Financing the Green Transition

WHITE PAPERS FOR A GREEN TRANSITION

Financing the green transition Mobilising investments to accelerate the transition to a carbon-neutral and climate-resilient economy

INSIDE THIS WHITE PAPER Addressing the need for investments in the green transition The role of the financial sector in incentivising a green transition Partnerships as a means to accelerate the green transition Denmark as a driver in mobilising private investments

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FINANCING THE GREEN TRANSITION Mobilising investments to accelerate the transition to a carbon-neutral and climate-resilient economy Version 1.0 December 2023

FRONT PAGE PHOTO Unsplash Editing: Henrik Wedel Sivertsen

EDITORS IN CHIEF Tanya Gottlieb Jacobsen, State of Green, tja@stateofgreen.com Victoria Lindhardt Zorzi, State of Green, vlz@stateofgreen.com

STEERING GROUP Anne Marie Zinck, Danish Ministry of Environment, anmzi@mim.dk Hanne Jersild, Ministry of Climate, Energy and Utilities, hanje@kefm.dk Hans Peter Slente, Danish Industry, hps@di.dk Jakob Tvede, Ministry of Foreign Affairs of Denmark, jaktve@um.dk Marie Holm Thomsen, Green Power Denmark, mht@greenpowerdenmark.dk Nikolaj Warming-Lollesgaard, Finance Denmark, nwa@fida.dk Peter Gylling, Ørsted, petgk@orsted.com Sofie Råberg Mikkelsen, Ministry of Industry, Business and Financial Affairs, sofmik@em.dk Tom Vile Jensen, Insurance and Pension Denmark, tvj@fogp.dk

CONTRIBUTORS AIP Management

Green Power Denmark

ATP

HOFOR

A.P. Møller Holding

IFU

CIP (Copenhagen Infrastructure Partners)

Insurance and Pension Denmark

COP (Copenhagen Offshore Partners)

Jysk Energi

Danida Sustainable Infrastructure Finance

Lægernes Pension

Danish Energy Agency

Lærernes Pension

Danish Environmental Protection Agency

Ministry of Foreign Affairs of Denmark

Danish Industry

Ministry of Industry, Business and Financial Affairs of Denmark

Ministry of Climate, Energy and Utilities of Denmark

PensionDanmark

Danish Ministry of Environment

PFA

Danish Sustainable Development Goal Investment Fund

PKA

EIFO

Ramboll

Finance Denmark

The City of Copenhagen

FLSmidth

Ørsted

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FOREWORD

Mobilising green finance in the race against the clock DAN JØRGENSEN, MINISTER FOR DEVELOPMENT COOPERATION AND GLOBAL CLIMATE POLICY OF DENMARK MORTEN BØDSKOV, MINISTER FOR INDUSTRY, BUSINESS AND FINANCIAL AFFAIRS OF DENMARK

Financing the green transition is one of the biggest challenges of our time. Limiting global warming to the 1.5 °C pathway of the Paris Agreement requires substantial investments at a global level. According to the International Energy Agency’s (IEA) Net Zero Roadmap from 2023, global investments in clean energy will have to reach USD 4.5 trillion per year by 2030 to reach that goal. Clean energy is on the rise with global growth rates surpassing new fossil fuel investments. However, as global clean energy investments are expected by the IEA to reach USD 1.8 trillion in 2023, the world is still far below the needed level.

Bridging the investment gap is crucial. With temperature records, heat waves, floods, droughts and wildfires, recent years’ extreme weather events only cement that we are running out of our most important currency – time. Mobilising extensive finance for a globally just and green transition in developing countries is a challenge of its own. Developed nations must intensify their climate finance efforts to support climate action and private finance mobilisation towards these countries.

We, politicians and governments, have to do our part. We have to set an ambitious course and pave the way for transforming our ambitions into implementation. However, we cannot do the job alone. It will take an all-hands-on-deck approach across sectors to meet the challenges. Only by sharing the responsibility and joining public and private forces will we be able to mobilise the investment and financing levels needed to achieve our climate and environmental goals.

The race we are in is not only about unlocking finance and investment in the green transition. It is also about securing job creation and growth. This is increasingly critical due to the growing global competition to provide companies with the best possible conditions for producing green technologies. The American Inflation

Reduction Act and the European Green Deal Industrial Plan are setting a new stage for green manufacturing companies. We must ensure stable and competitive framework conditions, as they are key in creating attractive hubs for green technology innovation and production, and mobilising finance.

Denmark has extensive experience with financing the green transition, both nationally and internationally. Since the late 1970s, Danish entrepreneurs and innovators as well as changing Danish governments have looked towards developing and promoting green technologies such as renewable energy as well as water and energy efficiency and a move away from fossil energy sources. Alongside stable framework conditions and carbon pricing through the European Emissions Trading Scheme and an additional national CO2e tax, this has allowed public and private actors across the value chain of various green solutions to gain unparalleled knowledge about not only the technologies, but also the political, market and financial building blocks.

This is why, in 2022, 60 percent of Denmark’s electricity consumption was covered by wind and solar energy. And by 2030, the electricity production from renewables is estimated to cover more than 100 percent of the Danish electricity consumption.

This is why we share decades of experience through government-to-government collaboration with a vast number of countries.

In this publication, you will find a number of best practice examples from both Denmark and all over the world on how to make the transition happen. We hereby aim to inspire global action at faster pace and scale in the race against the clock towards 2030.

We hope you enjoy reading it.

Dan Jørgensen

Morten Bødskov

Minister for Development Cooperation

Minister for Industry, Business

and Global Climate Policy of Denmark

and Financial Affairs of Denmark

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FOREWORD

Financing the net zero revolution FOREWORD BY MARK CARNEY, UN SPECIAL ENVOY ON CLIMATE ACTION AND FINANCE

For the world to avoid the worst impacts of climate change, we need a transformation of the global economy and energy systems on the scale of the industrial revolution, but at the pace of the digital revolution. Every public and private entity, from national governments to local businesses, must begin implementing credible plans for transitioning to a low-carbon, climate-resilient future.

We have no time to spare, and the stakes are high. The latest estimates are that the world’s remaining carbon budget to limit the temperature rise to 1.5°C will be exhausted by the end of this decade. Higher degrees of warming will impose massive human and economic costs.

But there are hopeful signs of progress. Countries representing over 90 percent of global GDP have now made net-zero commitments and are increasingly putting in place the policies to back those commitments. Given the scale of investment required to transition the global economy to net zero, private finance must play a significant role. The IEA estimates that USD 3 trillion of the USD 4.2 trillion annual global clean energy-related investment needed by 2030 must come from the private sector, mobilized by public policies that create incentives, set appropriate regulatory frameworks and send market signals.

There is a growing realisation that addressing climate change is one of the greatest commercial opportunities of our time. As a consequence, finance on the scale required is now in prospect.

Mark Carney UN Special Envoy on Climate Action and Finance

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The Glasgow Financial Alliance for Net Zero (GFANZ) was created in 2021 to expand the number of net zero-committed financial institutions and to establish a forum for addressing sector-wide challenges associated with the transition.

Two years later, more than 650 major financial institutions, including many from Denmark, are committing to use their balance sheets, totalling over USD 150 trillion of assets, around 40 percent of global financial assets, to support a net zero transition in line with the Paris Agreement.

Efforts by the Danish asset managers and pension funds highlighted in this report demonstrate the multiplier effect private capital can have in driving the transition forward.

Moreover, entrepreneurs, innovators and businesses are increasingly focused on the enormous value that can be created by solving this existential problem.

For finance to help unlock climate action it must develop an unrelenting focus on all aspects of the net zero transition.

This ranges from the foundations of climate disclosure, risk management, and transition planning to the development of high integrity carbon markets and country energy transition platforms to deploy capital beyond developed markets.

In this decisive decade of action, Denmark’s leadership is critical to maintaining the pace and scale of transformation the world needs to secure a resilient and sustainable future.

