Another Thing You Can Do
Let’s Accelerate the Global Energy Transition
Are we losing momentum in the race to address the climate challenge? Let’s look at the evidence: Headlines are grim (see here, here, and here), targets are slipping, and with so many major issues competing for our attention, the world’s focus may be drifting away from the environmental emergency we’re in.
But there remain many sensible opportunities to reverse this trend. Here’s a good one: Help lower-income countries accelerate their shift to clean, renewable energy.
Why?
That’s where energy demand is growing fastest.
Fossil fuels are still king in those countries.
If we get it wrong, we fail.
It’s likely more doable than you think.
White papers are fine, but…
There has been no shortage of thought leadership here. Experts and organizations produce white papers and convene conferences on how to do this. That’s helpful, but it’s time to move into execution mode.
What we need now is a surge of real initiatives—projects that get built, capital that gets deployed, and emission trajectories that actually fall.
I’m most convinced by “blended capital” approaches.
Under this method, public, philanthropic, or so-called “impact” capital (at concessional rates) is combined with market-rate private capital to make projects viable. This is sometimes described as “crowding in” market-rate capital. It’s particularly useful for really complex initiatives that you usually see organized in developed countries as private enterprise.
Take an ambitious effort to scale solar energy across a low-income country. A project like that usually works best when managed like a business. However, given the various risk issues involved, it’s also pretty hard to pencil out risk and returns in a way that works for private investors. So you “blend capital” by bringing together concessional funds with market ones. Voila— business-like clean energy projects are made viable!
Then why is progress so slow?
Despite its promise, blended capital has not scaled as hoped. Why? The reasons are both structural and practical:
Primarily, there is simply not enough concessional capital (capital offered at below-market rates) to catalyze private investment at scale.
Second, there aren’t all that many investable projects ready to go. Nor is the pipeline robust. Local capacity to develop these projects is often lacking.
Finally, these projects are complex and bespoke. Structuring them takes a lot of time and resources, not to mention negotiations, documentation, etc.
Three Practical Actions to Accelerate Progress
Now on to the good news. Many Instigators are actually well-positioned to help break this logjam.
Donors — Become Investors
Philanthropists—whether large foundations or generous individuals—can make a big difference by shifting from pure grant-making to investing their capital. You can increase your impact, and while not without risk, you stand to get your capital back with a return.
[Of course, we’re not providing investment or philanthropy advice here. That’s not our job, and you’ve got your own experts for that. But what we are doing is shining a light on strategies we believe will work. And please do remember that, as with any investment opportunity, the devil is in the details of individual projects.]
Impact Investors — Prioritize Impact
Many institutional investors slap the “impact” label on their investments while still demanding market-rate returns. That’s just business as usual. Blended capital deals require actual impact-first investing: accepting below-market returns and/or higher risk to unlock projects that otherwise wouldn’t happen.
Professional Service Firms — Step Up
Big and complex projects require a host of professional services. Investment banks, accountants, engineers, lawyers, and more all do essential work. Such expertise tends to be less available and more expensive in the developing world. Ambitious firms in the developed world have the exciting opportunity to step up and provide these services pro bono or at sharply discounted rates to jumpstart the market.
Where Do You Fit In?
If you lead an organization in any of the above areas, the opportunity—and arguably the responsibility—is obvious. There are countless ways to do this. You can start small, focus on one sector or region, partner with a global NGO or university.
There are many benefits to your organization too—accelerating career development for your best professionals, enhancing your enterprise value by getting into key emerging markets, creating brand recognition, boosting recruitment efforts, getting exposure to key opportunities, managing risk, you name it. If you want to brainstorm about this, please reach out. I try to practice what I preach and advise on these matters pro bono.
If you work at one of these organizations but are not in the leadership ranks, I encourage you to speak up about such opportunities in whatever way works best at your shop. I’m seeing smart leaders listen to their troops on these topics much more than in the past.
If you’re a regular person type of donor, you might be interested to know that you too can shift from giving money away to good causes to impact investing. My wife and I do this. With the help of a great advising organization, we inexpensively put together a small donor-advised fund that does exactly what I describe above: we provide impact capital for energy transition projects in the developing world. We’re pleased by the results to date—in a small way, we are helping funds flow to blended capital projects. To learn more about how to do this, check out organizations like CapShift.
Finally, if you are a mainstream professional who wants to do this kind of work directly, go for it. You’re needed! It might require some hustle on your part to find the right opportunity, but many people these days are transitioning into these kinds of “impact first” careers. With help from many people, I did this myself almost 20 years ago (transitioning from Wall Street to an environmental NGO)—it was the best career decision I ever made.
Call me an optimist, but please know that I am a practical one. There are many ways to have an impact on the climate crisis, even when the deck seems stacked against us. Doing so will also reward you with the good feeling that accompanies good work. Let’s go!
Onward,
