Investment from the private sector is essential for tackling climate change. In order to limit warming to two degrees Celsius, the International Energy Agency has called for investments of US $1 trillion per year until 2050 to finance the transition to green growth. This target cannot be reached without increasing investments and innovations from the private sector.
At the recent Business for Social Responsibility (BSR) conference on Transparency and Transformation, the potential for climate-smart investments was a feature of many of the sessions and discussions with the 1,000-plus business, civil society, and policy leaders in attendance. Throughout the conference it was clear that the demand for and the willingness of businesses and institutional investors to commit to these kind of investments is growing.
This mirrors the strides taken by the Climate Investment Funds as we continue to ramp up private sector investments. Over 20% of co-financing in the CIF portfolio comes from the private sector. Complementary to country programing, new targeted private sector programs have encouraged private sector innovations. Under the Strategic Climate Fund over US $200 million has been endorsed as part of the private sector set-asides. Our Clean Technology Fund has endorsed over $500 million for dedicated programs in geothermal power, mini-grids, mezzanine finance, energy efficiency, solar photovoltaic power, and early stage renewable energy.
So I travelled to the conference hoping to learn about the broader trends in finance,
climate-smart investments and sustainability. I wasn’t disappointed.
I heard private equity firms explain how they are now incorporating resilience considerations into their portfolio – a significant development and one hard to imagine even a few years ago.
Climate bonds were presented as an innovative financing tool for companies to fund climate resilience. The climate bond market is growing, but is still too small a proportion of investments. John Hodges, Director of Financial Services for BSR outlined the growth potential for the green bond market, which currently totals approximately US $36 billion but is only a tiny proportion of the US $80 trillion estimated total global assets under management, and one that needs to grow if we are to meet the target outlined by the IEA.
However, the outlook is brighter than these figures suggest. Sean Kidney, CEO, of Climate Bonds Initiative noted that every single green bond issued is oversubscribed. The demand is huge and there are great opportunities for continued growth of the green and climate bond markets.
The importance of balance between short-term and long-term investments was emphasized by a number of speakers. Senior leaders from the food and beverage industries outlined the interlocking crises of the modern world; a world where 1 billion people will be living in poverty next year, where food supplies are failing, and where GHG emissions are accelerating climate change. They stressed that if we don’t address problems such as climate change now, business cannot function in the future. From water to rainforests to carbon credits, I heard numerous examples of innovation in action.
The CIF’s Clean Technology Fund supports sustainable transport so I was particularly interested to hear how shipping companies are redesigning ships to make them less polluting, building new ones to reduce fuel use and ensuring all the ship’s components can be reused. While this may be a very different mode of transport to the cleaner and greener buses CTF help fund in middle-income countries, the overall goal of reducing greenhouse gas emissions is the same.
My head was spinning as I left the conference – all these new ideas, inspirations and interactions. The two days I spent there reaffirmed for me the potential for private sector investment in climate-related areas. So, most of all, I left the conference feeling hopeful about what collaboration in climate finance can create for our future.