Investors, we can’t wait on policymakers anymore

20 December, 2021

by Hann Verheijen, managing director at Cordaid Investment Management

Scientists have warned us: not reacting fast enough is the same as failing. We lost too much time discussing wherever it is even necessary to “phase out” fossil fuels. In COP26, we needed countries to pledge to burn no more fossil fuels after 2030. The whole world was anticipating that governments make their bids in transition to clean energy. In the end, the coal agreement came to a disappointing close, with India and China insisting on toning down the fossil fuel promise. 

Alok Sharma, COP26 president, concluded that the pledge to limit global heating to 1.5C is within reach, but “its pulse is weak”. Climate activists are less optimistic: a “death sentence”, they call it. In any case, the pace of governments and policymakers is too slow. The future is now in the hands of the private sector, whose entrepreneurship and creativity should come to the rescue, keeping up with the growing shift in attitudes of the general public. 

Sustainability is getting a fair share of attention worldwide: 73% of world consumers are willing to change their consumption habits to deal with the climate crisis. Young talented people are increasingly choosing not to work for companies that are contributing to the destruction of our planet, going to startups that offer environmental solutions, not causing the problem. The money will follow. As investors, we can choose to stop subsidizing fossil fuels ourselves, not wait for government officials. We can act now and finance clean energy access in low-income countries, helping save the planet and increase vulnerable populations' resilience, all while making a decent financial return. Policies to foster renewables will follow – although not too assertive, COP26 did give us a signed agreement on carbon footprint reduction.

Closing the energy gap in fragile countries 

West Africa has growing electricity needs, and some energy generation capacity will need to fill it. Living off-grid, nearly half of the population relies on firewood and charcoal. It is detrimental to the environment and expensive. In 2021, can we finance a dying industry that is burning rock? Especially since we have a clean and significantly cheaper renewable alternative. These are hungry markets, and the electrification rate is increasing fast: 53% in 2019 against only 34% in 2000. West Africa has enormous solar potential – it is the most affordable and reliable energy source for these countries. It should be a no-brainer, and yet we see a gap in clean finance. 

Of course, solar is still a growing sector – it didn’t have decades to refine the efficiencies as the fossil fuel industry did. There is still a question of developing adequate energy storage to deal with the energy intermittency. Can we give a vote of confidence for the industry to figure it out?

As investors, we can help make solar the new normal...

No need for a painful transition 

As investors, we can help create a brighter future for the region. With solar energy, West African nations get to skip the fossil fuel step. There will be no painful transition, including job losses, from the dirty energy economy that many developed countries face right now. One of the biggest challenges is changing the status quo and the lens through which we see things. Bringing clean energy to West African communities without power doesn’t require a shift in the societal framework – it is being created.

As investors, we can help make solar the new normal, going beyond financing – by providing technical assistance or fostering collaboration between enterprises and local microfinance institutions (MFIs). One of our partners in Sierra Leone, a distributor of solar home systems, Easy Solar, is now working with partner MFIs to offer microloans for affordable clean energy solutions. This way, the concept will spread faster amongst rural communities. 

Not forgetting about social return  

In addition to climate risk mitigation, the spread of renewables has an enormous social impact: access to electricity. One of our investees, Energy+, offers solar home systems in Mali. A recent client survey revealed that their services significantly improved the life quality of many families. Clients feel safer, are more flexible with time, and their children don’t have to rush their homework. And the poorest households in Mali can afford it, as 32% of Energy+ clients live in extreme poverty at less than $1.90 per day. Moreover, increasing rural electrification rates is a tool for youth and women empowerment. Lack of street lights means women cannot get around safely. The absence of electricity in the villages makes youth migrate from rural areas to megacities. Forced to spend years in the capital, those young men can return home and support their families when villages finally connect to power.


Wealthy countries have created climate inequalities  

The countries that did not contribute to the climate crisis substantially are the same countries where populations are suffering disproportionately. Countries in the Global North have brought us to this point. Twelve years ago, they agreed to liberate climate change adaptation funds for developing nations, pledging to increase annual contributions to $100 billion by 2020. They failed to meet this commitment. The consequences of climate change accelerate poverty and inequality. By investing in clean energy for those countries, we can contribute to both mitigation and adaptation. We create new quality jobs for these communities, many of which will be taken by women and youth who are the most vulnerable in crises. 

The financial return 

Investing in renewable energy in developing countries pays off financially as well. Many investors have been proving this for years. It is an opportunity for investors to respond to societal demand and the climate crisis while maintaining their sustainability portfolio. My plea to increase investments in sustainable energy in developing countries is therefore certainly not selfless. For investors in developed countries, it is financially viable. For developing countries, it’s a chance for a brighter future, and above all, it is protecting our shared ecosystem. And if we are to rebuild our economy after Covid-19 in a greener and more sustainable way, investors should support climate initiatives right away.