The Global Innovation Lab for Climate Finance played a significant role during the Lab Summit at the 2024 New York Climate Week. A panel featuring three alumni from different sectors, regions, and instrument types shared their experiences and insights in developing innovative climate finance solutions.

Unveiling Insights from Climate Finance Panelists

Scaling Climate Finance: The Need for Standardization and Replication

Marta de Sá recounted piloting the Amazônia Viva Financing Mechanism with Natura, highlighting the two-year journey to complete the USD 10 million transaction. She emphasized the challenge of creating scalable models in this complex space, stating that aiming for "good enough" is crucial. "Nature and sustainability add complexity, making things harder. We must build from the basics and develop suitable products," she said. While scaling is important, rigid standards can hinder innovation in emerging markets. By focusing on local needs and developing tailored financial products, along with technical assistance, a powerful replication framework can be created. "When you combine standards with technology, you create a replicable model. Look at fintech companies; their simple, scalable processes are driving rapid growth," de Sá added.Another aspect is the importance of understanding local contexts. Each emerging market has its unique characteristics, and a one-size-fits-all approach may not work. By tailoring solutions to specific needs, climate finance can be more effective.

Nature as an Asset Class: Unlocking Economic Opportunities

Treating natural resources and ecosystems as investments is akin to considering nature as an asset class. Just like stocks, bonds, or real estate, nature can generate financial returns while promoting environmental sustainability. However, there is a lack of a common language and understanding among institutional investors, corporates, and local communities. The Low-carbon Agriculture Transition Mechanism aims to simplify and make investing in nature more appealing. "It's important to look at things from an opportunity perspective. We have potential in economic growth while addressing climate change," said Martha de Sá. By translating the needs of different stakeholders into a common language, more capital can be directed towards sustainable initiatives.

Guarantees: Mobilizing Institutional Capital to Emerging Markets

Las Perera discussed how guarantees can reduce the risk of climate investments and make them more attractive to institutional investors. A recent CPI research explored different guarantee types and their effectiveness. Large-scale guarantees have shown impressive results in debt-for-nature projects, but there is also a need for smaller guarantors to support various scales and areas. The Green Guarantee Company, a 2022 Lab solution, provides investment-grade guarantees, increasing the chances of projects securing financing in emerging markets with sub-investment-grade credit ratings. Guarantees can be removed once trust is established in the market. "GGC serves as a 'glue' facilitating cooperation. Our guarantee model is flexible; our involvement is only a promise until needed, allowing stakeholders to collaborate independently," Perera explained.

Climate Adaptation: The Need for Multiple Investors

In 2017, when Sanjay Wagle and Jay Koh came to the Lab to develop CRAFT, investing in climate adaptation was nascent. "There was a lack of awareness in the private sector," recalled Wagle. They developed CRAFT as a global growth equity strategy to identify and invest in innovative solutions. Convincing institutional investors in the US and Europe about the real opportunity in climate adaptation took time. Seven years later, it is easier to demonstrate the need and investment opportunity. Investors are recognizing the profitability of climate adaptation, and more are integrating it into their strategies. "One small fund won't solve the problem. We need many more investors. Climate adaptation will require all types of capital," concluded Wagle.