Mobilizing investors against the climate crisis

“Does anyone here believe that we are in a position to win the war? The answer is no.” John Kerry, the outgoing US President's Special Envoy for Climate, delivered this hard truth during the Climate Finance Summit in Davos 2024, explaining how social investors can give us a fighting chance in today's climate crisis.

Given how important countries are to move from mapping strategies and targets to taking concrete action, climate finance is always at the forefront of any global sustainability agenda. Achieving climate goals by 2050 requires $5 trillion in capital each year. This is particularly relevant in Asia, as the region not only produces the largest amount of emissions globally, but is also highly exposed to extreme weather events. .

Meanwhile, technological advances to mitigate and adapt to climate change are moving in leaps and bounds. Communities can better adapt to droughts and floods with the help of climate-smart agriculture, while intelligent weather forecasting tools help protect infrastructure and human lives from storms, floods and heat waves.

However, the investment required to scale these innovations is insufficient and unevenly distributed, focusing on emissions reduction efforts and disproportionately benefiting high-income countries in Europe, the United States, and Canada.

This disparity 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 about opportunities. In turn, the widening gap between rising adaptation costs and limited funding leaves vulnerable countries in the region with far fewer resources.

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

First, social investors can provide long-term capital that is patient, risk-tolerant, flexible and flexible. Essential to fostering high-risk climate adaptation innovations, risk tolerance is critical to this emerging and yet critical ecosystem. This can be achieved through a variety of financing instruments, from patient equity to innovative hybrid financing structures, while de-risking investments for core capital that meet the diverse needs of climate technology startups. For example, long development cycles of breakthrough agro-technologies such as 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 an impact on the ground, adequate policy and institutional mechanisms must be in place to facilitate rapid technology transfer and implementation.

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

Alliances focused on impact. Precision is key in adaptive technologies, complemented by knowledge sharing and increased access to risk capital to unlock innovation tailored to local needs. Building impact-focused alliances between governments, investors, and communities can significantly accelerate these efforts, especially given the patience and catalyzing nature of capital needed.

We're seeing all of this come to life in recent climate initiatives like the Asian Venture Philanthropy Networks (AVPN) Sustainability Seed Fund. Research, identify gaps in the environment and implement better informed investments in this area.

Bringing in more social investors. There is ample evidence that social investors have made significant contributions in the climate arena. The first iteration of the fund, supported by Google.org, awarded $3 million to support 13 grantees, from renewable energy and sustainable technologies on the Thailand/Burma border to the „digital twin” of the global food system. However, all stakeholders—from governments to communities—must make a concerted effort to bring social investors to the fore.

Aravindan Srinivasan is Director of Thematic Collaboration at AVPN.