Climate finance through the eyes of experts – ICCG Series

Finance is one of the key elements to drive climate action and implementation in the years ahead.

Climate change, in turn, is likely to significantly modify patterns of capital investments, and constitutes both a risk and an opportunity for investors and financial institutions.

After the Paris Agreement set a long-term path towards emission reductions and adaptation measures, the international financial community, governments and the private sector are called to transform their climate pledges into meaningful actions and gradually increase the current mitigation and adaptation efforts, including by providing adequate funding.

In 2014 up to 18 percent more money than ever before was invested in low-carbon and climate-resilient growth, with a total climate finance mobilized amounting to USD 392 billion, (CPI, Global Climate Finance: An Updated View on 2013 and 2014 Flows). Around USD 62 billion were mobilized from developed to developing countries, in public and private climate finance, up from USD 52 billion in 2013 (OECD/CPI, Climate Finance in 2013-14 and the USD 100 billion goal).

Billions of dollars have been announced by developed country governments, multilateral development banks and multilateral climate funds in the run-up to and at the COP 21 UN climate change conference in December 2015, where richer countries also committed to extend their financial pledge of providing USD 100 billion in 2020 for an additional five years.

In the climate pledges submitted by countries to build up the collective effort envisioned in the Paris Agreement, around USD 3,500 billion have been indicated to implement all NDCs for the period 2015-2030, of which over USD 400 billion are explicitly requested as international support.

The key challenge in the next years will be to scale-up climate finance and to efficiently match commitments and contributions with countries’ needs and local plans.

The aim of the ICCG Webinar Lecture Series on “Climate Finance”, thanks to the involvement of experts to discuss the most relevant topics in the field, is to demonstrate the extent to which changing finance is pivotal to the finance change required by the Climate Agreement and the 2030 Agenda for Sustainable Development.

Within the ICCG webinars, the theme of Climate Finance is treated in an accessible way, by providing definitions, case studies, best practice solutions and the widest possible scenarios.

The first lecture (Tools and Strategies to Finance the NDCs) was given by Barbara Buchner, Executive Director Climate Finance at Climate Policy Initiative (CPI), and it was aimed at revealing who is investing in low-carbon, resilient growth, where and how, and also providing an indication of progress toward the levels of investment needed to reach globally agreed temperature goals. She underlined how the Paris agreement meant a paradigm shift in the climate finance agenda, because it stimulated a momentum towards a more balanced funding for climate adaptation, which is still dwarfed by mitigation investments, as well as the need to stimulate more private investment to close the finance gap, by means of private public partnerships. It also draw on findings from the CPI Global Innovation Lab for Climate Finance indicating pathways towards the implementation of countries’ National Determined Contributions. In developing countries these can be considered as plans for access to energy and need, therefore, the all the support of developed countries’ finance through the Green Climate Fund to convert them into concrete investment plans.

Nick Robins, Co-Chair of the UNEP FI Climate Change Working Group, gave the second webinar of the series (Building a Sustainable Financial System – From Design to Delivery) focusing on how harnessing the 300 trillion dollars in the global financial system will be essential to make a successful transition to a prosperous, low-carbon economy and implement the Paris Agreement. The UNEP Inquiry has uncovered a ‘quiet revolution’ in policy and market innovations to mobilize capital and mainstream sustainability factors in banking, capital markets, insurance and investment. Mr. Robins presented the findings of the UNEP Inquiry Report “The Financial System We Need”, and outlined global opportunities in 2016 such as: improving transparency through Financial Stability Board’s climate disclosure task force; mobilizing capital thanks to the growing role of green bonds; mobilizing institutional investors through the Green Infrastructure Investment Coalition for investors and policymakers; Building resilience by incorporating sustainability into insurance policy and regulation; and developing national strategies to harness green finance for the SDGs and in particular SDG 13 (Climate Action). Such an exercise has been conducted in different countries, including in Italy where a working group made of research centers among which FEEM, banks, insurance companies, capital markets, institutional investors, private equity and the public finance, has been built to issue a Report on the “Italian National Dialogue on Sustainable Finance”, to be delivered soon.

Alexander Barkawy, founder and director of the Council on Economic Policies, gave the third webinar (Central Banking and the Transition to a Low-Carbon Economy. The Role of Monetary Policy) aimed at exploring the links between monetary policy and environmental sustainability as well as the important role that central banks could play in supporting the transition to a low-carbon economy. He maintained how the monetary policy has significant environmental and social repercussions, and the channels through which money in our economies is created, as well as the actions taken by central banks with regard to interest rate levels, asset purchases and macro prudential policy are key factors driving economic decisions. Yet, in particular since the 1990s, there has been a broad consensus that central banks should focus on one overriding policy goal: consumer price stability. Considering that the financial crisis has significantly expanded the interventions by central banks the fact that monetary policy has been largely neglected in the worldwide discussions on green finance is striking. The 80 billion Euro that the ECB is currently injecting into financial markets on a monthly basis (as of March 2016), compared to average monthly 24 billion euros of global renewable energy investment in 2015, is significant. Barkawy concludes by raising some policy implications such as to explore possibilities to expand central bank reporting to reflect environmental considerations, for instance by stimulating sustainability rating of central bank assets.

The last webinar of the series (The Role of MDBs in supporting Mitigation Initiatives in Developing Countries) was given by Marcene Broadwater, the Global Head of Strategy and Business Development for the IFC/World Bank Group Climate Business Department, focused on the role of Multilateral Development Banks (MDBs) in supporting mitigation initiatives in developing countries. She discussed the latest trends in MDB financing, including more than $131 billion in climate action committed since 2011 by the MDBs and leveraging $55 billion in additional finance for climate projects in 2015 alone.

Ms. Broadwater maintained how the MDBs leverage each other by acting as a unified group, including committing to scaling up climate action in a statement released at COP21, committing to Mainstreaming Principles on integrating climate into operations, and harmonization and transparency in reporting.  In view of COP22 in Morocco next December, the role of the MDBs in supporting mitigation as well as adaptation initiatives in developing countries will grow even further and climate finance targets for 2020 by MDBs will increase up to 40% for the EBRD and the AFDB, by 35% for the EIB, and by 28% for the World Bank Group.

MDBs play multiple roles in supporting climate initiatives in emerging markets – by creating the enabling environments, stimulating policy reform, providing firm-level technical assistance, providing concessional financing and mobilizing co-investors for green infrastructure demonstration projects . These actions by the MDBs as enablers was presented through case studies, such as green bonds, which is a growing and transparent market thanks to the Green Bond Principles, identified by the International Capital Market Association, and that the IFC contributed to create. These principles explicitly recognize several broad categories of potential eligible Green Projects including climate change mitigation and adaptation actions.


(Cover photo: Iman Mosaad/Flickr)