Investment decisions and the climate challenge

Merci à Vincent Ducrey et au HUB Institute pour cette invitation et pour l'organisation du Sustainable Leaders Forum.

The need for urgent climate action is more acute than ever. There is little margin for delay to limit global warming to 1.5 degrees Celsius.

According to the UK Meteorological Office, the probability of one of the next five years surpassing the limit is now 50 per cent. As recently as 2015, there was zero chance of this happening in the following five years. But this surged to 20 per cent in 2020 and 40 per cent in 2021. The global average temperature was 1.1C° above pre-industrial levels in 2021.

Every additional rise in global temperatures increases the perils that people face around the world, such as water scarcity, malnutrition, and heat waves.  The developing world is disproportionately affected, particularly the poor and most vulnerable including women and children.  

But businesses across the world will also be exposed to physical risks from extreme weather events to its operations and supply chains; market demand risks for its products and services; regulatory risks; reputational risks and legal risks.

A growing segment of consumers expect business to do more to protect the environment. This group now accounts for 13 per cent of consumers globally, including 20 per cent in Germany, 16 per cent in France, Italy, and the United Kingdom.

Avoiding catastrophic climate change will require accelerating the adoption of existing climate technologies and business models and the development of new technological and business solutions.

Innovations in policy, culture, institutions, science, technology, management, and finance are all needed if we are to get back on track. The past decade has seen the emergence and diffusion of several transformative climate innovations, which have kept open the window of opportunity to avoid catastrophic climate change.

For example, the costs of solar photovoltaics, wind, and batteries have dropped exponentially at a rate near 10 per cent per year for several decades.  In contrast, the prices of fossil fuels, after adjusting for inflation, are very similar to what they were 140 years ago. Should renewable energy and storage technologies maintain their current deployment growth rates for a decade, they would replace fossil fuels in two decades.

Delivering on the promise of innovation will require significantly increased amounts of investment.

Indeed, the IPCC estimates that USD 1.6 to 3.8 trillion in new climate investments are needed annually through 2050 to limit global warming below 1.5°C and an additional USD 140 to 300 billion is needed annually to adapt to the impacts of climate change.

But there are several barriers to investment in new climate solutions, particularly in developing countries. These barriers exist at all phases of innovation: emergence, deployment, and widespread adoption.

Working together, the public and private sectors have a critical role to play in overcoming these barriers and closing the financing gap. This is at the heart of what GCF does as the world’s largest climate fund. 

GCF is a partnership organisation and serve as a hub of the climate finance architecture. We co-invest climate initiatives originated by over two hundred public and private partner agencies and firms, ranging from some of the largest commercial banks

With its partners, GCF aims to catalyse climate finance at scale this through four workstreams.

First, by creating an enabling environment for climate action by supporting integrated climate strategies and policies. According to some estimates, integrated energy, water, urban, and transport infrastructure could reduce the total infrastructure needs by 40 per cent.

Under this first workstream, a key GCF priority currently is to support developing countries in crafting green economic stimulus measures to recover from the COVID-19 pandemic and in accessing long-term affordable finance to implement them without increasing their debt burden. Depending on their design, COVID-19 recovery packages could either entrench our dependence on fossil fuels or accelerate the transition to net-zero, climate-resilient economies.  

Our second workstream is accelerating climate innovation through investments in new and innovative technologies, business models, financial instruments, and practices.

We support accelerators and incubators; provide early-stage financing to climate innovators to pilot new climate solutions. For example, we are working with the private sector in our USD 279 million investment in the Amazon Bioeconomy Fund to support new bio-businesses across six Latin American countries to reduce emissions and enhance climate resilience.

Thirdly, GCF is de-risking through blended finance instruments first mover investments in new climate solutions to establish a commercial track record and crowd-in private finance.

For example, GCF is providing up to USD 125 million of first loss equity to the Global Fund for Coral Reefs, a USD 500 million private equity fund with Pegasus Capital Advisors, to encourage investments in the blue economy, including sustainable fisheries and aquaculture, eco-tourism, and productive use of kelp forests.  

The fund will catalyse a multiple of this amount through providing essential growth equity to entrepreneurs to help save coral reefs and the livelihoods of millions across 17 countries. If successful, this Fund will demonstrate that investing in coral reefs protection is a legitimate investment for both institutional investors and individual savers. In essence it would create a new asset class, a prerequisite to move finance at scale. 

And our final workstream is Aligning finance with sustainable development to mainstream climate risks in investment decision-making and enable financial institutions to finance the widespread adoption of commercially proven new climate solutions, through dedicated credit lines or support to access capital markets.

Here, our new project Inclusive Green Financing Initiative (IGREENFIN I), is a good example of our work in supporting national financial institutions to mainstream climate into their operations. IGREENFIN, which is implemented in partnership with IFAD, will provide dedicated credit lines to local agricultural banks to enhance access to credit and technical assistance for local farmers, farmers’ organisations, cooperatives, and micro and small sized enterprises. This project is part of the ambitious Great Green Wall initiative to reverse land degradation in Africa.

Ladies and gentlemen, transitioning to low emission, climate-resilient pathways will require a paradigm shift, overhauling the way governments, businesses, and societies work.

Together, we can remove barriers to private sector investment in climate change adaptation and mitigation, closing the finance gap and working to deliver the paradigm shift that we need.

Thank you.

To listen to the speech as delivered in French at the Sustainable Leaders Forum, watch here.