Catalysing private-sector investment

Where private actors can balance risks and returns, investment will follow. Private actors bring efciencies and management skills, have access to innovation and technology, and own many of the assets that generate emissions or will need to be adapted to a climate-changed world. Close to home, nancial disclosure standards, scal approaches and carbon pricing provide excellent examples of policies and measures that can change investment behaviour.

As regards development cooperation, with their unique toolkits of nancial instruments, it comes as no surprise that, from 2013 to 2018, multilateral development and national development banks doubled their support to unlock local public-private partnerships across regions as part of the global effort to mobilise climate nance.

 

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The Green Climate Fund’s (GCF) private-sector facility provides good examples of the types of tools that can de-risk private capital. As of October 2019, 25 private-sector projects had been approved for USD 2.2 billion, which was expected to mobilise an additional USD 7 billion in co-nancing. The associated mitigation portfolio is expected to cut 1.1 gigatonnes of CO2 equivalent, while the adaptation portfolio is projected to reach 47 million beneciaries.

Green standards and taxonomies, such as the EU Taxonomy for Sustainable Activities, the Green Bond Principles, and the World Bank’s National Green Taxonomy for Emerging Markets guidance, are gaining traction as tools to help direct capital towards low-carbon and environmentally safe projects. By identifying opportunities and investment parameters, they can inform investors of potential projects and reduce reputational risks, while reducing due diligence risks for banks and financial institutions. In so doing, taxonomies reduce perceived risks of climate investments and lower costs of finance.

The COVID-19 pandemic has also opened up a new path for development finance – institution-led public-private-sector collaboration. The GCF, with its USD 100-million Energy Access Relief Facility, aims to support access to energy for 308 small and medium-sized enterprises (SMEs) from nine countries in Africa that have suffered severe liquidity constraints due to the impacts of coronavirus. This has helped them to remain solvent during the COVID-19 crisis while providing employment to vulnerable communities.

As governments roll out COVID-19 recovery packages, however large or small, priority must be given to ensuring SMEs and local communities benefit. Without the private sector on board, a green transition will remain beyond reach.