The UK-based non-profit has launched a guide on using catalytic capital to create a fairer path to net zero. It is calling for over half of investment in climate-focused funds over the next five years to adopt a just transition approach.
As next month’s COP 28 climate conference in Dubai draws near, impact investment organisations are ramping up pressure on negotiators to reinforce measures announced at last year’s conference to encourage the use of catalytic investment through funds and other vehicles to mobilise more private capital to tackle climate change.
At COP 27 in Sharm El Sheikh, Egypt, various initiatives were announced, including the G7 Impact Taskforce and the Sharm El Sheikh Guidebook for Just Financing, designed to encourage the evolution of pooled structures to stimulate more equitable private investment. But in a crowded agenda at COP28, those seeking for more emphasis on the just transition approach will be competing for attention.
Against that backdrop, the Impact Investing Institute (III), a UK-based non-profit, has launched Bridging divides: A guide on using catalytic capital for a global just transition.
The guide is aimed at catalytic capital providers, such as development finance institutions, governments, and philanthropic organisations, along with private investors, and corporations. It focuses on achieving a “fair and inclusive transition” in emerging markets.
According to the European Bank for Reconstruction and Develoment, a just transition “seeks to ensure that the substantial benefits of a green economy transition are shared widely, while also supporting those who stand to lose economically – be they countries, regions, industries, communities, workers or consumers.”
Kieron Boyle, the III’s chief executive, notes that the transition to a low-carbon economy is likely to require investment of at least $4-6trn a year, according to the COP27 global climate agreement, while developed countries are still failing to reach an agreed goal to jointly mobilise $100bn in climate finance annually. The International Energy Agency estimates that the transition to net zero in emerging and frontier markets alone would require about $2trn annually by 2030.
“More of that money needs to have a just transition focus. Globally, £2.2trn ($2.7trn) are invested in climate-focused funds. Within the next five years, we would like to see over half of these investments adopt a just transition approach, combining climate action with creating and securing opportunities for people and communities to thrive in a transformed global economy,” Boyle told Impact Investor.
He said that to achieve real progress, capital needed not only to be committed but actually deployed, for there to be more explicit targeting of social considerations in the transition, and more equal partnerships with local actors.
“Catalytic capital has the potential to unlock the private investment needed to achieve those goals. The challenge is that we need effective partnerships between governments, central banks, institutional investors, and other financial actors to work together to accelerate the speed of those financing flows to where they are needed the most,” he said.
The guide includes advice on how catalytic capital providers can partner with actors, including fund managers, investees, and communities based in emerging and frontier markets. Boyle said calls were intensifying in the run up to COP28 for a move towards net zero that enables, rather than hinders, local development priorities for countries in developing countries.
“It’s clear that unless we achieve a just transition in these countries, we simply won’t achieve the transition that’s needed globally,” he said.
The guide provides content on global imperatives and local pathways for the just transition, and its relevance for catalytic capital providers with respect to areas such as mission alignment, stakeholder priorities and mobilising additional private capital.
It also looks at the characteristics, roles and uses of catalytic capital and how these might be used to support a just transition globally, how catalytic capital can help overcome barriers across the investment chain to mobilise private investment, and how to partner with local fund managers, support local investees, and empower local communities. The role of transition funds as tools for mobilising private capital is among other themes explored.