New Climate FDI Coalition can help grow climate investment

At the recent COP28, governments and investors made a series of climate finance and clean technology pledges, some of which will boost overseas project financing. Increasing FDI for climate projects will be essential to meet a daunting climate finance gap, which stands at $5.8-5.9 trillion for developing countries in the pre-2030 period. Blended finance approaches will be particularly important for certain developing and least-developed countries where the pool of private capital is smaller and the costs of borrowing are higher.

Investment promotion agencies (IPAs) can help anchor these new commitments in tangible domestic green growth projects, making FDI work for their climate-aligned growth and adaptation. The World Economic Forum recently published a climate FDI facilitation guidebook with specific actions that IPAs can use to do just that.

Investment authorities can multiply their impact through peer learning and collaboration, for instance through creating regional synergies to grow climate FDI flows, especially where large-scale infrastructure or new product offtake is required.

Over the last year, the Forum has worked with the World Association of Investment Promotion Agencies (WAIPA) and a number of investment authorities to scope out a Climate FDI Coalition. This coalition would involve investment authorities and private-sector investors, serving as a community of practice, to enable knowledge sharing on what works best to facilitate climate FDI. It would also help participating organizations signal and demonstrate their leadership in this space.

At the World Investment Conference 2023 in Delhi, India in December, over 100 investment authorities, trade and investment policymakers, and private sector representatives further fleshed out the concept. Experts suggested that the coalition could help participants establish joint supplier development programmes, navigate climate investment standards, match firms’ climate commitments to climate-friendly investment projects, as well as share and signal impact stories of successful climate FDI facilitation measures.

Supplier development programmes have long been an important tool to help domestic firms, including small and medium-sized enterprises (SMEs), increase their engagement in global value chains. These programmes now need to be oriented to new low-carbon and sustainable production requirements that buyers look for – and must report on – in their production networks. Corporate requirements such as the European Union’s Corporate Sustainability Reporting Directive and the Corporate Sustainable Due Diligence Directive will push companies to take a deeper look at their supply chains. That should increase demand for green investment, though unlocking these flows will not be automatic – facilitation efforts are vital.

Some individual IPAs already have a lot of knowledge on what works in this space. These good practices must be rapidly shared if the world is to meet the goals of the Paris Agreement on climate change. “Climate standards” can also be tricky for some IPAs to navigate. That is because international investors may look for certain sector- or project-based sustainability standards that may not be used or not yet applied domestically.

In the case of textiles, which accounts for about 10% of global emissions and is a highly globalised sector, there are multiple international standards – such as the Bluesign standard, the Worldwide Responsible Accredited Production (WRAP), and so on. IPAs can exchange information on how best to track emerging standards around low-carbon production in sectors that are important for their economy and share this back with their domestic ecosystem. That may also involve creating a link between clean energy investment projects and industrial offtake sectors.

Still another area where the coalition is poised to play a key role is helping to match climate commitments by multinational enterprises to concrete, climate-friendly, independently verified investment projects, thus providing pathways for climate commitments to be realized in practice.

IPAs may equally find it useful to exchange notes on how best to track and monitor climate FDI, since doing so can help countries align their incentives and flanking strategies to make the most of new investments.

Upon the Forum’s invitation, a group of IPAs representing all regions have endorsed the following statement in support of a Climate FDI Coalition of IPAs. Going forward, the Forum will continue discussions with investment authorities and investors on how to operationalize the coalition, and the support it could provide to participants:

Across the globe, economies have started to decarbonize, shifting to a carbon-neutral world. This shift will require significant financial resources to capitalize the investments needed, and investment promotion agencies (IPAs) have a unique role to play to work with investors to support and enable this transition.

IPAs can play at least three critically important roles to attract, facilitate, and support climate investment, particularly ‘climate FDI’, FDI that is aligned with and contributes to the climate goals of each individual economy.

First, IPAs can help put climate FDI on the agenda. While undertaking their investment-related tasks, IPAs have a mandate to grow awareness of investment climate conditions and investment opportunities in their markets. By including climate-friendly investment opportunities, and profiling these, they signal to investors – and the world – that their economies are aiming to transition to a carbon-neutral world.

Second, IPAs can take action by considering specific and targeted measures to attract, facilitate, and support climate FDI. There is an opportunity for peer learning and experience sharing on measures that may be particularly effective to grow climate-friendly investment. A recent Guidebook on Facilitating Climate FDI provides one resource to be complemented by others.

Third, IPAs can work with public and private actors to create the enabling environment for climate FDI. On the private-sector side, there is a need for deepening dialogue with investors to understand the most impactful enablers to creating climate-friendly investment climates; on the public-sector side, IPAs can share these insights with government colleagues to support a whole-of-government effort.

To advance these efforts and leverage individual IPA actions at the collective level through a force multiplier, a Climate FDI Coalition is to be created with the undersigned as its founding members. This Coalition will bring together IPAs with investors to work together to grow climate FDI.

Such a coalition, besides enabling knowledge and experience-sharing on targeted climate FDI facilitation measures, can also help IPAs signal their commitment to investors to climate action.

Sheikh Ali Alwaleed Al-Thani, Chief Executive Officer, Investment Promotion Agency of Qatar (Invest Qatar)

Antti Aumo, Executive Director, Invest in Finland

João Paulo Braga, Chief Executive Officer InvestMinas (Brazil)

Carmen Caballero, President, ProColombia

Russell D. Curtis, Chief Executive Officer, Invest Durban (South Africa)

A. Burak Dağlıoğlu, President, Investment Office of the Presidency of Türkiye

Ismail Ersahin, Chief Executive Officer, World Association of Investment Promotion Agencies (WAIPA)

Francis Gatare, Chief Executive Officer, Rwanda Development Board (RDB)

Yofi Grant, Chief Executive Officer, Ghana Investment Promotion Centre (GIPC)

Achim Hartig, Managing Director, Germany Trade and Invest (GTAI)

Wrenelle Stander, Chief Executive Officer, Wesgro (South Africa)

Marios Tannousis, Chief Executive Officer, Invest Cyprus

Nangula Nelulu Uaandja, Chief Executive Officer, Namibia Investment Promotion and Development Board (NIPDB)

Simone Wyss Fedele, Chief Executive Officer, Switzerland Global Enterprise (S-GE)

Tae Hyung Kim, Commissioner, Invest Korea

Nivruti Rai, Managing Director and Chief Executive Officer, Invest India

Petr Očko, Chief Executive Officer, CzechInvest

Datuk Wira Arham Abdul Rahman, Chief Executive Officer, Malaysian Investment Development Authority