International Finance Corporation (IFC), a private equity and venture capital arm of the World Bank Group, is set on climate related investments, with US$20 trillion worth of opportunities in Asia-Pacific and India by 2030. According to the IFC, 60 per cent of the area expected to be urban worldwide by 2030 is yet to be built, as emerging countries develop and migration to cities heightens. This will provide opportunities for US$29.4 trillion of climate-related investments in sectors from renewable energy to electric vehicles, of which nearly 70 per cent will be in East Asia, the Pacific and India.
“The whole sustainable investment space has now demonstrated it is a profitable business, so this is where we think it makes sense to put capital to work,” said Vivek Pathak, IFC’s regional director for East Asia and the Pacific.
The private equity and venture capital arm of the World Bank Group focuses on investment in sectors like renewable energy, agriculture, green buildings, electric transport and water management.
For the year ending June 2018, a record 36 per cent of IFC’s US$23.3 billion investments made in 74 countries were in green projects. In East Asia and the Pacific, China took the largest chunk of US$3.4 billion.
It is not just IFC that has set its sights on such investments.
Tokyo-headquartered MUFG is among international banks focusing on Asean countries with total investments of US$10 billion over the past six years, making it the biggest foreign bank in Vietnam, Thailand, the Philippines and Indonesia.
The bank, which has assets of US$2.9 trillion, is also one of the major green bond underwriters.
“We are very much committed to environmental issues and our strength is in project finance,” said Takayoshi Futae, MUFG’s senior managing executive officer and regional executive for Asia.
HSBC, meanwhile, has identified 37 stocks from its climate solutions database, with minimum market capitalisation of US$500 million in sectors where innovations are helping cities better function. A total 60 per cent are from emerging markets, particularly China.
China is ahead in adopting green transport. The southern Chinese city of Shenzhen now boasts the world’s first all-electric public bus fleet, as the country strives towards green development.
In 2016 vehicles across China emitted 44.7 million tonnes of pollutants – the equivalent weight of 150 Empire State Buildings, according to the country’s ministry of environmental protection. Now bike-sharing start-ups like Mobike and Ofo in Beijing have attracted investment as part of a push towards environmentally friendly transport.
According to IFC’s “Climate Investment Opportunities in Cities” report, 50 million bike journeys are made a day in Beijing and by 2030, three in every 100 people across China are expected to own an electric vehicle.
But more private capital is needed to reach the predicted investment figure, Pathak said.
“I think [US$24.9 trillion] is a high reach and in order for us to get close to that number we need to see a lot more private capital. Clearly the governments don’t have a balance sheet that is big enough,” he said. “The banking sectors in most of the countries we operate in aren’t large enough to achieve that, so we really need to mobilise a lot more institutional money from overseas.”
He said that a lot of it depends on reforms governments are willing to make.
“When we undertake country specific strategies, we get into very specific reforms that the government needs to do in order for us to be able to work with them to unlock a particular sector.”
Potential headwinds from slowing global growth, market volatility, Brexit and the ongoing US-China trade war should not pose a problem to green investments going forward, Pathak said.
“There is a lot of focus on the trade war and Brexit, but there is a lot of positive news out there as well. There is an emerging middle class that is going to consume more, and that ultimately gives institutions like us confidence, that in the longer run it will improve,” he said.