The Road to Financing for Climate Action Leads to Marrakech (Podcast)

Last year's Paris climate accord has reached the threshold for approval and will go into effect Nov. 4. Now comes the challenge of financing the massive effort required to hold “the increase in the global average temperature to well below 2 °C above pre-industrial levels,” as called for in the accord.

ROI IMage“Government action, while essential, isn't going to be the only thing that gets this done,” Imogen Rose-Smith, senior writer for Institutional Investor magazine, says in this week's Returns on Investment podcast. There's a growing recognition, she says, of “the need to bring capital markets into the mix.”

Imogen is heading to Marrakech, Morocco next month for the follow-up to the Paris meeting. If Paris (COP21) was where governments came together to agree to do something, Marrakech (COP22) may be where they figure out how to finance that something.

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The Returns on Investment podcast crew has explored climate financing challenges before (have a listen at “After Paris: How Can Impact Investors Play the New Carbon Economy?”) as has ImpactAlpha itself (see  “The $1 Trillion Challenge: Can Clean Energy Investors Fulfill Global Climate Deal?“).

There are two funding gaps in climate finance, says David Bank, editor of ImpactAlpha. The first is in early stage investments for climate innovation, to develop and distribute new technologies for the clean energy infrastructure of the future (see the ARPA-E webinar, “Bridging the Climate Innovation Gap with Strategic Philanthropic Investments”).

The second is the deployment at scale of technology that already exists – solar, wind, and geothermal.

“Something like 60-70 percent of all new electricity generating capacity is renewables now,” David says on the new podcast. “Those trends are going quite strongly in the right direction, but it has to be an order of magnitude faster.”

“That means trillions of dollars of institutional capital at relatively low return rates. This is about grinding it out with very prosaic project finance to lay down billions and billions of solar panels and lots of wind turbines.”

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A study published in Nature in June suggests we are perilously close to passing the 1.5 degree mark already (itself, not an ideal temperature for humans), and that the world must go beyond Paris to avert catastrophic warming.

To avoid a runaway warming scenario the global community will need to achieve net zero emissions, the sooner the better. Such an effort will likely cost tens of trillions of dollars.

To make that happen, you need policy, capital and investable deals, says Brian Walsh, head of impact for Liquidnet and the host of Returns on Investment.

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Imogen says she is looking forward to falconry demonstrations and camel rides in Marrakech. But there is also serious work to be done.

“One of the things you're going to see in Morocco is a real commitment to figuring out how we use the tools of capital markets to achieve some of the major transitions we need to happen,” she says.

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