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A New Wave of Private Investment for Climate Solutions

Part 1: USAID Answers the Call to Climate Action
By Sashi Jayatileke

With the U.S. Agency for International Development’s (USAID) portfolio of climate change programs, partnerships, and expertise around the globe, the Agency is positioned to answer the global call to action for the climate crisis. USAID will work across the intersection of climate and development to reduce emissions, sustainably develop economies, increase resilience, and promote adaptation. With climate protection programs in place, we can limit warming and preserve ecosystems, create jobs, tackle historical inequity, and build stronger communities.

A 2021 assessment by the Intergovernmental Panel on Climate Change (IPCC) found that global temperatures will continue to rise over the next thirty years. As seen in the graph below, global average temperatures are now one degree Celsius (C) warmer than pre-Industrial-era levels, when human invention and resultant emissions began to indelibly change Earth’s atmosphere. The report projects that temperatures will continue to rise to 1.2-1.9C between 2021 and 2040, 1.2-3.0C between 2041 and 2060, and 1.0-5.7C between 2081 and 2100.

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Chart showing change in global surface temperatures as reconstructed and observed.
Change in global surface temperatures as reconstructed (1-2000) and observed (1850-2020)

For context, during the last ice age, the earth was three degrees colder than it is today, and was covered in a layer of ice nearly a mile thick. If the earth’s temperature continues to rise by three or four degrees, our planet will become virtually unrecognizable, with more frequent and extreme weather events, a rise in sea levels, and economic and social upheaval for populations around the world. Our only option is to take concerted action now to avoid a future crisis.

However daunting, this global call to action comes with the possibility to ensure a more sustainable and equitable future.

USAID Administrator Samantha Power affirmed the importance of focusing adaptation and resilience efforts on those most at-risk of climate harm—groups like women and girls, people with disabilities, and Indigenous communities. “As an Agency that stares down the world’s toughest challenges, no challenge poses a greater existential threat to our planet than climate change, ” stated Administrator Power in a recent Executive Message to the Agency. 

With urgent and coordinated efforts, we can curb emissions and transition to a net-zero economy. We can also lay the foundations for sustainable growth, energy security, and more resilient and equitable societies. 

Well-Positioned to Take Action 

The Executive Order on Tackling the Climate Crisis at Home and Abroad states that the United States will work with and through partner nations, including those in developing and frontier markets, to put the world on a sustainable pathway. At the virtual Leaders Summit on Climate in April, world leaders recommitted to working towards limiting global temperature increases to 1.5°C above pre-Industrial levels, a standard set by the Paris Agreement.

Now, in November 2021, world leaders will meet once again at the Conference of Parties (COP26) of the United Nations Framework Convention on Climate Change (UNFCCC) in Glasgow to lay out ambitious strategies to reach net zero emissions by the middle of the century. Countries will make commitments to transition to clean energy technologies, adapt and protect communities and natural habitats, mobilize finance through public and private sector collaboration, and commit to working together to reach our common goals. This includes efforts led and facilitated by the U.S. Government (USG).  At COP26, USAID will debut a climate change strategy and a plan specifically focused on climate finance.

Climate Finance: Mobilizing Private Investment for Climate Solutions

While climate change cannot be solved or mitigated with donor resources alone, private sector funding trends reveal a commitment to this issue. Last year, investors poured more than $500 billion into decarbonization and the clean energy transition. Leading venture capital firms continue to pour billions of dollars of investments into climate technology. And while this current of funding proves to be moving in the right direction, as much as $50 trillion in financing is still needed. The climate finance gap is particularly evident in developing and frontier markets and for adaptation, especially in the countries where USAID works that are most vulnerable to the effects of climate change. 

Public and private capital is increasingly aligning to finance projects with sustainable development goals. As an Agency, USAID uses blended finance to mobilize private capital and spur investment in developing and frontier markets. Now it will build on these efforts to continue mobilizing private investment for climate mitigation, adaptation, and resilience and to improve the enabling conditions to facilitate additional climate finance.

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Overview of USAID’s climate finance goals
Overview of USAID’s climate finance goals.

USAID is committed to leveraging $250 million to attract $3.5 billion in private sector climate financing over the next three years. USAID will support pathways to net zero emissions for 20 fast-growing economies by dramatically scaling up USAID’s private sector climate finance programs including through policy reform and institutional strengthening to achieve dramatic reductions in emissions by 2030. Specific targets for the next five years include helping 20 countries to mobilize up to 20 percent of needed funding to implement their nationally determined contributions, and helping 20 vulnerable countries double the private sector funds leveraged toward resilience and adaptation goals by 2025. USAID will support transactions and technical assistance to mobilize additional private capital in the climate space.

What do we mean when we discuss climate finance? And what does USAID intervention look like in action? The second part of our blog series will take a closer look.

Strategic Objective
Adaptation, Integration
Topics
Adaptation, Low Emission Development, Climate Finance, Climate Policy, Development, Mitigation, Partnership, Private Sector Engagement, Resilience
Region
Global
Sashi Jayatileke headshot

Sashi Jayatileke

Sashi Jayatileke is a Senior Climate Finance Advisor with USAID’s Center for Energy, Environment and Infrastructure.  She leads the Agency’s Climate Finance Plan in coordination with the interagency. Previously, she was a Managing Director with USAID’s Private Sector Engagement Hub and provided technical and strategic advice to USAID Missions on development finance, impact investing and entrepreneurship. Sashi brings 18 years of experience in the design, development, and implementation of projects focused on private sector development, impact investing, women's economic empowerment, and financial inclusion. She holds a MSc from the London School of Economics, and a BA from Vanderbilt University.

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