FINANCING THE GREEN TRANSITION

Index

Section 1: Addressing the need for investments in the green transition Chapter 1: The global imperative to finance green transition

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Chapter 2: Transforming energy systems requires green finance

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Chapter 3: Adaptation and resilience

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Chapter 4: Restoring natural capital and biodiversity

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Section 2: The role of the financial sector in incentivising a green transition Chapter 5: Transformation through sustainable investments

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Chapter 6: Incentivising homeowner and SME green choices

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Section 3: Partnerships as a means to accelerate the green transition Chapter 7: The Danish Climate Partnership on Finance

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Chapter 8: Accelerating transition via bilateral collaboration

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Section 4: Denmark as a driver in mobilising private investments Chapter 9: Mobilising private capital for global climate action

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Chapter 10: Denmark – A leading financial hub for green investments

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FINANCING THE GREEN TRANSITION

SECTION 1

CHAPTER 1, 2, 3, 4

Addressing the need for investments in the green transition This section delves into the global needs and challenges that must be addressed by the public, private, and financial stakeholders to achieve the global goals set to ensure a sustainable future. The chapters span from transforming global energy systems to using green energy sources, creating resilient cities and infrastructure that adapts to future climate of extremes, and safeguarding our strongest natural defence against climate change by restoring natural capital and biodiversity.

SECTION 2

CHAPTER 5, 6

The role of the financial sector in incentivising a green transition This section describes how the financial sector plays a crucial role in incentivising a green transition towards more sustainable and environmentally friendly practices across multiple industries and economies. As the world faces pressing environmental challenges, such as climate change and resource depletion, redirecting financial flows towards green investments becomes essential for creating a sustainable future.

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FINANCING THE GREEN TRANSITION

SECTION 3

CHAPTER 7, 8

Partnerships as a means to accelerate the green transition This section demonstrates how public-private partnerships are linchpins in the race towards net zero. Collaboration between governments, industries, and stakeholders is necessary to incentivise a green transition in a way that ensures that no one is left behind.

SECTION 4

CHAPTER 9, 10

Denmark as a driver in mobilising private investments This section takes a closer look into how private sector investments in developed and emerging markets are pivotal for ensuring a just, global green transition.

Collaboration between governments and financial actors ensures that the necessary framework conditions are present to warrant that ‘sustainability’ means ‘business’. Denmark has a track record in mobilising large-scale private investments to accelerate the green transition.

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SECTION 1 • ADDRESSING THE NEED FOR INVESTMENTS IN THE GREEN TRANSITION

CHAPTER 1

The global imperative to finance green transition Critical action needs to be taken to address the multiple consequences of the climate and biodiversity crises that the world is currently experiencing. Given limitations in government budgets, mobilising private capital is key to closing the gap.

The world urgently needs to transform energy systems, reduce CO2 emissions, conserve natural resources, increase biodiversity, and increase climate resilience through adaptation measures in a socially just manner.

Both the Paris Agreement and the Kunming-Montreal Global Biodiversity Framework (GBF) have set ambitious targets to drive this action. It is estimated that global investments required to achieve the targets set out in the Paris Agreement will range between EUR 2.9-5.7 trillion (USD 3-6 trillion) per year until 2050, and at least EUR 190 billion (USD 200 billion) annually towards 2030 to reach the targets in GBF. While the financial sector itself has a small direct carbon footprint, it plays a key role in transforming economies and mobilising finance to reach these critical targets.

In the past decade, both public and private sector have mobilised large climate financing schemes and established initiatives such as Glasgow Financial Alliance for Net Zero, Net-Zero Banking Alliance, Net-Zero Asset Owner Alliance and Climate Investment Coalition. Public-private collaboration is essential to de-risk large investments in the green transition and provide political framework conditions to ensure that sustainability means business.

Investment needs To accelerate the global green transition, several investment needs must be addressed. Firstly, countries must transform their energy systems. This requires large investments to scale up new technologies and energy infrastructure systems across developed and emerging markets. Investment here is required to ensure sustainable sourcing of critical materials to electrify energy systems, improve energy efficiency in buildings, decarbonise hard-to-abate sectors and mature technologies like Power-to-X, ensure greener

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transportation, and create green shipping corridors.

Secondly, there is a growing need for investments in critical infrastructure to face increasingly frequent extreme weather events, from climate adaptation measures to finance for nature-based solutions. Lastly, investing in nature conservation and biodiversity to safeguard continued absorption of CO2 emissions through carbon sinks, like rainforests and oceans, is also critical.

Systemic needs While the financial sector overall seems to recognise the need for climate finance, there are some systemic issues that must be addressed to scale it. These include making it more attractive to make sustainable finance choices and ensuring investments made today are profitable in the longterm. International organisations and institutions need to create a common language and standards to define sustainable investment and create a global level playing field with stable and predictable framework conditions that reflect the climate risks related to investments. An important steppingstone to do so, is the legislation and regulation introduced by the European Union, like the EU Taxonomy and CRSD, where companies and financial institutions must report on their activities’ impact on GHG emissions. However, a global common language and standardisation would ensure that everyone works under the same framework conditions across the world.

About this white paper This white paper seeks to provide a comprehensive overview of key aspects of financing the global green transition. By exploring successful examples of green financing measures, it aims to create mutual understanding among key stakeholders and inspire decision makers to take steps to accelerate the green transition.

FINANCING THE GREEN TRANSITION

Investment/spending needs for climate action per year by 2030 Categories of investment

Power system

Transport system Transforming the energy system

Industry

Buildings

Green hydrogen Just transition

Needs by 2030 Zero carbon generation

$300-400bn

Transmission and distribution

$200-250bn

Storage and back-up capacity

$50-75bn

Early phase-out of coal

$40-50bn

Low emission transport infrastructure

$400-500bn

Fleet electrification/ hydrogen

$100-150bn

Energy efficiency

$10-20bn

Industrial processes

$10-20bn

Electrification

$20-40bn

Energy efficiency and GHG abatement

$70-80bn

Production

$20-30bn

Transport and storage

$20-30bn

Targeted programmes and safety nets

$50-100bn

Coping with loss and damage

$200-400bn

Investing in adaptation and resilience

$200-250bn

Investing in natural capital

Sustainable agriculture

$100-150bn

Afforestation and conservation

$100-150bn

Biodiversity

$75-100bn

Migrating methane emissions from fossil fuel and waste

Total investment needs per year by 2030:

USD 2-2.8 trillion

$40-60bn

Source: “Finance for climate action - Scaling up investment for climate and development” (Report of the Independent High-Level Expert Group on Climate Finance, November 2022).

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SECTION 1 • ADDRESSING THE NEED FOR INVESTMENTS IN THE GREEN TRANSITION

CHAPTER 2

Transforming energy systems requires green finance A successful transformation of the global energy system – in line with rising climate ambitions – requires sound commitment to invest in green energy infrastructure as well as direct and indirect electrification.

Energy systems and markets are changing as renewable energy becomes increasingly more affordable and accessible.

In 2022, global investments in energy transition technologies reached a new record of EUR 1.2 trillion (USD 1.3 trillion) .

Yet, according to the International Renewable Energy Agency (IRENA), annual investments must surpass EUR 4.7 trillion (USD 5 trillion) to stay aligned with a 1.5°C pathway.

The energy transition must address three major pillars: physical infrastructure, policy and regulatory support, and skilled workforce. These necessitate substantial investments and innovative collaboration methods to engage all stakeholders in the transition and address structural barriers hindering progress.

Investing during uncertainty requires regulatory and financial models The current rise in inflation and interest rates is expected to impact investments in renewable energy projects. The market price of electricity is expected to become more volatile, as it will increasingly be based on fluctuating power generation from wind and solar. Electrification - and the necessary kick-start to a Power-to-X economy - will largely be driven by policy decisions, which makes the market risk difficult to manage for private investors alone. In this context, it is imperative that global policy makers develop regulatory and financial models where society assumes part of the risk.

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Ambitious climate goals spur green energy investments in Denmark Denmark is often considered a global frontrunner in energy systems transformation. Aiming to cut greenhouse gas emissions by 70 percent by 2030 (relative to 1990), the Danish energy and utilities sector has undergone a major transition from fossil fuels to green energy in record time.

This has simultaneously reduced emissions, created jobs, and boosted the economy. The change has not been without challenges, including how to best engage with civil society and ensure widespread local support for energy projects.

