Resource: Climate Investment Opportunities in Emerging Markets
Published by: IFC, November 2016
Investors and governments alike have a great new starting point for thinking about mainstreaming opportunities in climate smart investment in emerging economies. A new report by the IFC looked at the NDCs and surrounding sustainable development policies of 21 countries and has estimated a $22.6 trillion investment opportunity over the period 2016-2030 – an estimate that is likely too low given important data gaps.
The report summarises the opportunities by region. By far the biggest spend will be in China ($15 trillion), but there are significant opportunities in Latin America and South Asia ($2.6 and $2,2 trillion respectively), as well as a total of some $1 trillion in Africa (totalling SSA and MENA).
The sectors the report seeks to estimate costs for are Renewable, Energy Distribution and Efficiency, Transport, Buildings and Waste. Looking at the mitigation sectors most relevant to private sector investment, the report is not able to quantify the needs, given the lack of uniformity and detail in the INDCs. Instead, it counts the mentions of the relevant sectors. On this basis, in most regions, RE leads the way, but forestry and agriculture are also high in the sectoral count. Transport, water and waste, alongside energy efficiency, are in a second bracket.
Given the vague nature of most INDCs, the data in the report has been adduced from a number of sources, including experience and intelligence from IFC staff on the ground. The methodology behind the estimates is explained in the first Annex to the report. The report addresses only mitigation actions.
As well as regional and sectoral analysis, the report has a useful section at the end on “Unlocking Climate Investment Opportunities covers topics such as carbon instruments, green finance, financial innovations to support climate actions, the use of blended finance to mobilise private sector investment.
Echoing much said by Dr Nizar Baraka in our November 11 interview, the report calls for three main actions from government in pursuing the financing of their NDCs:
• Act quickly to integrate NDC commitments into national development strategies and budget processes. Put in place clear and consistent policies – such as carbon pricing, performance standards, and market-based support. Also ensure that climate considerations are integrated into other sector policies (energy and agriculture, for example).
• Strengthen the private sector investment climate. Improve the overall enabling conditions for the private sector to operate and invest in the targeted sectors, including enhancing domestic financial markets, related regulation and capacity
• Strategically use limited public finance. Government budgets will not be enough to address climate change. Public funds should be used strategically to mobilize much larger sums of private capital, e.g., by reducing risk and providing project preparation support.
Aditi Maheshwari of the Climate Change team at the IFC said that “this report outlines $23 trillion in investment opportunities across 21 countries. But for this to happen we need close collaboration between governments and business to deliver on the policy recommendations. The clear signal here to the private sector, our clients, investors, and governments is that there has never been a better time for climate-smart investing in emerging markets.”
While this excellent piece of work is a very helpful first estimate of requirements in a number of sectors, we believe that the difficulties faced by the IFC in collating data vividly illustrate the need to create a common categorisation of climate actions. Such a categorisation would establish clear sectors and sub-sectors of actions and investments, allowing data to be aggregated across sectors and regions and thus far more easily accessed for the purpose of understanding finance needs and opportunities. Such a categorisation (to include adaptation as well as mitigation) could be created during 2017 and then used for NDC revisions in 2018. The building blocks for this tool already exist, for example in DFI categorisation systems, but need to be systematically agreed.