Tag Archives: Climate investment

Improved and integrated private disclosure data can help broader tracking efforts

November 8, 2016 |

 

As part of efforts to limit the increase in the global average temperature to well below 2°C, the Paris Agreement states that countries participating in the international climate negotiations shall make ‘finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development’.

CPI’s Global Landscape of Climate Finance and San Giorgio Group Case Studies have highlighted the important role of public resources and policies in influencing growth pathways. However, while data collection at the international level has improved in recent years (for example through the OECD DAC system), many governments and public organizations still lack a comprehensive system to track and report domestic climate-related expenditures and international climate finance.

In terms of collecting and publically reporting information about its climate finance investments, the private sector lags even further behind.

Integrated private disclosure data - Finance captured by Global Landscape of Climate Finance 2015 and data gaps

This is problematic for governments and investors alike. Exposure to climate risks will have widespread effects on the value of assets and therefore, the ability of pension funds and insurance companies to pay out to their beneficiaries. Costs of compliance with standards or policies, risks of stranded assets, changing agricultural and commodity prices, increased scarcity of essential resources like water, disruptions in business supply chains, and damage to infrastructure and other assets will all impact companies’ and investors’ financial performance, as well as countries’ economic growth.

Investors are gaining more clarity on the exposure of their financial assets to climate change risk through companies’ increasing disclosure of environmental, social, and governance (ESG) data. To date, demand for companies to disclose the climate risks they face has mainly been driven by disclosure initiatives and pressure from investors, with mandates from financial regulators and exchanges increasing in importance.

However, as CPI analysis has shown, there is little consistency in the quality and scope of information disclosed. Definitions are applied in different ways and many metrics are preliminary. Last December, the Sustainability Accounting Standards Board (SASB) reported that 93% of listed U.S. companies face some degree of climate risk but only 12% have disclosed it.

The challenge in the medium-term is to harmonize and improve definitions and metrics to provide investors and policymakers with comparable and reliable data with which to compare performance and formulate investment policies. Forthcoming recommendations on how to standardise such disclosures from the Taskforce on Climate-Related Financial Disclosures are due in December could provide some guidance. In the short-term, increased transparency is a good start.

Green bonds provide a case in point. Concerns about where finance raised from these bonds goes have led a number of different organizations to develop different assurance solutions. However, recent trends show issuers may be choosing transparency as the least cost option.

In 2015, 72% of green bond market by value sought an independent review. In the third quarter of this year, less than half did so, with issuers themselves opting instead to disclose how the proceeds of bonds will be used, and their process for selecting green projects.

Investors in the market seem broadly satisfied with this for now but this could change.

French investors now face their own for disclosure requirements both on how they are managing climate risk and how they are contributing to “energy and ecological transitions.” A French law, the first to introduce mandatory carbon reporting by investors, requires investors with a balance sheet of €500 million or more to submit their first reports on how they are approaching these issues by June 2017.

What remains less clear is whether such disclosure will provide enough comparable and reliable detail on the kind, location and performance of assets (e.g. in terms of emissions reductions, increased energy productivity, or increased resilience to adverse weather conditions) to provide more comprehensive overviews of how finance is accommodating climate change impacts and opportunities.

While some questions remain, increased transparency will certainly support investors and regulators’ efforts to mainstream ESG investment, and to move from understanding to managing climate risk, thus optimizing climate-related investment opportunities.

Increased transparency will also open new opportunities for financial product and service providers to refine existing and create new green investment products that reduce capital costs for the organizations driving energy and land use transitions.

Integrated private disclosure data - Investment framework for managing climate risks and opportunities

Greater clarity on public and private finance flowing to climate-relevant sectors where little reliable information is currently available can also improve policymakers’ understanding of how public and private interests and capabilities interact, enabling them to refine support frameworks to ensure effective spending and to maximise the economic benefits of transitions in energy and land use.

CPI remains committed to supporting investors to improve their understanding of climate risks and highlighting how to make the most of the opportunities presented by countries’ transitions to low-carbon and climate-resilient economies.

Since 2010, CPI has supported decision makers from the public and private sectors, at international, national and local levels, to define and track how climate finance is flowing from sources and actors, through a range of financial instruments, to recipients and end uses. Providing decision makers with robust and comprehensive information helps them to assess progress against real investment goals and needs. It also improves understanding of how public policy, finance and support interact with, and drive climate-relevant investment from diverse private actors, and where opportunities exist to achieve greater scale and impact.

This blog is part of a series on climate finance tracking challenges. Read more here.

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Uncertain Future of the Climate Investment Funds Makes Achieving Climate Finance Goals Tougher

June 14, 2016 | and

 

On June 15th and 16th members of the Joint Trust Fund Committee of the Climate Investment Funds (CIF) meet in Oaxaca, Mexico, to discuss, among other issues, the strategic direction of the fund. One topic to be discussed is the CIF’s “sunset” clause, which was conceived at the fund’s establishment and requires it to conclude its operations once a new financial architecture – now embodied by the Green Climate Fund (GCF) – is effective.

Now that the GCF is operational, some feel that the “sunset” clause should be activated. In any case, the CIF does not currently have sufficient resources to finance the projects in its pipeline or those of new pilot countries.

