Mobilising social finance for climate action in Asia

 

David Venn

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Asia is particularly vulnerable to the consequences of climate change. A confluence of man-made factors ranging from industrial agriculture practices to widespread deforestation to a reliance on conventional energy sources present serious threats to the region’s economy, people and natural ecosystems and at the recent Asia Venture Philanthropy Network (AVPN) conference climate change and sustainable finance featured prominently on the agenda.

To move the needle on climate will require significant investment from a range of actors including bilateral and multilateral donors, philanthropy and social investors, as well as the private sector. In 2014, total global climate financing reached an all-time high of $392 billion with a majority coming from private sources. Among AVPN’s nearly 500 members, 30 per cent of funding goes to climate in Asia. This is considerable progress in the last few years, but the flow of capital into climate remains well short of what’s needed, particularly in sectors linked to agriculture, forestry and food systems. Within the ASEAN region specifically, current sustainable financing is estimated at $40 billion annually – only about a fifth of the roughly $200 billion needed every year until 2030.

An equally important question is where that capital needs to be directed. Philanthropy and investment to support campaigns and advocacy against fossil fuels is necessary, but financing in favour of renewables is also critical.

One of the key opportunities for stimulating renewable energy in the region is diplomacy. By acting as an honest broker and funding activities to convene high-trust dialogue between governments, businesses, investors and civil society, philanthropy can play an important role in supporting climate negotiations and policy development. One example of how this is playing out is in Vietnam, where the Growald Family Fund has made grants through a Southeast Asia renewable energy initiative to support groups that are championing the business case for sustainability with local governments and the private sector.

Helping developers to access capital is another necessary step to getting renewable energy projects off the ground, since early-stage projects are either deemed too risky or the potential return on capital is too low. Here philanthropy can both stimulate and accelerate renewable energy development projects by making early-stage investments or providing low interest loans as a bridge to future financing.

As one example of this kind of financial incentive, the Sea Change Foundation, a private family foundation, alongside four other major climate grantmakers recently came together as a consortium to launch a Southeast Asia clean energy facility. With a focus on wind and solar projects in the Philippines, Indonesia and Vietnam, the clean energy facility directs its grantmaking in the form of investments to stimulate the market for renewable initiatives, helping them go on to attract commercial funding.

ESG investing gaining momentum

Throughout the conference, there was also keen interest among foundations and impact investors to align investments with their philanthropic goals. In the case of climate change this environmental, social and governance (ESG) investing approach is often two sides of the same coin. It means dialling down investments in fossil fuels and dialling up investments in clean energy and renewables, while simultaneously providing grants and other support to activities that are enabling the shift towards a low carbon economy.

AVPN’s research into the Continuum of Capital found that only 1 per cent of funds in Asia take account ESG practices, but that the perceptions of investors in the region toward responsible investing are changing. As the regulatory environment continues to evolve in different countries, and more evidence about the performance of ESG investing emerges, more investors both within philanthropy and across private finance will hopefully integrate ESG factors into their investment strategies, a shift which could redirect billions in philanthropic capital towards investments with greater environmental impact.

To make the move towards a more sustainable future and keep emissions below dangerous levels, Asian economies need to deploy solutions at unprecedented pace and scale. How or when that will happen is open for debate, but if the debates at the AVPN conference are a reliable barometer of opinion, the shift might just take place sooner than we think.

David Venn is Strategic Communications and Outreach Advisor at USAID Green Invest Asia.


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