2030 Finance | September 11, 2018

Organizers seek to turn commitments into capital at Global Climate Action Summit

David Bank
ImpactAlpha Editor

David Bank

Hundreds of institutional investors with tens of trillions of dollars are pushing hard for climate-risk accounting from their portfolio companies and fund managers. Major banks have collectively pledged to deploy hundreds of billions to finance low-carbon energy projects.

Such “commitments” are the coin of the realm at the Global Climate Action Summit in San Francisco this week. But the question remains: Where is the money?

Even as pension and sovereign wealth funds, big banks and corporations make new commitments to climate action this week, experts warn that the deployment of capital is falling far short of what’s needed to finance the low-carbon transition.

Urgent challenge

Global investment in global clean energy investment has been essentially flat for the past three years, at barely one-third of the $1 trillion needed every year, at a minimum. The estimated $333 billion invested in 2017 was actually below the 2015 level

True, falling costs meant that new generating capacity still increased by 15%, and solar deployments and energy-efficiency investing is growing strongly. (The decreases, according to an International Energy Agency survey were in wind, hydro and nuclear energy).

But even solar investments – and more so investments in other sectors critical to reducing carbon emissions like conservation and agriculture — are not seeing the exponential increases in capital deployment to match the urgency and scale of the climate challenge.

“We’re running out of time,” California Gov. Jerry Brown, the convenor of the three-day event, said in a statement. He said “there’s been some backsliding” since the Paris climate accord was signed in 2015. The summit “aims to increase the commitments that have already been made in Paris, to make them even greater, and thereby build the momentum” for the next meeting of signatories to the agreement, in Katowice, Poland in December.

Brown, who yesterday signed a bill to make the state’s electricity supply carbon-neutral by 2045, may become something like an elder statesman of climate after he leaves office next year. He is leveraging California’s economic might to forge climate agreements with provinces of Canada and even China and Europe. But protestors at the summit complain the governor hasn’t done enough to curb oil and gas drilling in California.

New signatories are expected this week for “The Investor Agenda,” which commits asset owners not only to making investments, but to climate-risk disclosure from fund and corporate managers and policy advocacy. For example, one plank commits the funds to “corporate disclosure in line with the final recommendations of the Task Force on Climate-related Financial Disclosures,” the new bible for assessing climate risks.

We’ll always have Paris, but is that enough to avert climate catastrophe?

The Investor Agenda builds on and reinforces the work of the Climate Action 100+, launched in Paris last year with 225 asset owners representing more than $26 trillion in assets, to force key greenhouse gas emitters to report their climate-related risk.

Among pension funds, the Dutch pension giant ABP has $3.5 billion invested in renewables and a pledge to nearly double that by 2020. Canada’s La Caisse de dépôt et placement du Québec has more than $16 billion in low-carbon investments, going to $24 billion or more by 2020. The New York State Common Retirement Fund has committed a total of $4 billion to a low-carbon index fund. CalSTRS has put $2.5 billion into a similar index.  

Banks have likewise rolled out a series of commitments and targets. BNP Paribas, for example, has committed to double green investments and provide 15 billion ($17.4 billion)  annually in financing for renewable energy projects by 2020 and invest 100 million ($116 million) in cleantech startups. Goldman Sachs has a 2025 target of $150 billion in clean energy financing and investing. Last November, HSBC pledged to provide $100 billion in sustainable financing and investment by 2025. JPMorgan Chase last August said it hoped to facilitate more than $200 billion in clean financing by 2025, or an average of $25 billion per year, compared to about $17 billion in 2016. TD Bank last year announced a C$100 billion (US $78 billion) target for low-carbon lending, financing, asset management and other programs by 2030.

Nonetheless, a report from Boston Common Asset Management earlier this year criticized most banks’ commitments as “skin deep” and found “urgent shortcomings that threaten to undermine efforts to support the transition to a low carbon-economy.”

“In order to better understand which banks are best positioned to seize climate-related opportunities, investors would like to see clear targets and commitments, with a robust strategy backing their implementation,” Boston Common said in the report.

Global Banks: We’re watching how you finance the low-carbon transition

Foundations, which also have been criticized for showing insufficient urgency around climate change, are expected to make a sizeable commitment as well. Presidents of 20 foundations will join forces on an initiative to protect trees and forests, the destruction of which is a major source of carbon emissions.

“We believe stepping up on climate change is an imperative, especially for the philanthropic community,” the Packard Foundation’s Susan Phinney Silver and MacArthur’s Debra Schwartz argued in a recent post in ImpactAlpha. “By harnessing the collective resources of funders, foundations can fill capital gaps and help move the needle in the climate fight beyond what any one foundation could do alone.”

Ecotrust Forest: Making the math work for sustainable timber in the northwest

Cities and states are likewise committing to “America’s Pledge,” Led by Brown and former New York City Mayor Michael Bloomberg. The coalition, which has declared #WeAreStillIn the Paris agreement despite President Trump’s decision to pull out, works with local leaders to accelerate renewable portfolio standards, land preservation and state efforts to set a price on carbon, such as California’s cap-and-trade carbon market.

America’s Pledge: Bottom-up climate solutions to America’s low-carbon future