Forging a path to global climate leadership: How the UK can leverage expertise and innovation on the world stage
14 November 2023 | By Geoff Sinclair, Managing Director, Camco
The recent political party conferences served as a timely reminder of the UK's diminished role as an aid superpower as budgets have been slashed, as well as of the fact we continue to fail to deliver on UK climate ambition and pledges.
With the general election approaching, the UK’s main parties used the conferences to unveil numerous promises to woo voters. Amid headline-grabbing issues like the potential HS2 railway abandonment and education reforms, climate and international development concerns were often overshadowed.
At the Conservative party conference, Prime Minister Rishi Sunak pledged a 'pragmatic, proportionate, and realistic' approach towards achieving net zero, aligning with domestic and international obligations through conservative 'common sense’. In contrast, Opposition Leader Keir Starmer MP accused Sunak of backtracking on climate change, advocating for a swifter approach.
However, these stances offered limited insight into how the UK plans to reduce greenhouse gas emissions by at least 68% below 1990 levels Nor on how it will achieve its climate finance goals of spending £11.6 billion by 2025-2026 to aid developing countries in transitioning to clean energy and strengthening climate adaptation to avoid an imminent refugee crisis.
This insufficient focus on climate and international development is perhaps unsurprising given the cost-of-living crisis and other pressing domestic issues. But addressing climate change is a critically urgent matter and the current lack of attention on it jeopardises both support for the Global South and the UK's global leadership, while also putting UK companies at risk of missing out on global net zero opportunities.
Rebuilding the UK’s global reputation
The UK has – until recent years – built a reputation as a leading development provider, advocate and thought leader. At the Labour party conference, David Lammy MP, Shadow Secretary of State for Foreign, Commonwealth and Development Affairs, made a resolute commitment to 'stand up' for the Global South. This statement comes at a time of ongoing debate on whether the UK will be able to meet its goal of providing £11.6 billion of international climate finance (ICF) between 2021/22 and 2025/26.
Regaining the trust of the Global South is vital, regardless of the political party in power. The UK's support, whether through financial contributions or expertise, aids climate adaptation and green growth, fostering economic self-reliance and partnership at global diplomatic and business levels. Development finance's transformational potential is evident in Camco's management of the UK government-funded (through the FCDO) Renewable Energy Performance Platform (REPP), which aims to develop a decentralised renewable energy market in Sub-Saharan Africa, with 42 investments in 20 countries over the past seven years.
In 2019 the platform supported ARC Power, an award-winning UK-based renewable energy developer, to finance the construction of a portfolio of mini-grids in Rwanda. The project now powers a renovated school in the Bugesera District serving over 300 young children, who previously had to travel long distances to school – too long for the youngest children who had to stay at home. Connecting the site to clean and reliable electricity has allowed the teachers and children to reach their full potential by maximising the use of computers and other IT equipment and improving access to clean water through a solar-powered water pump.
Photo credit: ARC Power
Interlinking climate action and development
Effective climate action must integrate with broader development efforts for maximum impact and efficiency. ARC Power's example demonstrates the interconnectedness of climate and sustainable development. Recognising the synergies between climate impact, economic growth, and poverty reduction is crucial for effectiveness. This doesn't imply mere bureaucratic checkboxes or reclassification of spending, but rather prioritising impactful climate and sustainable development interventions.
For example, a REPP-funded solar home system provider in Cameroon has connected 130,000 people, 374 microbusinesses and nearly 100 critical services to electricity for the first time as a direct result of REPP’s investment. Businessowner Aboubacar Yaya, from the village of Kambélé, explains how reliable electricity “is a huge improvement for me and my customers” as the ability to serve chilled drinks has “led to an increase in sales”.
UK development should look to achieve multiple objectives simultaneously through intentionality in programme and fund design, whereby the intention is to have both positive climate and sustainability benefits as a core part of their mandate alongside a financial return.
Maximising sustainable development impacts generally requires a focus on smaller, locally tailored projects that support local development and less experienced project implementers. However, these projects are seen as high-risk, with small investment ticket sizes that traditional institutions are not able to offer. This is where dedicated investment funds managed by experienced UK impact investors can play an impactful role. For example, through REPP, Camco was able to provide development funding to Nigerian mini-grid developer GVE, aiding national electrification, and in Sierra Leone, REPP's financing for Energicity's mini-grid development drives rural economic growth and empowers women.
To achieve these impacts, it is important to integrate this approach from the start. When Camco was designing the Spark Energy Services financing platform for commercial and industrial (C&I) renewable energy and energy efficiency projects, we purposefully selected approaches and structures that would enable smaller scale investments, working in partnership with local developers and supporting local C&I SMEs.
In a world where there is an urgent need to scale climate investments, such an approach may appear counter-intuitive and there is a tendency to focus on large-scale interventions. Yet, it is in these high-impact, underserved sectors that the UK's limited public financing should be strategically deployed to be truly catalytic. This approach can deliver significant impact within a fiscally constrained environment.
