“From plastic waste to building materials,” a partnership supported by the World Bank Group gathering six private sector frontrunners in Kenya, is testing exactly this.
How do you empower local entrepreneurs to advance bottom-up solutions to climate change? How do you provide local green entrepreneurs with the technical assistance and market intelligence they need to validate innovative technologies and business models? How do you improve these entrepreneurs' access to capital?
These are some of the questions discussed by the World Bank Group’s Climate Business Innovation Network (CBIN) at its most recent meeting in Pretoria, South Africa earlier this month.
This network of leaders of incubators and accelerators from around the world meets bi-annually to share their experiences supporting green entrepreneurs, brainstorm solutions to common challenges, and learn from business incubation experts in this emerging field.
A World Bank Group team set out to answer the questions: Who are Moroccan green entrepreneurs, and what is the entrepreneurial landscape they operate in? They found that:
Almost half of surveyed Moroccan green entrepreneur businesses are solo-run.
84 percent of surveyed entrepreneurs were self-funded at the early-stages.
54 percent of entrepreneurs identified a lack of access to market information as the biggest barrier to doing business in Morocco.
Those are just a few findings from their work on the first World Bank Group climate entrepreneurship ecosystem diagnostic in Morocco, a deep dive into the North African nation’s green start-up ecosystem.
The diagnostic, surveying more than 300 entrepreneurs and industry players, shines unprecedented insight into multiple facets of Morocco’s climate entrepreneurship ecosystem, and how different political, financial, and cultural forces play out to drive the sector.
In a highly visual format, a new report explores the top findings from the diagnostic, bolstering them with case studies, key facts, and graphics. The report uncovers interesting clues to Morocco’s strengths and challenges: Typical Moroccan green entrepreneurs are young, educated, and started their businesses because they wanted to be their own boss. These entrepreneurs work in diverse sectors — from green information technology to energy efficiency — and are creating and adapting technologies and solutions to solve some of Morocco’s greatest environmental challenges.
Traditional trade mission functions are becoming obsolete. Over hors d'oeuvres, business cards are exchanged, elevator pitches are delivered but, in most cases, entrepreneurs leave with empty promises to stay in touch and no useful contacts. This may sound a little cynical but the reality is that in an age of business models “ripe for disruption,” the ways to create viable business partnerships across borders have not changed for decades.
Surrounded by hardened fan manufacturers in the city of Gujranwala, 70 kilometers north of Lahore, the task facing our World Bank Group team was to convince them that more efficient fans, to be promoted through an energy-efficiency labeling program by Pakistan’s government, would be beneficial to the sector as a whole. Questions abounded about how regulations can help competitiveness, and about whether small and lower-tier manufacturers might be left out of the equation. How would labeling be enforced, and how would forgeries be kept off the market?
Fast-forward 12 months to an IFC advisory project, which the government has set up for the procurement of 20,000 Pakistan Energy Label (PEL) energy-efficient fans in public buildings. Those fans will save the country an estimated 800,000 kilowatt hours – the equivalent of the annual energy use of about 600 domestic refrigerators – translating to about 400 tons of greenhouse gas (GHG) emissions reduction per year.
The project has created a new market segment for manufacturers of more efficient fans, nine of whom have received certification for the PEL from the National Energy Efficiency and Conservation Authority (NEECA). The fact that four fan manufacturers out of these nine are from the small and medium-sized enterprise (SME) sector is a positive indication of wider acceptance of this standards and labeling initiative.
Photo by Etiennne Kechichian
In time for the region’s next hot season, the request for more information and knowledge about energy-efficient fans has increased. The government of Punjab, as well as NEECA, has launched a comprehensive marketing campaign to promote these PEL fans and to improve the public’s knowledge about their benefits. In a market where heavy, inefficient cast-iron fans are considered good quality, changing perceptions requires coordination with technicians, real estate developers, retailers in the streets of Lahore and the countryside, and a deep understanding of the market.
The concept of market transformation is at times abstract – but we’ve seen signs in this relatively small project, implemented by the Trade & Competitiveness (T&C) Global Practice of the World Bank Group, that targeted and client-based interventions can have a significant impact on the competitiveness of an industry.
High-risk areas for natural disasters are home to 5 billion out of the 7 billion total people on our planet.
Overall . A rapid and early response is key to immediately address the loss of human life, property, infrastructure and business activity.
Severe flooding occurred during the 2011 monsoon season in Thailand, resulting in more than 800 deaths. About 14 million people were affected, mostly in the northern region and in the Bangkok metropolitan area.
After such natural disasters, it is important that governments rapidly address recovery efforts and manage the financial aspects of the disaster’s impacts. Natural disasters can cause fiscal volatility for national governments because of sudden, unexpected expenditures required during and after an event.
This is especially critical in emerging-market economies, such as those in Southeast Asia, which have chronic exposure to natural disasters. To conserve and sustain development gains and analyze societal and financial risks at a national or regional scale, it is also critical to understand the impacts of these disasters and their implications at the socioeconomic, institutional and environmental level.
