The SDG Knowledge Hub of the International Institute for Sustainable Development (IISD) provides the September update on global climate finance institutions compiled by Beate Antonich.
Institutional Finance Update: Green Financing, Investors Contribute to Low-carbon Transition, Reaching SDGs
During September and early October 2018, the Global Climate Action Summit (GCAS) demonstrated how non-state actors can catalyze the low-carbon transition, including through green bonds and climate risk exposures in portfolios. The Global Green Bond Partnership was launched, and the World Bank deepened its green bond partnerships with California and Swedish investors. Banks shared experiences from low-carbon transition risk assessments in corporate loan portfolios, and New York City’s pension funds announced a doubling in investments in climate change solutions to US$4 billion.
Banks Assess Impacts of Low-carbon Transition
The transition to a low-carbon economy requires a better allocation of capital. During the GCAS in September in San Francisco, US, banks showed how they are moving towards better quantification of climate change risk. Under the UN Environment Programme Finance Initiative (UNEP-FI), a consortium of 16 banks developed and tested a methodology to assess the risks and opportunities associated with the low-carbon transition in the banks’ corporate loan portfolios. They followed up on the 2017 Report by the Financial Stability Board (FSB) Task Force on Climate-Related Financial Disclosures (TCFD), which provides recommendations for reporting on climate impacts in mainstream financial filings.
Supporting the piloting of the TCFD Recommendations, Oliver Wyman consultancy explains that banks, through corporate portfolios and lending activities, can exercise “the most” influence in catalyzing the low-carbon transition. Changing the exposures and risk profile of a corporate loan portfolio however takes time: assessing risks and growth prospects, developing a coherent strategy and building capabilities to affect the profile of the client base require advanced action. The April 2018 report titled, ‘Extending our Horizons,’ by UNEP-FI, Oliver Wyman and Mercer, introduces a scenario-based and integrated approach for transition risk assessment. To operationalize the approach, the report shares lessons learned from bank piloting, and explores institutional strategies and future outlooks.
Subnational Entities Mobilize Climate Action through Climate Investment, Green Bonds
New York City’s pension funds are reviewing their portfolio strategies. In September, the funds pledged a doubling of investments in renewable energy, energy efficiency and other climate solutions to US$4 billion, or 2% of the city’s US$195 billion pension portfolio over the next three years. The city’s pension funds are also divesting from fossil fuel reserve owners within five years. Recognizing climate change as a global problem which poses a significant threat to the city, New York City Mayor Bill de Blasio committed to spreading tools and best practices by partnering with the City of London to create and co-chair the Divest/Invest Cities Divestment Forum.
The GCAS was also the occasion for the launch of the Global Green Bond Partnership (GGBP). The Partnership supports efforts of sub-national entities such as cities, states and regions, corporations and private companies, and financial institutions to accelerate the issuance of green bonds. The founding members of the GGBP include the World Bank, International Finance Corporation (IFC), Amundi, European Investment Bank (EIB), Climate Bonds Initiative, Ceres, ICLEI – Local Governments for Sustainability, Global Covenant of Mayors for Climate and Energy, and the Low Emission Development Strategies (LEDS) Global Partnership.
In October, California entered a US$200 million World Bank green bond contract to invest in climate friendly infrastructure. The bonds mature on 1 October 2020, and pay an interest rate of 2.92 percent per annum. J.P. Morgan is the sole lead manager for the bond. Proceeds from the sale will support the financing of projects that seek to mitigate climate change or help affected people adapt to it. California’s investment in World Bank green bonds since 2009 totals US$1.5 billion.
World Bank Launches Sustainable Development Bond to Promote Sustainable Cities
The World Bank issues between US$50 billion and 60 billion in sustainable development bonds in the global capital markets every year. In October, the Bank priced a five-year bond of 2.5 billion Swedish Krona, to specifically raise awareness for SDG 11 (sustainable cities and communities). This collaboration with Swedish investors for sustainable development involves Skandia, SEB Life and Investment Management, Handelsbanken Fonder and Church of Sweden.
Connecting the Dots between Climate Finance Initiatives
Support of subnational governments taking action on climate also comes from the Climate Action in Financial Institutions Initiative, a coalition of public and private financial institutions which formed during the Paris Climate Change Conference in December 2015. Its Secretariat is hosted by the Institute for Climate Economics (I4CE). During the GCAS, the initiative issued a joint statement presenting its projects and activities. Priority areas for individual and joint work to support subnational climate action include: vertical integration of nationally determined contributions (NDCs); municipal technical assistance and financing; strengthening capacity for resilience; and climate-focused financial instruments and products. The initiative provides an open-access online Climate Mainstreaming Practices Database with case studies on transforming climate commitments into action. An additional online resource, Connecting the Dots between Climate Finance Initiatives, was launched in September, providing an overview and key conclusions of relevant organizations, convened processes and calls to action.
GCF Holds Climate Finance Dialogue with Eastern Europe and Central Asia, Issues Report in Preparation for COP 24
In September, the Green Climate Fund (GCF) held a structured dialogue with Eastern Europe and Central Asia in Dushanbe, Tajikistan. The event provided a platform for countries to exchange experiences with GCF funding modalities and address climate needs and financial gaps. The event highlighted potential project pipelines at the national and regional levels. Participants included accredited entities, nominated entities, delivery partners and implementing entities, as well as other stakeholders such as national and regional governmental organisations, civil society and private sector organizations.
The GCF also issued its 7th Report for consideration at the 24th session of the Conference of the Parties (COP 24) to the UNFCCC in December 2018. The report highlights include:
- Between November 2017 and July 2018, the GCF Board approved US$3.5 billion to support the implementation of 74 climate change adaptation and mitigation projects and programmes in 78 developing countries. These projects and programmes are expected to attract US$8.6 billion in direct public and private sector co-financing.
- The Board authorized a Simplified Approval Process (SAP) Pilot Scheme with an allocation of up to US$80 million in GCF financing, and set a goal of 50% of SAP approvals for direct access entities.
- A request for proposals for REDD+ results-based payments with an initial envelop of US$500 million was also approved by the Board. This pilot programme, the report notes, has motivated private sector interest in REDD+ investments.
- The Board approved an additional US$60 million for the execution of the Readiness and Preparatory Support Programme, bringing the total amount allocated to the programme to US$190 million. A cumulative amount of US$90.9 million has been committed or spent.
- Fifty-nine entities have been accredited to GCF, consisting of a 54 to 46 balance in the number of direct access entities and international access entities.
- The Board approved both an indigenous peoples policy and an environment and social policy to ensure the positive impact of its operations. Gender aspects also factor significantly in the work of GCF, with 92% of projects considered by the Board containing gender assessments and 83% of projects incorporating gender action plans.
October 2018 Reading List
Suggested institutional climate finance-related readings include:
- A report titled, ‘Aligning Investments with the Temperature Goal of the Paris Agreement: Challenges and Opportunities for Multilateral Development Banks,’ by Germanwatch and NewClimate Institute, which presents approaches for financial institutions to strengthen existing tools to align their portfolios and activities with the globally agreed mitigation goal.
- I4CE report titled, ‘Landscape of Domestic Climate Finance,’ which maps domestic financial flows in France towards greenhouse gas (GHG) mitigation investments.