5 key areas to jumpstart climate-smart investment

5 key areas to jumpstart climate-smart investment

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Just ask the investors: Businesses in emerging markets no longer can afford to ignore the risks posed by the changing climate to their bottom lines. Climate change is fundamentally transforming the way we do business, marked by increasingly frequent and severe weather events, new regulations and changing consumer preferences.

Increasingly, companies and their investors seek opportunities to transition to and invest in climate-smart portfolios. By all accounts, engaging the private sector in climate-smart investments will be a cornerstone to growing climate business. In many sectors they already play a large role, supplying nearly a third of global investment in research and development of new renewable energy technologies, or $2.5 billion in 2016 alone.

Scaling these technologies up to meet targets set in the Paris climate agreement, however, will require trillions more in innovative climate-smart investments particularly in emerging markets. And this presents us with opportunities. In fact, IFC estimates that 21 developing countries alone hold over $23 trillion in climate-smart investment opportunities through 2030.The time to capitalize on these opportunities is now.

In the words of the recent book "Climate of Hope," by Michael Bloomberg and Carl Pope: "We believe that by changing the way we think and talk about climate change, we can lower the temperature of the debate — and accomplish a whole lot more."

This captures very well what IFC is all about — creating markets, creating and supporting businesses that are financially and environmentally sustainable. Closing off a successful fiscal year in 2017, IFC committed close to $4.8 billion from its own account and mobilized funds from other investors in climate-smart industries, helping to scale up climate investments in 41 emerging markets.

While these industries are all showing promise, there are five sectors where, based on our experience, innovative approaches are poised to widen the tent, attracting billions in private sector capital. 

1. Climate-smart agribusiness

Unquestionably, meeting future demand for food will be one of the world’s greatest climate-related challenges. The human population is projected to grow from 7.3 billion as of 2015 to 9.7 billion by 2050. Without robust steps to increase productivity and climate resilience of agricultural practices, business-as-usual is expected to reduce global agriculture yields by up to 50 percent by 2030. Fortunately, businesses are beginning to employ climate-smart agriculture measures that can dramatically increase productivity and resilience while reducing greenhouse gas emissions.

IFC is focused on helping scale these practices by providing investment and support for specific agribusiness needs, including increasing productivity of animal protein producers, optimizing inputs through precision agriculture, and reducing food waste through investments in logistics and infrastructure.

2. Green buildings

Another significant impact of global population growth will be the rapid growth of urban environments which will exert pressure on existing building stocks. Buildings are estimated to be responsible for about one-third of global greenhouse gas emissions.

This challenge also creates an opportunity for climate-smart investment in green buildings. To help private lenders understand and engage in this opportunity, IFC is helping promote a universal and accessible green performance standard to identify areas for cost savings in buildings.

The IFC EDGE program offers developers and investors a free tool to choose options to reduce consumption of energy, water and extracted materials in new and existing building stock.

3. Smart cities

As global population and incomes rise, 70 percent of developing country populations are expected to live in cities by 2050. This opens doors for opportunities to build "smart" cities, capable of sustainably meeting demand for infrastructure in urban environments, and private sector interventions are dramatically changing urban landscapes. In the United States, ride sharing services such as Uber and Lyft are reducing car ownership in cities, which subsequently can reduce congestion and greenhouse gas emissions.

IFC is investing in public-private partnerships in Turkey to expand metro rail services and in India to upgrade street lighting networks.

4. Energy storage

In some emerging economies, solar and wind energy technologies are often underused because they suffer from variable supply, known as "intermittency." Energy storage solutions can help reduce these impacts by providing a backup generation option.

New research from IFC suggests that over the coming decade, energy storage technologies will grow 40 percent annually in emerging markets. This growth is likely to unlock significant environmental, social and economic benefits. IFC is growing this market through early-stage venture capital investments in energy storage markets, ranging from lithium-ion battery technologies to photovoltaic storage systems.

5. Green bonds

A critical challenge remains the ability to scale up climate-smart investments bringing new financiers into the climate-smart investment space. For example, institutional investors, comprised of pension funds, insurance companies and sovereign wealth funds, manage $71.4 trillion in assets but currently play a limited role in global climate finance. To attract these investors, climate-smart projects must offer scale, safety and simplicity.

IFC’s Green Bonds Program has engaged these investors, issuing over $5.7 billion in 13 currencies through 74 green bonds on its own balance sheet over the last decade.

Looking forward

Together, these sectors represent the frontier of climate-smart investment. Innovation in climate-smart agribusiness, green buildings, smart cities and finance can transform the way global economies function to align with a sustainable future where green growth is a norm, not an exception. By investing its resources in these emerging opportunities, IFC is helping to build the foundations for companies in emerging markets to invest and rapidly grow climate business.

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