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Overheard at the Bloomberg Global Business Forum

ImpactAlpha, Sept. 26 – “Not enough capital is flowing” toward the low-carbon transition, Michael Bloomberg declared at last year’s Bloomberg Global Business Forum. The unavoidable takeaway from yesterday’s forum: Still not enough capital is flowing.

The third annual forum, billed as the “economic complement to UN Week,” kicked off with a highlight reel of destabilizing forces and global volatility. The video whizzed from Trump in the U.S. to Maduro in Venezuela, from Brexit to Hurricane Dorian. A global volatility index overlaid the images; climate change was the main threat. 

“We have to move entirely off fossil fuels to an economy based 100% on clean energy,” Bloomberg told a packed ballroom at New York’s Plaza Hotel. The elephant in the room: the lack of concrete capital commitments needed to mobilize the $2 trillion per year in low-carbon investments experts say are needed to head off worst-case climate scenarios (global investment levels have stalled at about $350 billion per year).

“It’s not moving fast enough,” former President Bill Clinton confided to ImpactAlpha. Echoed Hiro Mizuno, chief investment officer of Japan’s $1.7 trillion Government Pension Investment Fund, “We need a quicker shift of the market.” Even David Solomon, the head of Goldman Sachs, is still asking, “How do we mainstream this?” 

Emerging market pipeline. Bloomberg’s Climate Finance Leadership Initiative (CLFI) identified a lack of investable projects, particularly in emerging markets. Of the $354 billion invested in renewable energy around the globe in 2018, just 13% is invested in emerging markets, noted Christine Lagarde, incoming president of the European Central Bank. A partnership between CLFI and the Association of European Development Finance Institutions aims to unlock opportunities in emerging markets. 

Clear climate policy frameworks from governments would help. The IMF could incorporate climate analysis into its decision making to pressure sovereigns. “The financial world is moving faster than the sovereign world,” said AXA’s Denis Duverne. “There’s a lot of capital ready to deploy through 2025, including more than $20 billion in emerging markets by CFLI financial institutions,” said Jameela Pedicini, Bloomberg’s head of climate finance initiatives. Payoff: One recent analysis found that investing $1.8 trillion globally in five areas over a decade could generate $7.1 trillion in net benefits.

Challenges for climate action – and how to overcome them

Green bonds. The consensus: we need more of them. Approximately $250 billion of the bonds were issued last year, but “green bonds are not growing fast enough,” said AXA’s Denis Duverne. And they’re still just 1% of the capital markets, Goldman Sach’s David Solomon pointed out. One promising development: bonds that offer lower rates if renewable targets are met. Green bonds can be cumbersome, and are not for all investors, said Francesco Starace of Enel SpA, which this month launched a $1.5 billion “SDG bond” to help the Italian energy company increase its renewable generation capacity from less than 46% to 55% of total capacity by 2022. If it fails to meets that goal, Enel’s interest payments will go up. 

Retooling finance to accelerate the low-carbon transition

Mixed Modi. India Prime Minister Modi struck a discordant tone with a pitch for investment based on India’s $5 trillion growth aspirations. Only when pressed by Bloomberg did he remember the environment. It’s not that there was nothing to say: Modi has banned single-use plastic, created a water-focused Ministry, and upped the country’s renewable targets from 175 gigawatts to 450 gigawatts by 2030. With the third largest coal reserves in the world, however, India won’t “deny” such assets, Modi said. 

Trade incentives. Another carrot is trade. Henry Paulson shared that, as U.S. treasury secretary, he tried to eliminate tariffs from eco-friendly goods and services. 

New Zealand Prime Minister Jacinda Ardern got it done. At the forum, she pointed to her recently launched Agreement on Climate Change, Trade and Sustainability with Norway, Iceland, Costa Rica and Fiji. The agreement eliminates tariffs on goods such as solar panels and wind turbines and includes commitments to ditch fossil fuels. “We’re creating a device that we’re seeking other countries to sign onto,” she said. 

Tipping point. “The conversation has amped up,” noted Goldman’s Solomon. “Nowhere I go is this not part of the conversation.” Andreas Utermann of Allianz Global Investors touted the firm’s new private-market Allianz Impact Investment Fund. “100% of our clients now feels this way,” he said.

Mispriced climate risks signal investment shocks – and opportunities for action (podcast)

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