The next steps involve a massive electrification of society, from heating and industry to transportation – either directly or indirectly through Power-to-X technologies. This will require a further scale-up in wind and solar farms onshore and offshore, as well as large-scale energy infrastructure projects like energy islands. It will also require extensive power grid reinforcements and expansions, cross-border interconnectors, and the deployment of new technologies, such as Power-to-X, energy storage, and carbon capture.

Following a political agreement to introduce an ambitious Power-to-X strategy, and government approval of a historic offshore wind agreement covering up to 14 GW offshore wind by 2030, the need for investment in renewable energy will continue to rise as Denmark pursues Net Zero by 2050.

FINANCING THE GREEN TRANSITION

Renewable energy capacity is expected to massively increase towards 2030 (GW) ≈ 3.5 x

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Solar Offshore wind

2 2

Onshore wind

5 2021

Total renewable energy capacity 2030 (2021 estimate)

The figure shows Denmark’s renewable energy capacity in 2021 and the expected capacity in 2030. Source: Danish Energy Agency and political agreements of 2021

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SECTION 1 • ADDRESSING THE NEED FOR INVESTMENTS IN THE GREEN TRANSITION

Photo credit:Jysk Energi

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CASES

Photo credit:Jysk Energi

Local support through co-ownership The challenge of local resistance, also known as ‘Not In My Backyard’, often causes delays and uncertainty in energy projects. To combat this problem, the Danish energy utility Jysk Energi has taken a new approach to flip the phenomenon to ‘Yes In My Backyard’, when building Denmark’s first cooperative solar power plant in an equal partnership between the energy supplier and local citizens.

The project resulted in zero civil complaints and almost unanimous support from the city council. Citizens within a 4.5km distance were given the right of first refusal for 50 shares at a price of EUR 590 hundred (USD 624 hundred) per share. Today, ownership is split 50/50 between Jysk Energi and 679 local citizens in Lemvig Municipality.

CONTRIBUTORS Jysk Energi

With full transparency on all price assumptions and prerequisites, approximately 100 citizens chose to buy between one and five shares, while approximately 200 citizens bought between 21 and 50 shares. The maximum allocation was 145 shares, corresponding to an investment sum of EUR 85.5 thousand (USD 90.5 thousand). The solar power plant has an expected annual production of 50 GWh, corresponding to the annual electricity consumption of 12,000 households.

LOCATION Høvsøre, Lemvig

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SECTION 1 • ADDRESSING THE NEED FOR INVESTMENTS IN THE GREEN TRANSITION

CHAPTER 3

Adaptation and resilience Climate change threatens both water supplies and ecosystems and poses a significant risk to the global economy. The world is already witnessing some of these impacts through increasingly frequent extreme weather events, water scarcity, and drought.

Underinvestment in and inadequate maintenance of water infrastructure and stormwater management affect billions of people who do not have access to clean and safe drinking water and sanitation. By 2050, over half of the global population is projected to live in water-stressed regions and 1.6 billion in flood-prone areas. To achieve SDG 6 by 2030, the OECD estimates that EUR 950 billion (USD 1000 billion) of global investment in water infrastructure will be required.

Traditional adaptation has focused on increasing investments in ‘grey’ stormwater infrastructure (i.e., sewer system expansion and retention basins) which is often very cost-intensive and can amplify environmental risks down-stream.

In recent years, several Danish cities have shifted to instead focus on nature-based solutions, which provide similar benefits but are more economically and environmentally sustainable in the long term.

New co-financing measures enable cost savings and synergies All Danish municipalities (except two) have committed to having a local climate adaptation plan to address their specific climate change-related risks. Danish experience shows that combining climate adaptation measures with existing urban development produces more resilient cities which are more attractive to live and do business in, particularly when nature-based solutions are implemented. Solutions which serve additional functions to handle rainwater (e.g. road-

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beds, roads with permeable asphalt, recreational areas) are often more cost-efficient than traditional sewer expansion projects and can lead to added socio-economic or environmental benefits.

Yet, constructing and operating these additional functions falls outside the scope of the wastewater utility’s responsibility. As such, Denmark has introduced new legislation allowing parties to split the cost, meaning wastewater utilities pay for stormwater management elements while municipalities or private landowners pay for aspects like recreational facilities or biodiversity initiatives. Calculations must be made to assess whether such projects are more cost-efficient than conventional ‘grey’ infrastructure ones.

Financing climate adaptation abroad The 2021 Glasgow Climate Pact adopted at COP26 urged developed nations to at least double their collective provision of adaptation finance from 2019 levels by 2025.

Denmark is committed to meeting this and leading the international fight against climate change. Through partnerships and direct financial assistance, Denmark assists many of the world’s developing countries affected by droughts or floods.

In 2024, Denmark intends to elevate its grant-based climate finance to its highest level ever and has decided to increase the proportion of its official development aid (ODA) budget dedicated to climate finance to 30 percent, 60 percent of which will be directed towards climate adaptation.

FINANCING THE GREEN TRANSITION

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SECTION 1 • ADDRESSING THE NEED FOR INVESTMENTS IN THE GREEN TRANSITION

Photo credit: Carsten Ingemann & Juan Jose Palma-Alvarez

Co-financing climate adaptation in Copenhagen Climate change brings more frequent and heavier rainfall to Denmark. To avoid serious and expensive consequences for Danish cities, it is crucial to protect them from cloudbursts. This can be done by improving the rainwater management infrastructure through different projects.

Together, the City of Copenhagen and HOFOR (Greater Copenhagen Utility) have planned approximately 350 cloudburst projects both above and below ground. One of these is the cloudburst and urban space project Karens Minde Axis located in Copenhagen’s Sydhavn district. Here, the retention of rainwater is combined with the development of parks and nature. The project will prevent flooding by directing water to where it causes the least possible damage. It is also expected to contribute positively to the biodiversity and species enrichment in the area.

The project is a great example of co-financing. The total budget was EUR 10.8 million (USD 11.4 million), of which EUR 6.6 million (USD 7 million) was funded by HOFOR (through the revenue generated from the water tariff the utility’s customers pay) and EUR 4.2 million (USD 4.4 million) was funded by the Municipality of Copenhagen (through taxes and urban space funds). The mandatory cost-efficiency calculations in 2015, prior to initiating the project, estimated that a conventional project would have cost approximately EUR 30 million (USD 31.7 million).

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CONTRIBUTORS HOFOR – Greater Copenhagen Utility, City of Copenhagen

LOCATION Copenhagen, Denmark

CASES

Photo credit: Ramboll

For every dollar New York spends on bluegreen infrastructure, it gets two back When it rains in New York City, the grounds of the South Jamaica Houses housing project start to flood. Sometimes, the water doesn’t drain for days or weeks, making basic mobility a challenge for the complex’s 3,000 residents. Soon, however, construction crews will sink a basketball court several feet into the development’s ground with tiers of benches on either side. During major rainstorms, this sunken stadium will act as an impromptu reservoir for water that would otherwise flood housing.

Initially planned by Ramboll under contracts with New York City Department of Environmental Protection (NYCDEP), this project will be able to hold 200,000 gallons (757,000 litres) of water before it overflows. It will release water to the sewer system slowly, preventing it from backing up as it does today.

CONTRIBUTORS Ramboll New York City Department

The project is funded by NYCDEP and will be used as a model for other similar projects within the city’s ‘cloudburst program’, which has been established with inspiration from Copenhagen and Ramboll. In 2023, the Mayor of New York, Eric Adams, expanded the cloudburst program by raising an additional $400 million in capital funds from municipal and federal funding.

of Environmental Protection

LOCATION New York City, USA

A socio-economic analysis from Ramboll and the NGO Rebuild By Design shows that New York City can expect a two-to-one return on its investments in multifunctional bluegreen infrastructure protecting communities against cloudburst. This return is mainly due to co-benefits driven by blue-green infrastructure typologies.

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SECTION 1 • ADDRESSING THE NEED FOR INVESTMENTS IN THE GREEN TRANSITION

CHAPTER 4

Restoring natural capital and biodiversity Global biodiversity is in dangerous decline. The UN KunmingMontreal Global Biodiversity Framework agreement estimates nearly EUR 190 billion (USD 200 billion) per year is needed by 2030 to halt and reverse nature loss.

