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Retooling finance to accelerate the low-carbon transition

New York, NY – You know we’re in trouble when investors and bankers are our best hope for climate action. With many global leaders effectively no-shows at Monday’s Climate Action Summit at the U.N., it falls to finance to declare an end to the fossil-fuel era and power up the zero-carbon future.

“Acceleration is what we need,” said Michael Sabia, chief executive of Caisse de dépôt et placement du Québec, or CDPQ, the $245 billion Canadian asset manager. “We’re going to do it by increasing our investment in low-carbon assets like energy-efficient buildings, low-carbon transit, and renewables…This is just the beginning.”

CDPQ is part of the “Net Zero Asset Owner Alliance,” a group of a dozen insurers and pension funds managing a combined $2.3 trillion that pledged to shift their portfolios away from carbon-heavy industries and invest more in clean energy and low-carbon companies and projects. 

At the climate summit, global political leaders largely failed to make ambitious commitments to accelerate their nations’ transitions. China made no new promises and the U.S. did not even take the stage. President Trump made a brief appearance in the hall, but didn’t speak. Michael Bloomberg drew laughter when he thanked Trump for coming and added, “Hopefully our discussions here will be useful for you when you formulate climate policy.”

Trump missed Greta Thunberg, the 16-year-old Swedish leader of the global student climate strikes that drew millions into the streets last week. “You are failing us, but young people are starting to understand your betrayal,” Thunberg said. “The eyes of all future generations are upon you. And if you choose to fail us, I say: ‘We will never forgive you.’”

  • Banking on climate. A group of 31 banks with more than $13 trillion in assets committed to “align their portfolios to reflect and finance the low-carbon, climate-resilient economy” in line with the Paris Agreement’s goal to limit global heating to well-below 2 degrees Celsius. The banks said they would “mobilize our products, services and relationships to help facilitate the economic transition necessary to achieve climate neutrality.” A total of 130 banks with $47 trillion in assets have signed onto the new Principles for Responsible Banking.
  • Green-weighted assets. The French bank Natixis said it had implemented its “Green Weighting Factor,” which is intended to tip its capital allocations toward the objectives of the Paris agreement. The bank assigned colors ranging from dark brown to dark green based on deals’ climate impact as well as water, pollution, waste and biodiversity impacts. The ratings affect the bank’s risk-weighted assets, with green deals reduced by up to 50% and brown deals increased by up to 24%. By risk-weighted assets, half of the bank’s current portfolio is brown, one-quarter is green and on-quarter is neutral. Natixis said green-weighting will help the bank “support its clients in their ecological transition and to commit with them to a sustainable trajectory.”
  • Transition bonds. Italian energy company Enel SpA this month launched a $1.5 billion “SDG bond” linked to the UN’s Sustainable Development Goals. The bond will help Enel increase its renewable generation capacity from less than 46% to 55% of total capacity by 2022. If it meets that goal, Enel will pay investors an interest rate of 2.65% until the bond matures in September 2024. If the target is not met, a step-up mechanism will increase the rate by 25 basis points. “Green bonds have a limit,” Enel’s Ernesto Ciorra told ImpactAlpha. “They are used to finance a project, not for a business model. With the SDG bond we’re financing a sustainable business.”

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