How Governments Can Unlock The Trillion-Dollar Climate Investment Opportunity

Nationally Determined Contributions (NDCs) submitted under the Paris Agreement create a strong signal for investors and companies looking for profitable investments in climate-resilient infrastructure. Combined with massive cost reductions and rising demand for sustainable agriculture and green buildings, the time has never been better to invest in climate business.

As part of the NDC Partnership’s Expert Perspective series, Tom Kerr and Aditi Maheshwari of the International Finance Corporation compiled “Unlocking Private Finance to Help Governments Achieve their Climate Goals” to help the private sector understand the investment potential of NDCs and help governments learn how they can unlock private investment for their climate targets.

IFC found that if the 21 emerging market countries profiled in the report achieve their NDC commitments, they could create a $23 trillion climate investment opportunity in emerging markets to 2030. Those opportunities are broken down by region and investment type in the Expert Perspective:

• $16 trillion in East Asia
• $2.6 trillion in Latin America
• $2.5 trillion in South Asia
• $783 billion in Africa
• $665 billion in Eastern Europe
• $265 billion in the MENA region

Kerr and Maheshwari say the business case for private climate investment is becoming clear as companies work to ensure their operations are resilient against supply chain disruptions and other effects of climate change. As a result, they note that businesses are already making climate-smart investments, instead of waiting for political action. The expert perspective concludes, however, that governments still have a critical role to play in unlocking private investment, and should:

• Get climate policies right, including through pricing carbon
• Strengthen their private sector investment climate
• Strategically use public finance to de-risk and mobilize much greater sums of private capital

Kerr and Maheshwari also find financial innovation is needed to secure sufficient private sector investment and fund low-carbon economic transitions, and highlight several tools and approaches to help governments unlock private finance, including:

• The Scaling Solar program streamlines solar project development in multiple emerging markets to make them operational within two years.
• The EDGE assessment tool can help scale up green buildings by helping build and certify projects in 125 countries.
• The Global Innovation Lab for Climate Finance designs financial mechanisms and structures to help attract institutional investors.
• The Catalytic Finance Initiative partnership of banks, asset managers, sovereign agencies, and foundations aims to mobilize $10 billion in financing for high-impact projects worldwide.
• Green bonds enable corporations and banks to raise capital for climate investments and have grown to an $81 billion market in 2016.
• The IFC issued a five-year, $152 million Forests Bond in 2016, which pays interest in carbon credits or cash, and supports emerging markets.

For more details on global climate investment opportunities, innovative approaches, and country case studies, download the full Expert Perspectives paper submitted by Kerr and Maheshwari to the NDC Partnership.