Episode 190: Global Climate Investing with DFC's Chief Climate Officer Jake Levine
Episode 190: Global Climate Investing with DFC's Chief Climate Officer Jake Levine
Today's guest is Jake Levine, Chief Climate Officer at the U.S. International Development Finance Corporation. The U.S. International Development Finance Corporation (DFC) is America's development bank. DFC partners with the private sector to finance energy, healthcare, critical infrastructure, and technology solutions. Jake explains why 95% of our projected global emissions will come from outside the U.S., his role as Chief Climate Officer, and DFC's process and approach to investing.
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Great to have you. You're sitting in such an important area for the clean energy transition. And it's also one that no matter how many of these discussions I have, I still feel like such a newbie given my small high-growth technology company roots. So I'm deeply appreciative that you're making the time to talk to me and I have no doubt that I'm gonna learn a lot from this discussion.
Absolutely. Well, it's an area where I think the whole climate community, myself included, has to come up the learning curve because when you look at the projected future emissions of the world, 95% plus is expected to come from outside the United States. At the same time, we're deeply under-invested from a climate perspective in markets outside the US, outside Europe, developing economies, emerging markets. So it's a big task and eager to spread the good word and enlist everybody and- and your listeners in the challenge.
Why is it that, that 95% number? If historically the developed Western countries have been such massive emitters percentage-wise, why do you envision that that'll be flipped looking forwards?
It's interesting. If you look around the world and look at sort of basic indicators, population growth, economic growth, trade, you see dramatic growth in emerging markets, generally speaking, Indo-Pacific, Latin America, Sub-Saharan Africa, whereas in developed economies like the United States and many of our European trading partners, population growth is flat or declining. There are greater sort of efficiencies in terms of our technology, demand for electricity is flat or declining. So, you know, projecting out into the future, it makes sense that that's where you're also gonna see a rise in emissions.
And then there are a handful of- of key places where countries are continuing to heavily invest in fossil fuel technology, particularly in the power sector, China, India, South Africa, Indonesia, where you see new coal plants being built and brought online. And at the same time, you know, many of these markets are, and this is what's exciting, are also experiencing enormous growth in clean energy technologies in industrial decarbonization and transportation decarbonization. And so we do have an opportunity to flip that growth trajectory but we also have a risk of baking in a lot of carbon-intensive assets and projects if we're not aggressively working right now to de-risk and provide financing for those alternatives.
That's a good segue before we get too far down the path. So what is the International Development Corporation (DFC) and what do you do within the organization?
The DFC, it's the newest federal agency on the scene. We're- we're about two years old. And it's kind of cool to be in a new agency. We're hap- you know, we get the chance to write our own destiny. We were created by a statute called the Build Act which is focused on development and to some extent on the way that US investment overseas can be used as a tool for diplomacy in foreign policy. And I came in as the first chief climate officer at DFC, which means that I sort of sit between the administration's strategic approach on climate, on development, on foreign policy, and the way that that plays out in our transactions.
And the way that you could you think about DFC is basically as an American development bank. And we have an investment cap of $60 billion dollars. We've got about $32 billion dollars committed at the moment. This year we had a banner record year. We committed $6.7 billion dollars of new projects. And every year we see about four, maybe four and a half billion coming off of our books. So it'll take us a number of years to get up to the $60 billion dollar cap, then we do that through a variety of financial tools, whether that's debt financing, equity, technical assistance.
We provide key tools for de-risking projects and markets like guarantees and insurance. And when you look at sort of the mix of climate needs in the market, whether it's, uh, a mitigation project, say a solar and storage plant in a risky market where there may be sort of off-take risk or political risk, or if you're looking at an adaptation project to help make infrastructure more resilient to the types of impacts we're already seeing, you know, DFC has a really important role to play in providing some of these key financial tools to get capital invested in these projects and markets.
Can you give an example of some of the key learnings from the domestic side and how those might or should apply as we think about the international transition?
Definitely. I'd love to hear what you think too because I think for a long time in the international context, climate change and sort of climate investing has been synonymous with basically renewable energy, and within that, essentially solar. And one of the things that have been so rewarding about the last seven or eight months that I've been in this role is working to really expand our definition of what does it mean to be doing a climate-linked investment and thinking about other interventions also in the power sector.
So not just solar, but also storage and baseload reliability and firm power for the grid that is also zero emission-based. Looking at transportation technologies, we just invested in a Rwandan-based two-wheel electric mobility company called Ampersand. It's a really interesting business that's electrifying motorcycles in Rwanda and hopefully will expand to other parts of Africa. And part of their business model also relies on the sort of the notion of mobility as a service, thinking about that as a climate opportunity.
And then also some of the work on the domestic side that you see on environmental justice, you may have seen the administration came out with something called Justice40, which is an effort to direct 40% of investments in clean energy towards disadvantaged communities, communities that have been historically marginalized and vulnerable to the impacts of climate change. And there's sort of a corollary to that discussion in the international context, which is what's happening around adaptation and resilience and this broad recognition that while we've been really focused on mitigation, we've been very underweight to use a finance term in the way that we're thinking about adaptation and also in the way that we're developing models to actually invest in adaptation. And that's something that we're turning our focus to now because it's of such critical importance.
When you do think about these long-term goals, how do you prioritize in a world where you have kind of steady-state objectives you'll be chipping away at over time and you have shifting priorities or opportunities or fire drills that might come up? And relatedly, how do you think about it as it relates to impact versus profit and where does the private sector fit into all of this as well?
It's good, we'll just line them all up. So it's hard. There are more priorities than we have the capacity to take on. We're a small shop by government standards. We're, I think we're about 400. I think we're now maybe close to 435 people, we've been growing. And our leadership team is, we're 10 folks, and we're focused in a handful of areas. You know, in addition to climate, we work on COVID and healthcare issues around the world. We focus on gender equity, we do work in information technology.
