Photo: Calsidyrose

Climate Finance: Pipelines, Landscapes and a Helicopter View

07/12/2018

As COP 24 gets underway, a flurry of reports have been published on the state of climate and green finance, three of which we introduce briefly below.  These are:

OECD on Pipelines

This is a long-awaited report from the OECD on developing robust project pipelines for low-carbon infrastructure (LCI), available to read here.

Noting the universally acknowledged $ trillions per year financing gap for LCI up to 2030 (the current planning period), and the consequent need for very significant private sector involvement, the report notes that “the investment gap is not a result of the lack of capital …[but rather that] there are not enough identifiable, investment ready and bankable projects to which private sector investors and project developers can commit time, effort and funding.”  This in turn is because, due to “the lack of detailed infrastructure investment plans and poor integration of these plans into national policy contexts, it is not always clear what and where project investments are needed, when they should be built, how to finance them, or if they are sufficient to meet long term objectives.”

Long-term readers of this blog will know that it was calling for the establishment of such “climate investment plans” as long ago as 2015, so it’s good to see this need now recognised by a major player such as the OECD, though it appears that even in the largest economies, such co-ordinated plans are rare – only 5 of the G20, the report finds, “mention climate mitigation or adaptation measures within their infrastructure planning processes.”

OECD’s recommendations for how governments can promote healthy pipelines are the following (we apologise in advance for the poor quality of the insert, but it seems copying text from the website is impossible, so this is a picture):

The report also notes the importance of project preparation facilities, to build capacity among project developers, and the need to differentiate between the needs of early stage / private equity and those of long-term investors such as pension funds, in terms of risk /reward considerations.

Linkages between government actions and investor requirements are covered in a useful summary graphic:

CPI update on the Climate Finance Landscape

This is not a new report in CPI’s climate finance landscape series, but rather an update on its figures for 2015/16 and a first estimate for 2017. We covered the original report for 2015/15 here and not that much has changed in the update, relatively speaking, with the principal finding being an extra $53 billion on average over the two years, taking the average to $463 billion p.a.

For 2017 the report finds that “Preliminary estimates for global climate finance flows range from approximately USD 510 billion to USD 530 billion, based on early data showing steady renewable energy investment, rising electric vehicle investment, and rising investment from development banks. This range represents a 12-16% increase from 2016.” While “these increases are undoubtedly good news, it is important to keep in mind that these figures represent a small share of the overall economic transition required to address climate change, especially given investments in fossil fuel projects that continue to surpass investments in low-emissions, climate resilient infrastructure.”

It’s also the case that most investment (81%) is what the report calls “domestic”, i.e. in-country and, often, in-developed-country. Flows from developed to developing countries increased slightly (9%) over 2013/2014, but at USD 45 billion, were just a USD 4 billion increase on the estimate for the 2013/2014 period.  Adaptation finance continues to fare poorly, at just $22 billion p.a. over the two-year period, but finding the data on this spend is difficult, the report says ­– “Better metrics and more harmonized understanding is needed across reporting institutions to enable more accuracy in tracking adaptation finance flows.”

All in all, as we concluded in our original review of the data, based on the CPI’s findings, even with the slight increases in 2017, it seems that climate finance is still “treading water” rather than freestyling ahead.

Finance For Tomorrow / Climate Change: Bringing Finance on Board

This report on “Climate Action in the Finance Sector”, released at Finance for Tomorrow’s recent Climate Finance Day in Paris, is a very valuable overview of the various actors now engaging one way or another in climate finance.  It includes a dashboard with key indicators, presumably to be updated on a regular basis, and a handy upfront history of climate finance over the past few years.

The very first indicator – that green finance makes up only about 1% of both investor portfolios and the overall bond market – signals the very low base from which we are starting, but the report then picks out how various segments of the market are engaging both with eliminating the bad and creating products that should help promote the good.  The final section covers the growing response of regulators.

One omission in the sections on banks, development banks and green products, is project finance and blended finance, which will of course be critical in the context of financing the NDCs.  But as the report is intended to be updated doubtless that can be covered in later editions.  As it stands, for anyone wanting an introduction to who’s doing what in climate finance, this is an excellent start.

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