Q&A: PIDG’s strategy to mobilise finance and accelerate climate action
Ahead of Climate Week NYC and the United Nations SDG Summit, both taking place this September in New York City, the GI Hub is publishing interviews with public and private sector leaders working at the municipal, state, national, and global levels – bringing you their thoughts on the importance of infrastructure in the climate transition.
Today we are joined by Philippe Valahu, CEO of Private Infrastructure Development Group (PIDG) – an innovative infrastructure development and finance organisation funded by six governments and the International Finance Corporation (IFC). In this Q&A, Philippe explains how PIDG’s 2023-30 Strategy positions action on climate, nature, and sustainability through infrastructure as central to their purpose.
Q: You recently released your 2023-30 Strategy. Can you tell us about the strategy and what it aims to do?
Our strategy’s core proposition is to:
- Increase the pipeline of projects to internationally investable standards
- Unlock domestic institutional capital for infrastructure
- Deploy commercial and institutional capital in developing and emerging markets through blended finance structures.
There is a rapidly closing window to secure a liveable and sustainable future for all. Sustainable development and poverty reduction are not possible without action on climate adaptation and resilience, and people depend on nature for both. With 20 years’ experience in infrastructure development and financing in Africa and Asia, PIDG must quickly scale our impact.
We have evolved a scalable approach to mobilise finance and accelerate sustainable development impact where it is most urgently needed. The approach incorporates some unique and critical abilities: take an appropriate level of risk, find ways to attract private capital at the right stage, and relentlessly innovate. We apply these abilities by working creatively with others to urgently scale up what works, so we can originate, build, and distribute on a faster cycle, matching capital to infrastructure financing at the appropriate stage and scale.
This is how the sector will accelerate impact; however, we cannot address financing challenges on our own. Our strategy is a call to collaborate.
Q: What are the key takeaways from the strategy?
As climate change accelerates, historic development pathways become increasingly inadequate and unsustainable. New approaches must be found by engaging the young populations in countries where we work to develop innovative, disruptive new models.
New technologies have been developed with rapidly falling costs, and there is a growing realisation of the huge co-benefits for climate action. Capitalising on these opportunities requires strategic direction, a massive shift in investment, and the right finance at the right stage. International institutional architecture and public and private finance flows have yet to coherently align, but a plausible blueprint is emerging, both for what economies could look like and for how to finance the transition.
The key takeaways of our 2030 strategy are:
- Huge opportunities to unlock new finance and infrastructure solutions exist, but we need to redefine what climate and nature action means in countries that contributed the least and suffer the most from the climate crisis.
- We need to urgently scale up impact, by working strategically with others to scale up what works without reinventing the wheel. We aim to double our rate of annual commitment in the next decade, with strategic deployment to mobilise infrastructure finance where it matters most.
- We must accelerate project development. We are building on the success and capability of InfraCo (Asia and Africa) to develop a new larger Project Development Arm to allow financiers to invest earlier.
- We need to unlock domestic capital through local credit enhancement facilities. Significant amounts of domestic capital can be leveraged through specialised guarantee facilities built on the model of PIDG guarantee arm GuarantCo. Building on the success of InfraCredit Nigeria and InfraZamin Pakistan, we aim to deploy 10 local guarantee facilities in the next 10 years, in partnership with regional and domestic investors.
- We will continue to mobilise international capital in least developed and emerging markets, through our successful blended debt fund Emerging Africa Infrastructure Fund (EAIF) and the work of GuarantCo in allowing institutional investors into markets where they would not otherwise go.
The common theme is a strategic focus across PIDG group’s entire product offering, tailoring solutions to markets based on the best combination of products, sectors, and geographies for impact at scale. As one group with a single mission, businesses, clients, and capital providers will find it easier to access our full suite of solutions, no matter the entry point.
The PIDG suite of solutions
Q: The investment themes outlined in your strategy include capital market development, climate resilience, nature-based solutions, and inclusion. What is the reasoning behind them?
The four themes highlighted below are the cross-cutting priorities that are essential to climate action and sustainable development at scale.
PIDG’s four investment themes
Capital market development builds on our track record of introducing the first green and social bonds in Kenya and Vietnam and raising impact transparency standards in partnership with issuers and regulators. This will expand selectively to secondary liquidity in order to originate, build, and distribute infrastructure matching risks with appropriate capital providers on a faster scale.
We apply a deliberate climate and gender lens to our investments, and the climate resilience, nature, and inclusion priorities naturally flow from there.
Vulnerability to climate change is setting back development gains, and now is the time to focus both on climate resilience of the infrastructure assets that we develop and finance, as well as on whether they reduce climate vulnerabilities or not. We have a partnership with lead climate scientists to improve the evidence to guide investment decisions in countries that are infrastructure-poor, extremely vulnerable to climate change, and with rich but rapidly declining carbon sinks and biodiversity.
Gender equality and inclusion are a deliberate choice driven both by business and impact considerations, and we are learning and sharing with the sector as we improve the evidence base of what works.
Q: Convergence reported in its 2022 State of Blended Finance that PIDG was the most frequent investor in mitigation blended finance transactions (by number of commitments) between 2016 and 2021. What commitments and systems underpin this, and what results have you seen?
Convergence data reflect our deliberate choices. We focused on the first private investments in renewable energy in several countries, ramping up efforts since 2015. We then focused on investment policy, group KPIs, a carbon budget, and incentives in deal selection and portfolio constructions for innovative climate solutions.
Since then, we have seen our energy investments tilting decisively toward renewables, and renewables now represent the near totality of our future pipeline. The carbon budget has also focused our choices of deals with significant emissions toward those with the highest developmental impact as part of our balanced sustainable impact scoring, which is an integral part of PIDG’s capital allocation and portfolio construction.
In future, we will build on this to do more on climate resilience where blended finance is key to unlocking private investment, with huge co-benefits for sustainable development.