Giving Compass’ Take:
• Urban Institute explores the issue of financing projects that benefit the environment, emphasizing that results are needed for the investments to be truly “green.”
• Will this form of impact investing yield promise? Progress for conservation-based initiatives is often slow and unpredictable.
• For more on green investments in Africa, click here.
Comparable with the size of global environmental challenges, the financing available for environmental projects is small. Climate change solutions could require $93 trillion in investment by 2030, but outstanding climate-aligned bonds total only $700 billion.
The world of “green finance” seeks to address this problem by financing investments that benefit the environment and foster sustainable development. But although many consider all green finance innovative, most instruments are conventional and could be improved by a heightened emphasis on results.
Efforts are under way, however, to bridge this gap and tie the financing directly to outcomes. One approach that has attracted attention is the pay for success (PFS) model. Used exclusively for social interventions until recently, PFS raises up-front capital from new investors (private or philanthropic) to fund a project with specific, measurable outcomes. If a rigorous evaluation finds that the project meets those outcomes, investors will be repaid by the traditional funder (typically government) with interest.
Investors are increasingly interested in impact investing opportunities and in improving the measurement of impact. Governments, foundations, and other stakeholders have a complementary, growing interest on results and evidence. With these tailwinds, it’s likely we’ll see more innovatively financed green projects.
Read the full article about green financing by Matthew Eldridge at Urban Institute.
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