Authors: Kirsty Hamilton, Low Carbon Finance Group, Chatham House and Ethan Zindler, Bloomberg New Energy Finance (BNEF)
Published by: BNEF, Chatham House, UNEP
What it covers:
- How finance generally works
- What the different parts of the finance sector do
- What issues financiers consider when investing, including the role of policy and regulation
- Capital markets and where ‘green bonds’ fit in
- The variables affecting finance decisions
- Energy efficiency, and an update on issues relating to emerging or developing-country markets; A practical focus on ‘climate finance’, especially finance-sector-led initiatives that are accelerating actions at both the low- and high-carbon end of the spectrum.
This is the most recent update of a guide first published in 2010. Lead author Kirsty Hamilton – Associate Fellow, Low Carbon Finance at Chatham House – says that the aim of the guide is to provide a tool that not only allows policymakers to better understand and speak the language of finance, but one that also enables them to get a handle on the mindset of financiers and how they make their decisions.
The product of more than a decade of experience at the interface between policy and finance, the guide tries to bridge what is all too often a gap between policy and the financial flows that policy changes are meant to facilitate but can in fact frustrate.
“There are two tiers of policy,” say Hamilton.”Often, policy makers believe that as long as they switch the general direction of travel in ways they think are favourable to finance – for example setting goals for clean energy usage – they have done their job. But when finance looks to flow through the mechanisms or channels they have created, there can be blockages that occur because the “nitty gritty” practical details may not work for one reason or another, for example from a risk/return perspective. Detailed engagement on policies with financiers – in advance, and in ways to which they can and will be expected to respond – is therefore critical”.
In fact, Hamilton urges systematic dialogue between policy makers and financiers, and recommends that alongside policy development, governments set up platforms for dialogue on factual issues with the finance sector. This could take the form, she suggests, of a regular forum that brings together financiers relevant to a particular country and its clean energy needs, both local and international. “This is the best way’” she says, “to make sure that policy changes are made at the right level of granularity, and communicated in ways that will be clearly understood. The clarity emerging from such dialogue will also have the vital effect of encouraging investor confidence.”
The way that Hamilton sees integrating investment into climate, energy and infrastructure planning is illustrated in this finance guide graphic.
Kirsty Hamilton has led work on policy conditions to attract capital for the last 12 years, working with leading finance practitioners investing in renewable and low carbon energy and senior policy counterparts, as an Associate Fellow at Chatham House. This has brought a evidence-base on ‘investment grade’ policy from across UK, EU and emerging markets. From she was Policy Head at the Low Carbon Finance Group – a cross finance sector group of senior practitioners, led by financiers 2010-2015, to help policymakers better understand investment conditions, with Electricity Market Reform a core focus. She continues to work with a Low Carbon Finance network of international financiers at Chatham House. In 2015-2016 she was a Specialist Advisor to a UK Parliamentary Committee’s Inquiry into Investor Confidence (2015-2016) in her consulting capacity.
Kirsty has 26 years’ experience in international climate and energy policy as an Observer at the UN climate change negotiations, with a number of invited positions including a former member of World Economic Forum’s Global Council on Sustainable Energy and a former Advisor to UNEP’s Finance Initiative. She has been an expert reviewer and contributing author to the IPCC.