What’s out there for Paris finance in 2018? Part 2

10/02/2018

In the second piece in our two-parter on ambitions and expectations for 2018, we hear from representatives and observers of institutional investors, green banks, businesses and cities. Last week we looked at milestones for the year and themes around climate and development finance and disclosure.


Institutional Investors

In the institutional investor universe, PRI is a key convener and its agenda for the year includes getting the investor voice heard better by governments, both to encourage greater ambition but also “to drive home the message that investors want a safe climate to protect their portfolios and also need policies that enable low carbon, green investments.” It will also continue its investor engagement activities, including the ClimateAction100+ initiative, creating guidance for asset owners on TCFD implementation, promoting regulatory and stock exchange support for TCFD, and the dissemination of a ten-year climate change strategy “to better equip institutional investors to develop their own investment strategies embedding climate risk and opportunity.”  CPI also believes that further advancements in climate-related financial disclosures for public companies and improved portfolio transparency of climate impacts among international development finance institutions “can help investors and shareholders understand embedded risks more effectively, and help to shift assets towards low-carbon, climate-resilient growth.”

Mission 2020, meanwhile, has issued a very simple challenge to investors by its president Christiana Figueres: commit to a minimum 1% of your portfolio being in projects or companies that will help bend the emissions curve by 2020. “For those that are leading the way and are beyond that level,” says Mission 2020 director Andrew Higham, “we invite them to redouble their allocation targets by the Global Climate Action Summit in California in September. We have to achieve these levels to get us on track for the $1trillion per year mark in clean investment we need to see by 2020.”  Higham and his team will press this agenda “through high level diplomatic engagement with senior investment officials and via collaboration and conversations with stakeholders outside the finance community including cities, states and regions, and businesses”.

Green Banks

Green Banks are a key channel for private investment flows into infrastructure in particular, whether or not specifically NDC related. “This year,” says Doug Sims of the Green Bank Network, “our work is down to the nitty-gritty – getting the Green Banks that are members of the Network to grow, collaborate better, and increase awareness and understanding of their successes and lessons learned. We also want to foster new green banks, so to help with that the Network will be pushing a lot more knowledge products out through the pipeline, including new initiatives led by NY Green Bank and Connecticut Green Bank that aim to create capacity, increase capital and reduce operating costs at new green banks in the US.”

There also are several efforts around the world to implement the green bank model in emerging markets.  “The trick in these countries,” Sims says, “is often how to create a ‘functional green bank’ within or alongside national development banks, in a way that addresses the financial, technical, regulatory and governance-related barriers these institutions face, while leveraging the national development bank’s local knowledge, relationships and expertise. Importantly, even with the perfect ‘green bank plan” formulated, it won’t be implemented if it’s not supported by the whole gamut of national and international stakeholders, both public and private.  We’re involved in efforts in Latin America and India to build capacity, support design, and align the stakeholders around specific local green bank concepts. Our main ambition in 2018 is to get one or two of these efforts substantially across the finish line. We’re coordinating with other groups that are working in other countries with similar goals, so that by this time next year, we hope there will be a new cohort of green banks set to start their activities in earnest.”

Stacey Swann of Climate Finance Advisers believes that green banks can do more than just clean energy finance. “Interestingly, we see some crossover into resilience, and specifically in the context of ‘resilient infrastructure’.  There are ways to think about the “green bank model” or specialised blended finance mechanisms that are applicable not just for mitigation but also adaptation and resilience.”  CFA has recently launched a Lender’s Guide for Considering Climate Risk in Infrastructure Investment, as a contribution to teasing out how such models might operate. Swann believes, though, that to drive the routine financing of resilience it may be necessary to create a cost related to it. “We won’t be able to address adaptation/resilience needs (even from the already-locked-in emissions) without everyone proactively financing resilience.  We believe one avenue into that is bringing a measure of risk (of not building-in resilience) into the financial decision-making process.”

