Ensuring green finance flows

In the struggle to curb global emissions and adapt to the already devastating effects of climate change, we cannot reach our common goals without green finance and investments on a massive scale.

Now, with the support of UNEP DTU Partnership, one of Denmark’s biggest investors in developing countries, the Danish Investment Fund for Developing Countries (IFU), has a new climate policy, ensuring alignment to the goals of the Paris Agreement.

We are very pleased with the work carried out by UNEP DTU Partnerships, which have provided important knowledge and valuable input in the process of developing our new climate policy, said Torben Huss, CEO of IFU.

The climate policy was approved at the end of 2019 and aims at increasing the fund’s positive impact on limiting the rise in the global temperatures.

IFU is an independent fund, owned by the Danish government, which offers advisory services and risk capital to companies doing business in developing countries and emerging markets.
Currently, IFU and IFU managed funds have co-invested in nearly 1300 companies in 100 countries with committed investments totalling USD 29.7 billion, of which IFU has contributed more than USD 3 billion.

Aligning finance flows with Paris Agreement objectives

Working closely with IFU to develop the policy, UNEP DTU Partnership provided research-based advice, enabling the fund to develop the new policy.

Part of this process has created new knowledge and tools for addressing challenges related to alignment of finance flows to the Paris Agreement within major Development Finance Institutions.

The new climate policy enables the fund to be at the forefront of international Development Finance Institutions when it comes to increasing climate action through green investments.

Among other things, the policy states that IFU will align its portfolio management to the goals of the Paris Agreement of making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.

The policy likewise clarifies that IFU will no longer invest in fossil fuel power to grid. IFU can, however, in a transition period until 2023, invest in transitional hybrid technologies (e.g. gas in combination with renewables) for power production, if strong development impact criteria are met and investments are aligned with the Paris Agreement.

Throughout the process of formulating the policy, the strong commitment and ownership from IFU have been instrumental in the successful result of an ambitious climate policy. Implementation of the policy will potentially ensure, that the fund’s portfolio will be part of facilitating a greener future.

New tailor-made research

To assist IFU in the implementation, UNEP DTU Partnership is now proposing how to operationalize the new climate policy. This includes creating new tools and methodologies.

UNEP DTU Partnership experts will continue their research on transformational change, links between emissions reductions and sustainable development, and approaches to track alignment with the Paris Agreement’s temperature goal – now also for the benefit of IFU.

Moving forward, the UNEP DTU Partnership will conduct the greenhouse gas calculations of every single investment presented to the board of IFU.

By replicating and scaling up this work, the necessary shift in global finance flows, towards a greener future, could be one step closer.

We look forward to the continued cooperation with UNEP DTU Partnership assisting IFU in reaching our targets and to document our achievements, said Torben Huss.

Greener investments

As part of the work, UNEP DTU Partnership conducted an internal assessment of IFU’s portfolio. This showed that IFU already is on track in reducing their carbon footprint, as well as the emission intensity of their portfolio.
This is the result of the past decade’s significant increase in investments in renewable energy and a general shift in the portfolio away from carbon-intensive industries.

Besides aligning the portfolio to the goals in the Paris Agreement on limiting the global temperature increase, and divesting from fossil fuel power to grid production, the policy also dictates an increase in climate investments up to 40% by 2030.

The new climate policy responds to both international intentions of finance institutions to align with the global climate goals in the Paris Agreement, a new Danish domestic target of 70% reduction in emissions before 2030 and IFU’s sustainability framework.