December 9, 2024

The Global Innovation Lab for Climate Finance (the Lab) hosted a panel during the Lab Summit at the 2024 New York Climate Week, featuring three alumni from diverse sectors, regions, and instrument types. They shared their experiences and insights from their time with the Lab program developing innovative climate finance solutions.

The panel included:

• Martha de Sá (2023 Lab class) founded Violet, a company focused on sustainable agriculture and finance Brazil, building on the Low-Carbon Agriculture Transition Mechanism developed during the program. She also worked on structuring theAmazônia Viva Financing Mechanism.
• Las Perera (2022 Lab lass) developed the Green Guarantee Company, the world’s first specialist guarantor for emerging market climate projects.
• Sanjay Wagle (2017 Lab class) led the Climate Resilience and Adaptation Finance & Technology Transfer Facility (CRAFT), the world’s first growth equity fund focused on adaptation and resilience.

Here are some key takeaways from their conversation, moderated by Ben Broché, Associate Director at CPI.

Marta de Sá recalled piloting the Amazônia Viva Financing Mechanism with Natura, marking the first time they used a capital markets instrument to fund local cooperatives in the Amazon and support the bioeconomy. Structuring the USD 10 million transaction took two years to complete—a timeline she describes as “crazy” and one that underscores the challenge of creating scalable, replicable models in this space.

“Of course, nature and sustainability add complexity, making things harder. We must aim for ‘good enough’ rather than perfect because perfection is impossible. The question is, what’s good enough to start with? We can build from there, but we need solid foundations to begin. That’s where I’m investing my time—building the basics, the building blocks, with technology, understanding specific needs, and developing suitable products,” said Martha de Sá.

While it’s important to scale climate finance, organizations must be cautious about imposing rigid standards on diverse emerging markets. Each context is unique, and a one-size-fits-all approach can hinder innovation.

By focusing on foundational elements like understanding local needs, developing tailored financial products, and combining them with technical assistance and other financial services, the Lab can help create a powerful framework for replication and scale.

“When you combine standards with technology, you create a replicable model. That’s where we are now—understanding local needs, speaking their language, and documenting things simply. Look at the fintech companies: they’re scaling so rapidly because their processes are simple, scalable, and replicable. We need to bring that same approach to nature finance,” said Martha de Sá.

Treating natural resources and ecosystems as investments is the same as considering nature as an asset class. Like stocks, bonds, or real estate, nature can generate financial returns in addition to environmental returns. Investing in nature-based solutions, such as reforestation, sustainable agriculture, and ecosystem restoration, creates economic opportunities while promoting long-term environmental sustainability.

However, Institutional investors, corporates, and local communities have different needs and perspectives. The lack of a common language and understanding makes aligning goals and facilitating investment challenging.

The Low-carbon Agriculture Transition Mechanism aims to make investing in nature as straightforward and appealing as investing in other asset classes, thereby driving significant capital towards sustainable initiatives. A key part of that was translating into one single language what institutional investors, corporates, and especially those on the ground need.

“It’s important to look at things from an opportunity perspective. We all know the challenges and the climate change issues. Still, we also have much potential, especially when discussing economic growth and combining social and environmental goals,” said Martha de Sá.

Guarantees can help to reduce the risk of climate investments, making them more attractive to institutional investors. A recent research from CPI explores the landscape of various guarantee types, their challenges, and their effectiveness.

“Climate finance benefits from diverse guarantee solutions, both large and small. While large-scale guarantees back debt-for-nature projects with impressive results, there’s also a growing need for smaller guarantors to support different areas and scales. This mix allows for replicability across contexts,” said Las Perera.

By providing investment-grade guarantees, the Green Guarantee Company, a 2022 Lab solution, increases the chances of these projects securing financing, especially in emerging markets with sub-investment-grade credit ratings. Additionally, guarantees can be removed once trust develops in the market.

“GGC serves as a sort of ‘glue,’ facilitating this cooperation, and what’s unique about our guarantee model is its flexibility. Our involvement remains a mere promise until needed, making it easy for stakeholders to move forward without us once they’ve built the relationships and trust needed to collaborate independently. This makes guarantees a powerful, low-intervention tool that strengthens the market’s confidence without being a permanent fixture,” said Perera.

When Sanjay Wagle and Jay Koh came to the Lab in 2017 to develop CRAFT, investing in climate adaptation and resilience, particularly in the context of private sector investment, was still nascent and largely unexplored. “There was a total lack of awareness in the private sector about what that even meant,” recalled Wagle.

They developed CRAFT as a global growth equity strategy to identify and invest in innovative solutions from developed and developing countries and demonstrate the real-world impact of climate adaptation.

“The institutional investors we spoke to asked an excellent question: ‘Has anyone ever done a climate adaptation strategy before? What would that look like, and what have the returns been?’ It took a lot of work to convince institutional investors in the US and Europe that there was a real opportunity here and to define what that would look like,” said Wagle.

Seven years later, demonstrating a real need and investment opportunity in climate adaptation takes less effort. Investors increasingly recognize the profitability of climate adaptation, as early successes in the sector encourage others to follow suit and integrate adaptation into their investment strategies.

“It’s also true that one small fund focused on climate adaptation and growth equity won’t solve this problem. We need many more investors. Ultimately, climate adaptation will require every type of capital. It will need venture capital for new technologies, credit, and project finance for resilient infrastructure, projects, and assets,” concluded Wagle.

• Five key takeaways from the Lab Summit
• Paul Bodnar: ‘Ten years ago, we could never have predicted the level of impact the Lab has achieved’
• Lab Alumni share insights on scaling climate finance