Climate Change
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Climate Change FILLING THE FINANCING GAP Telling Our Story 57002_C1_6x2.indd 1 11/13/09 12:10:09 PM Message from the Executive Vice President and CEO The Private Sector and Climate Change Climate change cannot be managed without a strong engagement of the private sector. The UN Framework Convention on Climate Change has estimated that more than 80 percent of investments required for climate change mitigation and adaptation will have to be privately fi nanced. Unless energy companies invest in renewables, unless industry and transport companies invest in more effi cient technologies, unless agribusiness companies plant sustainably, there will be no meaningful curbing of carbon emissions. Private initiative is critical as well in the development and dissemination of new climate-friendly technologies, which will be key to managing climate change at a reasonable cost. The good news is that there is a strong business case for climate investment. This is already well known to a number of companies that have signifi cantly adapted their business strategies to tap into climate opportunities. The other good news is that the money is there. Pension funds alone manage roughly $20 trillion worth of retirement savings globally. These investors and others are increasingly aware that sustainable business is good business over the long run. To support this effort in emerging markets, IFC over the last 10 years Cover Photo: Solar power installation, Xinjiang province, China. 57002_C1_6x2.indd 1 11/13/09 12:10:09 PM has been developing new business models and fi nancing instruments for clean energy, energy effi ciency, and cleaner production, setting and improving environmental and social standards for the private sector, leveraging labor and social capital, and preventing the loss of biodiversity. In fi scal 2009 alone, we invested more than $1 billion in climate-related projects. As helpful as our work is, imagine what would be possible if our models were more widely adopted. This collection of stories is therefore aimed at fi rms, fi nancial institutions, other investors, and donor governments that are interested in new business models of mitigation— energy effi ciency, renewable energy, and cleaner production—and adaptation—forestry, water, and others—in emerging markets. Just part of the larger agenda, it highlights the opportunities, outlines the risks and their solutions, and provides real-world examples of the important role the private sector can play in climate action. Reducing poverty and addressing climate change are two of the greatest challenges facing the world today. Fighting climate change has long been a strategic priority for IFC because we understand that its cost falls heaviest on the poorest people. Our ability to respond is constrained only by the amount of capital we have to invest. With more capital, we can make an even greater difference. Together with public and private actors in both developed and developing countries, we must seize the opportunity at this historic time in the battle against climate change, focusing on fi lling the fi nancing gap. Lars H. Thunell Executive Vice President and CEO 1 57002_P01_36.indd 1 11/10/09 10:08:31 AM Climate Change: How IFC Helps IFC brings a special approach to the climate change challenge, complementing the good work of other organizations focused on policy, research, advocacy, negotiation, loans to governments, and grant-based assistance. Looking through the lens of development fi nance, we bring several unique features as the only global multilateral institution focused on the private sector. Working with many partners in more than 100 countries, we invest, advise, and mobilize resources from others, creating opportunity for clients in a broad range of industries in emerging markets. In fi scal 2009 we invested $14.5 billion, including $4 billion mobilized through sources such as syndications and structured fi nance. In fi scal 2009, more than $1 billion of our direct investments went to fi nance renewable energy and energy effi ciency and in total, we leveraged more than $6 billion in clean energy-related investments. Climate change and sustainability are key areas of strategic focus for us. The least- developed countries face long-term obstacles to sustained prosperity, and climate change poses a particularly high risk for their people, many of whom depend on agriculture, forestry, and fi sheries for their livelihoods and have limited or unreliable sources of water and energy. Standing between the public and private sectors, we bring market-based solutions to the challenge of creating low-carbon economic growth that meets the needs of the poor. 57002_C1_6x.indd 2 11/12/09 10:02:28 PM IFC INVESTMENT IFC ADVISORY SERVICES SERVICES • Financial innovation transactions • Helping clients understand the focusing on “fi rsts”: ground- specifi c risks and opportunities they breaking transactions with signifi cant face from climate change demonstration effect • Providing technical expertise to help • Helping clients gain