As we start the new year, I have had the opportunity to reflect on many things. One of them being what keeps people up at night?
I believe that a person can’t sleep at night, ultimately, because of one of two things: they are worried; or they are excited – or possibly both. So, what does that mean for me, as the CEO of a DFI – and as a person on this planet we call earth?
I get worried when I see the breadth of development challenges in emerging markets and developing economies (EMDEs), and in particular the gap from where we are as we work to address climate change, to where we need to be.
I get worried when I look at the capital that is needed to not only mitigate climate change but also to adapt to its impacts. Latest reports tell us that 2 trillion USD in investment is needed every year in EMDEs to meet the goals of the Paris agreement. That’s 5 times what’s being invested today and 7 times by 2040.
And I get worried when I think about that huge magnitude of investment needed on one hand, compared with the capital the public sector has available on the other, both in developing countries and in developed countries to help them on their climate journey. There is a huge gap.
By this time, I’m not sleeping well at all – and maybe some of you aren’t, as well!
But then, I also get excited. I get excited when I see the potential boost that can come from private capital. The 120 trillion USD of assets under management in banks and institutional investors. Plus, other investors and philanthropy. The money is there. And I get excited when I think about how we can unlock that capital.
I am particularly excited about GAIA – an initiative which I believe has the potential to change the way we action climate finance.
Who is GAIA? GAIA is the Greek goddess of earth that inspired another GAIA.
What is GAIA? First, GAIA is a platform. It’s a 1.5 billion USD blended finance platform that will enhance access to finance for high impact climate projects in up to 25 emerging markets.
Second, it is a blueprint. that can be replicated to catalyze private finance at-scale to support emerging markets’ transition to low-carbon, climate-resilient growth pathways aligned with the Paris Agreement.
Why? Because it meets the private sector where it is, recognizing and respecting the risk-return dynamic. It provides a structure that addresses that dynamic in such a way that private investment can be scaled in parallel with the risks being managed.
GAIA has been designed and developed by FinDev Canada in partnership with the Mitsubishi Financial Group, or MUFG – a partnership that was hatched at COP26 in Glasgow. I’m thrilled that Climate Fund Managers, the fund managers of FinDev Canada’s second ever investment, Climate Investor One, has been selected as investment manager, and Pollination as advisory partner.
GAIA’s $ 1.5B dollar blended finance platform enables the deployment of long-term loans into climate adaptation and mitigation investments, from sources previously not available to the markets which need it the most. GAIA brings together commercial, concessional, and philanthropic capital to create something new.
Its structure leverages the risk-mitigation effect of first-loss capital from the Green Climate Fund approved last year at their Board meeting, brings in commercial insurance, and benefits from a foreign currency hedging facility and side-car Technical Assistance facility for last-mile project preparation – creating a highly efficient and innovative pairing of public-private risk sharing, which mobilizes private climate finance at-scale – to the tune of 1:4.
Of the 25 developing markets in the GAIA universe, 25% of the platform will be dedicated to Least Developed Countries (LDCs) and Small Island Developing States (SIDS) and the platform focuses 70% on adaptation. The structure and intention of GAIA respond to the market demands, as well as critical barriers limiting private sector investment in climate projects in emerging markets.
The impact? Through a comprehensive impact framework that FinDev Canada has brought to the table, we are positively influencing a quantum of private capital. GAIA is expected to impact nearly 6.5M direct beneficiaries and 13M indirect beneficiaries. GAIA will see the reduction of GHG emissions by over 30 million tonnes of CO2, while helping countries adapt to the realities of climate change.
And overall, it will enable the financing of adaptation and mitigation in support of efforts to meet Nationally Determined Contributions, and other climate priorities in the markets that GAIA serves. I am so proud of the work that FinDev Canada and MUFG have done to bring this innovation to market. But don’t just take my word for it. GAIA has just been recognized as The Best Blended Finance NDC Initiative of the Year at the African NDC Investment Awards for its potential to greatly improve Africa’s NDC projects.
I am excited by the potential GAIA offers. And yes, although my excitement keeps me up at night, I also sleep a little bit better, and I hope you will too!