Through the Global Biodiversity Framework (GBF), the protection of nature, biodiversity, and ecosystems has achieved a new political status. With targets to raise international financial flows from developed countries to at least EUR 28 billion (USD 30 billion) per year, companies and financial institutions are expected to increase their positive contribution to global nature and biodiversity through assessment, monitoring, and disclosure of the impact and risks of their operations, portfolios and value chains on nature.

EU laws and regulations will also affect companies’ and financial institutions’ commitments to biodiversity, from regulations on nature restoration, sustainable financing, deforestation and forest degradation, to directives on corporate sustainability, due diligence, and taxonomy. Along with The Taskforce on Nature-Related Financial Disclosures’ recommendations and guidelines, these regulations seek to dismantle existing barriers to mobilising finance for biodiversity.

Strengthening voluntary efforts and investments The Danish government has established a ‘Biodiversity Partnership’ between business organisations, the financial sector, research institutions, trade unions, think tanks, NGOs, and public authorities. It seeks to strengthen the voluntary efforts and investments of the private sector to reduce their

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negative biodiversity impact and protect nature. The aim is to identify what it takes to engage companies within the biodiversity agenda and make recommendations to companies, the government, and research institutions by mid-2024.

Nature protection and restoration Improving protection of existing and threatened nature alongside restoration is critical for combatting both biodiversity loss and climate change. The Danish Nature Fund is an independent private foundation working to ensure better space for animals and plants. Throughout Denmark, it buys up land to protect and restore nature, whilst also creating areas for public use. All purchases are made through voluntary agreements with private landowners.

Financing the fight against deforestation Denmark works to aid the fight against deforestation. EUR 47 million (USD 49 million) is expected to be mobilised in 2024 as part of an overall forest and nature effort of more than EUR 134 million (USD 142 million) from 2024-2027 . Support will primarily focus on exposed forest and wooded areas under increased pressure due to deforestation and forest degradation. The program seeks to contribute to climate adaptation, protection of biodiversity, reduction of CO2 emissions, and social and economic development for local communities, including indigenous people.

FINANCING THE GREEN TRANSITION

Photo credit: Oliver Paaske, Unsplash

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SECTION 1 • ADDRESSING THE NEED FOR INVESTMENTS IN THE GREEN TRANSITION

Preserving and protecting the Amazon rainforest Nearly a third of the world’s land area is covered by forests and is home to around 80 percent of the world’s land-based biodiversity. However, since 1990 the world has lost more than 420 million hectares of forest, according to the UN’s Food and Agriculture Organization (FAO) , mainly in Africa and South America. The Amazon is the world’s largest rainforest. It stretches over 6.9 million km2 and nine different countries. It is also home to most of world’s biodiversity, sustaining 2.5 million different kinds of insects and 16,000 different tree species. Yet, for the past 50 years 17 percent of the forest has been lost due to deforestation.

CONTRIBUTORS With its proposal for the National Budget for 2024, the Danish government has allocated EUR 20 million (USD 21 million) to the Amazon Fund, which works to reduce deforestation, protect biodiversity, improve the living conditions of local populations, and promote sustainable development in Brazil. The fund is managed by the Brazilian Development Bank (BNDES), which is responsible for raising and investing funds, and monitoring the supported projects.

Ministry of Foreign Affairs of Denmark

LOCATION Amazon rainforest, South America

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CASES

Photo credit: Ørsted

Blue bonds: Financing a cleaner, healthier ocean The ocean plays a key role in tackling both the biodiversity and climate crisis. It functions as one of the main repositories of the world’s biodiversity while also holding a large potential for ocean based renewable energy, not least offshore wind energy. However, the ocean is under immense pressure from climate change and is suffering from biodiversity loss. Yet, there is still a substantial funding gap for sustainable ocean action. The energy company Ørsted is leading the charge to change this. They have an ambition to ensure that their renewable energy projects have a net-positive impact on biodiversity from 2030 and have entered a partnership with WWF to unite action on climate and ocean biodiversity.

On World Ocean Day 2023, Ørsted became the first energy company to issue blue bonds.

The five-year, EUR 100 million (USD 106 million) blue bond assists in diversifying and expanding the market for sustainable ocean financing, which is crucial for enhancing ocean health. Proceeds from the blue bond will be allocated towards financing initiatives that specifically target offshore biodiversity and sustainable shipping.

CONTRIBUTORS Ørsted

LOCATION Worldwide

Issuing blue bonds was also driven by a growing interest from investors seeking to align their investment strategies with sustainability objectives, diversify their portfolios, and tap into growth sectors. Ørsted’s issuance of blue bonds is a step towards tackling the twin challenge of the biodiversity and climate crisis simultaneously and creating a more sustainable and resilient ocean economy. The investments are a great example of driving ecological impact and financial returns.

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SECTION 1 • ADDRESSING THE NEED FOR INVESTMENTS IN THE GREEN TRANSITION

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CASES

Photo credit: ATP

Future-proofing companies by tackling biodiversity Biodiversity loss constitutes a major risk to both nature and investments according to Denmark’s largest pension fund ATP. As a long-term financial investor, it invests in a broad range of companies world-wide to secure life-long pensions to the Danes. ATP’s ambition to minimise risks in this area by driving an increased focus on biodiversity loss as part of companies’ sustainability strategy, based on the belief that companies who minimise their impact on biodiversity are better prepared for the future.

Every single sector is affected by biodiversity loss, which is why ATP is asking the companies they invest in to map their supply chain in relation to biodiversity impacts and dependencies. The mapping is the first of many steps as this is a new, complex, and often geographically specific issue. However, ATP believes that it is imperative that companies must make a strong effort to enhance their understanding and data on nature-related impacts and dependencies.

CONTRIBUTORS ATP

LOCATION ATP’s active dialogue with companies has encouraged them to explore how they can assess and reduce their negative impact on biodiversity. In Denmark, each company is assigned a score by ATP, allowing ATP to help them prepare for future legislation and progress towards a greener future while protecting ATP’s investments.

Høvsøre, Lemvig

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SECTION 2 • THE ROLE OF THE FINANCIAL SECTOR IN INCENTIVISING A GREEN TRANSITION

CHAPTER 5

Transformation through sustainable investments In addition to providing capital, institutional investors such as pension funds and asset managers also have the ability to exert influence on companies through their ownership to ensure their activities have a positive environmental impact.

The Danish insurance and pension industry manages approximately EUR 535 billion (USD 565 billion) , which is invested on behalf of Danish insurance and pension customers. It is one of the world's largest pension assets relative to the country’s GDP, and about two-thirds of it is invested abroad. Members of the Danish Investment Association have assets under management worth almost EUR 600 billion (USD 630 billion) in total. While the primary task of pension funds and asset managers is to generate returns to their customers, both are increasingly working to ensure that their investments are made in a responsible and sustainable manner to mitigate ESG-incurred risks.

Transparency and responsible investments Danish pension funds and asset managers have a long tradition of being transparent about their investments.

They are recognized for leading the way on how customers’ savings are invested in a responsible manner with respect for human rights, the climate, international conventions, and proper governance structures. Most have published a policy on responsible investment, and all pension funds disclose records of their divestments on their websites. While each institutional investor has a different approach, all Danish pension funds, support one or more international climate initiatives and alliances, such as the Paris Aligned Investment Initiative (PAII), Climate Action 100+, Institutional Investors Group on Climate Change (IIGCC), and the UN-Convened Net Zero Asset Owner Alliance (NZAOA).

Danish institutional investors work with active ownership The concept of active ownership — whereby an institutional investor uses its co-ownership of a company to influence the behaviour and business strategy of the companies it invests in — is becoming increasingly significant to promote greener choices.

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Typically, this is leveraged by: • Engaging in dialogue with management • Voting at general assembly • Divestment/exclusion Danish institutional investors prefer engaging in exhaustive dialogue with companies they invest in as its primary approach to encourage behavioural changes. While divestment is often seen as a last resort where engagement fails, it can ultimately be used to hold companies accountable if their behaviour does not live up to the ESG priorities of the pension funds or asset managers. The institutional investor can also choose to exclude companies without prior dialogue, especially if those companies are subject to international sanctions.