Photo credit: upOwa
Blended finance delivers bang for buck
The importance of fiscal responsibility was a recurring message at the party conferences; described by Rachel Reeves MP, Shadow Chancellor of the Exchequer, as not only knowing when not to spend but also ensuring that when you do invest, you get the most 'bang for your buck'. Reeves explained this concept would be employed domestically through initiatives like the proposed National Wealth Fund, seeking to leverage three times as much private investment for each pound of public money.
A similar approach should be more widely applied to climate and development funding by utilising blended finance solutions – using public funding to attract commercially minded investors and bridge the climate finance gap too substantial for public funding alone. This involves encouraging commercial investment flows into high-impact projects that have traditionally been perceived as high risk, thus translating to a higher hurdle rate for investment.
By using blended finance smartly, less grant funding is required to achieve growth and development outcomes. A study by Convergence found that blended finance funds in the sector have on average leveraged four dollars of commercial capital for every dollar of concessional capital. The need for this approach is further evident as one estimate from 2022 put the UK’s net zero investment gap as being up to £111 billion by 2030.
British industry and innovation received cross-party support in the conference rhetoric. Sunak highlighted that the UK has the largest life sciences, financial services, creative and tech sectors in all of Europe. Reeves claimed that from ‘digital to financial services’ the UK can and does ‘lead the world’.
With UK financial service exports valued at £91 billion in 2022, it is true that the UK has a very powerful financial industry, including several specialist impact fund managers with a strong track record of leveraging private finance. For example, by the end of 2022, Camco had mobilised a total of £362 million through REPP (£176 million of which was private funding). Other fund managers and development finance institutions are also following this approach.
By using its concessional funding smartly and leveraging its skilled and established financial sector to successfully reap the rewards of blended finance structures, the UK can position itself as the global go-to partner for climate finance whilst simultaneously influencing global climate action and addressing poverty.
Catalysing emerging markets
In the context of African renewable energy, a recent IEA report highlights investment concentration in stronger economies, leaving lower-income nations behind. To mobilise climate finance into these markets, a well-designed blended finance structure addressing investor risk perceptions and hands-on investment origination are essential. Experienced UK fund managers, leveraging London's financial expertise and on-the-ground presence in developing markets, can serve as trusted partners for the UK government in this regard.
Camco’s experience shows that as markets mature, concessional financing requirements decrease, attracting private finance and enhancing returns. Its new $250 million (~£206 million) REPP 2 fund – which builds on the legacy of the grant-funded REPP phase 1 facility – is designed as a blended finance fund and is expected to mobilise £645 million commercial capital towards the energy transition in African markets, many of which are LDCs. However, gaining the trust and support of governments, communities, and SMEs for these initiatives is a substantial endeavor.
While directing all development funding through MDBs allows for immediate large-scale capital deployment, it may not have the same local socioeconomic impact, potentially favoring Western businesses over local developers and jobs. A combination of MDB scale and specialised fund manager expertise is essential to bridge the climate financing gap, ensuring private finance mobilisation and efficient use of UK taxpayers' funds for underserved groups, rather than developing new tools or altering MDB mandates, which might compete with UK SMEs and fund managers.
Net zero is a growth opportunity for UK business
At the Conservative party conference, Claire Coutinho MP, Secretary of State for Energy Security and Net Zero, emphasised the UK's potential to lead in the energy revolution as being akin to the Industrial Revolution. Starmer also highlighted the opportunities arising from scientific and technological advancements in addressing climate change, aligning with Labour's policy paper on digital and green jobs.
Expanding UK SMEs in clean development offers a chance to achieve both SDGs and green and digital job targets. For instance, through REPP, Camco invested in Mobile Power, a UK-based solar-powered battery rental business that provides clean energy and transport solutions to low-income users in developing markets. Mobile Power's research and engineering team in Sheffield collaborates with local engineers in African countries, creating jobs and boosting the UK's exports and ideas, tailoring their ideas and technology to the world's fastest-growing population.
Photo credit: Mobile Power
Building a brighter future, today
Amidst the party conference rhetoric, practical policies and partnerships must emerge. Recognising the private sector's role in climate action and its alignment with development goals is now accepted across the political spectrum. This is partly due to the need to scale climate finance through private capital mobilisation, but there is also a growing realisation of the opportunities presented by green industries and how green infrastructure yields returns. The key challenge for the UK government is how to lead globally in climate action while fostering development and economic growth – both at home and abroad. The UK can find solutions by engaging with its domestic climate finance sector, achieving more with less.
This article was written by Camco's Managing Director, Geoff Sinclair. Geoff is also a member of the Special Advisory Group for the APPG Africa enquiry into UK-African partnerships for Just Energy Transitions