By Jake Levine, Chief Climate Officer of U.S. International Development Finance Corporation
World leaders convening at COP26, the United Nations Climate Change Conference in Glasgow, Scotland over the past week confronted a growing body of evidence that developing countries are bearing a disproportionate share of the climate crisis burden and are in urgent need of significant investment to mitigate the worst impacts.
In Guatemala, floods, drought, and unseasonable frosts have for years driven thousands of migrant Guatemalan farmers from their homes in search of work. In Bangladesh and India, a cyclone earlier this year displaced five million people. And in Madagascar, a series of droughts has resulted in famine impacting more than one million people.
For a crisis that is devastating communities all over the world, which the United Nation’s Secretary General has described as a “code red for humanity,” it may seem pointless to rank the comparative impact. But in communities where people live in makeshift houses or eke out a living without the help of modern farming technology, severe weather is increasingly destroying homes and livelihoods.
Investment must be targeted to alleviate the most severe impacts and clip emissions trajectories where they are rising most rapidly. Increasingly, developing economies are the epicenter for both. Consider that although developed economies have contributed the lion’s share of historical emissions, more than 95 percent of future emissions will come from emerging markets.
Mobilizing investment into the world’s developing countries is the work of the U.S. International Development Finance Corporation (DFC) and helping these countries adapt to a changing climate is a key area of focus. As the U.S. Government’s development finance institution and a key partner in President Biden’s Build Back Better World agenda, DFC earlier this year committed to focusing one-third of all new investments on climate-related projects by 2023 while working toward net-zero emissions across our portfolio by 2040.
Three strategies for supporting developing countries
In order to achieve the greatest impact, we are focusing broadly in three areas:
First, we are optimizing for speed. If the U.N. report earlier this year highlighted anything, it is that the longer we wait to slash emissions the harder it will be to do later. While the 2050 net zero targets many jurisdictions and corporations have adopted will draw attention to a pressing need, they are too slow. That is why DFC adopted a net zero emissions target for the year 2040. This is a difficult but achievable goal that sends a clear signal to the market that if a developer is interested in dredging a new port, or standing up a new manufacturing facility, it needs to do it with clean energy, low-carbon materials, less waste, and with an eye towards zero — or negative — emission operations, including through carbon capture.
Second, we recognize that while the private sector is indispensable for this work, we need to make developing economies more attractive destinations for private investors. A massive gap in financing exists for climate projects in the developing world. In recent months, multiple new climate funds have closed billions of new financings. We applaud this achievement, yet not enough of it will be allocated for investment in emerging markets. That is why DFC is deploying innovative financial tools, such as foreign currency guarantees, political risk insurance, and technical assistance grants to encourage private sector players to come off the sidelines. DFC’s financing, insurance, equity, and technical assistance are specifically designed to help private investors enter the developing markets, which represent not only a higher level of risk but ultimately a trillion-dollar opportunity.
Third, we know working to mitigate climate change is not sufficient. To provide relief to the millions of people who are being forced from their homes today, we must take a more realistic approach that involves helping communities adapt and grow more resilient. This approach of mitigation, adaptation and resilience opens an abundance of investment opportunities beyond just generating renewable energy, to include building climate-resilient infrastructure, conserving fragile ecosystems, and even developing new financial services so the world’s poor can access affordable insurance.
DFC is focused on all these areas. In addition to a renewable energy portfolio surpassing $5 billion, we are supporting projects to introduce electric buses and motorbikes to alleviate emissions in some of Africa’s most congested cities. Other DFC projects are supporting sustainable forestry in South America, reducing ocean plastic waste in southeast Asia, and helping to restructure sovereign debt so that countries have more resources available to protect coastal areas.
Underlying all these investments is a recognition that our work on climate change is fundamentally about people. When we make a climate investment, we work to ensure that it is also good for local communities, and that it seeks to facilitate a just transition for the people it will serve. This is why we designed a major wind power investment in Kenya to return profits to local community landholders, and it’s why we give special consideration to projects run by women and minorities and to those that benefit the most vulnerable communities such as refugees.
Since 2018, DFC has developed a framework for enhancing gender equity in all our transactions. We now ask the question of every transaction, “What does this mean for women?” because we know that investments in women are investments in families and communities. By the same token, we understand that every transaction must also be evaluated through a climate lens. By doing so, we will have the chance to spare some of the world’s poorest communities from the most severe suffering they face.
Jake Levine is the first-ever Chief Climate Officer at DFC, the U.S. Government’s development bank. Mr. Levine leads DFC’s efforts to confront the climate crisis in developing countries, including leading execution of the agency’s recently announced plan to reach net zero emissions by 2040 and increase new climate-focused investments by 33 percent beginning in FY 2023.