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Catalyzing Investment for Climate Toward USAID's $150 Billion Target

By Sharon D’Onofrio

In the pursuit of a “resilient, prosperous, and equitable world with net-zero greenhouse gas emissions,” USAID has set its sights on mobilizing $150 billion in public and private finance for climate by 2030. This isn't just an ambitious target; it's a response grounded in a stark acknowledgment of the challenges posed by climate change.

At its core, this target is about realizing an economic transformation, including a shift in where capital is sourced and where it finds purpose. The world's financial systems, for the most part, gravitate toward opportunities that balance risk and returns favorably for investors. The transformation hinges on the ability to steer this flow of resources toward endeavors that integrate climate into the calculation. 

Enter blended finance—an innovative approach that strategically deploys public resources to attract private capital for social gain.  


For USAID, blended finance represents more than just a financial strategy; it's a key opportunity to influence the direction of capital flow in response to a shared global challenge. 


By aligning incentives that appeal to investors but also benefit the climate and communities most susceptible to the impacts of climate change, USAID is playing a catalytic role in confronting the crisis. 

Blended Finance Approaches for Climate through USAID INVEST

USAID INVEST is one of the Agency’s largest global initiatives designed to employ innovative methods in blended finance. In the last six years, these efforts have resulted in over $1.04 billion in public and private investment mobilized for development. 

Notably, 22 percent of these funds have been channeled into climate-related efforts, amounting to $296 million. Climate investments have been gaining momentum as the project progresses, with 50 percent of the project’s climate capital raised just in the last year.

 

Climate Capital Mobilized Under INVEST

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graph showing increases in funding under INVEST over 6 years

Take, for instance, a noteworthy $2.7 million equity investment aimed at powering solutions for dairy farmers in Tunisia. This investment was made possible through INVEST-supported transaction advisory services. The initiative seeks to convert waste into a revenue-generating asset while simultaneously reducing environmentally harmful methane emissions. The ripple effect of this investment is an anticipated reduction of approximately 80,000 tons of CO2 equivalent emissions over four years. Furthermore, the investment contributes to the goal of expanding access to affordable energy for Tunisians.

Investment is also critical to strengthening markets. For example, the Caribbean is highly vulnerable to the impacts of climate change, with the increasing frequency of extreme weather events threatening already fragile economic systems. INVEST is working with the CARICOM Development Fund to launch a new investment vehicle to help foster greater resilience in the face of these challenges. The collaboration aims to channel up to $100 million into strategic opportunities within sectors such as agriculture, transport and logistics, and digital infrastructure.

Attracting Diverse Sources of Capital

Addressing the climate crisis at the required scale demands the active involvement of a large and diverse ecosystem of investors. INVEST recognizes that this task goes beyond the realm of impact investors and development finance institutions alone. To achieve true economic transformation, engaging all types of financial sources becomes imperative, including commercial banks, pension funds, venture capital, and other key players in the financial landscape.

INVEST takes an innovative approach to engaging this diverse investor landscape. The figure below illustrates the capital flow facilitated by INVEST from 11 distinct categories of investors toward critical climate-related needs, with the majority in clean energy, followed by sustainable landscapes and adaptation. Institutional investors, primarily pension funds, have proven to be the most important source of financing. This strategy sets the stage for a collaborative and impactful effort to combat climate change on a global scale.

 

Climate Investment Flow by Investor and Activity Type

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graph showing what investor money is going to which climate activity

 

So, how does all of this work at a practical level? 

INVEST has captured our experience in a series of learning resources aimed at donors and development professionals. Two of the most recent share lessons from INVEST’s catalytic support to financial vehicles and funds and use of transaction advisory services to bridge the gap between investors and investment-ready firms and projects. While these resources are not specific to climate finance, the approaches described are easily adaptable to climate activities.  

While ongoing innovation remains essential, it is equally important for initiatives like INVEST to share insights gained from catalyzing investment for climate to accelerate our joint progress in meeting USAID's $150 billion target.

See more INVEST learning resources, including learning briefs and case studies on climate finance, here.

Projects
INVEST
Sectors
Climate Finance
Strategic Objective
Mitigation
Topics
Climate Finance, Climate Strategy, Climate Finance and Economic Growth, Mitigation, Private Sector Engagement, Systems Change, Resilience
Region
Global

Sharon D’Onofrio

 Sharon D’Onofrio is the INVEST Director of Learning.

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