New project to monitor and evaluate flood severity
Financed by the Rockefeller Foundation, this World Bank Group’s Disaster Risk Financing and Insurance Program (DRFIP) and Columbia University’s Earth Institute joint project aims to define an operational framework for the rapid assessment of flood response costs on a national scale. Bangladesh and Thailand serve as the initial demonstration cases, which will be expanded to other Southeast Asian countries such as Cambodia, Lao PDR, Myanmar and Vietnam.
Helen Mwangi and her solar-powered water pump in Kenya © infoDev/World Bank
Managers of initiatives that support innovative entrepreneurs have a choice to spread their resources (and luck) among many opportunities or focus them on the most promising few. In developing countries, public and donor programs can learn a lot from how private investors pick and back innovative ventures.
In the early days of infoDev’s Climate Technology Program, our thinking was very much about letting a hundred flowers bloom: supporting a large number of firms with the hope that a few would emerge as blockbusters. Firms were selected on the basis of objective metrics tied to the innovative nature of their ideas and their economic, social and climate-change impacts. For example, while infoDev’s partner the Kenya Climate Innovation Center has more than 130 companies in its portfolio, a $50 million venture-capital fund in California would have at most six. Inspired by private investors, we have since rethought our program objectives for these centers, as well as the way we select and support businesses. The Kenya center is going through a rationalization of the firms it supports.
Like many public programs, infoDev and its network of Climate Innovation Centers had good reasons to support large numbers of companies. The main reason is the need to spread the entrepreneurship risk through a diversified portfolio. A recent infoDev literature review found that up to a third of all new firms do not survive beyond two years, let alone grow. Out of those that survive, data from high-income countries suggest that fewer than 10 percent become high-growth firms. So casting a wide net increases the chances of hitting the jackpot. The opposite approach, picking winners, is seen as destined to fail and distort the market.
Following the Paris deal on international climate change, governments are beginning to explore new financing mechanisms for investing in the growing low carbon economy. Over the next decade . Recognizing the untapped potential of SWFs, two key questions emerge: how can SWFs increase their exposure to green asset classes? And what are the constraints?
Investors and financial institutions are becoming increasingly aware of the risks associated with fossil fuel projects and are showing growing interest in green bonds and other financing tools that facilitate investment in low-carbon energy solutions.
Being patient investors, with longer term investment horizons than many others in the financial services sector, . In the November 2016 annual meeting of the International Forum of Sovereign Wealth Funds in Auckland, participants highlighted that SWFs are particularly well-positioned to become trailblazers in green investment. The majority of members are oil-based SWFs which are looking to economic diversification of their finite carbon wealth into industries and sectors that would yield broader societal, economic and financial benefits.
Sovereign Wealth Funds (SWFs) currently have a very limited role in climate finance and green investment – reportedly, below the average for institutional investors. According to the Asset Owners Disclosure Project (AODP), which evaluates institutional investors on the basis of their low-carbon performance, five of the 10 lowest-rated large investment funds were SWFs.
However, the more progressive SWFs are currently divesting from assets with large climate-related risks, and some countries are pondering whether their SWF should take a more pro-active role in green finance. What lies ahead for SWFs in this rapidly changing landscape?
SWFs could have an impact on climate finance
The sheer amount of capital managed by SWFs means that their impact on green finance, while marginal historically, has the potential to become significant. According to the Sovereign Wealth Fund Institute (SWFI), SWFs hold assets worth approximately $7.4 trillion, and the total capital of SWFs has more than tripled over the last decade.
But SWFs’ mandate does not typically include green finance. To the extent that they have been active in this area, it has been to reduce climate-related risk to their portfolios – including exposure to fossil fuels. For example, last October the $22.6 billion New Zealand Superannuation Fund (NZSF) announced a strategy to address climate-change risks that represent a “material” issue for long-term investors, and to “intensify its efforts” in areas including alternative energy, energy efficiency and “transformational” infrastructure. Norway’s giant Government Pension Fund Global ($873 billion) has adopted similar policies to reduce climate-related risk.
It’s widely recognized that agriculture can be part of the solution to climate change. The worldwide agriculture sector currently accounts for between 19 percent and 29 percent of total greenhouse gas (GHG) emissions. A combination of policies, investments and targeted action is critical to achieve a low-carbon and climate-resilient agriculture sector.
But the question arises: Where will the money to fund this transition come from? Can farmers alone finance the productivity and climate change adaptation and mitigation changes that are needed?
The vast majority of climate finance has traditionally flowed to other sectors, accentuating even more the shortfall in finance for agriculture.
Due to perceptions of low profitability, along with high actual and perceived risks, lenders often severely limit the flows of finance directed to smallholder farmers and small and medium-sized enterprises (SMEs) in agriculture. Without access to capital, farmers cannot invest in raising their productivity and incomes, becoming more resilient to climate change and mitigating their farms’ negative impact on climate.
But untapped sources of capital exist for making agriculture more climate-smart — namely, in climate finance. A recent World Bank discussion paper, Making Climate Finance Work in Agriculture, explores ways to use climate finance to dramatically increase the flows of capital directed to smallholder farmers and agricultural SMEs, aiming to deliver positive climate outcomes.