Kostadinov: The Green for Growth Fund is accelerating its expansion after topping EUR 1 billion mark

Financial institutions and authorities in the Western Balkans should continue to promote the energy transition and decarbonization in a compelling way in order that the wider society sees the benefits and economic gain, says Borislav Kostadinov, Fund Director for the Green for Growth Fund (GGF) at Finance in Motion.

In an interview with Balkan Green Energy News, he pointed out that GGF recently topped EUR 1 billion in assets under management. The fund isn’t taking its foot off the EV accelerator pedal and on its impact trajectory it will remain an active and engaged partner of banks, investors and developers of renewable energy projects, Kostadinov added.

Mobilizing private capital is critical in the fight against climate change, especially in emerging markets, and the Green for Growth Fund proved to be very successful in the activity, Borislav Kostadinov says. A green finance pioneer and innovator, he oversaw doubling the outstanding portfolio to over EUR 1 billion as the director for GGF at Finance in Motion, its advisor. Total disbursement since inception, to almost a hundred partners and more than 60,000 end borrowers, is nearing EUR 2 billion.

GGF is one of the largest emerging market climate action funds in the world even though it covers just 19 markets in the European neighborhood including the Western Balkans.

Kostadinov estimates its current annual growth trajectory at approximately 20% and says that the demand for its offering is steadily picking up.

The Green for Growth Fund is an active and engaged partner adding value throughout the financing lifecycle

GGF is a climate change mitigation fund that addresses the issue by investing in renewable energy, energy efficiency and resource efficiency projects in emerging markets. It works with financial institutions and also provides direct financing to businesses and renewable energy project developers. Founded in 2009, the GGF is an initiative of the European Investment Bank and Germany’s KfW Development Bank.

“We don’t just provide the funding and step aside. The Green for Growth Fund is an active and engaged partner adding value throughout the financing lifecycle. I am glad to witness the steadily increasing intrinsic motivation among our Partners. I love collaborating with changemakers, who believe in active engagement, and pursue green funding not just because it’s fashionable or externally incentivized, but because they are genuinely committed to making a difference,” Kostadinov stressed.

The fund offers a variety of financial instruments including local and fx currency loans, subordinated loans and green bonds as well as, to a limited extent, minority equity stakes for renewable energy projects.

Banks need to be responsible citizens

“Banking is changing, and I wish to see banks embrace green finance and not be driven by regulation only,” Kostadinov asserted, on the cusp of the fund’s 15^th anniversary. “I would like to see them driven by their own vision and understanding that it is essential to maintain relevance in a quickly changing world. Bankers can navigate the shifting tides of the energy transition and climate change by acting wisely and decisively, turning some of these challenges into opportunities for growth,” he added.

In Kostadinov’s view, lenders need to stay relevant in the modern day and demonstrate active concern for the future. They must work hard to remain attractive for younger employees joining the workforce. “Banks are expected to act as responsible citizens in society and hence they should be visibly active for instance in tackling issues such as pollution, which is a significant problem in the Western Balkans. I wish to see banks addressing this challenge ever more forcefully in collaboration with their clients and relevant authorities,” he said.

Deep Greening for banks

GGF contributes to climate targets also through its Technical Assistance Facility and the Deep Greening initiative.

Deep Greening is a comprehensive form of cooperation with banks which includes capacity building and advisory services. The idea is to build long-lasting and institutionalized knowledge on committed green finance.

For instance, Fund’s partners in the Caucasus and Moldova are already reaping concrete benefits from Deep Greening. The fund has such endeavors as well in Egypt with major banks and regularly collaborates with the respective regulators.

Next to the European Investment Bank and Germany’s KfW Development Bank, other international financial institutions have come on board – such as the International Finance Corporation (IFC), the Dutch Entrepreneurial Development Bank (FMO), the Development Bank of Austria (OeEB) and the European Bank for Reconstruction and Development (EBRD). The Fund benefits greatly from dedicated funding by the European Commission and the German Federal Ministry of Economic Cooperation and Development (BMZ). It is an innovative and unique public-private partnership, Kostadinov noted. GGF’s layered risk-return structure blends funding from public sources and international financial institutions to attract private capital.

Kostadinov witnessed perception change and awareness growth firsthand

The Green for Growth Fund is supporting the financial sector by independently partnering with certain projects, participating in syndicated loans and funding the banks themselves, Kostadinov explains. After more than four years at Finance in Motion’s GGF’s helm and 12 years in leading green finance internationally, he is proud to have witnessed a substantial leap in the sector.

In 2012, institutionalizing green finance in the banking sector in Eastern Europe was still a far cry, he says.