Active ownership as a means to move way from fossil fuels Pension funds and asset managers pushing fossil fuel companies to transition is a great example of active ownership.

Some pension funds propose resolutions at the general assembly of fossil companies and vote to direct these companies away from having an environmentally damaging impact. This is done while recognising the increasing risk that their fossil investments might end up as stranded assets, where the pension funds ultimately cannot sell off their investments. At the same time, 64 percent of the Danish pension funds currently have a policy of not expanding activities in coal and oil fields. In 2022, Danish asset managers voted more than 66,000 times at companies’ general meetings, of which every 10th time was against a proposal from the management. The industry was in dialogue with companies more than 5,000 times during 2022, where most were focused on greenhouse gas emissions, governance structures, human and workers’ rights as well as environmental concerns.

FINANCING THE GREEN TRANSITION

How Danish pension funds engage in active ownership and transparency:

79%

93% Engage in dialogues

Use divestment as a last resort

86%

100%

100%

Disclose records on dialogues

Disclose voting records

Report on dialogues on climate

100%

Disclose records on divestment

Incentivising transition plans for hard-to-abate sectors The transition requires massive funding in the coming years. At the EU level, the latest projection points to an annual financing need of EUR 620 billion (USD 660 billion) to fulfill the objectives of the Green Deal and RepowerEU. The high financing need reflects, among other things, the imperative to support the conversion of sectors like agriculture and food production, which impact biodiversity. Similarly, materials from some of the heaviest industries - such as cement, steel, and mining - are crucial for the necessary expansion of renewable energy.

It is evident that there is an ongoing need for these industries, but achieving more efficient resource utilisation and a significant reduction of the CO2 footprint from production are essential. Therefore, the global cement industry must reduce its CO2 emissions by up to 90 percent, and the steel industry by up to 100 percent towards 2050, measured in relation to the 2015 level. This reduction is necessary to meet the objectives in the Paris Agreement.

CONTRIBUTORS Glasgow Financial Alliance for Net Zero

It is crucial to consider the transition comprehensively from the start, ensuring that companies that are heavy emitters but have credible plans for future sustainability also secure financing. This approach promotes existing sustainable technologies and projects, while simultaneously supporting projects and companies in their journey towards sustainability. In this context, active ownership is a central tool for influencing companies toward a more sustainable direction.

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SECTION 2 • THE ROLE OF THE FINANCIAL SECTOR IN INCENTIVISING A GREEN TRANSITION

Photo credit: A.P. Møller Capital

Supporting African growth through investments Many African countries are experiencing positive development with increasing growth and stable political systems, but to support this development, significant investments are needed in both the public and private sector.

In 2017 PKA, PFA, A.P. Møller Holding, PensionDenmark, Lægernes Pension, and Lærernes Pension were founding investors in the investment fund Africa Infrastructure Fund I. In total, they have collectively committed EUR 505 million (USD 550 million) to the fund, which will help improve infrastructure in selected African countries and thereby enhance the positive development that Africa is experiencing. According to PKA, it is important that the investments are made in partnership with companies, public institutions, and other investors to mitigate the risks associated with investing in developing countries.

The fund is fully invested in eight investment projects from which PKA expects attractive returns for its members all while contributing to growth and job creation in Africa.

CONTRIBUTORS PKA, PFA, A.P. Møller Holding, PensionDanmark, Lægernes Pension, Lærernes Pension

LOCATION Africa

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CASES

Advocating for USA’s largest utility company to decarbonise its business Headquartered in Florida, NextEra is USA's largest utility company. PensionDanmark is a shareholder and for years has been part of an investor coalition urging the company to accelerate decarbonisation to align with a low-emission economy. That has included engaging in multiple dialogues about setting climate targets and prioritising investment in renewable energy. PensionDanmark has also supported the board of directors in assessing their progress and has used its vote to highlight where this has been lagging.

Between 2005 and 2021, solar and wind energy has risen from 17.5 percent to 39.4 percent of NextEra's total capacity. Coal-based energy production has been phased out so that it now represents less than 2 percent of the company's overall energy production.

NextEra has decided to sell its remaining natural gas pipelines and will exclusively invest in renewable energy. This has resulted in a CO2 emissions rate that is 51 percent better than the industry average.

CONTRIBUTORS PensionDanmark

LOCATION PensionDanmark is continuing the dialogue with NextEra and has encouraged the company to publicly disclose more details about its 1.5°C-aligned scenario analysis and how its capital allocation supports it.

Florida, USA

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SECTION 2 • THE ROLE OF THE FINANCIAL SECTOR IN INCENTIVISING A GREEN TRANSITION

CHAPTER 6

Incentivising homeowner and SME green choices For the green transition to be socially and economically inclusive, households and small- and medium-sized businesses must be included. Banks and mortgage credit institutions play a key role in creating incentives for them to make more sustainable choices.

The financial sector can serve as an important catalyst to drive the green transition. Daily contact with private customers and companies from all industries gives banks valuable insights into the challenges for both homeowners and companies. They can use this knowledge to design loans and other financial products which make it more attractive for customers to make greener choices, from private customers thinking of purchasing a new car to companies pursuing an ambitious green business transformation. They can also help future-proof their customers’ assets and activities by ensuring they are compliant with current and future regulations affecting them.

Sustainability training for employees Employee sustainability training in the financial sector is important to ensure that the sector’s ambitions are anchored in day-to-day dialogue with clients. As of 2022, nine out of ten employees in Danish banks had undergone training courses to ensure that they are adequately equipped to consult and advise homeowners and SMEs on sustainability choices.

This makes them more competent at developing new financial incentives, such as loan types for customers, as well as at providing customers with better guidance and helping businesses navigate the increasingly complex legislation affecting them.

Introducing new measurement tools In Denmark, banks and mortgage credit institutions have proactively tried to create the best possible framework conditions and incentives to make green and sustainable choices more attractive for their customers. This has included introducing labelling schemes and measurement tools to make it easier to calculate greenhouse gas emissions from financed activities. The financial sector has, for example, jointly developed a model to measure the CO2 footprint of loans and investments (The measurement tool is further described in the case on page 35). Global standardisation of CO2 measurements are expected to receive increased focus in the coming years, especially with new EU regulation managing the categorisation of sustainable products and sectors.

Incentivising greener choices Banks can contribute to accelerate the green transition by providing access to green loans and financing products with preferential terms for homeowners and SMEs committed to adopting eco-friendly measures. To reach its climate goal of 70 percent CO2 reduction by 2030, Denmark needs more than EUR 11 billion (USD 11.6 billion) to be invested in energy efficiency in buildings. This will require significant up-front investments from developers, housing associations, and private homeowners, but will also lead to savings on their energy bills in the long run. Danish banks have introduced a range of green products giving preferential terms for homeowners and SMEs committed to adopting eco-friendly measures.

They have also made a joint effort to inform customers about the environmental benefits, not simply the potential savings, of improving their home’s energy efficiency.

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FINANCING THE GREEN TRANSITION

Overview of Danish banks' and mortgage credit institutions' financing of climate-friendly activities Activity

in EUR (USD) billion

Loans for green property

EUR 75 (USD 79)

Loans for zero and low-emission cars

EUR 1.2 (USD 1.3)

Other green activities

EUR 16 (USD 17)

In total

EUR 92 (USD 97)

Source: Sustainability Report 2022, Finance Denmark

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SECTION 2 • THE ROLE OF THE FINANCIAL SECTOR IN INCENTIVISING A GREEN TRANSITION

The power of ESG KPI-linked loans It can be a challenge for some businesses to align their financial goals with sustainability and responsible business practices. ESG (Environmental, Social, and Governance) KPIlinked loans are a financial instrument to incentivise and reward businesses for achieving specific sustainability and responsible business targets.

