Lima had been touted as the climate finance COP - and in many ways it was.
China and Brazil put climate finance on the agenda early, with their criticism that the $10 billion pledged so far to the Green Climate Fund (GCF) was insufficient.
Everyone privately acknowledges that they are right, and far more is needed, but it's a good start in a short time.
Finance has remained in the text, even though it does not spell out a pathway to scale up to the $100 billion needed to turn pre-2020 ambition into action.
Where were the banks and investors? Other than some notable leaders such as AP4, they're not here
The GCF was visible at the COP and has been vocal and consistent that it wants to work with the private sector. But where are the banks and investors?
Other than some notable leaders such as the Swedish pension fund AP4, they're not here - not a great start for the much-discussed public private partnership on finance.
This partnership needs to work given that the scale of the challenge and the opportunity is so vast. We need to double the $1.2 trillion currently invested annually in clean energy every year until 2030 if the global energy system is to fit within science-based carbon emissions limits.
The so called 'missing trillion' is not going to be found on the balance sheets of developed countries. Much of it, perhaps as much as 80-90%, will have to come from the private sector, and the only way to raise that much funding quickly and to scale, is through the capital markets.
Liquidity is not the problem – it's risk
Liquidity is not the problem – even in the depths of the financial crisis there was plenty of funding – it's risk.
So, the role of the GCF must be to catalyse this funding, and to do this its primary task should be risk management, not lending. As well as providing grants, concessional loans and guarantees, it should also look at other means of reducing risk, such as technical assistance for policy formation to reduce country-level policy risks.
It could even be prepared to transfer policy risks from projects. It could also offer funding for programme and project-level management capacity building so that transactions can be brought to market rapidly and to scale.
There is notable success in this area, such as the efforts of OPIC, which provides early stage funding for project development repaid from debt financing once the project becomes investable - in effect, taking the project development risks.
The GCF could turn the programmes and projects it funds into investment-grade, utility-style assets that the capital markets can finance
Finally - and this is important for smaller projects such as off grid rural energy - the GCF could help establish financial warehouses to aggregate small loans and manage related risks and refinance them through bond issuance.
The green bond market, heading for $40 billion this year, and $100 billion in 2015, is one source of finance that could be deployed here.
But the GCF doesn't need to take all the risk - and neither should it. The private sector has long experience of risk management and can handle various types of risks including performance, currency and interest rates, carbon price and counterparty credit.
The GCF should act as a rational investor by charging an appropriate premium for the risks it takes. It should also look to scale back its support as transactions and credit markets are developed, the risks and costs reduced, and exit transactions at the right stage through capital market refinancing. This way, the GCF will be able to recycle its funding, catalyse more transactions, facilitate financial market development and, importantly, increase the private funds it can leverage in.
There is plenty of experience in both multilateral development banks and the private sector in how to successfully crowd-in funding, and the GCF could do a lot worse than co-design its Private Sector Facility (PSF) with these institutions. This means doing the detailed work to come up with a series of financial instruments that allocate risks to those entities best able to manage them. In doing so, the GCF could turn the programmes and projects it funds into investment-grade, utility-style assets that the capital markets can finance - stable, low-risk, long-term and able to achieve lower funding costs.
With the right design, risk management and blending of private and public money, the GCF should be able to achieve significant leverage of private capital
This will require the GCF to have a risk appetite towards the bottom end of investment grade (BBB) for the risks it takes, which should not be a problem given its backing.
So, with the right design, risk management and blending of private and public money, the GCF should be able to achieve significant leverage of private capital. Experience of public sector funds has been good here, with the UK Green Investment Bank achieving 2-3 times private capital for every pound it invests in its first two years in operation, and the more established Global Environment Facility achieving $40 for every $1 of public finance in some cases.
This should begin to close the $1 trillion gap with private liquidity. As one investor in Lima put it: "Funds are paying to invest money in European sovereign bonds." Anything that gives a better return for an acceptable risk is going to be attractive.
The GCF team in Lima were receptive to these suggestions, even though not every negotiator or government minister welcomes the involvement of the private sector.
As they return to Songdo for the daunting task of designing the small print of the PSF, I hope they remember what they heard and accept the offers of help.
Jon Williams is partner at PwC specialising in sustainability and climate change
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