British International Investment to unveil series of deals and initiatives at COP29 to unlock private capital

British International Investment (BII), the UK’s development finance institution and impact investor, will unveil new investments and partnerships at COP29 to mobilise private capital into climate finance.

Investments and initiatives to mobilise private capital to be announced this week include:

• A groundbreaking investment in India’s renewable power sector by DFIs alongside a major private investor.
• A significant milestone in a landmark mobilisation initiative for Asia, created by DFIs and private investors
• The launch of a blended finance facility in West Africa aimed at mobilising local currency financing from private investors for renewable projects such as mini-grids.

The announcements come in the wake of BII unveiling a number of innovative new initiatives to encourage private investors to commit capital to those countries that are most vulnerable to the climate emergency. These include a new concessionary capital facility designed to de-risk institutional capital in funds and new social or green bond issuances.

Between 2021 and 2023, BII has been responsible for mobilising $1.12 billion of private capital into climate finance projects.

Private investors, which collectively manage trillions of dollars in assets, have been reluctant to commit capital to climate finance in emerging economies because of the perceived level of risk that such investments entail. Macro factors such as local currency volatility, political instability and regulatory restraints are often cited as embedded reasons for not investing in countries that are most vulnerable to the impacts of the climate emergency.

But these fears might be obscuring the opportunities that exist. The International Finance Corporation (IFC) and the European Investment Bank (EIB) recently unveiled new credit risk data from the IFC’s Global Emerging Markets Risk Database spanning more than 30 years and 15,000 private-sector loans worth more than $500 billion to companies in developing economies. It showed that default rates in emerging markets are much lower than commonly perceived.

DFIs, such as BII, are mandated to provide long term capital for developing countries and can take on more risk than commercial investors because they do not need to make as high a level of financial return. They also have unparalleled insights into the emerging economies in which they invest, a deep-rooted understanding of risk and a track record of producing solid, long-term returns in markets that private investors have typically shunned.

This means they are perfectly positioned to partner with private investors to mobilise capital.

Leslie Maasdorp, Chief Executive Designate at BII, said: “BII and other DFIs are innovating to generate opportunities for private institutions; to derisk investments so that capital is allocated to where it is needed most.”

“Private investors: Our doors are open. Speak to us. Explore the opportunities that DFIs can bring to your door. Interrogate the risks that we can help to mitigate. And then by COP30 we will have significant progress to report.”

The United Nations Conference on Trade and Development estimates that developing economies need between $3.3 trillion and $4.5 trillion in annual investment to meet their Sustainable Development Goals. But at current financing levels, it says there is an annual financing gap of some $2.5 trillion.

Of the up to $600 billion per year of private capital that is needed to finance the green transition, more than half needs to be supported or “catalysed” by MDBs, DFIs and other bilateral financial institutions.