(This October 5 story has been corrected to attribute the investment total of $21 bln to the World Bank Group, not IFC in paragraph 10)
By Simon Jessop
LONDON (Reuters) - Climate change is "the greatest commercial opportunity" facing the world, but more needs to be done to boost private sector investment in developing markets, an International Finance Corporation (IFC) executive said on Tuesday.
Speaking in an interview at the Reuters Impact conference, Managing Director Makhtar Diop said the current level of investment in emerging markets was just a fraction of the capital that could be being deployed from the world's markets.
To help accelerate efforts, the investment arm of the World Bank was helping to embed green finance in the broader financial system, improve regulations worldwide and help countries develop their own climate change transition plans, he said.
Even then, though, multi-lateral development banks (MDB) such as the World Bank needed to help create innovative financial structures that derisk projects for private sector investors.
Such "blended finance" can involve an MDB providing first loss-absorbing capital to help encourage more risk-averse funds and financiers to join in, thereby increasing the amount of money and amplifying the environmental impact.
"I believe that in the future, all activity related to climate change will be perceived as much less risky than it was in the past and the amount of blended finance that we will be bringing will be allowing us to leverage much more resources than we have been able to mobilise in the past," Diop said.
'NEED TO DO MORE'
Diop's comments come several months after Larry Fink, the chief executive of the world's biggest asset manager BlackRock (NYSE:BLK), urged an overhaul of the IFC and its peers to help encourage more private sector capital to move.
In response, Diop said MDBs were "pushing as hard as they can" and were fit for purpose, but acknowledged that they "need to do more", citing several projects under way that should help.
They include moving the climate change department to the core of the IFC's operations and helping investment officers to prepare "bankable" projects. The IFC was also working with peer MDBs to agree a shared methodology to assess projects, which should help drive more co-financing.
Close to $83 billion has so far been invested by the World Bank Group in activity related to climate change, Diop said, while in 2020 the World Bank Group invested a record $21 billion in climate-related projects.
"One third of our own resources are going to climate change related investment. We are trying to be, by 2025, Paris-aligned 100%, and by 2023 to be 85% Paris-aligned," he said, referring to the goals of the 2015 Paris Agreement on climate.
Looking ahead to the next round of global climate talks in Glasgow starting on Oct. 31, Diop said one of the biggest challenges would be scaling up the amount of money allocated to projects aimed at adapting to climate change.
The issue was "the most difficult question that I'm facing today", Diop said, given so many of the countries that need to adapt the most, for example because of coastal erosion or desertification, are in emerging markets.
"If there is one big question that I would like us to make progress (on) in COP26, this is one of them - how to channel more resources, collectively, for adaptation."