And a big part of what we do is helping the private sector, basically providing liquidity for the private sector in certain markets where the lending and activity of small and medium enterprises is really important for communities and for creating jobs and economic growth. And so all of these are priorities. Last year, we did about 120 transactions. So, you have to balance where you're putting resources. But I think that one of the things about climate that we're increasingly seeing in our work is that it can be a part of almost every transaction that we do.
And there is a climate lens that we're seeking to apply, even in transactions that you may not have initially thought would be a climate project. I'll give you an example. This is another project that we were really excited about that we just announced a few weeks ago at the climate conference in Glasgow, which was a marine conservation project in Belize that was actually in the form of a debt restructuring for which we provided political risk insurance.
And so our insurance was able to help essentially upgrade a new bond issuance from what would have been, say like a BBB or a BB rating to a AA rating, which helps the government of Belize and the economy to do more borrowing, to borrow more efficiently and at less cost. And this particular project happened to have an underlying policy structure that will invest $4 million a year in protecting the Belize barrier reef and coastal environments that will have positive knock-on effects for the way that the country develops sustainably around fishing and potentially carbon mitigation through the form of mangrove restoration and other coastal ecosystems.
But when we started that transaction, it was a debt restructuring and it wasn't so much a climate project, but the climate implications of it are enormous. So I think that when we're thinking about our priorities, we are excited to not just identify these sort of pure-play, very obviously climate-focused transactions, but also think about how are we incrementally improving our run of the mill infrastructure projects and our projects in- in various sectors so that they can contemplate and consider climate interventions.
How do you think about returns? Do they matter?
For sure it matters, but that's sort of the beauty of this agency. I would say that we are not in the business of losing money, but we don't require the types of returns that private investors are typically looking for. DFC is a new agency, but it's also the aggregation of two previously existing federal agencies. One is called the Overseas Private Investment Corporation and one is called the Development Credit Authority at USAID. And OPEC had a very proud tradition of returning money to the treasury. And I think culturally, that's still an important part of who we are.
But we're beginning to think about, you know, from a portfolio approach, how can we increase the risk of our transactions so that we are really providing transformational capital deploying capital that can take greater risks so that the private sector feels a little bit more comfortable coming into these deals and for us being less focused on what the actual return profile of a transaction is. But I think one of the things, there's a bit of a misperception in the market, that we're not lending at commercial rates.
But we provide other ways to help companies and- and projects get off the ground. And I think one good example is that we would provide a loan tenure of say 15 or 20, maybe more years in a market where you might see commercial banks only willing to lend up to five or six or seven years. So we can really provide patient capital at scale in a way that helps move these financial transactions along and is unique in the market because the private lenders aren't doing that.
From a criteria standpoint, you mentioned catalytic in terms of not wanting to crowd others out or maybe going in when others won't. But from an impact standpoint, there's a wide range of criteria that different firms and organizations that I've come across use. Some are very carbon and gigaton focused and others are softer and harder to quantify. How do you think about impact and the climate bar? What criteria do you use when assessing if a project is a fit from that non-financial lens?
Carbon emissions are a big one for us. It's true it's more of a quantitative of hard measurement, but I think when we look at this crisis that we're facing, we're really focused on reducing the amount of carbon and other GHG emissions that go into the atmosphere. We're gonna do a lot of work hopefully on methane abatement projects. And so, you know, those projects will be evaluated based on their ability to reduce methane emissions. The agency has a very sophisticated, complex view of impact and we have a tool that we call the impact quotient, which takes in a variety of sort of socio-economic factors that are designed to measure community impact, economic impact in the countries where we're working.
And we're actually in the midst of reviewing and sort of revising that set of calculations and sort of integrating a climate lens into that. And I think that on the softer side of that calculation what will be a challenge but really critical for us in this next year is thinking about how are we measuring the impact of our adaptation projects, where you're talking about providing communities with the tools that they need to survive and cope with flood, drought, increased risk of storms and severe storms. And it's a work in progress at the moment. So I'd be happy to come back and share more as that takes shape.
How do you think about breakthrough technology versus deploying proven technology. And I'll ask that two different ways. One, in terms of what we need to address this big, gnarly problem or problems, but then also as it relates to the DFC specifically.
Well, we need both. I mean, how do I Jake think about it is we need to be investing in both. And I love the work that I mentioned Stripe Climate. I think this is a good example of a super innovative team of investors and technologists and product people who are thinking about creating a new market for carbon removal. But that's not something that DFC can just jump into right now because when we're talking about our deals which are typically at a large scale, we kind of need them to be commercially viable. We need the technology to be operating at a scale that we can invest in already.
From that perspective, the way I think about DFC is it is a tool to scale up and accelerate the technologies that we already have available to us that we know are proven, that we know can work. There are things that are happening that you would take for granted in the United States like for example, maybe battery storage as an add-on to a renewables project to provide stability and reliability into the grid where that's still very difficult to deploy in many of the markets where we work, whether from a technical perspective or a pricing perspective.
And so that's where I think we can sort of move the needle and kind of help bring relatively nascent technologies to scale but we're not talking about investing in seed-stage or a series A stage tech companies that are creating something completely new. Nuclear is another example, you know, where the administration sort of feels that nuclear has a really critical role to play in decarbonization and is very supportive of innovation efforts around small modular reactors and sort of the next generation of nuclear projects. And from a DFC perspective, probably the best place for us to deploy our capital is proven light water reactor technology that can be built and run through the regulatory and safety and licensing traps without contemplating a brand new technology.
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