The biggest challenge in reaching net-zero emissions today is the inability to bring strategic capital where it is most needed, says Isabel Chatterton of the International Finance Corporation (IFC).
“We find that there is a misallocation of capital, most of the capital is really going into those spaces where the energy transition or climate story is not the most urgent.”
Speaking at the panel “Scaling Climate Financing: Breakthrough Solutions and Pathways” on the third and final day of Temasek’s Ecosperity Week on June 8, Chatterton reiterates Senior Minister Tharman Shanmugaratnam’s comment at this keynote address earlier in the day: Asia, which contributes to more than half of the world’s global emissions, is at the core of the solution, but is currently at the core of the problem.
Joining Chatterton were Rohit Sipahimalani, chief investment officer of Temasek and Avinash Persaud, Special Envoy on Climate Finance to Prime Minister Mottley of Barbados.
Quoting Tharman, Persaud adds that “there is no pathway to us [the world] fixing our problem without developing countries being fully involved”, but notes that the cost of capital to finance green energy projects in these regions are higher than those of developed countries because of “macro risks”.
These are typically currency related risks, or risks related to political stability of a nation, for example, which Persaud believes can be addressed through the implementation of a foreign exchange guarantee for green transition projects.
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Meanwhile, Sipahimalani’s stance is that clearer regulation and policies by governments is most crucial in mitigating risks. “What you need is governments willing to sort of stand by clear policies and regulation. You need multilateral involvement, so that investors are confident that governments will stick to their commitments,” he adds.
Citing the Southeast Asia’s Green Economy 2023 report by Bain & Company released earlier in the week, Sipahimalani notes that only US$5.2 billion ($7.03 billion) was invested in green projects in Southeast Asia, a quarter that of India.
He attributes this to the consistency of solar and renewable policy in India for more than a decade now, where investors can be confident that they can set up a project that will be able to scale successfully.
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Both Sipahimalani and Persaud agree that the world has all the technology it needs today to solve some of the most pressing climate challenges.
“The more important thing about getting the ball rolling [on these technologies] is to get it to [a] minimum scale,” says Sipahimalani, “[which will show] what it does to cost efficiencies, which then creates a virtuous cycle."
