Simon Maxwell, Executive Chairman of CDKN, poses some provocative questions to the managers of the Climate Investment Funds.

This article first appeared in the Stakeholder Forum's Outreach magazine.

The Climate Investment Funds are a success. They have raised $US 6.4bn directly, and claim to leverage $US 8.4 for every dollar spent. That’s $US 60bn in  total, to be spent on clean technology, renewable energy, forest investment, and a catch-all catch-all category of climate resilience. More than 40 countries have already benefited. A remarkable record in only two years, and one to celebrate.

Why then should CIF managers watch their backs? Partly because even $US 60 bn is relatively small beer, when hundreds of billions a year will probably need to be spent on climate mitigation and adaptation. The World Bank, for example, has estimated the incremental costs of financing climate mitigation and adaptation in developing countries at around $US 200 bn a year over the next 20 years. There are other sources of finance charging up the garden path, some purely private, many with public sector engagement. A recent report by UNDP charts the options.

More important, effective use of finance requires a quality policy framework that is very unevenly available in developing countries. A recent report by the World Economic Forum on scaling up low carbon infrastructure in developing countries calls this ‘investment grade policy’.

In our work on green growth at CDKN, we have separated out two aspects of the policy framework. First, countries need to have the right policies in general to foster growth – openness to trade, macro-economic stability, consistent regulation, and the right investment in education, health and social safety nets. These ideas are rooted in current thinking on growth, for example by the Commission on Growth and Development. One measure of country ‘capability’ is the WEF Competitiveness Index. CIF Managers should look carefully at the ranking of their 40 countries, and others in the pipeline. Leaving aside countries embroiled in the Arab Spring, there are few CIF countries in top 50 and only a handful in the top 100. Thailand is ranked 38, for example, South Africa 54, Mexico 66, Kazakhstan 72. CIF managers ought to be lying in bed at night worrying about the poor performance of some of their clients – or, better, engaging with them on how to improve.

The second element of an investment grade policy is the right mix of climate-related policies, whether feed-in tariffs for renewable energy or long-term measures to push up the price of fossil fuels. Here, work is just beginning to identify and rank policies which are appropriate to different countries. CDKN is running an e-discussion on the topic, and would welcome contributions. CIF Managers can help. Should they be advocating, for example, for all countries to have a Climate Act and independent committee to set long-term targets, as in the UK?

Over and above climate policies, there is one more issue to disturb the rest of climate managers. That is the dislocation and restructuring of the world economy that climate change – and the policies taken to deal with climate change – will induce.

Some dislocations are predictable. The global distribution of agricultural production will shift, for example, probably in the direction of temperate rather than tropical lands. Temperature rise and water shortage may well shift agricultural jobs and rural livelihoods from the central belt of Africa closer to the poles. Similarly, carbon taxes might make export-oriented growth models more precarious, particularly if export production is based is coastal areas prone to flooding as waters rise.

Other dislocations will result from the opening of new markets and the closing of others. Early movers in solar or wind are likely to reap long-term benefits, creating industrial clusters that will exclude new entrants. China seems to be well on the way to achieving this.

At CDKN, our preoccupation is to shape policy that will facilitate the right decisions that enable poor countries to deal with new dislocations, as well as with the climate-specific issues of mitigation and adaptation. In this arena, ‘investment-grade policy’ must deliver climate benefits, but also safeguard human welfare and human development. We call our approach ‘climate compatible development’. It is an ambition which keeps us awake at night, but also gets us up in the morning. Will CIF Managers join us?

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Look for the CKDN display at the CIF Partnership Forum in Cape Town.