These loans have a similar loan structure to traditional loans but are unique in tying ESG KPIs to the loan agreement, meaning that the borrower commits to achieving certain ESG performance-related targets over the loan's duration. It is important to ensure that ESG KPIs are relevant and meaningful for many different companies, which is why they are often tailored to the borrower's industry and operation. For example, a manufacturing company may have ESG KPIs related to reducing greenhouse gas emissions.

Ensuring transparency is important, which is why regular monitoring and reporting is required to assess the borrower's progress toward meeting the ESG KPIs. It is beneficial for meeting ESG KPIs to unlock positive financial benefits, such as lower interest rates or extended loan tenure. On the other hand, failing to meet the ESG targets may lead to penalties or higher interest rates. Financial authorities and governments are constantly updating and introducing regulations on ESG-related investments to prevent misleading sustainability claims from occurring.

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CONTRIBUTORS Finance Denmark

LOCATION Worldwide

CASES

The financial sector fuels green transition 29 percent of Denmark's CO2 emissions originate from domestic transport. Therefore, a gradual replacement towards more climate-friendly cars is an important part of achieving the country’s overall climate target of a 70 percent CO2 emissions reduction by 2030.

To support this ambition, Danish financial institutions have introduced attractive loans on zero- and low-emission vehicles.

At the end of 2020, a political agreement on car taxation was reached, supporting the transition of Danish vehicles to greener alternatives. The political agreement is estimated to increase the number of zero- and low-emission vehicles to 775,000 by 2030. Both large and small financial institutions have developed a wide range of different types of car loans for these vehicles which customers can choose from when they need to finance a new electric car.

The introduction of these preferential terms for green car loans has helped accelerate the adoption of electric vehicles. In 2022, Danish banks' lending for electric cars and other zero- or low-emission cars had increased by 76 percent compared to the previous year and totalled EUR 1.2 billion (USD 1.4 billion).

CONTRIBUTORS Finance Denmark

LOCATION Denmark

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SECTION 3 • PARTNERSHIPS AS A MEANS TO ACCELERATE THE GREEN TRANSITION

CHAPTER 7

Denmark's Climate Partnership on Finance A new approach to engage the private sector in reaching Denmark’s ambitious climate targets led to both increased commitment of capital for green investments from the financial sector and new insights, data, and green investment opportunities.

While the finance sector itself has a very low carbon footprint, it has a large impact through investments and lending, and, therefore, plays a key role in helping mobilise and shift capital to decarbonise the economy. Building on the Danish tradition for public-private partnerships, in 2019 the Danish government formed 14 climate partnerships to represent key sectors of the Danish economy. Each was tasked with presenting proposals on how their sector could contribute to the country’s 2030 CO2e reduction goal in a just way, supporting Danish competitiveness, exports, jobs, and prosperity. This resulted in more than 400 recommendations, of which more than 80% have been implemented.

One of these partnerships was formed around the financial sector. It was chaired by Torben Möger Pedersen (then CEO of PensionDenmark) with a secretariat headed by Finance Denmark (the business association for banks and mortgage institutions) and Insurance & Pension Denmark (The Danish trade association for insurance companies and pension funds). The Climate Partnership on Finance’s key focus is to make sure the sector plays a pivotal role in providing the finance and investments necessary to ensure a transition to a green economy.

The importance of cross-sector collaboration Getting closer to other industries and understanding their challenges in achieving emissions reductions was a key

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motivation for the financial sector. The partnership worked actively to share knowledge with other climate partnerships throughout the entire process to identify the areas that required investments. This cross-sector collaboration proved to be a huge asset for the financial sector, as it leveraged new insights, data, and investment opportunities, and ultimately identified the most relevant financial instruments and initiatives to best support relevant technological developments. It also contributed to making recommendations from the other climate partnerships suitable for investments.

The Climate Partnership’s recommendations In its report to the Danish government, the Climate Partnership on Finance expressed its commitment to provide financing for initiatives in other sectors, including energy efficiency in buildings, scaling new green technologies such as Power-to-X, and equity financing of large energy infrastructure projects — such as the expansion of offshore wind.

As a result, the Danish financial sector has pledged to invest EUR 805 million (USD 850 million) in the green transition over a ten-year period. The partnership also established a framework for Financed Emissions Accounting, which includes principles and methods for their members, and delivered 11 recommendations to the Danish government on how to improve framework conditions for financing the green transition.

FINANCING THE GREEN TRANSITION

Selected recommendations from Denmark's Climate Partnership on Finance

01 02 03 04 05 06

Long-term and predictable frameworks Establish financing structures involving independent state loan funds that co-finance projects promoting sustainable development to lower investment risk.

Finance innovation, development, and the export of low-emission solutions Finance innovation and the development of new technologies and new solutions for global climate challenges which can support green growth in the coming years.

Standardisation, digitalisation, and access to data To finance the green transition, it is critical that the financial sector has easy and inexpensive access to standardised digital data regarding companies and households that need financing.

This data needs to be aligned with the EU regulation on reporting for the financial sector.

The role of the public sector Utilise the role of the public sector as a buyer and construction project owner, and indirectly as a trendsetter to promote the green transition in Denmark.

Increase public funding and venture capital Increase the use of public funding and venture capital to finance development projects with the potential to reduce global emissions, such as the development of e-fuels and the capture and storage of CO2 (CCS).

Framework conditions in Denmark and the EU on sustainable financing and investments Continue the work to ensure that EU regulation in the financial field is ambitious, evidence-based, and useful, while limiting administrative burdens on financial and non-financial institutions. Long-term, clear, and attractive framework conditions in Denmark and in the EU play a major role in enabling sufficient investments from the private sector to further accelerate the green transition.

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SECTION 3 • PARTNERSHIPS AS A MEANS TO ACCELERATE THE GREEN TRANSITION

34

CASES

Measuring CO2 impact in Denmark's financial sector There is a need to measure the CO2 impact of loans and investments effectively, so the financial sector can reduce its carbon footprint in alignment with global climate goals.

Many of the Danish government's 14 climate partnerships emphasized the need for a uniform method to assess carbon footprints for companies, consumers, and institutional investors. Consequently, the Climate Partnership for Finance developed a common approach to effectively measure CO2 emissions.

Finance Denmark and Insurance and Pension Denmark have developed a model to measure the CO2 footprint of loans and investments. This model can be used by pension funds and assets managers. It not only enables the establishment of CO2 reduction targets but is also intended to be adaptable for individual companies to calculate their specific CO2 impact. Furthermore, it is part of a larger initiative to create a standardised CO2 measurement method across all sectors, making it a valuable tool for supporting dialogue both consumers and companies on how each can make more sustainable choices.

CONTRIBUTORS Finance Denmark, Insurance & Pension

LOCATION Denmark

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SECTION 3 • PARTNERSHIPS AS A MEANS TO ACCELERATE THE GREEN TRANSITION

CHAPTER 8

Accelerating transition via bilateral collaboration Denmark has bilateral partnerships with governments on energy or environment in 26 countries, both in developed and developing countries.

USA

MEXICO

COLOMBIA

Providing public funds and guarantees is an effective way to leverage private investments, not least in developing countries. Yet, it is also imperative that governments create ambitious climate, energy, and environmental policies, as well as stable regulatory frameworks, to establish sustainable environments both locally and regionally.

Government-to-government energy partnerships Denmark is working closely with 24 countries representing 70 percent of the world’s CO2 emissions to accelerate the global green energy transition. The energy partnerships are based on the Danish experience, acquired over decades of working towards a stable, low-carbon energy system – particularly on the integration of renewable energy, long-term energy modelling and scenarios, offshore wind, energy

36

efficiency, and district heating. Through government-to-­ government collaboration, Denmark strengthens the capacity of central partner institutions, and shares knowledge on technical solutions and regulatory frameworks that can enable a green transition.

Denmark has, for example, collaborated with India for several years to help accelerate the deployment of offshore wind, establishing a Centre of Excellence for Offshore Wind and Renewable Energy. This contributes to create the framework for offshore wind and support the green transition in India so that expansion can take place cost-effectively with lower risks for investors. Likewise, with the United Kingdom, Danish advice and experience has had a major impact on the Scottish Heat Networks Bill adopted in 2021 which will

FINANCING THE GREEN TRANSITION

increase the number of Scottish houses connected to district heating 20-fold to 650,000 houses by 2030. This is expected to reduce greenhouse gas emissions by the equivalent of 90,000 cars and generate annual fuel savings of around GBP 130 (EUR 150 / USD 160) for every household that connects to a heat network.

