Closing the Gap in Low-Carbon Finance at the Climate Risk Summit

UNITED NATIONS — Slushy sidewalks notwithstanding, climate leaders passed through UN security Wednesday with a spring in their step.

In a reunion of sorts for the COP21 climate agreement in Paris, an all-star, all-expert cast descended on the United Nations to prod investors into urgent and aggressive action.

No rush, guys.Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change (UNFCCC)

Christiana Figueres, who led the climate negotiations for the UN, said the financial community has been key to boosting understanding of climate risks. She cited scenario planning, disclosure efforts, shareholder resolutions and especially the seminal speech by Bank of England Governor Mark Carney.  Concerned investors helped establish long-term goals for 2050, she said.

UN Secretary General Ban Ki-Moon, surrounded by perhaps-presidential hopeful Michael Bloomberg and former SEC chair Mary Shapiro, hailed the current momentum as an opportunity to bring clean energy to the one billion who still live off the grid.

Former Vice President Al Gore, who is increasingly better known as chairman of Generation Investment Management, gave a rousing speech. Yes we should, and yes we could, and yes we will, he said.

The world needs a vision-based, morally inspired, collective effort for the good of all, Gore said. In the struggle between hope and despair, now was a moment of extraordinary hope, he said.

Speakers agreed the Paris agreement put the world’s economy on the path to radical changes, and not only in the energy supply. The push for a low-carbon future will affect strategic choices, risks and opportunities across many industries, especially those with high carbon exposure such as mining, metals, transportation, agriculture or forestry.

Capital Gap

So far at least, the experts said, declining oil prices, currency volatility and sluggish economies had not put a dent in the growth of clean energy investments. India and China, together representing a third of the world’s population and a significant share of its coal production and consumption, are increasingly taking leadership roles.

And yet, the Secretary General emphasized, clean technology investment is not  growing fast enough.

One star of the show was Mapping The Gap, a new report released by Ceres and Bloomberg Energy Finance, proposing finance paths for a two-degree future. The report identifies a $12 trillion opportunity for capital investment in clean electric power generation infrastructure in the next 25 years in order to limit temperature rise to two degrees. Current trends would take the investment to $6.9 trillion, leaving a gap of $5.2 trillion, or 75 percent. Even that figure, the report helpfully points out, represents only a small fraction of the total capital markets.

The report, and many presenters at the event, highlighted so-called ratchet mechanisms, which will require countries to revisit their climate targets on a regular basis. The rapidly decreasing costs of producing clean energy should allow countries to set up more ambitious targets.

Investor Agenda

In a nutshell, attendees said investors should embrace innovation, address carbon risk across their portfolio holdings, partner with governments across the globe and encourage better frameworks.

Segolene Royal, French Minister of Ecology, Sustainable Development and Energy and a key player in the Paris agreements, made a renewed case for putting a price on carbon. Many investors agreed shareholders should encourage companies to set internal carbon prices.

Rachel Kyte, the special representative of the UN Secretary General for Sustainable Energy for All,  said a generation of leaders in emerging markets know they need an investment climate friendly to long-term infrastructure investments. More countries need sound governance and regulation, and investors must be vocal about their needs, and together with governments find ways to provide sustainable energy to consumers, said Kyte.

Mindy Lubber, the CEO of Ceres and host of the summit, suggested five steps for investors and governments:

  • Double investments by 2020
  • Reduce carbon risk exposure
  • Implement carbon disclosure requirements
  • Press governments for meaningful carbon pricing
  • End carbon subsidies

To add to the sense of urgency, Figueres suggested investor choices in the next five years would determine the state of the climate in 2050, because of the long-term nature of infrastructure assets. “No rush, guys”, she quipped to end her address.

At cocktails, with night falling on the East River and soft jazz music as backdrop, investors looked for ways to turn their extraordinary hope into actual investments. They debated the moral hazards of catalytic capital, discussed the state of innovation, reminded themselves of how exciting and hard this all was. Then they disappeared into the crowd, in search of new faces, their next deal, their next job, or perhaps another drink.

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