Blog by Nicole Pasricha and Madu Selvakumar
CIF’s stakeholders might be familiar with the climate impacts of our investments, but there is less knowledge of the contributions CIF’s programs are making toward developing countries’ national social and economic development objectives and toward the wider UN Sustainable Development Goals (SDGs).
These additional development impacts - sometimes called “co-benefits” - are generally difficult to assess and measure. But they are important because they can significantly strengthen the case for increased climate finance. These outcomes can include job creation, improved health, increased economic activity, market development, and gender equality impacts. We need to understand what these impacts are, capture them, and evaluate them.
The importance of development impacts in climate finance
Understanding these additional impacts is especially valuable in the current context of COVID-19-related economic stimulus and recovery efforts. Evidence shows that pursuing low-emission and climate-resilient growth is the best way to unlock lasting socio-economic and environmental benefits. For example the New Climate Economy estimates that bold climate action in key industries could deliver at least US$26 trillion in net economic benefits by 2030, including more than 65 million new low-carbon jobs and 700,000 avoided premature deaths from air pollution. New studies also show strong connections between CIF’s climate investments and supporting countries’ COVID-19 recoveries.
To help expand the knowledge base in this area, CIF launched a new workstream in 2019: called “Social and Economic Development Impacts of Climate Finance”, it is aimed at better understanding and reporting on social and economic development impacts linked to CIF climate programs. To start with, we studied the existing evidence base to map out the types of development impacts that may be present in climate programs—the table below shows the wide range of impacts, including in the social, economic, environmental and market spheres, as well as the cross-cutting dimensions of impact, such as those relating to gender and vulnerable populations.
Early learnings: the economic impacts of CIF’s renewable energy portfolios
In addition to scoping out the range of potential development impacts in CIF programs, CIF has also analyzed the potential economic impacts linked with its renewable energy portfolios, the Clean Technology Fund (CTF) and the Scaling Up Renewable Energy Program (SREP). This was done by testing several publicly available analytical tools and input-output models to estimate the contributions of the programs to local employment and economic value added (e.g., contributions to domestic GDP) via their investments. By using available tools that require minimal data inputs, we were able to test the relevance of existing approaches while also minimizing the need for additional data collection and monitoring and reporting fatigue of partners.
The early results of these estimates show promising projections of the contributions of the CIF renewable energy portfolios across both employment and economic value added. For a full description of methodologies and definitions of different types of impacts, see the CIF Learning Briefs on Social-Economic Development Impacts published for CTF and SREP.
Employment impacts: generating more and greener jobs
The tools used allowed CIF to estimate both direct (investee companies) and indirect (supply chain and induced) employment effects of the CTF and SREP portfolio, as evidenced in the graphic below. These impacts are estimated both for the construction phases of projects (short-term impacts, using number of person-years) and the operations phases (long-term impacts, using number of annual, recurring jobs). For example, CTF and SREP renewable energy projects could contribute 1.9 million person-years of direct employment during construction, and nearly 80,000 direct recurring jobs during project operations, all in local job markets.
Value added and energy-enabled impacts
The contributions of CIF climate projects to the local economy are estimated using the Joint Impact Model by calculating the ‘economic value added,’ which is the sum of company salaries, profits, and taxes paid (e.g., the total contribution to domestic GDP), expressed in US dollars. Both direct and indirect value-added effects could be estimated, initially only for the construction phases of projects due to data limitations regarding operational phases. It was found that CTF and SREP investments are projected to generate direct economic value added of $21.4 billion and indirect value added of $20.6 billion to local economies during project construction phases.
Finally, using the Joint Impact Model, CIF estimated the enabling effects of additional power generation in a country, whereby the availability and reliability of energy access, or reduction in energy costs, translate into higher economy-wide revenues and thus additional employment and value added. It was found that CTF and SREP could contribute 643,000 additional recurring jobs and $4.3 billion in value added each year that the renewable energy projects are in operation.
Future learnings: next steps in exploring other development impacts of CIF’s programs
The promising initial results from this analysis on the economic impacts of two of CIF’s portfolios show how powerful a better understanding of specific development impacts can be in supporting the drive for even more impactful climate investment decisions. This is only the first step in the learning workstream, however, as CIF now moves to explore other types of impacts, such as social impacts relating to livelihoods and health, or market-level impacts on strengthening industries and systems. We will also dive deeper to understand more about the qualitative outcomes of our projects, such as job type and quality, or community engagement. Future learnings using this approach are forthcoming for all of the CIF portfolios, including the Forest Investment Program (FIP) and the Pilot Program for Climate Resilience (PPCR).
CIF’s workstream learnings will help to expand and improve the knowledge and evidence base across key economic sectors. They will strengthen the case for increasing the ambition of climate action by national governments, funders, development investors, and the private sector. They will also ensure current and future climate finance programs are optimized to deliver on both climate and sustainable development objectives.
The climate crisis cannot be solved by one person or organization alone, but requires a truly global and collaborative effort. We are committed to evaluating everything we do, implementing the current lessons learned in the design and execution of our future projects, and sharing these solutions with the rest of the world. Stay tuned throughout 2021, as we distill and disseminate learnings from our continued research on the development impacts of climate finance with our partners and the wider climate finance community.
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