Just how urgent building such resilience is was demonstrated by the ADB’s 2017 report A Region At Risk: The Human Dimensions of Climate Change in Asia and the Pacific, which outlined how climate change is already impacting human development in the region. ADB will be following up by co-hosting the 2018 Asia Pacific Adaptation Network Forum with Governments of the Philippines and Palau, which will focus on strengthening partnerships and capacity in the region to address climate impacts and forge resilience.

Business

Much of what was said earlier about capital markets applies to business, in terms of pressures to disclose and address climate-related risks, and we are seeing almost daily evidence of large businesses waking up to the dangers they face in terms of operations and supply chains – not least businesses in the US as a result of extreme weather events in 2017.

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The 2018 agenda of one of the prominent corporate-focussed conveners, the We Mean Business Coalition [link: https://www.wemeanbusinesscoalition.org], centres around the continued promotion of its Science-Based Targets (SBT) initiative, presently adopted by nearly 350 companies. “We want to establish this kind of evidence-based target setting as a business norm,” says CEO Nigel Topping, indicating an aim to get to 500 companies committed to SBT by end of year. “Adopting targets for carbon reduction that meet a below-2°C level of ambition helps companies play their part in achieving this goal, but also helps them to harness climate action as a driver of innovation, competitiveness, risk management and growth,” Topping says. While helping companies get on board with the SBT initiative and other WMB programmes focussed on greater use of renewables and electric vehicles by corporations, Topping’s policy agenda includes making policymakers aware of “the groundswell of business ambition and action that’s out there, and that a radical shift in business behaviour is now real.”

One example of how that shift is playing out comes from Australia. There, academic Zsusza Banhalmi-Zakar says we should look at the way that the university sector is responding to climate change. “Several universities in Australia have ambitious targets and are truly innovative. Net zero campus targets, design of net zero student accommodations, and renewable energy purchase agreements are some examples, along with fossil fuel divestment targets for some institutions.”  Her own institution, James Cook University in Queensland, is planning to further increase its investment in renewable energy across its campuses and research stations during 2018. “This primarily involves installation of solar panels, but there are plans to also install large storage capacity as our Townsville campus manages its own grid.” On the professional front, as an expert on climate adaptation, and working with a new Climate-KIC base established in Sydney in 2017, she hopes to see the first privately funded adaptation infrastructure project in Australia get off the ground during the year.

Cities

Leading convener of city action on climate change, C40, has a major milestone in April, when it will host the Financing Sustainable Cities Forum in New York. This annual event brings together city leaders, financial institutions and practitioners together to focus on immediate opportunities to scale up investment in sustainable and inclusive cities.  As well as its general capacity building work with cities on their low-carbon development plans, C40 is aiming to provide direct technical assistance to up to 12 cities to prepare clean transport, energy or adaptation projects during the year, through the C40 Cities Finance Facility. The Facility aims to help cities create investment-ready projects.

C40’s Andrea Fernandez is also hoping for progress on cities’ powers in the finance field. “There are a number of barriers that cities face in accessing finance, particularly in the global South,” she says.  “We’d love to see new finance mechanisms emerge that enable cities to directly access low-cost capital for urban infrastructure, so they don’t have to seek approval from their national governments, which can be politically challenging for some.”

And what about NDCi.global?

NDCi.global was established to help connect the global community that will get the Paris agreement financed and implemented over the next 15-20 years.  We believe that community is probably some 20-30,000 strong around the world.  Its members are to be found in government ministries and city halls, local and international capital markets and the professions that service them, development finance institutions and aid agencies, supranational organisations and NGOs, companies, think tanks and academia.

Since we started with our blogs, links and social media presence just over a year ago, we think we have reached about one-third of the “NDC community” one way or another, with what we hope are informative and even provocative updates on all things related to finance for Paris.  This year, we hope to start developing new ways of engaging and building the NDC community, which we hope to announce soon.

We will need new sources of funding to do that, so if you/your institution thinks that an independent voice and a community/capacity building capability in climate finance are things that would be valuable to continue and advance, do let us know!

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