Mobilizing Capital for the energy transition: Growing a Pipeline of Investable and Impactful Climate Projects in Emerging and Developing Markets

Published on 10th October, 2023

Climate investment is essential to develop these emerging markets and? ensure sustainable growth,? combat catastrophic climate change and global warming, and protect precious ecosystems. our price.

According to estimates from the Blender Fiscal Task Force, by 2030 we will need an additional $2.4 trillion for climate action in these economies, excluding China. However, currently less than 20% of this total investment? comes from climate finance.

Relying solely on philanthropy and government funding? will not close this significant gap. Of course, the encouraging news is that the private sector can play an important role thanks to advances in technology, market data and collaboration, making climate investing increasingly attractive.

To enable short-term growth in climate financing, we must solve two very important obstacles. That is the project pipeline first and foremost. As I'm sure most of you know, there is clearly no dearth of funding, but the private sector frequently finds it difficult to discover feasible initiatives and opportunities in these areas.

Facilities for project preparation are frequently small, difficult to get to, and connected to financing sources and risk-reduction tools. In keeping with global trends, project financing in these nations decreased from 91 billion in 2019 to less than 60 billion in 2022.

The cost of capital is another important issue that needs to be addressed. Options for financing are frequently nonexistent, inaccessible, or too expensive. This also applies to local currency financing or currency hedging strategies. Political and counterparty risks may be viewed as real or perceived as real by international investors involved who frequently lack experience with or a physical presence in these areas.

However, research constantly demonstrates that these hazards are frequently lesser than they appear to be. In order to address this, catalysts like blended finance, which combines commercial debt and concessional capital, can be quite helpful. It also offers risk insurance and guarantee instruments, grants for the design stage, and funding for technical assistance.

Nevertheless, there is a severe lack of specialized financial instruments in these sectors, and this shortage will only get worse. A startling predicted mitigation gap of only 850 billion is estimated by Convergence Blended Finance for 2030. In light of this, the objective is to investigate how to close such gaps, with an emphasis on enhancing project planning and utilizing catalytic climate capital.

Author

Joel Gubihama

Co-founder & CEO

Petrodatycs Inc.

www.petrodatycs.com