Tag Archives: international climate negotiations

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.

Sign up for updates to stay informed on this and other aspects of our work.

Get in touch with CPI’s lead analyst working on private capital markets.

Read More

Unblocking debate on the USD 100 billion climate finance goal

September 29, 2015 |

 

At the Sustainable Development Summit in New York last week, the question of progress toward existing climate finance targets was once again a key point of debate. While mobilizing the USD 100 billion per year that developed countries have agreed to provide to developing countries by 2020 will not meet the climate challenge by itself, it is currently the primary political benchmark for assessing progress on climate finance.

Improving understanding of different stakeholders’ perspectives on what counts towards the USD 100 billion commitment could improve the chances of reaching an agreement. That’s why Climate Policy Initiative’s latest paper, written with Overseas Development Institute (ODI), and World Resources Institute (WRI), aims to untangle the key issues arising in debates about “what counts”, and provide an approach to classifying climate finance in politically relevant ways that can facilitate discussion.

The paper takes no position on what should count towards the $100 billion. It leaves interested parties to draw their own conclusions. We feel it can help at this point in the lead up to Paris because:

  • It distills the debate into five main issues and defines and explores each in depth. They are: 1) Motivation; 2) Concessionality / source (an imperfect but useful conflation); 3) Causality; 4) Geographic origin; and 5) Recipient.
  • It represents each issue in “onion diagrams” organizing different categories into concentric circles according to political consensus. The closer to the center a category is, the more notional consensus there is among stakeholders that it should count toward the goal.

The paper ends by pulling all five variables together into diagrams like the one below that summarize the debate and help interested parties define and discuss what they feel should count.

Unblocking-debate-on-the-USD-100-billion-climate-finance-goal-All-variables

This paper does not attach quantitative estimates to the various categories of flows. This was a deliberate decision. While quantifying flows associated with the various layers and rings of each “onion” diagram is an essential step for future work, we hope that, by encouraging stakeholders to discuss the principles behind their views before focusing on the numbers, this paper may help to de-politicize these debates and support deeper reflection on underlying assumptions and preferences.

Allocating numbers to these flows will, in any case, be a challenge. Poor data quality and availability remain an issue for some variables as do accounting issues that affect how flows of climate finance are being counted by different countries and organizations.

While this paper does not provide definitive solutions on what should count towards the USD 100 billion, it supports deeper reflection on the assumptions and preferences that often underlie international climate finance negotiations. Such reflection may help to de-politicize these debates while fostering better mutual understanding of perspectives.

We also believe the insights highlighted in this paper can also facilitate constructive discussion in other ongoing debates on financing for development, what counts as official development assistance and others. The global community and by extension all countries could benefit from more common understanding.

Read More

3 Reasons for Measured Optimism about Climate Finance

December 4, 2014 |

 

A version of this blog first appeared on Responding to Climate Change: http://www.rtcc.org/2014/11/21/three-reasons-to-be-optimistic-about-climate-finance-flows/

This year’s UN climate talks opened in Lima earlier this week and for those who hope the world can avoid dangerous climate change, some major recent announcements have given cause to celebrate. Last month, the world’s two largest emitters – the U.S. and China – reached a deal to tackle emissions. Then, the U.S., Japanese, and UK governments joined others by pledging billions to the Green Climate Fund to help developing nations deal with climate change. These political announcements are clearly timed to inject momentum into the negotiations taking place in Lima. But key questions remain unanswered: What do these financial pledges mean in terms of existing investment in a low-carbon economy future? How should money be spent? And are we on the right track?

At Climate Policy Initiative, our analysis of global climate finance flows helps to identify who is investing in climate action on the ground, how, and whether investments are keeping up what is needed to transform the global economy. We have just released the latest edition of our Global Landscape of Climate Finance report. It shows global climate finance has fallen for the second year running and we are falling further behind the level of investment needed to keep global temperature rise below two degree Celsius – but reveals some positive news as well.

