Sustainability offers investment opportunity

By Kim Sung-woo

Over the past few months, I had the opportunity to participate as a panelist and speaker in various international conferences including the Inter-American Development Bank, Inter-American Investment Corporation (IIC) Annual Meeting in Busan (market development), Green Climate Fund (GCF)-Asian Development Bank (ADB) Dialogue in Incheon (climate finance), World Water Forum in Gyeongju (public private partnership), Asia Clean Energy Forum in Manila (energy investment). In the exchanges I had with global leaders from diverse fields at these events, I noted the business opportunities in developing countries.

At these conferences, “sustainability” and “investment opportunity” were keywords and they will continue to be discussed at two upcoming major international conferences.

One is the United Nations Climate Change Conference in December in Paris which will set the framework for the global response to the climate challenges and investment opportunity.

Another is a meeting in Addis Ababa, Ethiopia, this week (July 13-16), when 193 member countries of the U.N. will establish a new financing framework to support sustainable development for the next 15 years.

Climate change, inequality, water shortage and many other issues obstruct sustainable development. Yet, these create significant investment opportunities in developing world for investors.

According to International Energy Agency (IEA), the world must invest approximately $1 trillion per year in clean energy until 2050 to prevent the Earth’s temperature from rising more than 2 degrees Celsius.

The private sector is anticipated to play a big role here. But the private sector will not move without a safety net provided by the public sector. The private sector wants public guarantees for projects with no precedents and unforeseeable risks.

What’s happening in Gasa Island, seven kilometers off Korea’s southwestern coast is a success story. Wind turbines and solar panels supply power for its entire 168 households and visitors. Diesel-fueled electricity would have cost the island 10 times more. The islanders save $300,000 every year. Cheap electricity enabled the villagers to restart salt and fish farming business, which had been closed for years due to high diesel costs.

Ulleungdo, Korea’s second-largest island, will become energy independent and carbon neutral by 2017. The project will be funded through innovative project financing including private investors. South Korea’s goal is to expand such micro-grid projects to another 120 islands.

In India, most low-income, rural communities use kerosene lanterns for lighting. They are dangerous and sometimes inadequate but popular because of their financial benefits.

Simpa Network allowed remote villagers to purchase solar panel systems through prepaid metering and mobile payment technologies, directly addressing the local community’s financial circumstances. Simpa Network received initial investments from Asian Development Bank (ADB) to lease ‘solar home systems’ and the project grew by 30 percent every month last year. Creating an economically beneficial product and receiving public investment were the key factors to the success.

Korean companies that seek such business opportunities in developing countries should take note of the Green Climate Fund (GCF) located in Songdo.

GCF serves to invest in projects that reduce greenhouse-gas (GHG) emissions and climate change adaptation in developing countries. The fund will receive over $10 billion from developed countries and starting from 2020, $100 billion will be invested in energy and environment-related infrastructure projects in developing countries annually.

To encourage private sector investments, GCF will provide attractive equity investments, loans and guarantees. Various companies in Germany and Japan, among others, have already utilized similar funds to reduce risks and find opportunities in developing countries. Korean companies should enter new markets and take full advantage of the opportunities

The U.S.-based private equity firm KKR’s acquisition of a sustainable agriculture company that uses solar desalination technology last year sets an example. Despite KKR’s corporate focus on short-term profitability, the company invested in sectors including renewable energy, water and agriculture.

And recently, Forbes wrote China’s source of wealth creation is moving from retail, real estate, finance, IT to investment related to sustainability.

Kim Sung-woo is regional head of Climate

Change & Sustainability in KPMG Asia Pacific.