Climate Change I F C ’s R E S P O N S E Climate Business Department The Climate Business Department (CBG) was created in 2010 as a new department and collaborative platform to coordinate, catalyze and optimize all climate business activities within IFC on the investment and advisory side. CBG works closely with other industry investment groups within IFC, including Infrastructure and Natural Resources; Manufacturing, Agribusiness and Services (MAS); and Financial Markets, as well as all Advisory Services business lines and appropriate counterparts within the World Bank, located both at HQ and in the regions. CBG is unique for its global perspective on climate, technologies and development, its long-term approach to investments, and its ability to leverage the resources of the entire World Bank Group, as well as its commitment to maximizing value of portfolio companies through sustained assistance. www.ifc.org/climatebusiness About the International Finance Corporation (IFC) IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector. We help developing countries achieve sustainable growth by financing investment, mobilizing capital in international financial markets, and providing advisory services to businesses and governments. In FY12, our investments reached an all-time high of more than $20 billion, leveraging the power of the private sector to create jobs, spark innovation, and tackle the world’s most pressing development challenges. For more information, visit ifc.org. Credits Text: Alan Miller, Principal Project Officer, Climate Business Department, IFC Design: Corporate Visions, Inc. Photos: World Bank (pp. 2, 3, 4, 5, 6 & 7): images 2, 3, 4, 5, 7 (top, 9 & 11) Stock (cover, pp. 6, 7 & 8: images 1, 6, 8, 10 & 12) June 2013 ifc.org Introduction Global Environmental Milestones Multilateral Ozone In 1992 at Rio de Janeiro, the international community adopted the Average U.S. temperatures Fund established, Nobel Peace Prize awarded first widely approved statement of concern about the dangers of first finance for to IPCC and Al Gore for during first six months are the climate change—the Protocol to the UN Framework Convention on global environment. their climate change work. warmest since 1895; drought Global Environment World Summit on Climate Change. The Convention became effective in March 1994. throughout the U.S.; heat Facility (GEF) Sustainable Development As of early 2013, the Protocol has been ratified by 192 countries. waves in Europe. formalized following held in Johannesburg on Adaptation Fund UN Conference on three-year pilot phase. 10th anniversary of Rio. formally launched at This is the story of how one major changing landscape, and IFC continues global development institution, the to evolve and refine its response. First Intergovernmental Environment and CoP-13 to protect the Development banks create Climate Development (Earth Least Developed poor from the effects of International Finance Corporation Panel on Climate Countries Fund Investment Funds and pledge (IFC), recognized and responded to the Where We Want to Be Change (IPCC) report Summit) held in Rio; climate change. $6.5 billion for mitigation and climate convention and Special Climate challenge of climate change, and was IFC’s pledge is that by FY2015 it will on climate science. Change Fund adaptation projects. signed. Rio+20 UN itself transformed in the experience. nearly double its climate business to established at CoP-7. Conference Addressing climate change affected about $3 billion annually. Business UN Framework on Sustainable IFC at every organizational level, from development opportunities include Montreal Protocol Convention on Kyoto Protocol to Eight warmest China surpasses Development high-level policy issues such as the investing in sustainable value chains, signed to protect Climate Change reduce greenhouse The warmest year years on record the U.S. to become held in Rio. role to take in supporting the use of distributing generation and energy the ozone layer. goes into effect. gases negotiated. on record to date to date occur the world’s biggest fossil fuel, to highly technical and access, waste and recycling, and globally, linked in in past decade. Kyoto Protocol greenhouse gas operational issues, such as tracking agriculture and forestry. Green part to an El Nino. becomes emitter annually. greenhouse gas emissions, and building opportunities alone represent international law. evaluating investments while taking the potential to reduce greenhouse into account the uncertain impacts of gases by 4.5 million tons of carbon climate change. dioxide equivalent a year by 2020. 