How to get money to low-income countries to help them deal with climate change is one of the thorniest issues at the United Nations.
The governments of industrialized countries have promised help. Developing countries need trillions of dollars to deal with global warming.
Private investors see opportunities to make money from the fight against climate change. Poorer nations are already bearing the brunt of extreme weather due to the pollution that fuels climate change.
The story isn't good. The Climate Policy Initiative, a nonprofit that works with governments and businesses to promote economic growth while addressing climate change, says that most of the large funds invest in advanced economies. There is a lot that needs to be done to make it viable for that kind of money to be raised.
There's a perception that risks in developing countries are riskier than in industrialized countries. Government leaders say it's time to change institutions like the World Bank and the International Monetary Fund to better manage cross-border challenges.
It's in the private sector's interest to help poorer nations deal with climate change.
Philip Davis, prime minister of the Bahamas, said at the U.N. climate conference that he was not going to tell the private sector to stop caring about profits. In a world of profound instability, your profits are at risk.
The gross domestic product of Algeria is roughly equivalent to the $165 billion invested by investors in climate technology companies.
It's difficult to compare sources of climate funding, but it's vastly more money than the private investors have been giving. According to the latest data from the Organization for Economic Co-operation and Development, less than a third of the $83.3 billion in climate financing went to developing nations in 2020.
The majority of private funding is being used for projects that aim to reduce emissions in developing countries, according to experts. They tend to create more direct revenues for investors than adaptation projects, which are designed to help countries cope with warming.
An independent group of experts was convened ahead of COP 27 to advise conference leaders on how to increase climate financing. There is not a ready-made highway for the flow of large private finance into emerging and developing countries.
Africa, for example, accounts for a large share of the world's potential solar development but attracts just a small fraction of renewable energy investment according to Enja Sthren, head of government affairs. Sthren says that many investors are willing to back projects that produce profits. She says that those kinds of deals can be hard to come by because they need developers with strong market knowledge and a network to navigate different stakeholders.
There is a lack of infrastructure. There hasn't been enough public investment to expand local electric grids in some places, which is why project developers can't build at the scale they want.
The right conditions for private investment must be created by governments and development banks.
Financial and technical support from the World Bank can help to reduce risk and attract private investors.
Private investment is needed to fight climate change. 70% of the $2.6 trillion needed annually to eliminate or offset planet-warming emissions by midcentury could come from the private sector.
Despite their mandate to eliminate poverty, development banks tend to focus too much on avoiding risk and earning money, says the CEO of Acumen. She says that they should be trying to get as much private investment as possible in developing countries.
In October, the U.S. treasury secretary called for international development banks to rethink how they incentivize investment for global challenges like climate change. Grants may be issued instead of loans to provide funding. "If the global community benefits from investments in climate, then the global community should help pay the cost," she said.
Kerry said the world needs to "reimagine" the system of development banks that emerged after World War II.
Kerry said in October at the Council on Foreign Relations in Washington, D.C. that public finance is an indispensable component in order to finance the energy revolution.
Kerry said that public and private finance needed to work together. It has been discussed for a long time.
Increasing private investment in low-income countries is a priority for a group of 10 development banks. The banks want to reduce financial risk and make countries attractive to investors.
The climate conference in the Egyptian resort town of Sharm el-Sheikh is often the scene of big announcements. It has been the problem to turn promises into actions.
"My frustration is that we speak with grand statements, what needs to be done, what we will stand for." To enable those organizations that know how to execute on the ground, we must put together real investment programs.
There is a glimpse of what that may look like.
SouthBridge Investments and the Arab Bank for Economic Development in Africa are creating a $2 billion fund to give grants and loans to communities and entrepreneurs that are restoring land in Africa. Private investors give the majority of the money. Bezos Earth Fund is giving $50 million.
The new investment fund is a breakthrough in getting money directly into the hands of local businesses and nonprofits according to the CEO of World Resources Institute.
Frannie Leautier is the CEO of SouthBridge Investments. It has become the innovation factory of the Earth.
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