Contributing governments are certainly in a tough position. They are faced with the question of whether or not to re-up their financial commitment to the CIF, but have recently pledged significant resources to the GCF – over $10 billion in total – and their budgets for climate aid are under pressure as resources are diverted to address other immediate needs such as the European migration crisis.

The lack of clarity regarding the future of the CIF is having a real impact. The dearth of financial resources for the CIF and uncertainty regarding whether new resources will be made available is disrupting recipient countries’ project pipelines and delaying the development of investment plans for new CIF pilot countries. This is also creating doubt within the multilateral development banks (MDBs) regarding how much and what type of concessional finance they will have access to. This is important because of the role concessional finance plays in overcoming investment barriers and helping MDBs to mobilize internal resources to meet their climate finance commitments.

As the CIF Joint Trust Fund Committee meets this week and makes major decisions on the fund’s future direction, it is worth reflecting on what role the CIF has played within the global climate finance architecture and what unique elements it has brought to the table. A study recently published by CPI – The Role of the Climate Investment Funds in Meeting Investment Needs – can help inform this reflection. The report highlights climate-relevant investment needs and assesses the CIF’s distinctive role in bridging investment gaps compared to other multilateral climate funds.

It concludes that the CIF should be kept in operation to maintain progress towards meeting international climate finance targets, particularly while the GCF gets up to speed and in light of key temporal and structural differences that exist between the two funds. The CIF has played a particularly important role in financing climate action because of a few distinctive features. These include:

  • The CIF’s programmatic approach. In partnership with the MDBs – the CIF’s implementing entities – the fund involves recipient countries’ private and public stakeholders in the development and implementation of policy reforms and investments aligned with countries’ climate strategies. It starts with countries being informed of the indicative amount of resources they are eligible for, followed by the development and endorsement of the investment plans and finally approval of projects. This approach, which has provided a certain level of predictability to both the recipients and implementing partners, represents a role model for the development and implementation of countries’ Intended National Determined Contributions (INDCs). Translating INDCs into concrete investments will similarly require the mobilization of multiple stakeholders under coherent strategic investment plans and the development of supportive policy and governance frameworks.
  • The range of financial instruments available through the CIF and the fund’s risk appetite. Although some have yet to be fully utilized, the range of financial instruments offered by the CIF has proven to be particularly well-suited to foster the piloting of first-of-a-kind approaches and business models, and to take on market risks that others are not willing to take. A survey of developing countries and their climate finance priorities indicates that flexibility in financing terms and types of financial instruments provided is of “critical” importance to advance climate objectives.
  • The CIF’s focus on private sector engagement in mitigation, forestry and adaptation. The CIF has allocated more finance to drive private sector investment in these sectors than any other multilateral climate fund. It has also been the first to develop dedicated approaches to achieve this end, such as the private sector set-asides for forestry and adaptation, and is one of the only multilateral climate funds that offer concessional loans for these activities, as opposed to just grants. Building on this experience, the CIF holds the potential to further enhance private sector engagement in these areas going forward.

The CIF has experience and a functional structure in place, which can help to maintain momentum and bridge major climate investment gaps. Other climate funds have notable strengths, but do not necessarily offer the same capabilities as the CIF.

While the establishment of the GCF is intended to fill investment gaps, questions remain regarding the extent to which the fund will be able to deliver the scale and type of support recipient countries need in the short to medium-term as it gets up to speed.

As decision makers shape the international climate finance architecture and make choices about which funds and approaches they choose to support, they should consider the unique and positive features of existing funding mechanisms and how these features can help effectively address countries’ current and future investment needs.

Given the real scarcity of resources available, there is no easy answer. If they decide to keep the CIF alive, it may be worth exploring and taking decisions on alternative funding modalities to maintain at least certain elements of the CIF operational and mitigate a potential loss in the momentum it has created.

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By the Numbers: Tracking Finance for Low-Carbon & Climate-Resilient Development

February 3, 2015 |

 

Landscape of Climate Finance 2014

 

In December 2015, countries will gather in Paris to finalize a new global agreement to tackle climate change. Decisions about how to unlock finance in support of developing countries’ low-carbon and climate-resilient development will be a central part of the talks, and understanding where the world stands in relation to these goals is a more urgent task than ever.

Climate Policy Initiative’s Global Landscape of Climate Finance 2014 offers a view of where and how climate finance is flowing, drawing together the most comprehensive information available about the scale, key actors, instruments, recipients, and uses of finance supporting climate change mitigation and adaptation outcomes.

Climate finance has fallen, mainly due to reductions in solar PV costs

Overall, the gap between the finance needed to deal with climate change and the finance delivered is growing while total climate finance has fallen for two consecutive years. This could put globally agreed temperature goals at risk and increase the likelihood of costly climate impacts.

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Dear Davos: There Are Ways to Boost Investment in Better, Cleaner Growth

January 22, 2015 |

 

At the World Economic Forum (WEF) in Davos today, World Bank President Jim Yong Kim called for proper consideration of the risks associated with investing in the high-carbon economy and for more investment in better, cleaner forms of growth.

This video interview with CPI Senior Director Barbara Buchner provides useful background for those at the WEF calling to make 2015 a year of action on climate change. In it she shares CPI’s analysis on how the world is progressing toward the investment needed to limit emissions and climate change and what current financial flows reveal about how we might unlock further investment.

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