The World Economic Forum reports climate change as high on the list of biggest risks in the coming decade identified by business leaders. This will only be mitigated by serious investment from not only governments and development banks, but also the private sector.
Executive Director Project Export Finance at Standard Chartered Bank, Alan Sproule, believes the UN’s 17 Sustainable Development Goals (SDGs) represent our best hope for tackling the serious challenge facing our societies and planet.
“The investment required to meet the targets by 2030 cannot be provided by governments and NGOs alone. The private sector has a critical role to play if we are, collectively, to achieve the SDGs,” said Sproule.
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While many investors, corporations and financial institutions say publically they are committed to achieving the SDGs, capital is not flowing at the necessary speed to the countries where SDG-oriented investment would matter most. The UN estimates that R66 trillion ($3.93trillion) of investment a year is needed to reach all 17 SDG goals by 2030 in emerging markets. “At the current rate of investment, the UN has calculated a gap of R42.3trillion ($2.52trillion) per year,” said Sproule.
Until now there has been little research on an individual country or SDG level to identify the investment needed to meet the goals, or where the private sector should participate. Standard Chartered’s Opportunity 2030 study aims to address this gap and provide corporations with a map of potential investment opportunities across three SDG goals.
Sproule says Standard Chartered knows it has a pivotal role to play helping markets realise the SDGs: “We are playing our part to tackle climate change, having committed to facilitating and financing R593 billion worth of cleantech and renewables between 2020 and 2025, with a focus on emerging markets. Alongside this, we have ceased financing new coal-fired power plants and are taking decisive steps to measure, manage and reduce the emissions from the activities we finance. We believe that the private sector can, and must, do more, and we intend to lead the way.”
SDG7: Ensure access to affordable, reliable, sustainable and modern energy for all
This sustainable development goal is of particular relevance to sub-Saharan Africa. Investing in clean, renewable energy sources is vitally important to combat climate change. At the same time, ensuring universal access to electricity is fundamental to provide a basic standard of living.
“Universal access to an affordable electricity supply is key to improving education, health, food security, income and living standards. Without it, an individual’s chances of participating in sustainable economic development are drastically limited. This means that success in many other SDGs depends on everyone having access to reliable power.”
Sproule points out the private sector is well established as the leading source of finance for power generation in most economies around the world, accounting for 80-100% of power generation in developed markets. “Thus, private investment is critical for reaching SDG 7, and it is vital that as much of this finance as possible is directed into clean energy infrastructure.”
Private sector investment potential in Sub-Saharan Africa
“According to our research, the total investment needed in the power sector to achieve and maintain universal access to power across emerging markets by 2030 is estimated to be approximately R152.5 trillion. Considering average private-sector participation rates of 45%, the potential private sector investment opportunity in achieving universal access to power in emerging markets by 2030 is about R71 trillion.”
While most of the developed world has started substituting existing carbon energy sources with renewables, sub Saharan Africa is still ramping up its base load power to achieve universal access.
“Renewable energy plays a smaller role as most of the large scale developments are in gas and hydro, but the investment potential is significant. A recent Bloomberg New Energy Finance report indicates that R47.4 billion was spent on renewables projects in sub-Saharan Africa (excluding South Africa) in 2018. An interesting development is that smaller scale, off-grid renewable energy is making significant progress in reaching remote rural areas and this is largely being driven by private sector developers.”
Sproule sees room to increase the pool of lenders by structuring projects to facilitate the participation of commercial banks alongside development finance institutions. The World Bank and other multilaterals play an important role in this regard by enhancing borrower credit profiles through blended or viability gap financing and political risk mitigation.
“In addition, governments are exposed to foreign currency risk as the financing markets require power purchase agreements to be indexed to the debt currency, which is invariably USD. There is a drive to develop local capital markets to the point where they can finance projects in local currency. However, this process is slow and will be set back further by current economic conditions.”
Distributed power solutions for long term goals
The off-grid or distributed power solutions being applied in rural areas in developing countries do offer more immediate solutions for achieving universal power access in remote locations. These solutions typically make use of solar technology and are at the forefront of private sector renewable energy investment on the African continent.
“As these off-grid energy providers achieve scale, they will increasingly look to consolidate operations and introduce strategic partners to take them to the next level – creating yet another avenue for private investors to play a role in achieving SDG 7. We must not forget that the investments made today will preserve our planet for future generations,” said Sproule.
Opportunity 2030 The Standard Chartered SDB Investment Map is available online.