If someone asks you to picture what a climate investment looks like, what’s the first image that springs to mind? A typical answer is likely to be a wind farm, or perhaps a solar power plant.
While investment in these types of large renewable energy infrastructure projects is vital, they are by no means the only climate finance opportunity available to investors. They form one part of a wide spectrum of opportunities spanning all sectors, from manufacturing to real estate through to natural assets.
The climate investment market has grown rapidly in recent years. As heat waves, floods and droughts increasingly make headlines worldwide, climate adaptation and resilience solutions are becoming a more prominent focus for investors. The World Economic Forum estimates that climate adaptation could be worth $2 trillion per year by 2026. In 2023, venture capital and private equity invested $56.5 billion into companies offering climate solutions. It includes businesses such as Fasal, which uses AI and the Internet of Things to provide farmers with insights to optimize water and fertiliser use in the face of climate change, and Battery Smart, which is building India’s largest network of battery swapping stations for two- and three-wheel electric vehicles. The company’s helping drivers to earn more as well as improving air quality.
For venture capital and private equity investors who are new to climate investing, it can be challenging to navigate the world of climate investment and climate impact management. Today there are several frameworks and methodologies seeking to help investors on their journey, but few are tailored to venture capital or private equity investing, particularly in emerging markets.
From working with venture capital investors within our own portfolios, we know that often investors have the appetite to step up their climate finance commitments but need clarity on how to get started. We’ve published this new guidance together with BII– our ‘Climate Investment Playbook‘ – to address this challenge.
This playbook provides a holistic picture of climate finance: what it is, why it matters, and how to invest in climate solutions. It focuses on all kinds of climate impact – from avoiding greenhouse gas emissions, to supporting communities to prepare and respond to the adverse effects of climate change. It explains the steps an investor can take to integrate climate finance into the investment process, as well as identifying and assessing impact. We’ve made sure it aligns with key international climate investment frameworks too.
At FMO and BII, driving clean, inclusive and climate-resilient growth in the countries where we invest is a key priority. We are committed to engaging and empowering investors and businesses to contribute to our climate ambitions and meeting the goals of the Paris Agreement. There is huge opportunity ahead and we hope this guidance helps investors to maximize it.
