Strategies for Driving Green Investments in Emerging Markets

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“If you want a greener future, you can’t ignore emerging markets” noted Vivek Pathak, Director and Global Head of Climate Business, International Finance Corporation (IFC) at the Climate Investment Summit on September 7, 2021.

Pathak’s comments were part of the session on “Public Private Partnerships for Increased Climate Mitigation Investments in Emerging Markets.” Led by the Climate Investment Coalition, one of P4G’s knowledge and investment partners, the event focused on increasing investments in climate and green recovery to reach 2030 goals and support the net zero transition.

Damilola Ogunbiyi, CEO, Sustainable Energy for All, provided keynote remarks about the urgency of taking climate action that addresses the needs of vulnerable communities in developing countries. She noted the clear link between energy access and climate mitigation, highlighting that we can’t get to net zero by 2050 if we don’t achieve SDG7 by 2030. “The pace of the global energy transition hinges on leveraging finance in emerging markets,” Ogunbiyi said. The need for catalytic investment in highly vulnerable regions is urgent to meet energy targets, ensure economic productivity, and get people out of poverty.  

Moderating the solutions-driven discussion, Ian de Cruz, Global Director, P4G, highlighted the economic benefits of a transition in which investors to invest early in high-risk, high-impact projects in developing countries. “The global investment value chain from donor development finance to investment capital is fragmented and disconnected and needs to be transformed to address the challenge ahead of us,” he said.

Jason Lu, Head and Lead Infrastructure Finance Specialist, Global Infrastructure Facility (GIF), shared GIF’s work in addressing the weakest link of the value chain, project preparation. In order to create a pipeline of investable projects, it provides programmatic support to build standards and capacity with local governments and institutions, as well as facilitating knowledge transfer. For example, in Indonesia, GIF has worked with the government to create a de-risking mechanism for the country’s significant geothermal energy potential. By providing concessional loans, the private sector has the incentive and risk assurance needed to move from exploratory to more expanded drilling.

Vivek Pathak shared IFC’s work in bridging capital gaps in emerging markets to de-risk investments in green growth projects. He argued that there isn’t a shortage of capital for green projects, rather there’s enough financing if there are well-structured projects with a fair risk to reward allocation. This is why standards are so important – investors want insurance that there are fair, transparent, and consistent standards for their investments. To develop these standards, IFC has worked with government regulators and the private sector in developing countries. For example, their Planet Emerging Green One Fund with Amundi will invest $2 billion from G7 countries’ pension funds into developing markets.

Hanna Kaskela, Director of Responsible Investments, Varma, shared experiences from the private sector in managing sustainable investment opportunities. She noted that investors want to invest in assets that mitigate climate change, but they also want those investments to be low-risk. Kaskela underscored the need to avoid only addressing the easy solution of changing something that is bad without promoting an alternative that can reap the most benefit. For example, many initiatives call for shutting down coal plans and moving away from investments in dirty energy, but they don’t direct investors to alternative clean energy projects that they can shift their financing toward. A smooth transition in these scenarios will be essential to avoid a development crisis, as well as an energy crisis.

With engaging questions from participants, the discussion addressed how to make sure investments from developed countries are going to local entrepreneurs and building domestic capacity to respond to climate challenges. Pathak shared how IFC has worked to green domestic financial sectors to help scale up climate lending and train national banks to identify viable projects. Pathak urged that local context is key, noting that IFC tries to adapt successful models in which investors can diversify their risk. Through donor capital, partnerships that create investable projects, and financial institutions that de-risk pools of assets, he laid out how to build a pipeline that can crowd in the trillions of investment needed to meet climate challenges. Pathak highlighted that “green makes good business sense.”

Lu built on Pathak’s comments about the encouraging trend of more developing country governments engaging in project preparation facilities as national development banks invest more upstream. Going forward, it will be crucial to form stronger partnerships at the domestic level to bring the private sector closer with the local perspective. By working in parallel with donor capital, countries can co-invest in innovative projects ready to deliver the change needed on the ground.

The speakers reiterated their commitment to working together and continuing to tackle the hard questions. P4G looks forward to continuing to build the pipeline and doing the work needed to reach an equitable, net zero world for all.

Learn more about the full Summit here.