The private sector must step up against climate change, and foreign aid is helping companies do it

April 22, 2021
The Mekong River. (Credit: David Bonnardeaux/Pact)

Since the late 18th century, global economic development has increased exponentially, and with it the demand for fossil fuels to power these industrial revolutions. Burgeoning populations, in turn, are encroaching further on wild habitats and coastal and riverine areas where they are more susceptible to the intensified impacts of climate change.

Increased temperatures and more extreme heat waves. Sea level rise. More frequent and severe droughts, floods, wildfires and hurricanes. Worsening pest outbreaks. New precipitation patterns and harvest seasons. Climate change is a clear and present threat to societies around the world, with short, medium and long-term impacts on their livelihoods. The consequences include malnourishment and starvation as a result of lost harvests, increased incidences of vector-borne diseases due to habitat loss and encroachment, deaths from extreme temperatures, floods and hurricanes, and financial fallout that worsens vulnerability.

It is critical to assess communities’ vulnerability to climate change and strengthen their capacity to adapt to its variability and be resilient to its impacts. This is particularly the case for extremely vulnerable communities in less developed countries. Many donors and organizations around the world — including Pact — are providing such support. From 2014 to 2018, for example, USAID provided at least $810 million for projects that directly and indirectly helped countries adapt to climate change.

However, climate change mitigation is still paramount if we are to reduce greenhouse gas emissions to a safe level — preferably no more than 1.5oC above preindustrial levels. And we shouldn’t overlook a critical player in getting this done: the private sector. Indeed, companies are responsible for almost three-quarters of global emissions since 1988; 100 coal and oil producing companies account for 1 trillion tonnes of GHG emissions. Another 10-15 percent comes from the supply-demand of key forest risk commodities such as timber, cattle, soy, mineral ores, coffee, palm oil and rubber that are the biggest known global drivers of deforestation.

A nursery at Cambodia’s first and only sustainably certified plantation, Grandis Timber, for which USAID Green Invest Asia facilitated a multimillion dollar equity investment. (Credit: Barry Flaming/USAID Green Invest Asia)

Many put the onus on governments to deliver on the lofty climate goals. Of course, they should do all they can, but we just have to look back to 2017 — when the Trump Administration pulled the United States out of the Paris Climate Agreement — to see how fragile government commitments can be.

One important way that governments can consistently contribute is through foreign aid that shifts how the private sector operates in ways that last. The USAID Green Invest Asia project, which Pact implements, is a great example. The project helps agriculture and forestry businesses in Southeast Asia to improve their sustainable commodity production and manage environmental risk. The effort to date has contributed to the mobilization of $42 million in private finance into the sector, translating to improved business efficiency and agricultural productivity over 116,000 hectares of land and the projected reduction of 8.7 million tons of CO2e over 15 years.

Similarly, the recently awarded USAID Strengthening Environmental Governance Across Regions (SEGAR) project, which Pact supports in Indonesia, will increase implementation of environmental and social sustainability goals within private sector natural resources commodity production supply chains and thereby reduce greenhouse gas emissions from land use and safeguard biodiversity.

Also in the Southeast Asia region, USAID is a founding member of the Smart Power Myanmar facility, funded by The Rockefeller Foundation and managed by Pact. Working at the intersection of the public and private sectors, Smart Power Myanmar catalyzes new sources of investment, knowledge and know-how to facilitate access to viable sources of electricity, including decentralized renewable energy solutions. This, in turn, serves to eliminate energy poverty and strengthen economic resilience. So far the effort has made more than 15,000 connections to decentralized renewable energy solutions.

Climate change mitigation is still paramount if we are to reduce greenhouse gas emissions to a safe level, and we shouldn’t overlook a critical player in getting this done: the private sector.

The burden is still on the private sector to deliver on climate pledges and change business as usual. Sustainability is smart business, but implementing strategies to reduce and measure carbon emissions, meet global environmental and social standards and access financing can be challenging. That is why the donor community — through projects like USAID Green Invest Asia and SEGAR — is serving as a catalyst to reduce the risk and create an enabling environment for private sector-led environmental sustainability to flourish, not just one business at a time but in a systemic way. Pact is proud to be part of this.

April 22 is Earth Day. The Biden Administration has invited 40 world leaders to a Leaders Summit on Climate to galvanize efforts by the major economies to tackle the climate crisis. On the agenda is the need to mobilize public and private sector finance to drive the net-zero transition and help vulnerable countries cope with climate impacts. There is hope that such a U.S. (and global) climate strategy can be enacted before the political winds of change blow in after the mid-term elections and then in 2025 with the general election.

By then, hopefully, the private sector will have fully internalized their climate impacts and made changes to their business models that not only reduce their carbon footprint but also make business sense. A win for all.