The SDG Knowledge Hub of the International Institute for Sustainable Development (IISD) provides the December update on global climate finance institutions compiled by Beate Antonich.
Institutional Finance Update: Climate Finance Flows on the Rise, but Improved Data Needed to Track Progress on Mitigation and Adaptation Pathways
The year 2018 concluded with the adoption of the Katowice Climate Package that lays out the guidelines for implementation of the Paris Agreement on climate change and stipulates making finance flows consistent with a pathway towards low greenhouse gas (GHG) emissions and climate-resilient development as one of the goals of the post-2020 climate regime. The UNFCCC Standing Committee on Finance (SCF), Climate Policy Initiative (CPI) and Organisation for Economic Co-operation and Development (OECD) published assessments of climate finance flows.
SCF, CPI, OECD Data Reveal Increases in Climate Finance Flows
Already in 2016, the SCF noted the need to enhance the availability of information necessary for tracking global progress on making finance flows consistent with a pathway towards low GHG emissions and climate-resilient development. While its latest report finds an overall increase in climate finance flows, it notes that across the financial sector, both the reporting of data on financial flows and stocks consistent with low GHG emissions and climate-resilient pathways, and the integration of climate considerations into decision making are at a nascent stage, with the exception of more advanced data sets available on bond markets, with regular and reliable data published based on green bond labeling and analysis of bonds that may be aligned with climate themes.
In its summary and recommendations to the UNFCCC Conference of the Parties (COP) on the ‘2018 Biennial Assessment and Overview of Climate Finance Flows,’ the SCF notes that climate finance flows continued to climb, increasing by 17 percent in the 2015-2016 period, compared with the 2013-2014 period. Overall climate finance, according to reported estimates, increased from USD 584 billion in 2014 to USD 681 billion in 2016. Yet, the Committee warns, climate finance continues to account for just a small proportion of overall finance flows and is still surpassed by investments in fossil fuel-based activities and projects. Those investments are inconsistent with the pathway towards low GHG emissions and climate-resilient development in line with Paris Agreement Article 2(1)(c).
The SCF assessment finds that, from 2014 to 2016, both mitigation and adaptation finance grew by 41 percent and 45 percent, respectively, although support for mitigation remained greater than for adaptation. According to the Committee, grants continued a be a key instrument for the provision of adaptation finance.
The latest CPI report estimates adaptation finance to be USD 22 billion per year. The SCF shows that adaptation finance channeled through core multilateral climate funds has so far reached about 20 million direct beneficiaries – out of a 290 million target. Both the SCF and CPI highlight the need for further work to develop adaptation and resilience metrics to enable more accuracy in tracking adaptation finance flows.
On mitigation finance, the SCF report observes that renewable energy investments decreased in 2016, driven by both the continued decline in renewable technology costs and the lower generation capacity of new projects financed. This change was offset by an 8 percent increase in investment in energy efficiency technologies across the building, industry and transport sectors. The CPI also highlights the growth of investment in sustainable transport, now accounting for 20 percent of climate finance flows. Its report points to new data showing investment in electric vehicles growing at a year-on-year rate of 54 percent, as well as significant investments in urban transport in China.
Climate finance to developing countries, based on UNFCCC biennial reports submitted by developed countries, increased by 24 percent from 2014 to USD 33 billion in 2015 and, subsequently, by 14 percent from 2015 to USD 38 billion in 2016. According to aggregate estimates from the latest OECD data, public climate finance from developed to developing countries increased by 44 percent from USD 37.9 billion in 2013 to USD 54.5 billion in 2017, or USD 56.7 billion when including climate-related officially supported export credits.
