(Bloomberg) -- Weather risks. Political and currency risks. The perceived risk of investing in new ventures rather than more mature, established industries.
These are some of the obstacles that have historically held back the flow of climate-focused capital to emerging markets, said Marisa Drew, chief sustainability officer at Standard Chartered Plc, speaking Thursday at the Bloomberg Sustainable Finance Forum.
“If you can get a decent return somewhere else without taking on all those risks, you start to see some of that capital transfer elsewhere,” Drew said.
However, Drew added that the perceptions about emerging-market risks are often wrong. “My experience working with my partners offers a very different picture,” she said.
When it comes to mobilizing capital with the goal of achieving net zero emissions, there should be a focus on funding adaptation, or making property and infrastructure more resilient to the physical impacts of climate change, and not just an exclusive obsession with carbon mitigation, Drew said.
Catastrophic weather events have become the norm across the world, she said. “We need to tackle this and the private sector has a huge role to play.” Such investments could come in the form of storm-resistant buildings and nature-based solutions for agriculture, Drew said.
To date much of the climate-related investment has flowed to China and a few other emerging markets. The International Energy Agency and International Finance Corp. estimate that roughly $770 billion is invested annually in clean energy in developing economies, with more than three quarters of the total going to China, India and Brazil.
The concentration is “striking,” IEA and IFC said in their report. China, for instance, installed 10 times as much solar power capacity in 2022 than all of Africa. And just 2% of global renewable energy investment went to into Africa last year, according to BloombergNEF.
Drew was speaking on a panel with Nana Maidugu, head of sustainability and ESG at the Nigeria Sovereign Investment Authority, at the Bloomberg conference in New York, which was held in conjunction with Climate Week.
Topics discussed at the afternoon forum ranged from mobilizing capital and managing physical risks in a changing climate to tackling the ESG data challenge and financing the energy transition with interest rates still at relatively high levels.
At the meeting, Peter Pulkkinen, co-portfolio manager of Lombard Odier Investment Managers’ sustainable private credit strategy, said he sees “tremendous opportunity” in smaller, $15 million to $30 million investments in distributed renewables and distributed storage projects. They’re often family-run businesses, he said.
Money is needed for the energy transition and the nuclear sector is increasingly seen as an acceptable investment option, said Michael Kashani, head of ESG credit at private equity firm Apollo Global Management Inc., during a discussion on the same panel as Pulkkinen.
(Adds comments from asset managers in final two paragraphs.)
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