Government-to-government partnerships on water and the environment Within water, climate adaptation, waste management, and circular economy, Denmark has engaged in nine government-to-government partnerships with eight countries. The purpose of these partnerships is to create better framework conditions for sustainable growth and development in these countries. This is done through capacity building and improving public-private collaboration, as well as by strengthening

governance structures, public administration, legal framework conditions, and the alignment of standards.

While there is no direct financial assistance involved in these partnerships, financing aspects are indirectly addressed.

For example, the partnerships addressing water specifically focus on revenue generation and water pricing to ensure a sustainable water supply in the long term. In developing countries, water and sanitation infrastructure is often underfunded as access to these are considered basic human rights. This leads to insufficient revenue for maintenance and development projects, forcing water authorities to rely on unpredictable government subsidies. Here, Denmark has valuable experience with increasing efficiency, longterm asset management, and applying a full-cost-recovery pricing model.

ESTONIA LATVIA

UK

LITHUANIA POLAND

THE NETHERLANDS GERMANY FRANCE

UKRAINE

TURKEY SOUTH KOREA MOROCCO

JAPAN

CHINA

EGYPT

INDIA THAILAND

VIETNAM

ETHIOPIA KENYA

INDONESIA

BRAZIL

SOUTH AFRICA

Danish Environmental Protection Agency cooperation: Kenya, China, Indonesia, South Africa, India, Morocco, Ethiopia, Thailand Danish Energy Agency cooperation: China, USA, India, South Africa, Mexico, Indonesia, Vietnam, South Korea, Japan, Kenya, Ukraine, UK, Germany, Egypt, Netherlands, Turkey, Ethiopia, France, Poland, Latvia, Estonia, Lithuania, Colombia, Brazil

37

SECTION 3 • PARTNERSHIPS AS A MEANS TO ACCELERATE THE GREEN TRANSITION

Helping to de-risk offshore wind in USA Denmark has deployed offshore wind for the past 30 years and contributes to accelerating the green transition in USA by sharing regulatory and policy experience.

Denmark has created its regulatory framework around a tender design that aims to reduce risk and uncertainty for the offshore wind developers competing for projects, thus reducing the project and financial risks. Before the government opens a tender for a new offshore wind farm, the TSO, Energinet, conducts preliminary site investigations.

This process provides the developers more information, thus reducing uncertainty and risk when they plan their bid. Energinet finances the investigations temporarily and then passes the cost on to the winning developer as outlined in the tender.

CONTRIBUTORS Ministry of Foreign Affairs of Denmark,

Another example is the One-stop-shop concept, where the Danish Energy Agency is appointed to facilitate permitting across all government and regional agencies. This reduces the risk of delays caused by developers not knowing whom to contact at what step, or government agencies not working on the same timeline.

Danish Energy Agency

Denmark shares these experiences with its five government partners in California, New Jersey, New York, North Carolina, and Virginia, and federal partners Bureau of Ocean Energy Management and Department of Energy, to inform policymaking. In this way, Danish experiences contribute to shape transparent and risk-reducing framework conditions for offshore wind in USA.

USA

38

LOCATION

CASES

Investing in water infrastructure in South Africa South Africa is confronted with considerable challenges in the water sector, which is predominantly dependent on surface water sources. As population growth increases demand, there is an urgent need for substantial investment to build new infrastructure and optimise existing installations.

For the past ten years, Denmark and South Africa have been working closely together to improve water services at the national and municipal level with a focus on water reform, efficiency, and enhanced services through bilateral strategic sector cooperation. Water experts from the Danish Environmental Protection Agency have been posted at the Danish Embassy in Pretoria to work with the national water authorities and the City of Tshwane. The goal is to contribute to improved water resource management and accessibility.

Today, the cooperation is focusing on consolidating results and tangible impact. Going forward, the project will develop potential financing opportunities with the Danish public infrastructure arm, Danida Sustainable Infrastructure Finance (DSIF). DSIF finances public sustainable infrastructure projects in areas such as energy, water, and sanitation.

CONTRIBUTORS Danish Environmental Protection Agency, Danida Sustainable Infrastructure Finance

LOCATION Pretoria, South Africa

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SECTION 4 • DENMARK AS A DRIVER IN MOBILISING PRIVATE INVESTMENTS

CHAPTER 9

Mobilising private capital for global climate action The strategic use of public funds is key to de-risking private finance and investment in renewable energy and climate.

Denmark is committed to mobilising private capital.

Annually, global development aid (ODA) amounts to approximately EUR 190 billion (USD 200 billion) — or one-twentieth of the annual investment needed in developing countries to achieve UN Sustainable Development Goals (SDGs) and honour the Paris Agreement. Current global geopolitical and economic conditions make the road to achieving these goals extremely long. War in Europe, rising inflation and interest rates, pressure on public budgets, and general global macroeconomic uncertainty have meant that countries, institutions, and private investors leading the green transition now find themselves forced to prioritise differently to a few years previously.

We must look at development and climate finance with new eyes and shift gears. It is impossible to meet global climate goals without private actors pulling in the same direction, since private investment funds manage sums far greater than global development aid. Therefore, unlocking private investments is imperative to bridging the gap. In Denmark, public-private collaboration is central to tackling climate change and investment mobilisation. This has played out in several ways.

Investment partnership between state and pension funds The Danish development finance institution, the Investment Fund for Developing Countries (IFU), plays a crucial role in paving the way for private investments. In an investment partnership between the Danish state and Danish pension

40

funds, IFU raised EUR 665 million (USD 700 million) in the Danish SDG Investment Fund in 2018. The fund is now fully invested and has mobilised investments for a total of EUR 1.9 billion (USD 2.1 billion) across 25 companies in Africa, Asia, and Latin America. This has enabled the installation of close to 1.4 GW of renewable energy, and around 5 GW once all projects are fully implemented. This will contribute to an avoidance of 6 million TCO2 annually.

Heading towards 2030, the Danish government has decided to increase IFU’s capital base by over EUR 1.8 billion (USD 2 billion). IFU will use this to expand its partnership with institutional investors, and boost its contribution to Denmark’s climate finance, moving from EUR 285 million (USD 300 million) today to around EUR 850 million (USD 900 million) towards 2030.

The Export and Investment Fund of Denmark (EIFO) EIFO is another financing institution under the Danish state, which contributes to accelerate global green transition.

EIFO provides risk-tolerant government capital for Danish companies and their foreign and domestic business partners. This lowers some of the risks associated with large investments in green infrastructure both domestically and internationally. Recently, EIFO financed one of the world’s largest wind farms in the Baltic Sea, contributing to a shift from coal to green energy sources.

FINANCING THE GREEN TRANSITION

41

SECTION 4 • DENMARK AS A DRIVER IN MOBILISING PRIVATE INVESTMENTS

Photo credit: IFU

Catalysing solar energy in Nigeria In Nigeria, the national electricity grid only provides around 20 percent of the power. A significant portion of power is produced using more than five million diesel generators.

These diesel generators make a significant contribution to the CO2 emissions and overall air pollution, and the total cost for fuel and maintenance is around EUR 13 billion (USD 14 billion) annually.

Through the Danish SDG Investment Fund, IFU has led a consortium of private and public investors who have collectively invested EUR 36 million (USD 38 million) in the Nigerian company Daystar. The company delivers turnkey solar energy solutions to businesses and factories, enabling a more reliable electricity supply while reducing costs and CO2 emissions.

CONTRIBUTORS IFU, Ministry of Foreign Affairs of Denmark, Daystar

Among other things, the purpose of the investment was to provide working capital to Daystar to develop its organisation and increase the installation of solar energy systems.

The investment was a success, partly because of IFU's active ownership. It has helped create an attractive, locally-rooted company to help drive Nigeria's green transition and generate green jobs and growth. Daystar has since been sold to Shell. Shell brings fresh capital to Daystar for the company to grow and Daystar will contribute to Shell's transition away from fossil fuels.

