The World Bank's International Finance Corporation has financed and mobilised $7.7 billion in capital for climate-related schemes in the year to June as it continues to help public and private sector projects gain access to funding despite rising interest rates and amid a weakening economic outlook.
The multilateral lender invested $4.4bn into development schemes and financing deals from its own account and mobilised $3.3bn from the private sector in the previous financial year that ended on June 30, the IFC’s global head and director of climate business, Vivek Pathak, told The National.
The $7.7bn — about 35 per cent of the IFC's account — achieved in the 12 months to June 30 is in line with $7.6bn in aggregate achieved for the same period in 2021, but the multilateral lender aims to surpass the 2022 tally in the current 12-month period.
“The climate change action plan that we presented to the board about 15 months ago is basically that we do 35 per cent of our own account in climate [financing],” Mr Pathak said.
“However, we've got ambitious targets as part of our capital increase commitments. Effectively, we have to do more … obviously, as the climate person, I want to do more.”
The IFC is seeing “new opportunities emerging” in climate credit, and “we are hoping to at least be able to meet that target, if not exceed that 35 per cent that we've set for ourselves”, he said.
Compared to commercial banks and some of the other financial institutions, achieving the 35 per cent target is “ambitious, I would argue”, Mr Pathak added.
Climate financing has taken centre stage as the global economy continues its shaky recovery from the pandemic-driven slowdown.
Clean energy investment in developing and emerging economies alone needs to increase by more than seven times — from less than $150bn in 2020 to more than $1 trillion by 2030 — to put the world on track to reach net-zero emissions by 2050, according to a joint report by the International Energy Agency, the World Bank and the World Economic Forum.
The frequency and severity of climate-related disasters have intensified in the past two decades, with droughts in North Africa, Somalia and Iran; epidemics and locust infestations in the Horn of Africa, fires in Australia and severe flooding in Pakistan that killed thousands and racked up damages in excess of $30bn.
So far this century, climate disasters in the Middle East and Central Asia have injured and displaced 7 million people, caused more than 2,600 deaths and resulted in $2bn in damage in an average year, Kristalina Georgieva, managing director of the International Monetary Fund, said in March.
The pledge to mobilise $100bn in funding a year from developed countries to developing nations has yet to materialise. However, if global leaders unite on a systemic net-zero transition, the global economy could get a $43tn boost in the next 50 years, an increase of 3.8 per cent in the size of world economy by 2070, according to a Deloitte report.
Inaction on climate change, however, could cost the world’s economy $178tn in the next five decades, the report added.
Despite pressing financing needs, the cost of borrowing for public and private developers for climate-related projects has increased amid spiralling inflation and subsequent interest rate increases by central banks around the world.
One way governments can counter that is to bring private sector investors on board as partners for bankable climate projects, Mr Pathak said.
“We encourage governments to reform, open up sectors and make it attractive for private capital. The more you attract private capital, the more competition there is, the more prices will be driven down,” he said.
Governments and the private sector should invest in environmental, social and governance of climate-related projects as part of their spending plans, rather than treating them as separate items.
“Yes, interest rates are going up [but] I don't look at climate or ESG as a separate investment. It has to be integrated into everything we do,” he said.
By and large, climate should be integrated into “the daily thinking of our clients”, who sometimes may need “concessional finance upfront” for the projects, which is very critical to keep products and services affordable in some areas.
The IFC, based in Washington, is the largest global development institution focused on the private sector in developing countries.
It teams up with entities from start-ups to venture capital companies, financial institutions and private companies to boost economic activity to support the climate and gender agendas.
In the financial year 2022, the IFC invested $23.1bn in long-term funding and $9.66bn in short-term financing in private companies and financial institutions.
Until the end of May this year, the IFC’s aggregate cross-border investments in GCC-based companies stood at $5.1bn from its account and $3.4bn it has mobilised, financing 148 projects worth $22bn.
The IFC is leading a $94 million financing package for a subsidiary of Abu Dhabi’s clean energy company Masdar that will finance the first wind power plant in Uzbekistan.
In May, the lender provided a $30m loan to help waste management company Averda continue its planned growth in Oman, Morocco and South Africa.
Last year, Abu Dhabi's National Central Cooling Company, known as Tabreed, teamed up with the IFC to expand in India through a jointly owned holding company.
The lender will continue to form partnerships with UAE-based entities as “they have the capital” as well as the “ambition”, Mr Pathak said.
“So they're really perfect partners for us as they expand into emerging markets.”