Next frontiers for climate business? 5 experts’ views

As we begin deliberations at the UN Climate Change Conference (COP26), climate change is accelerating and so are public demands to take action. We have a narrow and critical window of opportunity to reduce our greenhouse gas emissions. It’s clear that the private sector will have a growing role to help slow and reverse those emissions. But what types of businesses will rapidly expand? What sectors are primed for green transformation? We asked five of IFC’s in-house experts about the new horizons for climate business. Here are some of their thought-provoking–and hopeful–responses:

Photo: IFC

Nuru Lama, an IFC principal investment officer and acting manager for global energy, on energy:

“We are seeing renewable opportunities across all regions, with more opportunities in larger, established energy markets. This includes plain-vanilla solar or wind as well as financing hybrids with battery storage and helping to develop green hydrogen opportunities. We just helped finance our first sustainability linked bond with Sembcorp Industries in Singapore – this could be a new area of major growth. What we really need to do is scale the business, replicate models, and attract more financing. At the same time, we need to increase the supply of projects to finance. This will require solving bigger issues, such as sector reform and creating robust transmission and distribution grids. But it also means rolling up our sleeves to help develop projects.”

Tania Kaddeche, IFC’s head of manufacturing, agribusiness, and services in Latin America, on agribusiness opportunities:

“We need to invest in helping our clients decarbonize as much as possible. We need to extend what we’re doing in dairy to a bigger range of industries. It’s fine to have net-zero announcements that companies will reduce emissions by a certain date, but the next question is how will they do that? We need to partner with companies to devise the how. There are a number of potential solutions. With soy, to take one example, it will be about traceability to ensure that the land used is from outside the deforestation areas. Another example is that we financed a project that uses wood pulp to make clothing fiber. In Latin America, a lot needs to be done to invest in productivity, putting degraded lands back in production, designate clear ‘no-go’ areas for development, and preserve biodiversity and natural habitats. Technology can help a lot, hand in hand with innovation and regulation.”

Peter Cashion, an IFC chief investment officer and global head of climate finance, on green finance:

“The next frontier has to be creating more investable projects to finance and attracting new capital market players into this area. To effectively transition to a green economy, we can’t simply rely on banks and Development Finance Institutions (DFIs). The need is going to outstrip banks and DFIs. We will need to tap into the institutional investment universe, which has 900 times more funding available than the development finance institutions. DFIs play a role not just on our own balance sheet, but we can really expand our impact by building the foundation of capital markets in the countries where we work. The analogy I give is that to combat climate change it’s going to take a World War II type effort. All the world’s resources have to be devoted to this fight.”

Sabine Schlorke, IFC’s manager of global manufacturing, on manufacturing:

“My expectation is there is a broad understanding that the circular solutions of reusing products is not an option in the future. It’s a must. If companies do not change, they will lose their license to operate. A lot of the clients will not take those products anymore. You see so many large companies, or the multinational brands, have made significant sustainability promises, and there will be increasing pressures to meet those promises. Also, from the manufacturing side, there will be changes. If I am a carmaker, I cannot just produce the product anymore. I will have to take it back. I will be made responsible for it. It won’t be seen as a cost issue, but instead as a business issue. Another big trend will be the growth of regional or domestic markets in production capability. That will replace imports and allow the domestic businesses to grow. This type of regional investments will also reduce greenhouse gas emissions dramatically because products will not be shipped around the world. Many products will be made locally.”

Lisa Da Silva, an IFC principal investment officer and global cities lead, on cities:

“Ride sharing will be one big trend. It is about addressing a need and a gap for citizens, and reducing the number of trips in cars. Another big trend is electric mobility. Every city is thinking about how they promote electric vehicles – two wheelers, three wheelers, electric buses, and electric cars. But how do you have e-vehicles when there aren’t enough charging stations? The challenge will be how to develop them. And a last big growth area is green buildings. It is a huge investment opportunity. Cities can create incentives that will spark more investments. Green buildings not only impact climate change, they also impact people’s lives. In South Africa, we showed that residents of green houses saved on average a month of energy costs per year. That’s substantial, and it didn’t cost anything extra.”

This article was originally published by IFC.