2030 Finance | October 9, 2018

The heat is on…for financing climate action

David Bank
ImpactAlpha Editor

David Bank

Right about now would seem to be the time to dramatically scale up financing for renewable energy, waste reduction and building and land-use changes aimed at reducing greenhouse gas emissions.

The new report from the U.N’s Intergovernmental Panel on Climate Change makes abundantly clear the need for a full-scale mobilization to keep global temperature increases below 1.5 degrees Celsius, and the catastrophic risks if we blow through the2°C  threshold.

To keep warming under 1.5°C and avoid the worst-case scenarios, global carbon-dioxide emissions need to be cut 45% by 2030 and reach “net zero” by around 2050, the IPCC found.

That’s “within the laws of chemistry and physics,” said Jim Skea, a professor at Imperial College in London and co-chair of the U.N. panel, “but doing so would require unprecedented changes.”

Will investors answer the call? There’s an estimated annual gap of between $320 billion and $480 billion in clean-energy and energy-efficiency investment in order to meet the goals of the Paris climate agreement, which itself only aims at keeping global warming below 2°C.

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

The recent Climate Week at the United Nations, as well as the Global Climate Action Summit in San Francisco made clear the disconnect between the urgency of climate action and the sluggishness of climate financing. The estimated $333 billion invested in renewable energy in 2017 was actually below the 2015 level (although solar deployments and energy-efficiency investing are both growing strongly and falling costs meant new renewable generating capacity still increased by 15%).

The high-level convenings surfaced few large-scale financial commitments. But in the announcements and reports were faint rumblings of gears starting to turn. Among them:

  • More than one-fifth of global greenhouse gas emissions are now covered by national and subnational (think California) carbon-pricing schemes, and 88 nations representing an additional 56% of emissions are considering such carbon pricing. The value of such carbon taxes and carbon markets is expected to reach $82 billion this year, up from $52 billion in 2017.
  • The U.S. still has a shot at hitting the 2025 goal of a 26% to 28% reduction in greenhouse gas emissions below 2005 levels (we’re about halfway there), despite President Trump’s intention to withdraw from the Paris climate agreement if he’s re-elected.
  • Nearly 400 investors representing $32 trillion in global assets who have signed on to at least some part of “The Investor Agenda,” which calls for not only investment commitments but pledges around disclosure, corporate engagement and policy advocacy.

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

  • More than two dozen foundations pledged to disburse at least $4 billion by 2022 as a down-payment on their ambition to “go big” on climate action. “There is a growing sense of urgency and need to act that feels new,” the Hewlett Foundation’s Larry Kramer told ImpactAlpha. The philanthropic pledge includes Hewlett’s commitment last year to make grants of $600 million through 2023 to nonprofits working on climate change.

And Michael Bloomberg is on the case. U.N. Secretary-General António Guterres appointed Bloomberg – media mogul, former mayor of New York and possible presidential candidate – to head a new Climate Finance Leadership Initiative to rally private capital. The one-year initiative will drive toward the climate finance summit Guterres has called for Sept. 2019, and work with French President Emmanuel Macron, who heads the G7 group of nations for the coming year. The new initiative will report to G7 finance ministers next July.

The role of private capital in financing the low-carbon transition has become even more critical as public funding sources have fallen short. The Paris climate accord affirmed the goal of $100 billion a year in public development finance and private foreign investment for climate projects in the developing world.

The major vehicle for that effort, the Green Climate Fund, based in South Korea, is in disarray after a chaotic meeting in July in which the executive director resigned and the board failed to approve any new projects. In 2014, contributors pledged $10.3 billion to the Green Climate Fund, most of which has been allocated. The U.S. has fulfilled only $1 billion of its $3 billion pledge, with no payments since 2016.

Financial vehicles

The innovation needed to deliver on climate action may be as much in finance as in technology. Bloomberg Philanthropies, along with the Rockefeller Foundation and others, have backed the San Francisco- based Global Innovation Lab for Climate Finance, or more simply, the Lab, which has launched nearly three dozen financing vehicles that have collectively mobilized $1.15 billion for climate-change mitigation and resiliency.

Among the ideas is a Pay-As-You-Save for Clean Transport scheme that reduces the upfront cost of electric vehicles such as transit buses. Utilities effectively invest in on-board batteries and recover their costs as a service charge. Lab officials report the Development Bank of South Africa has committed to backing the idea to finance the transition to electric buses in Cape Town.

Here come the SDG-finance unicorns

Already, Climate Investor One has mobilized US$ 535 million for renewable energy projects in Africa, Asia, and Latin America. Another scheme, Energy Savings Insurance, is  being scaled up in nine Latin American countries to insures the financial performance of energy efficiency savings projects.

“The instruments are already on their way to making significant impact on the ground, at a time when swift and catalytic solutions for climate action are needed more than ever,” said Barbara Buchner, who heads both the Lab and its parent organization, the Climate Policy Initiative.

At the One Planet Summit last month in New York, Bloomberg stressed the need for concerted action between  nations, businesses, states and cities.

“Not enough capital is flowing,” Bloomberg warned.   “The markets’ allocation of capital is a powerful weapon in the fight against climate change.”