The world is facing an unprecedented challenge.
Climate change has the potential to intensify food shortages, increase the incidence of natural disasters, and trigger shifts in rain patterns that could hinder power generation and agriculture in parts of the world. Without immediate and coordinated action, climate change could push an additional 100 million people into extreme poverty by 2030.
To help avoid the risks that global warming brings and capture opportunities, IFC, along with the World Bank, is systematically increasing the share of climate-related projects in our investment decisions.
We are building on the momentum of the United Nations’ 2015 Climate Change Conference (COP 21), when 195 countries agreed to take action that would keep the global temperature rise below 2 degrees Celsius.
IFC’s recently launched Climate Implementation Plan establishes ambitious targets for supporting private sector climate-related investment in emerging markets. Part of the broader World Bank Group Climate Change Action Plan, IFC’s plan sets out four main priorities:
1- Scale climate investments to reach 28 percent of IFC’s annual financing by 2020
Our goal is to increase our own long-term investments in climate-related projects by 50 percent by 2020. To do so, we aim to move into new climate markets, create new investment vehicles, and increase internal tools and support.
One area of expansion will be urban infrastructure, with projects such as IFC’s EDGE (Excellence in Design for Greater Efficiencies)—a green-building certification system for new homes, offices, retail, hospitals, and hotels that reduce energy and water use by at least 20 percent. Other areas of growth are renewable energy, agriculture, and clean-tech venture capital.
2- Catalyze $13 billion a year in private investment in the climate sector by 2020
IFC is uniquely positioned to mobilize private sector funding. As global financial institutions pledge to invest hundreds of billions of dollars in clean energy and other climate investments, we plan to develop new instruments that crowd in private sector capital. We will also seek opportunities for climate-related public-private partnerships, for example.
Getting other investors to join us maximizes the impact we would have on our own. We help unlock private investment by addressing country, technology, and project risks. We also provide financial instruments and structures that allow investors to invest at a suitable scale and risk profile.
3- Reduce greenhouse-gas emissions and help clients increase resilience
Our climate-related projects from fiscal year 2015 alone are expected to reduce emissions by 9.6 million metric tons a year—the equivalent of taking more than 2 million passenger vehicles off the road. We intend to build on that achievement, year after year.
We also want to help clients adapt to climate change—by promoting high-yield agriculture, making ports less vulnerable to flooding and other climate-related risks, and boosting water efficiency in water-stressed regions.
We’ll work closely with other institutions of the World Bank Group and share lessons learned with the international community so we can help scale what works.
4- Account for climate risk
Climate change can threaten businesses in two ways: Investments can be affected by the physical impacts of climate change, and policies can devalue an investment. Many companies and financial institutions still lack reliable instruments to measure and manage such risks.
IFC aims to be a leader in helping businesses screen and account for climate risk.
We want to ensure that our investments are helping clients address physical climate risks, and that those risks in our portfolio are mitigated.
In addition to that, we want to be aware of carbon-intensive infrastructure or businesses that could become stranded either during the investment period or beyond. We’ll consider how to evaluate the risk of our existing portfolio and of new investments, and what actions we can take to reduce such risk.
“The road ahead is challenging,” said the IFC Director for Climate Change Christian Grossmann. “But the IFC Climate Implementation Plan outlines new business opportunities, investment vehicles, financial products, and advisory assistance that will help the private sector invest intelligently and adapt to the impacts of climate change. Ultimately, it will help it grow their businesses.”
IFC is committed to leveraging our experience and connections to develop new ways of thinking and implement steps to limit and mitigate climate change impact. Working with governments, development banks, researchers, and other institutions, we can achieve substantial impact.
Published in May 2016