International Development Committee

Inquiry on Investment for Development: the UK’s strategy towards development finance institutions

Statement of Jay L. Koh

Managing Director, Lightsmith Group

Chair, Global Adaptation and Resilience Investment Working Group (GARI)

1 February 2023

1)      My name is Jay Koh, and I am the co-founder and Managing Director of Lightsmith Group, a sustainable private investment firm that is the sponsor of the first private investment fund for climate resilience and adaptation. I am also the founder and Chair of the Global Adaptation and Resilience Investment Working Group (GARI), a nonprofit organization that convenes investors, governments, civil society, corporations, community members, and climate experts to discuss the impact of climate change on investments and the opportunities to invest in climate resilience and adaptation.

2)      My experience with British International Investment (BII) started in 2010, when I served until 2012 as the Head of Investment Funds and Chief Investment Strategist of Overseas Private Investment Corporation (OPIC), now known as the U.S. International Development Finance Corporation. (BII at the time was known as CDC.). Since 2010, I have interacted with BII (formerly CDC) as a co-investor in funds in developing countries (at OPIC and in the private sector) and as a private sector partner at Lightsmith and GARI to BII around the areas of investment in climate resilience and adaptation, climate finance, and sustainable development.

3)      In response to the International Development Committee’s welcoming of evidence to inform its inquiry about the new investment driven approach to development and how British International Investment operates within it, I wanted to address several specific questions from the point of a private sector investment firm.

4)      From the point of view of private investors, BII is a very effective and catalytic organization in the specific area of climate finance and climate action, particularly with regard to adaptation and climate resilience.  BII is particularly effective at engaging the private sector and private investment community through thought leadership and innovation around adaptation and climate resilience. 

5)      In my opinion, BII should be further encouraged to engage with the private sector through grants, equity, credit, and particularly blended finance to accelerate climate action in adaptation and climate resilience. 

6)      This note addresses several specific questions raised by the Committee:

7)      Q1: What are the British Investment Partnerships (BIPs) and what are their objectives? What role does British International Investment (BII) play within them?

8)      A1: British Investment Partnerships are designed to mobilize up to GBP 8 billion of UK-backed financing a year by 2025 including from the private sector.  BII is tasked with mobilizing third part capital and commercial investors, targeting 30% of new commitments over five years in climate finance.

9)      A1. BII has been a strong and innovative leader in facilitating mobilization of climate finance, particularly for adaptation and climate resilience. 

a)      According to UNEP, adaptation will require up to $340 billion per year in developing countries alone by 2030, but currently receives less than 8% of total climate finance, and less than $500 million of tracked private investment. 

b)      BII has demonstrated its leadership in the area of adaptation and climate resilience in several highly visible ways, as described below.

10)  A1. ARIC.  From the private sector perspective, BII has been instrumental in the creation of the Adaptation and Resilience Investors Collaborative (ARIC). 

a.       Under ARIC, BII’s leadership has brought together a large number of development finance institutions and, more importantly from the private sector perspective, has engaged private investors, asset owners, institutional investors, and other stakeholders in addressing some of the key barriers to investment in adaptation and climate resilience.

b.       At the invitation of BII and other ARIC members, Lightsmith and many other leading private investment firms have participated in public-private discussion and workshops of the development of common metrics for climate resilience and adaptation investment, have discussed key barriers to scaling up investment, and have worked on the design of new blended finance instruments for adaptation and resilience investment. 

c.       Lightsmith considers ARIC to be one of the most effective organizations to align development finance institutions around investment in adaptation and climate resilience.

d.       Lightsmith also believes that BII’s leadership and support for engagement with private sector investors and asset owners with ARIC has created a constructive path for collaboration and future catalyzation of private investment.

11)  A1. Global Innovation Lab for Climate Finance.  BII and BEIS supported the UK government’s founding of the Global Innovation Lab (the “Lab”) for Climate Finance.  The Lab has been highly successful at developing innovative instruments for climate action, which have mobilized over $3.5 billion to date.

a)      For example, Lightsmith’s Climate Resilience and Adaptation Finance and Technology-transfer facility (CRAFT) strategy was developed at the Lab with input and support from BII and BEIS.  CRAFT is the first private investment fund for adaptation and climate resilience and has mobilized $185 million for investments in adaptation and climate resilience technologies and solutions.

12)  Q2. How does BII’s strategic outlook compare with that of other comparable overseas institutions?

13)  A2. BII has a reputation as an innovative thought leader and early actor in climate action, particularly around adaptation and climate resilience.  BII is considered to be a leading force in driving the ARIC initiative as well as the Lab and has also been active in engaging private sector investors and entrepreneurs in discussions around metrics, blended finance, and sustainable development.

14)  A2. Compared with other development finance institutions, BII has been a clear leader in the area of adaptation and climate resilience.  BII has been particularly active in convening private investors and other stakeholders around investment in adaptation and climate resilience during key events such as London Climate Week and the annual UN FCCC COP summit.  BII has been very supportive of new blended finance instruments for climate action.

15)  A2. BII has a strong network of relationships and long reputation for effective investments that support sustainable development and mobilize private investment in developing countries. 

16)  A2. BII’s strategic outlook could be substantially approved with three key expansions:

a)      Geographic Flexibility. Climate action – and particularly investment in adaptation and climate resilience – is a global challenge where technologies and solutions need to be identified and applied globally. 

i)         The private sector strongly recommends that BII’s mandate be expanded to support climate action across all developing countries and to support investment that transfers technology to developing countries from wherever it originates.  Nairobi should have access to the same technology and solutions for adaptation and climate resilience as London and New York.

ii)       Other development finance institutions have more geographic flexibility in supporting investments in climate finance, particularly in adaptation and climate resilience, as well as in supporting technology transfers and applications in developing countries.

b)      Expanded Blended Finance and Technical Assistance.  As the rate of climate change accelerates – even if a 1.5C scenario is achievable – physical risk and impact exacerbated by climate change will increased dramatically and rapidly. 

i)         The private sector recommends that BII’s mandate be expanded to increase flexibility in the design of blended finance instruments and to scale up access to technical assistance to apply solutions for adaptation and climate resilience rapidly to developing countries.  Business-As-Usual approaches to investment instruments or slowly expanding piloting of technologies will not enable BII or society to meet the rapidly scaling challenge of climate change in time.

ii)       Other development finance institutions have greater flexibility in the design of blended finance and larger allocations for piloting and deploying technologies with the support of technical assistance.  Other development finance institutions also have demonstrated more flexibility in rapid approval and deployment of new solutions for adaptation and climate resilience, particularly in low income countries (LICs) and small island developing states (SIDS).

c)       Greater Investment in Adaptation and Climate Resilience.  BII has a unique position as a thought leader and convenor around adaptation and climate resilience investment as a result of the UK’s key role as the Presidency of COP26 Glasgow. 

i)         The private sector recommends that BII’s mandate and resources be substantially expanded to support investment in adaptation and climate resilience, given BII’s strong role in thought leadership and private sector engagement.  BII and BEIS supported the Lab, which developed CRAFT, the first private investment strategy for climate resilience and adaptation.  BII would be able to support execution and scaling up of CRAFT and other strategies for investment in adaptation and climate resilience with additional resources.

ii)       Other partners of BII and leading development finance institutions have had resources to support greater investments in public-private adaptation and climate resilience funds and projects.  BII’s thought leadership should be supported with additional financial and technical resources.