Unlocking Private Climate Finance in Emerging Markets

A new report highlights the opportunities for policymakers to accelerate private climate finance ahead of COP26. The 2021 United Nations Climate Change Conference is scheduled to be held in Glasgow from 1 to 12 November this year.

The report “Unlocking Private Climate Finance in Emerging Markets: Private Sector Considerations for Policymakers” was launched in April this year by the Climate Finance Leadership Initiative (CFLI) in partnership with the Association of European Development Finance Institutions (EDFI) and the Global Infrastructure Facility (GIF). The publication “outlines key factors for fostering the public-private collaboration necessary to close the climate finance gap in emerging markets,” a press release said. “It also highlights policies governments in emerging markets can advance to attract investment to projects in key areas: clean energy, low-carbon mass transit, climate-friendly water and waste systems, green buildings and sustainable land use.”

According to CFLI, founded by Michael R. Bloomberg at the request of the United Nations Secretary-General António Guterres, emerging markets are working to build back from the Covid-19 pandemic. These markets are planning the reconstruction in ways that would accelerate investments in the low-carbon transition and help meet nationally determined contributions (NDCs) as outlined in the Paris Agreement. With energy transition finance topping 500 billion US-Dollar in 2020, this new report would provide emerging markets with potential policy considerations to help attract private capital, the initiative emphasized. “These considerations reflect the experience of investors that have deployed billions in clean energy in emerging markets and the progress countries around the world have made in stimulating investment in support of sustainable growth.”


Further actions
Private capital plays an important role in continuing the support of the creation of robust and lasting low-carbon climate-resilient markets, the initiative stressed the contribution of the private sector. To go forward, the CFLI would seek to design, launch and coordinate a series of “country pilots” in collaboration with local governments and leading private international and domestic financial institutions. “The first pilots are planned for India and Indonesia, with the goal of replicating this model in other countries in the years ahead.”


As stated by Michael R. Bloomberg, the report outlines steps emerging markets can take, with support from business and the international community, “to attract more private capital for green projects, create new public-private partnerships, and ensure a strong recovery from the pandemic”. Private Sector Considerations for Policymakers would explain the factors that investors consider when evaluating investments in sustainable infrastructure projects in emerging markets. “These factors – the Policy Considerations – offer a menu of potential policy changes available to all countries, regardless of their current investment environment, or position on the path to a low-carbon, resilient economy.” The report also offers examples of how different enabling environment mechanisms have succeeded in accelerating the transition across a diverse range of economies, CFLI and its members – Allianz Global Investors, AXA, Bloomberg, Enel, Goldman Sachs, Japan’s Government Pension Investment Fund (GPIF), HSBC and Macquarie – described the benefits of the information.

Example: Waste and the circular economy
Governments are moving to implement circular economy policies to tackle plastic waste and make better use of resources, the authors of the report underlined. As a result, public investment in recycling, waste reduction and sustainable packaging had accelerated. In 2020, several important deals were signed, including a 300 million US-Dollar loan facility put in place by the Asian Development Bank targeting plastic recycling in Southeast Asia and Circulate Capital’s 19 million US-Dollar funding for Indian waste management companies.

Strategic research provider Bloom­bergNEF (BNEF) had tracked circular economy policies in 26 markets that together account for 88 percent of world GDP (gross domestic product), the report informed. Typically, such policies cover landfilling, recycling, key materials including plastic bags and extended producer responsibility schemes. “Increasing globalization means that circular economy policies affect not only materials sustainability but also international trade flows.” Countries that count on waste prevention, reuse and recycling would perform better than those that prefer recovery and landfilling. “Current circular economy legislation suffers from weak implementation measures, especially in emerging markets,” the report said. “Countries with enforceable policies such as taxes and content mandates tend to do better than those that only rely on ‘soft’ targets where progress is slow.” Increasing the circularity of the global economy could be a key part in reducing carbon emissions, with materials responsible for roughly 20 percent of worldwide emissions. Reducing material demands by reusing as much as possible could avoid the emissions that derive from the primary production. “Recycled steel generates 84 percent less emissions than new steel, and recycling plastics typically saves 50-60 percent of greenhouse-gas output compared with virgin production.” However, alternatives for primary production, such as hydrogen, bio-based feedstock or carbon capture and storage, were early-stage, costly, or both. “The recycling industry is well-established for metals, plastics, glass and paper, and can be the first step in driving down emissions from industrial energy use.”

Example: Considerations regarding solid waste
The Policy Considerations result from a public consultative process and direct outreach to over 6,000 global experts and stakeholders representing business, government and civil society perspectives, the report stated. Regarding solid waste, municipalities could attract private capital by creating “a holistic plan for solid waste management that incorporates goals and policies to support investment,” the authors gave advice. Since transportation is the main cost driver of waste management, localized materials recovery stations would make a significant difference. “A clear picture of the regulatory approach and timeline for waste infrastructure development can also provide reassurance to investors.” Further items are the empowerment of a capable authority and governmental programs to integrate informal sector workers. In addition, recycling campaigns could help to reduce landfills, improve the circularity of waste materials with associated environmental benefits, and provide revenues to investors.

Finally, yet importantly, the report highlights the ability to achieve economies of scale by aggregating waste flows. That includes developing regional waste management approaches, adopting new waste-to-energy technology, and partnerships with neighboring cities and governments. Furthermore, the government “can remove a major pain point for investors by instituting a transparent and uniform e-procurement system for bundling waste contracts”.


(Published in GLOBAL RECYCLING Magazine 2/2021, Page 3, Photo: New Africa / stock.adobe.com)