GCF’s first private sector conference boosts business role in climate finance
GCF’s Private Investment for Climate Conference wound up today, following two days of discussions designed to harness the entrepreneurial energies of the business world to finance climate action in developing countries.
More than 600 participants from over 120 countries gathered in Incheon, the Republic of Korea, to explore ways of diverting private investment flows into funding low-emission and climate-resistant pathways.
GCF Deputy Executive Javier Manzanares said the IPCC’s most recent report, which identifies the dangers of a 1.5 degree warmer world, highlighted the urgent need to draw on the financial resources of private sector actors who manage more than USD 210 trillion but invest less than 5 percent in climate finance.
He singled out the enormous financial reserves of institutional investors such as pension funds, sovereign wealth funds, and insurance and re-insurance companies as potential sources of new climate finance.
Paul Oquist, one of GCF’s two co-chairs, highlighted the great strides already being made in some private sector areas investing in low-emission transport – showing the science and technology already exists to limit global warming to 1.5 degrees.
“There are now 4 million electric cars and buses on the roads of the world,” said Mr Oquist, who represents developing countries. “In six months, there will be a million more.”
Mr Oquist indicated the private sector’s embrace of low-emission technology in the transport sector needs to be replicated urgently in all areas of the economy where climate effects will be felt.
“Financial resources are available, but not dedicated to the top priorities of our species – mitigating and adapting to climate change,” he said.
Lennart Bage, GCF’s co-chair representing developed countries, said in a televised address that his work with the private sector in his home country of Sweden shows there is a steep learning curve to encourage investors to think about climate finance. This will need to be addressed quickly as the IPCC report has “made abundantly clear that we need to act both individually and collectively with this challenge,” he added.
GCF will capitalise on the wide range of innovative ideas raised during the conference, as well as the personal connections made between participants, to encourage the building of a network of private sector investors to encourage the sharing of knowledge and experiences in climate finance.
A number of participants stressed the need to speak the language of the private sector by emphasising that climate investments can return profits as well as providing social benefits.
Jay Koh, managing director of global investment platform the Lightsmith Group, indicated the private sector’s central role in driving the current renewable energy revolution can be replicated in helping to fund adaptation measures, but only by stressing the soundness of long-term profits.
“It is essential that potential investors understand that climate action has to be, can be, and is, a profitable enterprise that can generate appropriate returns,” he said.
“A lot of investors are looking for things to invest in. The challenge is making this area seem like a real investment opportunity,” said Mr Koh, while highlighting the need to drastically increase the current six percent of climate finance going to adaptation.
Devising ways to entice the private sector to invest in adaptation to a similar extent as it does now in renewables was a major theme of the Private Investment for Climate Conference.
The International Renewable Energy Agency (IRENA) has identified the private sector as the driving force behind renewable energy investment, providing 92 percent of funding in 2016 compared to 8 percent from the public sector. This has helped rapidly reduce the cost of renewable energy, so that solar and wind energy is already cheaper than fossil fuels in many parts of the world.
Sachindra Rudra, chief investment officer of Acumen, said it is necessary to be innovative in showing that investments in climate-resilient adaptation can bring benefits in terms of higher returns and a reduction in financial risk.
He added that GCF’s support was a key factor in the current ability of Acumen, an investment fund, to show that financing climate-resilient agriculture in Africa will be bolstered by good returns.
GCF is investing in a project run by Acumen that is designed to improve the resilience of smallholder farmers in Nigeria, Ghana and Uganda by shifting investment patterns in adaptation to long-term capital investment.
Mr Rudra added that climate effects on agriculture lie behind the volatility of incomes experienced by many smallholder farmers in developing countries, which could mean the difference between sending children to school or having food on family dinner tables.
The two-day conference has helped to chart the high level of ambition already displayed by niche areas of the private sector. There was widespread recognition by participants that this ambition must spread to all areas of the economy in order to mainstream climate consideration.
The scale of the climate challenge means that even though GCF is the largest international climate fund helping developing countries it cannot hope to match the vast levels of financial resources available in the private sector. It will continue to search for innovative ways in helping businesses combine profits with planetary protection.