Investors must urgently raise their game to answer IPCC’s clarion call

The good news is that the costs per Megawatt for sustainable energy have substantially decreased over the past few decades . It means that the shift from fossil fuels to renewables is now more financially viable than ever.

The bad news is that climate finance needs to grow 590 per cent annually to meet internationally agreed climate objectives. Growth was just 10 per cent in 2020. So, there is clearly a long way to go.

Across the board, the financial sector needs to heed the IPCC’s urgent call to implement ambitious climate investment policies and scale-up financing efforts. More than half of the 150 largest financial institutions still have no restrictions on financing oil and gas. And only a third of the biggest banks and asset managers have set concrete climate targets.

As a newly established impact investor, Invest International finances innovative Dutch solutions to make a difference in the global economy. We do this by creating more decent jobs, sustainably transforming international value chains, and contributing to global decarbonisation.

This makes climate change one of its most important themes. Invest International already invests in modest hydropower projects, concentrated solar plants and geothermal energy. And it is poised to apply shadow carbon pricing and make concrete commitments on a net-zero portfolio in the coming years. But efforts need to be scaled up. In particular, Impact Investors like Invest International should dramatically increase their investments in at least two areas – climate adaptation and resilience, as well as early-stage development of fossil fuel alternatives.

The IPCC noted that on average, between 2017 and 2022, about 90 per cent of global climate finance largely focused on climate mitigation [p.TS-123] – measures designed to reduce harmful emissions. On the other hand, finance for climate adaptation – measures to prepare for and adjust to both the current and future effects of climate change – continues to lag behind. It now stands at USD 46bn in 2020, while up to USD 300bn is required by 2030 according to UNEP’s Adaptation Gap Report (UNEP,2021).

Adaptation projects such as coastal restoration and protection, water monitoring and flow-forecasting systems, flood risk management, and restoration of tidal flow to coastal wetlands, are often ignored. But these projects have strong social-economic impacts and some mitigation benefits as well.

Through public program financing, Invest International increasingly invests in Dutch solutions in the areas of nature-based solutions (NBS), coastal management programs, ecosystem-based adaptation (EbA) and urban green and blue infrastructure projects, that have adaptation and mitigation co-benefits.

One of such ongoing projects is the coastal protection for the port city of Beira in Mozambique, which is supported by Invest International, the Mozambican government, the World Bank and KfW Development Bank. The project is in direct response to the destruction caused by the 2019 Cyclone Idai which hit Beira hard and destroyed 90 per cent of the port city, leaving 600,000 inhabitants vulnerable[9].

Investments for the early-stage developments of zero or low-carbon alternatives are crucial; but are still too low, as they are often overlooked despite their vital role in facilitating the deployment of scaled-up climate finance.

The IEA (International Energy Agency) estimates that by 2070, technologies currently at the early maturity stage (i.e. not yet commercially viable) will account for nearly half of the world’s annual emissions reductions, including hydrogen, carbon capture, utilization, and storage (CCUS), and climate analytics technologies. Yet according to Boston Consulting Group (BCG), in the last five years, only three per cent of private investment has gone into these newer technologies.

For instance, the Netherlands is one of the most fossil fuel-dependent countries in Europe. With limited sunlight and flat topography, the Netherlands has poor potential for solar and hydropower, but the Northern part of the country is uniquely positioned for the development of a green hydrogen economy.

Green hydrogen is increasingly seen as a low-carbon alternative that has strong potential in helping move beyond fossil fuels. However, its production costs are currently high, and the hydrogen value chain is still underdeveloped. The Netherlands Organisation for applied scientific research (TNO) expects in 2050 80 per cent of the hydrogen will be imported.

Over 140 SMEs in The Netherlands are focused on the production, storage, and distribution of green hydrogen, and the list is growing. Through its project development financing, Invest International is uniquely positioned to support these companies to scale-up production, storage and distribution of green hydrogen, and the development of the hydrogen value chain.