Finance for a Changing Climate

Welcome to I FC Audio Stories. I'm your host, Lindy Mtongana.

COP28 - the world's biggest decision-making forum on climate issues – is just weeks away.

IFC Audio Stories brings you a quick, informative glimpse into IFC’s key initiatives for the summit. Today, our spotlight is on Climate Financing - the investments and partnerships IFC engages in, in climate-smart sectors.   

IFC’s acting global head for climate in the Financial Institutions Group William Beloe joins me now.

Lindy Mtongana: How do we define Climate Financing in relation to the work that IFC does with financial institutions.   

William Beloe: : So I think there are two things to bear in mind here. One is how money is leveraged for climate positive activities and projects. And then there's also the capacity that we need to provide to financial institutions, so they can go and find these business opportunities.

Climate is absolutely central to IFC strategy. And that obviously translates into the work that we do with financial institutions. We know that climate is a huge issue for us in terms of an equitable development pathway for emerging markets. And we know that there's a huge amount of money that is required to get us on to a more sustainable growth path. About $23 trillion worth of investable assets are there today for us to, to support. And we know that we need to engage with local financial institutions so that they can learn that these are viable business opportunities. And in many cases, for example, green buildings, it makes more sense and is better financially for them to invest in a green building versus a traditional brown / gray building. 

Lindy: You spoke of $23 trillion worth of investable assets – tell us more about the market opportunity?

William: Everywhere you look, there are opportunities. The more established areas for green finance are around renewable energy, obviously - that's solar, wind, hydro, in some cases, biomass - but also energy efficiency and that's where we work with manufacturing clients to help them be more aware of how they're using their energy and lowering that, per unit of production. There are often very, very easy wins for them. Things like green buildings. Obviously there's an emerging space in electric vehicles and hybrids. And then there are areas that we see great growth in Climate Smart agribusiness for example.

Lindy: And William what's IFC’s track record when it comes to climate financing in emerging markets.

William: We've been involved in climate finance now, with financial institutions for over 15 years. We've worked with, you know, well over 100 FI’s in this space. I think quite a good example of how what we try and do has manifest itself, which is to demonstrate how investing in certain types of assets does make good business sense   a good example of that would be perhaps the magic program, which was sponsored by the UK government. And the magic program stands for the Market Accelerator for Green Construction. And the very idea is to go into - I think there are about 23 / 24 countries that we are able to access these funds for - and we work with financial institutions to help them build their pipelines and portfolios of green investments in the construction space. And then we provide them with the technical assistance they need to build the capacity in-house. We obviously have, through the IFC, a green building certification program called EDGE. We're not there to push EDGE but it means that we have people on the ground who understand the green buildings marketplace. And so they have relationships with developers. And that has been a really key success-factor for us in terms of providing the financial institutions with the confidence that there is a growing pipeline of investable opportunities for them.

Lindy: What are the key challenges in really realizing the potential of climate financing?

William: I think one of the key challenges at the moment is: are these funds really going to climate positive activities? And we obviously at the IFC, have to be extremely careful that we are clear about what is a climate defined asset and what isn't. And so we spend a lot of time working with our partners to establish the definitions around their pipeline of climate activities. We actually have a tool called the Climate Assessment for Financial Institutions Platform that they can use on a project-by-project basis to help them understand whether a project is in fact climate or not.

Lindy: From COP28 to the Paris Agreement, IFC is certainly solidifying its commitment to climate action. How does this shape IFC’s strategy when it comes to climate financing?  

William: Climate change is now, we are being affected badly by it. And obviously, it' s the more vulnerable people that get affected the worst. So I think there is a growing recognition of the need to act. The IFC and the World Bank have made a commitment to align our business with the Paris Agreement. And what that means is that from a financial institution perspective and our financial institution clients, every time we make an investment with them, we have to ensure that that part of our portfolio is Paris aligned. And this is a huge ask, we do 100 to 150 deals a year with financial institutions. And so we've had to break it down into bite sized bits. The first step is where we have to find ‘use of proceeds’. We need to be sure that those uses of proceeds are aligned both to the mitigating role or the transition goals, and the physical risk goals of the Paris Agreement. And so that means that we can't be investing in coal, for example, because in every case that is not aligned with the goals of the Paris Agreement. But it also means that we have to help our FI’s be aware of the risks of exposure to climate related events, for example, of flooding, of increased risk of tornadoes or hurricanes, and our processes to slowly help them develop their own systems so they can manage those risks themselves.

Lindy: That’s it for today! Thanks again to my guest – William Beloe. Keep a look at out for our next episode which focuses on Water. That’s coming up in just a few weeks. In the meantime, visit ifc.org to learn more about how IFC is addressing climate change as the WBG doubles down efforts to end poverty on a livable planet.

I’m Lindy Mtongana, thanks for listening.