You could say COP 28 was all about money. The United Arab Emirates (UAE) wanted to host the event primarily to make clean energy investment deals.
The UAE launched their $30 billion “Alterra” fund at COP 28, even though it wasn’t part of the official agenda. Alterra is an investment fund for climate projects, with a particular focus on Africa and Latin America.
Alterra is also part of a plan to raise $250 billion in matching funds by 2030. Brookfield, Blackrock and TPG (large commercial investors) immediately stepped up with multi billion dollar commitments. Other private investors are sure to follow.
The fund has been set up by Lunate, an asset management firm with an alphabet soup of limited partnerships, co-investments and direct investments. These include private equity, venture capital, private credit, real assets, public equities, and public credit.
Even if you don’t know what all that means (as I do not), it is clear that investors see a growing market opportunity in clean energy. This, for the most part is a good thing.
Public funding cannot build the infrastructure the world needs by itself. So it’s good to see the private sector step up.
But behind the glow is a catch: typically, infrastructure development is funded by debt. Roads, bridges, hydro dams, pipelines, and oil and gas wells have been funded for years with debt. According to Bloomberg, 72% of climate investment worldwide is in the form of debt.
The problem comes when the debt falls on the shoulders of developing countries who can’t afford it. They then become indebted to wealthier nations and corporations. This is a form of modern day colonialism.
Currently 60% of low income countries are either in or on the verge of debt distress. These countries should not take on more debt. But this is what some of the new funds would encourage them to do.
Over time this can result in gutting services like schools, healthcare and local community support, in order to pay back the debt. In the worst cases, it can lead to instability and failed states.
To be fair, in setting up the new funds there has been discussion of how to create more favorable loan terms for developing countries.
And many developing countries are wiser now than in the past about loans, and will not accept debt they can’t afford.
We should all raise a glass to progress on clean energy. But we should do this with caution. Both investors and developing countries should stay away from deals that exploit people and places that can’t afford them.