s investments will be made on a commercial basis and in accordance with national climate and energy plans of the countries it invests in.
In December 2021, a unanimous Parliament approved the decision to establish the fund and allocate the first billion NOK to the fund.
In March 2022, Norfund announced what will become the first investment under the new climate mandate, in the company H1, to finance large scale solar and wind plants in South Africa.
‘We have no time to lose, so I am very happy that we have succeeded in making the new climate investment fund operational in record time, so that the money can be put into work in energy investments that are crucial to stopping the climate crisis’Minister of Development Anne Beathe Tvinnereim
Amendments to the Norfund Act were proposed to the Parliament in April 2022, and the statutes of Norfund were amended at a General Assembly in May 2022, to include the management of the new fund, along with a new directive from the Ministry of Foreign Affairs. That means that the fund is now operational.