GGF now works on a larger scale across many markets and through many financial institutions

“We now have a distinguishable position in a very rewarding segment and the GGF now works on a larger scale across many markets and through many financial institutions. I’ve seen the evolution firsthand of the perception and awareness in the market and I’m very happy to see that we are able to do it in a in a commercially viable way. We have a diverse pipeline of credible projects, and we are excited to keep supporting the growth of clean energy in the region,” Kostadinov stated.

Reflecting on prior experience from Bulgaria, Greece and Romania, he expressed the desire to see a spillover from the three European Union member states into the region, in terms of public support and clarity of plans and strategies.

“The road ahead is clear. Countries in the region need to cooperate. Greater social acceptance is needed, and I think it is the responsibility of local politicians to effectively and compellingly communicate this. So that wider society sees the benefits for itself and for the economy and for a prosperous and peaceful future,” Kostadinov says.

Prioritizing sustainability standards in investing

GGF operates and discloses in line with Article 9 of the European Union’s Sustainable Finance Disclosure Regulation (SFDR), which stipulates comprehensive requirements for funds with a sustainable investment objective. In addition, Kostadinov highlighted the fund’s efforts to keep increasing the share of investments that align with the criteria stipulated by the EU Taxonomy, a framework to determine sustainable economic activities.

In 2023, 17% of the fund’s total assets were aligned with the EU Taxonomy, reflecting mostly the fund’s investments in renewable energy and specifically contributing to the Taxonomy’s climate change mitigation objective. Since this calculation is based on total assets, it also covers funding that has not yet been invested. When considering only those investments that have been made in line with the GGF’s sustainable investment criteria, the share increases to 33%.

GGF has one of the highest rates of alignment with the EU Taxonomy

With the EU Taxonomy still being a fairly new framework that is tailored towards EU markets and not yet covering all sectors, assessing and demonstrating alignment requires expertise and dedicated capacities. “We have invested into being able to assess and demonstrate EU taxonomy alignment for certain assets. We take alignment with industry frameworks very seriously and consider it a great achievement, that GGF is currently one of the few funds reporting such alignment, particularly given that it operates in emerging, non-EU markets,” Kostadinov asserted.

According to a recent Morningstar Analysis, more than half of Article 9 funds included in the sample reported 0% alignment with the EU Taxonomy, putting GGF at the forefront.

GGF enabled materialization of 50 MW solar park on site of former coal mine

Beyond the financing complexities, there is evident achievement in several flagship renewable energy projects in the Western Balkans. GGF provided EUR 25.7 million in non-recourse debt finance for the construction and operation of the 50 MW solar power plant Oslomej in North Macedonia.

GGF financed the construction and operation of the largest PV plant on a reclaimed coal mine in the Western Balkans

It is the largest photovoltaic facility on a reclaimed coal mine in the region. It came online this year, lowering dependence on fossil fuels and fossil fuel imports. Its estimated annual output is impressive relative to size: almost 100 GWh.

Renalfa Solarpro Group and French investment group RGreen Invest developed and executed the project. Impact asset manager Finance in Motion, GGF’s advisor, arranged the financing.

Several firsts in solar power segment in Western Balkans

The list goes on. GGF participated in a senior loan for the 140 MW Karavasta solar power plant in Albania with EUR 15 million, Kostadinov added. EBRD and IFC were in the lead, with commercial lenders Intesa Sanpaolo Bank Albania and Privredna banka Zagreb on board. Commissioned in January, Karavasta is the largest PV plant in the Western Balkans.

In addition, the GGF led and acted as the sole lender for the EUR 28 million non-recourse financing of project Blue 1 in Albania. At 50 MW, it is the largest nonsubsidized photovoltaic investment currently operating in the Western Balkans. The facility was built on low-grade agricultural land in accordance with international environmental and social standards, Kostadinov pointed out.

Bogoslovec wind park is model for future investments

GGF’s first equity investment was in the first private wind power plant in North Macedonia. At 36 MW, the Bogoslovec facility effectively doubled the country’s wind power capacity and it serves as a model for future green investments.

Contributing to stability in crisis regions

In addition to Southeast Europe, the GGF is active in the Middle East and North Africa (MENA), the Caucasus and Ukraine and Moldova as well. Asked about its challenges and perspective in several countries suffering from instability and war, Kostadinov pointed out that the GGF, thanks to stepped up support from its shareholders, continues not only to bolster up its existing Ukrainian partners but has also built a pipeline of new clean energy and energy efficiency projects. In addition to Ukraine, the GGF recently signed deals for two transactions and one memorandum of understanding in Moldova, which has been adversely impacted politically and economically as well.

“The Fund continues to engage in all countries of operation and to provide vital funds and knowhow,” Kostadinov stressed.