Yes, climate-smart investing can be done

Date

December 5, 2019

No one country, group or person can fight climate change solo. Sustainable investing needs an ecosystem where all kinds of capital works together.

This article was originally featured on The Business Times here.

5 min read

Delegates are gearing up for the COP25 UN Climate Change Conference in Madrid, Spain, to bring renewed attention to the climate emergency. Climate change is the defining issue of our times and, without urgent action, could push an additional 75 million people in East and South Asia into extreme poverty by 2030.

The Asian Development Bank estimates that South-east Asia will feel the brunt of this economic impact with an 11 per cent dip in its GDP by the end of the century, as a result of damage to agriculture, tourism and fishing – along with human health and labour productivity.

This is bad news to organisations which are going about business as usual. The fundamental job of capital markets is to ensure that savings flow to the best projects, but what if those projects are about to go over a cliff?

For example, two thirds of current global investments in energy are skewed towards fossil fuels, with only a third going towards renewable sources.

And counter-intuitively, production of plastics – major sources of greenhouse gas emissions – is expanding on a global level. It is as though we are investing, dollar for dollar, to grow the machine that is threatening our long-term viability. It is a stroke of irony.

Yet, this need not be the case. In fact, many investors have already begun to seek out financial opportunities in which the mission to create a resilient world and reap financial profits are not mutually exclusive. There is a significant and appealing alternative in the growing trillion-dollar market for doing good – US$23 trillion in climate-smart investment opportunities to be exact.

INVESTING IN THE ENVIRONMENT

Consider the Althelia Climate Fund. The fund invests in real assets across the world to promote conservation, whilst generating a return on investment through a combination of capital gains, sale of commodities and monetising carbon credits. In Sumatra, Indonesia, it has invested 5.1 million euros (S$7.7 million) in peatland restoration. The project is expected to mitigate 30 million tonnes of emissions over a 25-year period, representing a source of long-term finance.

Another example is RECOFTC, an international non-government organisation (NGO). In Cambodia, it runs a community-based forestry credit scheme that is transforming conservation efforts by providing a source of sustainable livelihood for the surrounding communities. These are examples of solutions that both mitigate risks and create shared value for all stakeholders, including investors.

In Asia, developing countries will need an estimated US$3.6 billion per annum up to 2030 to transition towards net-zero emissions, as set out in the Paris Agreement. This presents a unique opportunity for private finance, but begs the question: Can Asia unlock sufficient capital in order to tackle climate change?

Enabling these countries to access debt capital in order to embark on climate-resilient economic development could be one of the most effective ways to finance climate action. Green bonds represent a promising tool to increase the intermediation of global private capital towards climate-resilient investment opportunities in the region.

The Monetary Authority of Singapore recently announced a S$2 billion investment into public market investment strategies with a strong green focus, aimed at promoting environmentally sustainable projects and mitigating climate risks in Singapore and the region. Out of the pool, S$100 million will be allocated to the Bank for International Settlement’s Green Bond Fund to catalyse a further deepening of the green bond market.

Green finance and greening financial markets are critical components of global efforts to address climate change. The leadership shown by the Islamic finance industry in adopting a values-based approach demonstrates that doing good does not necessarily entail a sacrifice in financial return.

Over the past two decades, this pool of capital has expanded from negligible amounts to about US$2 trillion at the end of 2014. The charitable component of Islamic finance comprises mandatory (known as zakat) as well as voluntary donations, and provides an opportunity for sustainable finance to be used as a source of catalytic capital.

The United Nations Development Programme (UNDP) Indonesia’s Innovative Financing Lab, in partnership with Indonesia’s national zakat agency BAZNAS, has pioneered the use of zakat to achieve the UN Sustainable Development Goals. BAZNAS contributed US$350,000 in zakat funds to the construction of four micro hydro power plants in Sumatra, with additional funding from Bank Jambi and the Global Environment Facility. Indonesia is one of the first countries to leverage zakat, through a blended financing mechanism.

No one organisation, country or individual can tackle climate change alone. For sustainable investing to become truly mainstream, there must be a sufficiently broad range of financial products and strategies and an ecosystem in which all kinds of capital can work together.

Businesses that are pioneering solutions to our global challenges must have the capital to grow and expand. We should think of finance as operating along a continuum of capital where investors can intervene at various junctures to support businesses at different development stages.

COMING TOGETHER

Asian Venture Philanthropy Network (AVPN), a network for social investors, is helping to build the business case through their Climate Action Platform (CAP). CAP is the first of its kind in Asia to aggregate funders along the full continuum of capital from philanthropy to impact investing and sustainable finance.

It harnesses the power of the network as an intermediary to catalyse more funding interest and action towards regional climate adaptation and mitigation efforts. It does this by mapping and connecting capital providers with each other and to a pipeline of investment opportunities, showcasing innovative models and best practices, and engaging projects and organisations seeking support.

In February 2020, AVPN will host its inaugural South-east Asia social investing summit in Bali. The meeting brings together funders and resource providers to drive action on the region’s most pressing challenges – including climate change, gender equality, livelihoods, nutrition and the intersections between them.

Global decision makers from the public sector, private sector, academia and civil society ranked the failure of climate change mitigation and adaptation as No. 2 in terms of impact. For our actions to measure up to the gravity of the situation, we need a tectonic shift beyond business as usual.

Financial leaders must begin today if we are to create the resilient world that we need in order to survive.


About Author
Naina Subberwal Batra
Naina Subberwal Batra Chairperson and CEO AVPN

Naina joined AVPN as our CEO from September 2013, and has been appointed as Chairperson in May 2018. Naina’s leadership over the past 6 years has grown the AVPN membership by more than 4x and elevated the organization into a truly regional force for good. Under her direction, the organization has grown from focusing only on Venture Philanthropy to supporting the entire ecosystem of Social Funders from philanthropists to impact investors and Corporate CSR professionals. She was instrumental in developing AVPN’s innovative services that connect, empower and educate the now 600+ members of AVPN. In 2019, Naina was awarded one of Asia's Top Sustainability Superwomen.

Prior to joining AVPN, Naina was a member of the senior leadership team of a purpose driven unit of The Monitor Group, a leading global strategy consulting firm, aimed at catalyzing markets for social change. Naina was also partner and Co-Founder of Group Fifty Private Ltd, curating contemporary Indian art with a view to provide a medium for upcoming and established Indian artists to showcase their work directly to a large and diverse audience.

Naina has a master’s degree in Industrial and Labor Relations from Cornell University where she graduated at the top of her class. She also holds a bachelor degree in Economics and International Relations from Mount Holyoke College, Massachusetts, USA and a General Course Diploma in economics from The London School of Economics.