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LOCATION Nigeria

CASES

Photo credit: FLSmidth

Danish funds foster green cement project in Ghana Cement production, essential for concrete, accounts for approximately seven percent of all CO2 emissions. This environmental impact is primarily due to the traditional use of carbon-intensive clinker as the main ingredient in cement production.

Substituting clinker for low-carbon alternatives is key to cement decarbonisation.

This practice is well-established, and standards are evolving as blended cement proves its quality. In countries heavily reliant on clinker imports, such as Ghana, the substitution of clinker with alternatives not only reduces carbon emissions, but also lowers transport costs and reduces the need for foreign currency for imports.

The Danish company, FLSmidth, is providing engineering and supplying equipment for the world’s largest calcined clay plant at CBI-Ghana. Calcined clay has similar properties to clinker but offers a much lower carbon footprint. At CBI-Ghana, it will reduce CO2 emissions by 20 percent compared to current practices.

CONTRIBUTORS FLSmidth A/S, DSDG (the Danish Sustainable Development Goal Investment Fund, under the management of IFU), EIFO (the Export and Investment Fund of Denmark), Norfund (the Norwegian Investment Fund for Developing Countries),

FLSmidth facilitated access to Danish financing for the CBI-Ghana project through partnerships with IFU and EIFO. The financing includes both equity and a long-term export credit loan and was made possible after a thorough commercial and environmental due diligence of the project. The project qualifies because it will introduce a new low-carbon cement to Africa and complies with the EU Taxonomy for sustainable cement production. Similarly, the door for commercial bank participation was opened.

Continental Blue Investment Ghana Ltd. (CBI-Ghana), F. Scott

LOCATION Accra, Ghana

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SECTION 4 • DENMARK AS A DRIVER IN MOBILISING PRIVATE INVESTMENTS

CHAPTER 10

Denmark: A leading financial hub for green investments Denmark's position as a financial hub for green investments can be attributed to several factors, the most important being fostering a conducive environment through long-standing commitment to renewable energy and sustainability.

Accounting for only 0.1 percent of global greenhouse gases, Denmark's direct CO2 footprint is rather small. However, there is huge potential for accelerating the global green transition by sharing some of the experiences and learnings that have enabled Denmark to transform its energy systems from black to green whilst ensuring economic growth.

Pioneering green finance: A blueprint for sustainable investments One of the most valuable insights relates to how Denmark has developed a subsidy-free competitive market for offshore wind through government initiatives, private sector engagement, and investments from the financial sector. This was achieved through clear regulatory and stable framework conditions, as well as collaboration between public and private actors and research institutions. Pension funds also played a vital role in the development of the industry, making unusually bold forays into offshore wind projects prior to their construction. These investments not only fundamentally reshaped the risk landscape of investments in offshore wind farms, but also catalysed a transformative shift in how green initiatives can be financed.

Accelerating the global green transition In 2019, Danish pension funds (as the first national industry in the world) made a collective pledge at the UN General Assembly to invest an additional EUR 45 billion (USD 40

44

billion) in clean energy technology (SDG 7) to reach a total of EUR 63 billion (USD 66.5 billion) by 2030. The latest progress assessment shows that pension fund investments were well on track in 2022, having added a total of EUR 15 billion (USD 16 billion) since 2019. The announcement was followed by the creation of the Climate Investment Coalition (CIC), uniting the Danish Government and the pension fund sector to spur private green energy and climate investments internationally towards 2030. Leading the ambition to accelerate the global green transition are AIP and Copenhagen Infrastructure Partners (CIP), two institutional investors who have invested heavily in global renewable projects over the past decade.

Together with Danish pension funds, CIP and AIP have made substantial capital commitments and actively invested in green energy projects. Their long-term investment approach aligns with sustainability goals, ensuring stable returns while actively supporting the transition to a greener economy. AIP and CIP have specialised in planning and realising such large-scale projects. They attract and collect billions of Euros from a wide range of investors from around the world to help make large-scale green projects possible. The two investors also contribute to the transition by working together and establishing cooperation between wind turbine producers and utility/power companies across the world.

FINANCING THE GREEN TRANSITION

About AIP and CIP AIP AIP is an investment manager dedicated to renewable energy and infrastructure assets across Europe and North America.

The team consists of approximately 90 dedicated professionals with extensive industry and investment experience, with offices in Copenhagen, London, Madrid, and New York.

To date, AIP has invested more than EUR 7 billion into energy transition assets, of which more than EUR 2 billion has been invested into European offshore wind alone. Once operational, AIP assets are expected to have a capacity of approximately 7 GW, delivering renewable energy to more than [6] million households per year.

AIP’s investors include Danish pension funds PKA, PenSam, Akademiker Pension and Lærernes Pension, the Norwegian financial group Storebrand, and a group of Swiss institutional investors.

CIP Copenhagen Infrastructure Partners P/S (CIP) is the world’s largest dedicated fund manager within greenfield renewable energy investments and a global leader in offshore wind. It was founded in 2012. The funds managed by CIP focus on investments in offshore and onshore wind, solar PV, biomass and energy-from-waste, transmission and distribution, reserve capacity, storage, advanced bioenergy, and Power-to-X. CIP manages 11 funds and has to date raised approximately EUR 26 billion (USD 28.5 billion) for investments in energy and associated infrastructure from more than 150 international institutional investors. In 2023, CIP announced that its’ Copenhagen Infrastructure V (CI V) fund had reached a first close at EUR 5.6 billion (USD 5.9 billion) in capital commitments received, which puts it on track to reach its target fund size of EUR 12 billion (USD 12.7 billion).

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SECTION 4 • DENMARK AS A DRIVER IN MOBILISING PRIVATE INVESTMENTS

Financing offshore wind to power one million homes In July 2022, the Federal Council in Germany voted to restart several of the country's environmentally damaging coal power plants to meet the energy demand created by Russia's invasion of Ukraine. This created an urgent need to develop green alternatives to ensure energy for both German industry and consumers.

AIP Management established a consortium with two highly experienced partners, Allianz and Norges Bank, to finance a new offshore wind farm called He Dreiht, investing more than EUR 1 billion into the project. He Dreiht, which is co-owned with the German utility EnBW, is expected to start delivering green electricity in 2026. At that time, it will be the largest operational offshore wind farm in Germany and is anticipated to provide green electricity to more than one million German households.

The investment is a significant contribution to ensuring both future German energy supply security and the green transformation of Europe's energy sources, while also generating a long-term and stable return for investors.

CONTRIBUTORS AIP Management

LOCATION Germany

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CASES

USD 5 billion green investment to generate 4,500 jobs in the Philippines The Philippines is undergoing a historic transition from fossil fuels to renewables, propelled by recent government policies. This includes a moratorium on coal plants, lifting foreign ownership restrictions in renewable energy, and ambitious targets for 2030 and 2040. These initiatives will bolster renewable capacity, ensuring energy security and driving economic growth. The commitment to offshore wind positions the Philippines as a pioneer in Southeast Asia.

As the first 100 percent foreign developer, Copenhagen Infrastructure Partners (CIP) was awarded 25-year offshore wind service contracts from the Philippine Department of Energy. The projects along the coasts of Camarines Norte, Camarines Sur, Northern Samar, Pangasinan, and La Union, have a combined capacity of up to 2 GW, and represent a crucial step towards harnessing the Philippines' vast potential for low-cost, high-quality renewable energy. This USD 5 billion investment is set to generate up to 4,500 jobs during development and operations, power to 3-4 million Filipino households, and reduce annual CO2 emissions by 2.9 million tons. Operations are expected to commence as early as 2028, making them the first of their kind in the country.

CONTRIBUTORS CIP (Copenhagen Infrastructure Partners), COP (Copenhagen Offshore Partners)

LOCATION The Philippines

Apart from investing in mainstream renewables, including green hydrogen and ammonia, CIP is a global leader in offshore wind, with landmark projects such as the 589 MW Changfang and Xidao project in Taiwan, which, together with the 298 MW Zhong Neng project, attracted funding from 35 local and international banks, as well as Vineyard Wind, the first commercial-scale offshore wind project in USA.

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