Firstly, that nations around the world are investing in a low-carbon future in line with national interests. Last year, climate finance investments were split almost equally between developed and developing countries, with USD 164 billion and USD 165 billion respectively. With almost three-quarters of total investments being made in their country of origin, the majority of climate finance investments are motivated by self-interest—either for governments or businesses. Motivations include increasing economic productivity and profit, meeting growing energy demand, improving energy security, reducing health costs associated with pollution, and managing climate risk including investment risks.

Secondly, that getting domestic policy settings right offers the best opportunity to unlock new investment. When policy certainty and public resources balance risks and rewards effectively, private money follows. In 2013, private investments made up 58% of global climate finance with the vast majority (90%) of these being made at home where the risk to reward ratio is perceived relatively favorably. Addressing the needs of domestic investors offers the greatest potential to unlock investment at the necessary scale. This is not to say that international and domestic public policies, support and finance don’t have complementary roles to play. It is significant, for instance, that almost all of the developed to developing country finance we capture in our inventory of climate finance flows came from public actors. But ultimately, it is getting domestic policy frameworks right, with international support where appropriate, that will drive most of the necessary investment from domestic and international sources.

Thirdly, that despite a fall in overall investment, money is going further than ever. While investment fell for the second year running, this is largely because of decreased private investment resulting from falling costs of solar PV and other renewable energy technologies. In some cases, deployment of these technologies is staying steady or even growing, even though finance is shrinking. In 2013, investment in solar fell by 14% but deployment increased by 30%. Technological innovation is reducing costs and because of this renewable energy investments in some markets are cheaper than the fossil fuel alternatives, particularly in Latin America. Achieving more output for less input is one of the basic foundations of economic growth, so this is great news. From solar PV, to energy efficiency and agricultural productivity, growing numbers of low-carbon investments are competing with or cheaper than their high-carbon counterparts. This despite a highly uneven playing field in which global subsidies to fossil fuels continue to dwarf support for renewables and where carbon prices do not reflect the true costs of emitting CO2.

So what do our findings mean for the recent China/U.S. deal and Green Climate Fund pledges? Increasing political pressure on other countries to keep pace in terms of their domestic action and international commitments is an encouraging sign as the deadline nears for finalizing a new global climate agreement in Paris just one year from now. Reaching a global accord offers the best prospect for tackling climate change. But we must recognize that international agreements are themselves, guided by collective national interests. There is clear recognition that international public resources should complement and supplement national resources where these are insufficient. But if we are to bridge the investment gap they should also be focused on finding ways to lower costs, boost returns and reduce risks for private actors. Public finance alone will not be enough to meet the climate finance challenge.

Many private investors are ready to act. In September, over 300 institutional investors from around the world representing over $24 trillion in assets called on government leaders to phase out fossil fuel subsidies and implement the kind of carbon pricing policies that will enable them to redirect trillions to investments compatible with fighting climate change. Businesses and citizens are investing, and technological innovation means more and more investments are making economic and environmental sense. Accompanying innovation with policy, appropriately targeted finance and new business models can build the momentum and economies of scale to make the low-carbon transition achievable. The low-carbon transition isn’t just a way of reducing climate risk, it also represents a huge investment opportunity.

Read More

What’s Next for Green Growth?

October 22, 2012 |

 

For a long time, international climate negotiations have been viewed as the cornerstone of global efforts to both curb climate change and support green growth. But the assumptions that launched the negotiations 20 years ago no longer hold true. New economies have grown in size and standing; they are no longer interested in following, but in leading. This is reflected on the ground as negotiations fail to make progress at the scale and pace that the climate challenge requires.

Despite lackluster progress towards a global accord, there are bright spots all over the world. Emerging nations such as China, Brazil, Indonesia, and India have been working seriously to explore the transition to clean economies. Many developed nations have taken a leadership role in reducing emissions or pursuing clean energy, are exploring innovative policies, and are supporting efforts of developing nations.

If we pay attention and learn from these bright spots, we may find that there are productive opportunities to advance our goals, and that in fact, there may be opportunities to reframe negotiations to build from these efforts.

At CPI we see three important ways to advance the next phase of green growth. And as an organization dedicated to finding and fast-tracking effective climate policies, we’re supporting all three around the world:

Read More