1987 1990 1992 1994 1997 1998 2001 2002 2005 2006 2007 2008 2012 The introduction of donor funds for Our directors’ performance is climate projects, while generating now more directly pegged to how 1988 1995 1998 2002 2005 2006 2007 2008 2009 2010 2011 2012 2013 IFC’s pledge new investment opportunities, also successfully they can grow climate- is that by required new rules and procedures. smart business each year. Other FY2015, it will Carbon footprint The maintenance of a coherent international financial institutions, $1 Billion Green nearly double First Sustainability Report estimate required approach ultimately necessitated the and the much larger private financial Bond issued its climate published, including for all new creation of a new IFC department— community, have shared many of GEF project finances for climate business to First renewable First IFC-GEF chapter on climate change. investments. the Climate Business Department— the same ideas and approaches, Grameen Shakti to Environmental friendly projects over $3 billion. energy investment: project: Poland and a decision to make climate sometimes building on IFC experience develop renewable Opportunities Facility in developing Shenzhen YK Solar Efficient Lighting Climate Change change one of six strategic priorities, and practice and sometimes in energy systems in pilots investing in New Performance Standards countries. PV Energy Co., Project. Risk analysis making climate change central to IFC’s partnership. Local financial institutions Bangladesh. early stage clean adopted, require estimation China. program initiated. development goals. have channeled IFC funding to technologies. of GHG emissions above First concentrated small clients that IFC cannot easily 100,000 tons. solar power project Adopts Where We Are reach. As of March 2013, IFC Publishes IFC Road in South Africa. SME Program for environmental IFC’s investment in clean energy and invested $2.6 billion in 120 such Map defining climate change Safeguard Policies. Earth Fund approved by other climate related businesses has projects in 35 countries for projects climate policy. mitigation initiated. GEF Council to encourage Climate Change risen from a few hundred million in energy efficiency, renewable Carbon trading private sector access for Climate Business Risk Working Group dollars about eight years ago to energy generation, clean production, program environmental projects. Group established to established. sustainable agriculture and green over $1.6 billion in the more recent buildings. IFC continues to engage initiated with provide leadership and years. Our Performance Standards donor support. coordination on IFC government and the private sector, Cleaner Production Policy established now require consideration of climate climate policy. cognizant that this challenge requires Facility pilot launched for for blending climate risks, and a pilot program is testing both government leadership and manufacturing investments. finance with IFC methods to fulfill this commitment. large-scale private sector action. EDGE program supports investments. Our advisory programs are supporting innovative approach to a growing portfolio of projects to This publication offers insight into GEF supports Clean green buildings. develop climate markets and adaptive IFC’s involvement in one of the biggest Technology Fund for Clean Technology Innovation response strategies. The risks posed issues in development today and in IFC Milestones first-of-a-kind IFC projects. Facility created. by climate change constitute an ever the years to come. IFC’s Initial Response to Climate Change IFC began supporting business solutions to climate change in 1989; just a decade after the term was coined in a published report by the U.S. National Academy of Sciences. IFC was an early mover in clean energy investments around the world, providing seed capital to innovative clean technologies and renewable energy. • 1989: IFC makes its first investment in with the strong potential to increase renewable energy (Shenzhen YK Solar sustainability and produce new business PV Energy Company in China), which models with environmental and social reduces carbon emissions in addition to benefits. other benefits. • 2002: IFC enters the carbon market • 1995: The first IFC-Global Environment through a partnership with the Facility (GEF) project launches the Government of the Netherlands: IFC Poland Efficient Lighting Project, manages carbon credit purchases which promotes more efficient lighting worth $135 million from more than 40 products. projects. • 1998: IFC adopts the Safeguard • 2004: The International Conference on Policies, affirming its commitment to Renewable Energies in Bonn, Germany, sustainability, including climate change, inspires targets for increased clean and actively seeks projects with a focus energy lending and creation of the on a triple bottom line that takes into first system within IFC for defining and account people, planet, and profits. reporting clean energy investments. • 1998: PVMTI (solar business) project • 2005: IFC’s Performance Standards approved, marking the first non-grant becomes the Sustainability Framework, use of GEF funds to support private mandating that climate change be commercial activity. considered in making investments. • 2001: IFC engages in external political • 2006: A briefing for new IFC Executive events associated with clean energy Vice President Lars Thunell, who brings and climate change, starting with its a strong interest in climate change and involvement with the G8 Renewal clean energy, includes three approaches Energy Task Force. for scaling up clean energy and climate change efforts. • 2002: The Environmental Opportunities Facility provides funding for ventures IFC Increases Focus on Climate Change Starting in 2006-2007, IFC increased its focus on climate change and broadened its participation from clean energy investments to developing plans that incorporated the relationship between climate change and development. IFC likewise reached out to the private sector, the business community, and governments to support climate change initiatives. • 2007: IFC highlights the importance • 2008: Board approves the creation of of working with the private sector in the Climate Investment Fund, providing the Action Plan prepared for the World substantial new donor support for Bank Group Board. concessional funding of clean energy projects. • 2007: IFC participates in external discussions with the private sector • 2009: IFC launches its carbon and the business community about accounting activities, measuring gross climate change, and provides input greenhouse gas emissions from its and analytical support to the climate investment activities. negotiations of the UN Framework • 2009: IFC’s Development Goals include Convention on Climate Change. climate change as a strategic focus. • 2008: A series of internal task force A stock-taking exercise assesses IFC’s reports and management briefings climate change activities and concludes results in a presentation on the “IFC that climate change and development Climate Change Strategy,” which are inextricably linked, and that IFC identifies investment targets and needs to review, refine, and retool its potential business opportunities. Pilot approach to climate change. studies are initiated to investigate the potential financial impact of climate change on IFC’s portfolio. IFC Gives Increased Support to Climate Change as a Strategic Priority In 2010, the Climate Business Group (now the Climate Business Department) was created, incorporating existing groups focused on metrics and carbon accounting, clean tech investing, and carbon trading. It also added one new team—the Strategy and Business Development Group— with industry sector specialists. • 2010: IFC creates the Climate Business with lower thresholds for CO2 emissions Group (now the Climate Business and references to climate impacts Department) to give greater focus and and adaptation. IFC identifies its first coherence to the implementation of adaptation project. IFC’s climate strategy. • 2012: IFC’s climate risk working • 2010: IFC initiates discussions with the group develops risk screening tools insurance industry about the potential for investments; a pilot program to use of insurance to give greater implement the group’s proposal is emphasis to risk management and loss approved by IFC management in March avoidance due to climate vulnerabilities. 2013. • 2010: IFC issues its first green bond, the • 2012: IFC introduces the EDGE green proceeds of which are for investing in building certification program. renewable energy and climate-friendly • 2012: IFC invests in sub-Saharan projects in developing countries. Africa’s first concentrated solar power • 2011: IFC launches the Post-2012 plants, utilizing donor funds to help Carbon Facility to help address reduce construction cost and the impact market uncertainty faced by climate- of solar power plant tariffs on electricity friendly projects eligible under the prices for South African consumers. Kyoto Protocol’s Clean Development • 2013: IFC issues a $1 billion green Mechanism, which expires end 2012. bond—the largest green bond issue to • 2012: The IFC Performance Standards date—to support IFC climate-friendly increase the role of climate change, projects in developing countries. IFC at the Forefront of a Low Carbon Economy IFC’s response to climate change gives new meaning to our commitment to reduce poverty through private sector development. As the private sector arm of the World Bank Group, IFC is also an active partner in the design and implementation of new initiatives that respond to the threat of a much warmer world as reflected in the publication of “Turn Down the Heat”, a review of what is known about the consequences of global warming of 4 degrees C or more. IFC shall focus on four key areas: for climate impacts on long-term investments. • Renewable Energy and Energy Access, supporting “greening the The institution is in a strong position grid” and providing access to clean to address these challenges through energy for the 1.7 billion people its ability to demonstrate workable without electricity and the nearly 3.5 investment strategies, shape markets billion who lack clean cooking fuels. through regulatory and policy advice, and provide leadership to the donor and the • Energy Efficiency, investing to help international community. IFC’s private reduce energy use from buildings to sector experience in green growth and industrial processes, agribusiness, and climate-related investment has been other key needs. This includes the incorporated into the ongoing G-20 Green Buildings program, which policy discussions to boost sustainable mainstreams sustainable housing and economic growth in the least developed other construction in rapidly growing countries. emerging markets through design assistance and investment. The threats posed by climate change are real, increasing, and in many • Climate-Smart Innovation, spurring places, significant barriers to meeting innovation by channeling investment development goals. Climate change capital, including venture capital, and affects the core of people’s lives donor-supported blended concessional worldwide. As the world seeks to alleviate finance to climate-smart projects. the impact of global climate change, IFC • Adaptation, by analyzing climate risks shall be there to utilize its resources to and providing investment capital to provide people with access to services help clients understand and prepare they need to thrive.