Financing the green revolution

Carbon emissions globally need to be slashed by almost 50 percent if the goals of the Paris Agreement are to be achieved and global temperatures kept below catastrophic levels. But as COP26 exposed, action is failing to match rhetoric, and more urgent measures are needed.

The UN Environment Programme estimates that adaption costs caused by climate change in developing countries alone will rise to the range of $140 billion to $300 billion a year by 2030, before spiralling to between $280 billion and $500 billion by 2050. The most vulnerable populations are set to be disproportionally affected.

For impact investors, meeting the UN’s goal of affordable, sustainable and clean energy access are prime objectives. In Latin America, the World Economic Forum estimates that impact investment has grown more than tenfold over the past decade, and will only increase as governments struggle to fund much-needed infrastructure.

“We believe the role of the private sector today is decisive for the rebirth of the region,” says Renato Mazzola, head of private capital at BTG Pactual. “The potential for this asset class is enormous, and since 2019, ESG and impact products have gained strong relevance in the market, mainly by serving as an extraordinary opportunity to boost the development of society without punishing financial returns.”

In Brazil, asset manager MOV Investimentos took the renewables plunge back in 2011 when the impact fund first invested in solar firm Órigo Energia. The renewables provider now manages 29 solar farms and expects to scale up capacity to 840MW over the next two to three years.

Wide-ranging benefits

Improving photovoltaic capacity in Brazil is an important part of reducing reliance on thermal power and hydropower dams, the latter often causing floods and displacing low-income communities.

Indeed, impact investments in energy are rarely just about boosting capacity. In 2020, Órigo Energia’s photovoltaic farms averted a combined 4,800 tonnes of carbon emissions. The farms are often installed on degraded areas and leased from local households, providing an important source of additional income and discounted energy bills.

“The environmental impact of producing clean energy means we can avoid hydropower and deforestation,” says Martin Mitteldorf, partner at MOV Investimentos. “We also believe that we can generate a very important social impact because families and small and medium businesses save 10 to 15 percent of their energy bills through adopting solar.”

In East Africa, fellow impact manager Acumen also invests in clean and affordable energy. The non-profit launched its KawiSafa Ventures fund in 2019 and has so far provided 24.2 million households with renewable energy and prevented 21.15 million tonnes of CO2 emissions. Investments in the portfolio also include Angaza, a platform that offers pay-as-you-go solar energy for low-income consumers living in off-grid locations.

In Asia, 4.6 billion people account for more than half of global energy consumption, almost entirely served by fossil fuels. Achieving net-zero emissions by 2050 will require an immense investment shift, a point made by ThomasLloyd Energy Impact Trust when it launched its $300 million Asia-focused fund last November.

The fund aims to target sustainable energy infrastructure assets in southern Asia. Currently, it provides solar energy to more than 93,000 people in Northern India, averting over 103,400 tonnes of CO2 a year from being released into the atmosphere and creating 800 jobs for the local economy.