In emerging economies, climate is the best investment around

Purpose, Inc., episode 1.10: Alzbeta Klein, International Finance Corporation

Key takeaway: By 2030, just 21 emerging economies hold the potential of $23 trillion in climate-smart investment opportunities.

In this episode of Actual Agency’s “Purpose, Inc.” podcast, host Michael Young talks to Alzbeta Klein, Global Head of Climate Business for the International Finance Corporation (IFC).

A sister to the World Bank, IFC is the largest global development institution focused on private-sector investment in emerging markets. One of the first impact investors in the developing world, the organization partners with nations, banks, and institutional investors to fund economic development.

But IFC also amplifies its impact, Alzbeta explains, by serving as an advisor and convener:

• IFC works with investors to create environmental and social standards such as the Equator Principles.
• It has created the Sustainable Banking Network, which includes regulators from 41 countries.
• Close to 100 institutional investors like BlackRock have signed on to IFC’s 2019 Operating Principles for Impact Management.

Despite the COVID-19 pandemic, which has caused hundreds of billions of dollars of investments to leave emerging economies, Alzbeta argues that investing in climate in emerging economies is still the best investment around. Why? The Paris Climate Agreement.

The Paris Agreement

Each of the countries that signed on committed to grow their investments in renewable energy, agriculture, infrastructure, and other areas by 2030. Ivory Coast, for example, pledged to increase renewable energy from 5% to 43%. “What the researchers and my team did is that we looked at 21 countries in the developing world and what they committed to do,” she says. “We realized that that investment opportunity is $23 trillion.”

Since 2005, the IFC has invested $25 billion in climate-related projects in emerging economies and recruited private investors to add another $19 billion. That’s a tiny percentage of the $23 trillion needed over the next decade.

The scope of the IFC’s climate investments has expanded, too. “Fifteen years ago, this was mainly in renewable industries, so, solar and wind,” Alzbeta says. “We have added energy storage, energy efficiency, waste management, climate-smart agriculture, green buildings, and many other sectors that are at least as important as energy.”

By partnering with banks and financial regulators in local markets, IFC helps steer investment toward sustainability. “When they finance real estate buildings, we like them to finance green buildings. When they finance affordable housing and it happens to be green, we would like to make sure that they do green mortgages,” she says.

Building sustainable cities from the ground up

There’s another reason that investing in climate in developing countries offers great promise. “Sixty to 70 percent of cities in emerging markets are yet to be built,” Alzbeta says.

Michael brings up the analogy of cell phones—instead of catching up to Europe by installing landlines, emerging economies quickly embraced mobile technology. Alzbeta agrees.

“If you look at the United States, we’re not building that much. Western Europe, we’re not building that much,” she says. “But in emerging markets, the whole cities are being built up in 5-10 years. And so, you have an opportunity to take that money that flows there through a green rebuild and make it better.”

Listen to Michael’s conversation with Alzbeta Klein here:

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