fi rst-mover them succeed in this new environment advantage • Partnering with donors, foundations, • Providing debt, equity, quasi-equity, risk socially responsible corporations, NGOs, management, and resource mobilization and others to assess the potential for for climate-positive projects market transformation KNOWLEDGE ASSESSING SHARING GLOBAL TRENDS • Capturing the lessons learned from our work • Proactively identifying emerging • Working with banks adhering to the climate change issues by collaborating Equator Principles, agricultural commodity with the World Bank, engaging with roundtables, and other groups to spread governments, and participating in the resulting learning for wider international treaty negotiations application • Identifying the resulting trends and • Developing accounting ways that business in emerging methodologies markets can be part of the solution • Game-changing applied research in climate investing, adaptation, and fi nancial tools 57002_C1_6x.indd 2 11/12/09 10:02:28 PM The Private Sector’s Role f the world is serious about fi ghting “ climate change and helping poor Sustainable Forestry Ipeople,” says Mads Asprem, “then forestry has to be part of the agenda.” Mads is the managing director of Green Resources AS, a socially responsible Norwegian forest products company that has planted more trees in Africa over the last 10 years than any other, creating 3,200 jobs en route. It plants 10 trees for every one it cuts to sell in the local building materials, fi rewood, and charcoal markets, and also works to preserve all natural forests within its plantations. This shows how much a climate- friendly business model can do to avoid deforestation—the cause of nearly 20 percent of the world’s greenhouse gas emissions, more than is released from all cars, planes, and trains combined. In Tanzania, $18 million in IFC fi nancing is helping Green Resources turn unused grasslands into new forest plantations, build a 15 megawatt power plant run on wood waste recycled from its sawmills, and—perhaps most important—take pressure off natural forests that would otherwise be at risk. IFC also introduced Green Resources to the new Forest Industries Carbon Assessment Tool we developed with researchers from the industry group NCASI (see p. 34). This free, downloadable “carbon calculator” helps build forestry fi rms’ competitiveness by measuring their energy ineffi ciencies, carbon emissions, and amount of carbon removed from the atmosphere as a result of all phases of their operations. IFC's presence is an important show of support as Green Resource seeks other investors and expands in Tanzania, Mozambique, and Uganda. IFC has 50 years’ experience and a nearly $1 billion active portfolio in forest products. We have one overriding strategy in the sector—investing in projects that bring important benefi ts in the fi ght against climate change. Planting Trees: A critical piece of climate action 2 57002_P01_36.indd 2 11/10/09 10:08:32 AM Q SETTING STANDARDS China Q Green Banking Contents A Time for New Thinking 4 Global Q Agricultural Commodities The Role of Roundtables 6 Q ENERGY EFFICIENCY India Q Cleaner Production Reducing Emissions, Cutting Costs 8 Philippines Q The Energy Effi ciency Market A Growth Business for Banks 10 Q INFRASTRUCTURE Global Q Renewable Energy IFC’s Role 12 Africa Q Lighting Africa A Low-Carbon Initiative 14 Q WATER Global Q Water Security Charting the Future 16 Global Q Water Footprints Measuring and Managing 18 Q SUSTAINABLE INDUSTRIES Russia Q Chemicals Saving Energy and Jobs 20 Mexico Q Green Housing A 21st Century Solution 22 Jordan Q Tourism Building in Sustainability 24 Q CARBON FINANCE Global Q Carbon Delivery Guarantees Closing the Deal 26 Q VENTURE CAPITAL Global Q Cleantech Investing Early-Stage Endorsements 28 Q ANNEX: NEXT STEPS Tools for Green Investors 30 Q Institutional Investors Mainstreaming Climate-Friendly Investments 32 Q Banks Rethinking the Role 33 Q Carbon Footprints Forest Products 34 Q Portfolio Measurement IFC’s Greenhouse Gas Footprint 35 57002_F001_004.indd 1 11/10/09 7:33:04 AM 57002_P01_36.indd 3 11/10/09 10:08:40 AM CHINA GREEN BANKING A Time for New Thinking China may be the world’s largest source of greenhouse gas emissions. But it has taken a landmark step toward fi nding a solution. Its banking and environmental regulators’ new Green Safety Guidelines, technical documents addressing Credit Policy encourages local banks to lend less to 63 industry sectors enterprises with high levels of pollution and energy IFC and the Chinese government have collaborated consumption and more to those favoring energy closely on the Green Credit Policy initiative since late effi ciency and emissions reduction. 2007, helping Chinese banks implement the policy The policy is part of the government’s response to through training events, sector guidance, and other problems of pollution and unsustainable energy use that technical resources. it saw potentially threatening the country’s economic Tracking data show that during 2008 fi ve of China’s and social development and global reputation.