The greatest growth opportunities in climate investing

LeapFrog Investments’ climate strategy, which launched last year with a target to invest $500m, addresses four main themes: built environment, energy, food and mobility, writes co-head of climate Nakul Zaveri.

The amount of private capital dedicated to climate solutions in emerging and developing markets is only a fraction of that allocated to developed markets. This figure is a result of the overwhelming underestimation of both the contribution of these regions to climate change, and the commerciality of this fast-growing market and the consumers that are driving it.

Over the next 30 years, as much as 80 percent of population growth and 50 percent of GDP growth could come from South Asia, Southeast Asia and Africa. Already this year, India has overtaken China as the world’s most populous country, emblematic of the broader shift underway.

Across these three regions, billions of consumers are rising into the middle class. Those that are living on between $2 and $12 a day today will have combined spending power of more than $12 trillion by 2050.

Providing green solutions to these consumers is pivotal to curbing the global carbon footprint – not just mitigating, but preventing their emissions from ever reaching the scale of the Western world.

Forecasts suggest that by 2050, South Asia, Southeast Asia and Africa will be responsible for between 50-73 percent of global emissions. Historically, carbon emissions have come hand-in-hand with development. Increasingly, solutions are becoming available that allow consumers to leapfrog the carbon-intensive methods of the past and jump straight to low-emission alternatives, in the same way that they have adopted mobile phones or digital banking products previously.

At LeapFrog, we have identified four sectors that are critical for high growth and high impact: built environment, energy, food and mobility. Cumulative investment required for new and existing green assets in the aforementioned regions and sectors could reach $3.3 trillion by 2030, or $330 billion per year. Therein lies the commercial opportunity for those willing to look beyond their own backyards.

Spotting opportunities

Take the commerciality of solar power in Nigeria, for example. Already, regulation and policy, combined with innovative business models such as pay-as-you-go or subscriptions, are driving solar home systems to a commercial tipping point where they represent a more affordable and cleaner source of energy than gasoline generators. A switch to solar could yield more than $500 in savings a year for Nigerian households over the life of the system, simultaneously unlocking both an environmental and social benefit.

Similarly, innovations such as battery swapping in India are opening the electric vehicle market to more customers by reducing the upfront cost of buying an EV by as much as 40 percent. Switching to EVs by 2030 could yield a total lifetime savings of approximately 38 percent in costs versus traditional two-wheelers, or a 6 percent saving in overall monthly household budget.

Investors in these markets and others are increasingly seeing the opportunity of these unique business models, built from the ground up and often scalable beyond just emerging markets.

Greater investment from global private capital funds is required to supercharge these technologies to ubiquity and set emerging consumers on a green path of consumption. This approach serves as the cornerstone of our investment focus, enabling us to make a meaningful difference in the lives of emerging consumers and contributing to their overall wellbeing while addressing meaningful emission reductions in global growth markets.

Nakul Zaveri is a partner and co-head of climate investment strategy at LeapFrog Investments.