Five Climate Smart Financial Innovations In Emerging Markets

Circular Economy Finance Support Platform

The European Investment Bank and InnovFin have launched a Circular Economy Finance Support Platform which aims to finance companies that are driving transition to a circular economy. A circular economy is ambitious concept but essentially aims to move away from the current create, use and dispose industrial cycle to an economic model that utilises less materials, recycles and ensures wastes products are reused rather than disposed of (a closed loop rather than a linear pattern). The EIB scheme has already backed a Dutch company Ultimaker which has pioneered a service that prints three dimensional prosthetic limbs for landmine victims in Cambodia.

The EIB lent EUR 15 million to Ultimaker to strengthen its R&D activities and develop ever more advanced 3D printers. By printing the artificial limbs locally the cost of manufacturing them in one country and shipping them to Cambodia is saved reducing the cost of the product in both monetary terms and it’s carbon foot print.

The Cloud Forest Blue Energy Mechanism

Deforestation is a critical global environmental issue, a major contributor to climate change, habitat loss and it also increases incidents of flooding and landslides. The Cloud Forest Blue Energy Mechanism aims to mobilise finance with the aim of protecting and conserving cloud forests in Latin America. The scheme uses an innovative “pay for success” mechanism where hydro power companies pay for the improved performance of their hydropower plants – increased water flow and therefore energy security which all derives from the protection of the rainforest. At the same time the country saves a valuable carbon sink and protects a unique and fragile ecosystem.

The Matchmaker Service India

Cities in India are struggling to find financing for sustainable city projects, this gap is expected to rise as demand for infrastructure improvements like green housing, public transport and efficient solid waste programs grow. The Matchmaker Service provides a platform which gives potential investors reliable, clear and unbiased financial and environmental information on potential city projects, providing a clear picture to base their proposals upon.

The databases was compiled using the world’s largest set of environmental data. A pilot scheme financed a number of electric bus fleets – the nine largest cities in India are looking to replace old fossil fuel based buses.

The platform allowed the cities to present a transparent contractual structure and lenders to propose an attractive blended finance package which reduces risk for investors and helps them understand the economics of bus procurement. Finance can then be easily raised from outside parties such as green mobility funds or development organisations who can rely on the match making service to provide reliable information.

Climate Smart Cattle Ranching Initiative

Cattle ranching is a major source of deforestation and degraded land in Brazil. This new proposed scheme will offer loans and financing for farmers who comply with the Brazil Forest Code and follow sustainable agricultural practices. Traceable cattle (via electronic tags) whose ownership can be easily tracked is used instead of land titles to secure loans providing greater flexibility to farmers. The scheme also plans to help farmers ensure the production of good quality standardised beef.

While similar ideas have been trialled before, this scheme will be rolled out in Para State in 2018 and it is hoped it can scaled up very quickly. Of course even sustainable cattle farming is still not as climate friendly as growing crops (thanks to methane emissions from cattle) but it is at least a step in the right direction.

Sustainable Fintech

The biggest frontier for climate finance surely lies with the use of Fintech. Financial innovation driven by new technology is steadily transforming the world’s financial systems, and the potential for using this change to achieve sustainable goals is also increasingly apparent.

Emerging Markets have often been quick to adopt financial innovation such as mobile payment platforms ( the most famously example is the Kenyan M-Pesa system. These type of platforms can also be used to reward users for reduced carbon use, analysis of financial transactions can estimate carbon-footprints, which users can then seek to reduce and be rewarded financially as they do so. Chinese firm Ant Financial have already got 73 million Chinese customers utilising an App which helps users measure and reduce their carbon output.

Blockchain technology is another innovation whose potential is only just being considered. As well as being the basis of cryptocurrencies Blockchain could be utilised to record the history of a product, how it was manufactured and financed as well as its environmental impact. This can give consumers and producers an accurate picture of the sustainablility of a product across its lifecycle.

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