Mobilizing investors vs climate crisis

“Does anyone here believe that we are in a position where we need to be to win the battle? The answer is no.” John Kerry, departing US special presidential envoy for climate, drove home this hard truth during a climate financing panel at Davos 2024, which explained how social investors can give us a fighting chance in today’s climate crisis.

Climate financing has always been on top of any global sustainability agenda, given how it is crucial for countries to go from mapping strategies and targets to taking committed action. A staggering $5 trillion of capital is needed each year for us to meet climate goals by 2050. This is even more pertinent here in Asia because the region not only generates the largest share of emissions globally, but is also the most exposed to extreme weather events.

Meanwhile, technological advancements to both mitigate and adapt to climate change have been moving in leaps and bounds. Communities can better adapt to droughts and floods with the help of climate-smart agriculture, while intelligent weather prediction tools help protect infrastructure and human lives from storms, floods, and heatwaves.

However, the investment needed to scale these innovations remains insufficient and unevenly distributed, with focus on emission reduction efforts and funds disproportionately benefiting high-income countries in Europe, the US, and Canada.

This imbalance in adaptation financing is due to several barriers, such as high upfront costs, perceived risks and uncertainty, lack of established commercial markets, and limited access to knowledge on opportunities. In turn, the widening gap between rising adaptation costs and limited financing leaves at-risk countries in the region severely under-resourced.

Turning risk into opportunity. Social investors—investors who combine financial returns with social impact by backing companies and funds with a social purpose—are in a unique position to step in. They must bring to the table not only a unique risk tolerance needed for adaptation financing, but also value beyond financial support through impact-focused alliances.

First, social investors can provide long-term capital that is patient, risk-tolerant, concessionary, and flexible. Indispensable for nurturing high-risk climate adaptation innovations, risk tolerance is crucial for this emerging yet vital ecosystem. This can be achieved through a variety of financing instruments, from patient equity to innovative blended finance structures that meet the diverse needs of climate tech startups, while de-risking investments for mainstream capital. For instance, the long development cycles of breakthrough agri-technologies, like climate-resilient crops, require equity financing with a 10- to 15-year horizon.

But social investors should not be limited to providing financial support. For climate adaptation technologies to be successful and have on-ground impact, adequate policy and institutional mechanisms need to be in place to facilitate swift technology transfer and implementation.

Research reveals that climate adaptation technologies are deployed at a much slower rate (16 percent), compared to mitigation solutions (31 percent). This shows that while mobilizing financial resources and addressing regulatory barriers are important, these technologies need to be deployed in a targeted way for any investment to make a real difference on the ground. Capability building and collaborative networks are essential for climate tech development and knowledge transfer.

Impact-focused alliances. Precision in adaptation technologies is crucial, complemented by knowledge sharing and increased access to risk capital to unlock innovations tailored to local needs. Building impact-focused alliances among governments, investors, and communities can significantly accelerate these efforts, particularly given the patient and catalytic nature of the required capital.

We see all these come to life in recent climate initiatives, such as the Asian Venture Philanthropy Network’s (AVPN) Sustainability Seed Fund, which exemplifies the potential of social investors to accelerate climate tech innovation through tailored financing instruments, capability building, collaborative networks, and research, to identify gaps in the ecosystem and enable better-informed investments in this area.

Bringing more social investors into the fold. There is sufficient evidence that social investors have made considerable contributions in the climate arena. The first iteration of the fund, supported by Google.org, provided $3 million to help 13 grantees, from renewable energy and sustainable technologies along the Thailand/Burma border to a “digital twin” of the global food system. However, all stakeholders—from governments to communities—need to make a concerted effort to bring social investors to the frontlines.

Aravindan Srinivasan is director of Thematic Collaborations at AVPN.