How can climate action find USD 480 billion?
At first glance, building the world’s sustainable infrastructure looks dauntingly expensive. There are, for example, figures like the one written by the International Institute of Applied Statistical Analysis: “To meet countries’ NDCs”, writes the IIASA, “an additional US$130 billion of investment will be needed by 2030, while to achieve the 2°C target the gap is US$320 billion and for 1.5°C it is US$480 billion.”
Hidden within this figure, however, is a piece of good news. Although the gap between the investments required and the current rate of investments is substantial, the gap itself does not imply a lack of interested investors.
In fact, Philippe le Houerou, CEO of the International Finance Corporation (IFC) wrote in 2016: “There has never been a better time to invest in climate solutions”, citing the stable environment promoted by the Paris Agreement and increased interest in sustainable development worldwide. The reason for this discrepancy is surprisingly simple. According to a report authored by the Cities Climate Finance Leadership Alliance (CCFLA) and ICLEI, there is actually a shortage of bankable projects.
In this context, “bankability” refers to the perceived potential of a project to produce a predictable, measurable and positive outcome that includes a return on investment or positive Net Present Value (NPV). The identification of bankable projects is standard procedure in the world of finance, but it is something many local and regional governments still have to learn in greater depth to attract investors. Communities across the globe hold some 22.3 trillion in climate-smart investment opportunities , but these opportunities will be left untapped if leaders cannot communicate the bankability of their own projects effectively.
Even charitable investors want to know, with figures, what good their investments will provide and this is often a challenge for local and regional governments. Without clear standards on how to collect information on city-wide emissions, infrastructure usage, and other topics, it is difficult to persuade institutional investors that a given project is a valuable investment. Cities need to be able to demonstrate low-risk, cause-and-effect outcomes for projects in order to attract the capital they need.
The next step in closing the investment gap is therefore to equip cities and regions with the tools they need to prepare bankable projects. This often occurs through Project Preparation Facilities (PPFs), but a great number of recent workshops and resources have been recently released in order to help local leaders prepare their projects more effectively. Examples include a free, publically accessible course on Sustainable Infrastructure Finance on the Climate-KIC Learning Platform, and the ICLEI Transformative Actions Program (TAP), which connects climate projects with project preparation tools and helps projects find their ideal investors.
According to Maryke van Staden, Director of ICLEI’s carbonn Center, “many cities and regions have project ideas that would be perfectly attractive to investors, if only those ideas were prepared in a way that highlighted their bankability.” Expanding a community’s network of partners, in other words, is sometimes just a matter of communicating things in the right way, and lots of work is being done to create these cooperative channels and unite the resources of the public and private sector.
“USD 480 billion” will not be a trivial gap to close, but if investors are valuing opportunities in climate action in the trillions, then the challenge looks less daunting. The resources to meet the goals of the Paris Agreement are there, businesses and governments just have to learn how to work together to get those resources where they need to go.
