As countries seek to recover from Covid-19, their economies need to be greened at pace. In this discussion paper we put forward proposals which would enable CDC to increase its ability to meet the challenge of accelerating a just, green recovery.
The UK government needs to set clearer parameters for the use of any UK Aid that CDC receives, including the complete divestment from fossil fuels and a higher risk-appetite to achieve greater development impact.
We focus our recommendations on two key areas:
Divest from polluting sectors and prioritise investment in quality jobs in green sectors
CDC should transform its portfolio by phasing out its fossil fuel investments by 2021 and invest to create quality green jobs in low-carbon sectors, with a particular emphasis on the poorest and marginalised groups, such as women. This will involve an immediate moratorium and review of all current fossil fuel-based investments across coal, oil and gas. It will also require CDC to develop a wider range of investments and expertise in the low-carbon sectors that have shown the greatest potential to create quality jobs, such as renewable energy, transport and sustainable agriculture.
Building on the commitments in the new climate change strategy, including how to further integrate environmental considerations into tools for assessing development impact, CDC should move towards prioritising investments based on whether they are:
more likely to create quality jobs (in particular for the poorest and marginalised groups, including women)
more likely to enable green goods and services that are in line with a 1.5-degree world and that restore ecosystems.
Catalyse a just green recovery from Covid-19 by taking on higher risk
CDC has a small higher-risk Catalyst portfolio covering around 5 per cent of its investments. This portfolio shows that CDC is able to accept a higher risk appetite in exchange for higher potential development impact. Over the next few years, CDC should increase its focus on patient and flexible catalytic capital11 across the vast majority of its investments to navigate the new complex Covid-19 environment.
Prior to the pandemic, CDC was already part of the emerging impact investing “quiet revolution” in the finance sector which looks at impact on society, people and the environment alongside maximising risk-adjusted returns.
Now is the time for CDC to build on its experience and learning from its pioneering Catalyst portfolio to play a global leadership role in deploying catalytic capital to speed up the low-carbon transition.