The Financing Barrier in Developing Markets
As the world accelerates its transition to net zero, the need to invest in climate change mitigation and adaptation has never been more urgent. Companies and projects in developing countries need access to finance. Yet, developing countries often struggle to access finance to support development and climate goals. This challenge is most evident in the disproportionately high cost of capital demanded by investors in developing countries. A higher cost of capital means projects must deliver higher returns, reducing financial feasibility and limiting implementation likelihood, particularly for lower returning sectors like energy generation and transmission.
Case Study | The Article 6 Investment Solution
One innovative solution we’ve pioneered is the Article 6 Investment Model, which harnesses Article 6 of the Paris Agreement to mobilize carbon finance in exchange for emissions reductions. Unlike traditional carbon market approaches, where emissions reductions are typically sold after credits are generated, investors under our model provide up-front concessional financing in exchange for a share of future emission reductions. This solves two major challenges. First, developing countries access the up-front capital needed to get climate projects off the ground and generated emissions reductions in the first place. Second, by moving from a model of carbon credit “purchases” to “investment”, investors are able to mobilize capital at scale via equity, debt, and guarantee investment instruments.
Broader Investment Mobilization
Our work on the Article 6 Investment Model is part of a broader strategy to catalyze private sector investment in the global energy transition. We are focused on pioneering blended finance solutions that lower the cost of capital for projects in developing countries and crowd in the private sector. This approach encompasses innovative mechanisms like Article 6, existing voluntary carbon markets, and more traditional climate finance models. By leveraging these diverse financial tools, we aim to create scalable, impactful solutions that accelerate the shift to a low-carbon economy.