Other key findings of the SCF assessment include:
- total amounts channeled through UNFCCC funds and multilateral climate funds in 2015 and 2016 were USD 1.4 billion and USD 2.4 billion, respectively;
- multilateral development banks (MDBs) continued to scale up climate finance flows and provided USD 23.4 billion and USD 25.5 billion in climate finance from their own resources to eligible recipient countries in 2015 and 2016, respectively;
- among climate finance sources, data on private finance sources and destinations remain lacking; and
- ownership is a critical factor in the delivery of effective climate finance, and nationally determined contributions (NDCs) are emerging as a platform that governments can use to strengthen national ownership, including through tracking climate finance flows at domestic level.
In Katowice, Poland, COP 24 decided that the in-session workshops on long-term climate finance in 2019 and 2020 will focus on the effectiveness of climate finance. This includes addressing the results and impacts of finance provided and mobilized, and the provision of financial and technical support to developing countries for their adaptation and mitigation actions in relation to the 2°C and 1.5°C temperature goals.
World Bank Green Bond Program Turns Ten with USD 12.6 Billion Raised So Far
November 2018 marked the ten-year anniversary since the World Bank issued its first green bond. When the World Bank launched in green bond program in 2008, four years before the UN Conference on Sustainable Development (UNCSD), or Rio+20, it: created a blueprint for the market; committed to investor reporting on the use of green bond proceeds and expected project impacts; defined criteria for eligible green bond projects; and provided investors with assurance, through a second party opinion provider, that eligible projects would address climate change.
In 2015, UN Member States adopted the 2030 Agenda for Sustainable Development and its 17 SDGs, with specified targets and indicators to track progress. The World Bank has come to embrace its role in financing programmes that support the SDGs, with between USD 50 billion and 60 billion bonds issued annually. Notably, by 2018, USD 12.6 billion had been raised through 150 green bonds in 20 currencies.
Marking its green bond program’s ten-year anniversary, the Bank priced additional green bonds that raised USD 1.3 billion through more than 60 orders from investors that are committed to following socially and environmentally responsible principles. These consist of a USD 600 million seven-year bond, which carries a semi-annual coupon of 3.125 percent per annum and matures on 20 November 2025, and a EUR 600 million nine-year bond, with an annual coupon of 0.625 percent per annum and maturing on 22 November 2027. As these include first-time green bond investors, the Bank continues to summon more financial actors on its path to contribute to the SDGs.
UNEP-FI, 28 Banks Launch Global Public Consultation on Principles for Responsible Banking
Also in November, the UN Environment Programme Finance Initiative (UNEP-FI), together with 28 banks from around the world, launched a global public consultation on defining the Principles for Responsible Banking. By committing to the new framework, expected to be launched in September 2019, banks commit to being publicly accountable for their significant positive and negative social, environmental and economic impacts. They agree to set public targets on addressing their most significant negative impacts and scaling up their positive impacts to align with and contribute to national and international sustainable development and climate targets. Banks that continuously fail to meet transparency requirements, set adequate targets and demonstrate progress will face removal from the list of signatories.
“Each Key Climate Finance Player Has Its Part to Play”
Whether investing in individual businesses or low-carbon projects, different types of investments are needed at different stages, and “each key climate finance player has its part to play.” This is the motto of a ‘Climate Finance Playbook,’ published by Ceres, with the Rockefeller Foundation and Principles for Responsible Investment (PRI). The two US-based organizations, together with the UK-based investor initiative that partners with UNEP-FI and UN Global Compact, call on a range of actors to “raise their game,” including: the public sector; incubators and accelerators; venture capital; angel investors; family offices; pension funds; university and philanthropic endowments; strategic investment partners; insurance companies; sovereign wealth funds; national development banks; diversified asset managers; private equity investors/limited partners; and investment banks.
The group’s aim is to stimulate actions among these climate finance “players” towards accelerated financing of innovation, along an investment continuum from high- to low-risk tolerance. The Climate Finance Playbook provides ideas and resource references, and presents three action principles on the following themes: risk, returns and realism, focusing on a long-term investment mindset; resilience and mitigation, focusing on outcomes; and “running the gauntlet,” focusing on implementation.