The Global Innovation Lab for Climate Finance (the Lab) hosted a panel during the Lab Summit at the 2024 New York Climate Week, featuring three alumni from diverse sectors, regions, and instrument types. They shared their experiences and insights from their time with the Lab program developing innovative climate finance solutions.<\/p>\n\n\n\n
The panel included:<\/p>\n\n\n\n
Here are some key takeaways from their conversation, moderated by Ben Broch\u00e9<\/strong>, Associate Director at CPI.<\/p>\n\n\n\n Marta de S\u00e1 recalled piloting the Amaz\u00f4nia Viva Financing Mechanism<\/a> with Natura, marking the first time they used a capital markets instrument to fund local cooperatives in the Amazon<\/a> and support the bioeconomy. Structuring the USD 10 million transaction took two years to complete\u2014a timeline she describes as “crazy” and one that underscores the challenge of creating scalable, replicable models in this space.<\/p>\n\n\n\n \u201cOf course, nature and sustainability add complexity, making things harder. We must aim for \u2018good enough\u2019 rather than perfect because perfection is impossible. The question is, what\u2019s good enough to start with? We can build from there, but we need solid foundations to begin. That\u2019s where I\u2019m investing my time\u2014building the basics, the building blocks, with technology, understanding specific needs, and developing suitable products,\u201d said Martha de S\u00e1.<\/p>\n\n\n\n While it’s important to scale climate finance, organizations must be cautious about imposing rigid standards on diverse emerging markets. Each context is unique, and a one-size-fits-all approach can hinder innovation.<\/p>\n\n\n\n By focusing on foundational elements like understanding local needs, developing tailored financial products, and combining them with technical assistance and other financial services, the Lab can help create a powerful framework for replication and scale.<\/p>\n\n\n\n \u201cWhen you combine standards with technology, you create a replicable model. That\u2019s where we are now\u2014understanding local needs, speaking their language, and documenting things simply. Look at the fintech companies: they\u2019re scaling so rapidly because their processes are simple, scalable, and replicable. We need to bring that same approach to nature finance,\u201d said Martha de S\u00e1.<\/p>\n\n\n\n Treating natural resources and ecosystems as investments is the same as considering nature as an asset class. Like stocks, bonds, or real estate, nature can generate financial returns in addition to environmental returns. Investing in nature-based solutions, such as reforestation, sustainable agriculture, and ecosystem restoration, creates economic opportunities while promoting long-term environmental sustainability.<\/p>\n\n\n\n However, Institutional investors, corporates, and local communities have different needs and perspectives. The lack of a common language and understanding makes aligning goals and facilitating investment challenging.<\/p>\n\n\n\n The Low-carbon Agriculture Transition Mechanism<\/a> aims to make investing in nature as straightforward and appealing as investing in other asset classes, thereby driving significant capital towards sustainable initiatives. A key part of that was translating into one single language what institutional investors, corporates, and especially those on the ground need.<\/p>\n\n\n\n \u201cIt’s important to look at things from an opportunity perspective. We all know the challenges and the climate change issues. Still, we also have much potential, especially when discussing economic growth and combining social and environmental goals,\u201d said Martha de S\u00e1.<\/p>\n\n\n\n Guarantees can help to reduce the risk of climate investments, making them more attractive to institutional investors. A recent research from CPI explores the landscape of various guarantee types<\/a>, their challenges, and their effectiveness.<\/p>\n\n\n\n \u201cClimate finance benefits from diverse guarantee solutions, both large and small. While large-scale guarantees back debt-for-nature projects with impressive results, there\u2019s also a growing need for smaller guarantors to support different areas and scales. This mix allows for replicability across contexts,\u201d said Las Perera.<\/p>\n\n\n\n By providing investment-grade guarantees, the Green Guarantee Company<\/a>, a 2022 Lab solution, increases the chances of these projects securing financing, especially in emerging markets with sub-investment-grade credit ratings. Additionally, guarantees can be removed once trust develops in the market.<\/p>\n\n\n\n \u201cGGC serves as a sort of \u2018glue,\u2019 facilitating this cooperation, and what\u2019s unique about our guarantee model is its flexibility. Our involvement remains a mere promise until needed, making it easy for stakeholders to move forward without us once they\u2019ve built the relationships and trust needed to collaborate independently. This makes guarantees a powerful, low-intervention tool that strengthens the market\u2019s confidence without being a permanent fixture,\u201d said Perera.<\/p>\n\n\n\n When Sanjay Wagle and Jay Koh came to the Lab in 2017 to develop CRAFT<\/a>, investing in climate adaptation and resilience, particularly in the context of private sector investment, was still nascent and largely unexplored. \u201cThere was a total lack of awareness in the private sector about what that even meant,\u201d recalled Wagle.<\/p>\n\n\n\n1. Scaling climate finance requires standardization and replication<\/h2>\n\n\n\n
2. Nature needs its own asset class<\/h2>\n\n\n\n
3. Guarantees can play a role in mobilizing institutional capital to emerging markets<\/h2>\n\n\n\n
4. Climate adaptation is an inevitable transition that requires multiple investors to scale<\/h2>\n\n\n\n