How will we finance the transition to a more sustainable future? Four experts explain
And there are calls for transparent and harmonized sustainability measures that engage consumers and measure the impact of businesses on the communities in which they operate.
Much effort is put into pricing sustainability initiatives, such as net zero goals and biodiversity protection. But as Mckinsey’s research points out, “while a number of analytical perspectives explain how greenhouse gas emissions should evolve to reach a 1.5 degree trajectory, few paint a clear and comprehensive picture of the actions. that global companies could take to achieve it ”.
Opinions of chief economists also differ on whether environmental considerations should play a direct role in monetary policy decisions.
Manuela Fulga, Platform Curator, Banks and Capital Markets, World Economic Forum, highlights the potential of technology to achieve emission reduction ambitions: “The good news is that public and private stakeholders in industries, finance and governments have announced ambitious commitments to reduce emissions: net zero commitments now cover around 68% of global GDP, “she warns,” “translating commitments into actions is not a simple undertaking”.
The challenge is just as formidable when it comes to nature. The recent State of Finance for Nature report found that investments in nature will need to triple by 2030 and quadruple by 2050 compared to current investments of $ 133 billion. Forest-based solutions alone, including forest management, conservation and restoration, will require $ 203 billion per year, or just over $ 25 per year for every citizen in 2021.
How then can we ensure that durable solutions get the funding, support and financial backing they need?
We asked four experts to identify what needs to change to ensure these solutions can be deployed to their full potential. They reveal their strategies for promoting investments and approaches that make things like energy transition and other key changes possible.
“Start-up capital … multiple funding partners”
Jacob Duer, President and CEO, Alliance to End Plastic Waste
Driving a circular economy for plastics requires significant investments to build the necessary waste management infrastructure and innovation ecosystems. In the absence of coordinated action among governments, funding bodies and practitioners, the financial burden and risk for a single investor or group of investors is too high to drive the necessary change across the board. plastic saving.
For example, a new multi-million dollar Alliance-led program in Indonesia aims to develop new integrated waste management systems on the island of Java. The first phase aims to serve 2.5 million people and divert up to 40,000 tonnes of plastic waste from the environment each year.
The project in Indonesia builds on the early impact seen from previous experiences with innovative funding models. In Ghana, the Alliance supported the ASASE Foundation to empower women entrepreneurs working to eliminate plastic waste through recycling. The project has stepped up the operations of its CASH IT! recycling rate in Accra to 2,000 tonnes in 2021, up from 35 tonnes in 2018. Based on this result, the initiative has now secured additional funding from the European Commission to scale up the model.
These are examples of multiple financial partners working together and co-investing, each offering unique capabilities and reducing overall risk. The Global Plastic Action Partnership (GPAP) and its growing network of multi-stakeholder platforms at country level is a key catalyst for such powerful collaborations. Only through partnership in action and funding can we end plastic pollution.
“Sovereign wealth funds must go green”
Günther Thallinger, member of the board of directors of Allianz SE and chairman of the Net-Zero Asset Owner Alliance organized by the UN
The urgent problem is that greenhouse gases are measured at the country level. However, this underestimates the climate impact of countries via SWFs with significant foreign assets.
For example, the largest sovereign wealth fund, the Government of Norway’s pension fund, has assets of $ 1.3 trillion – three times the Norwegian economy. The carbon footprint is 107.6 million tonnes, double the country’s annual emissions. Despite this, the fund does not have specific emission reduction targets nor has it adopted a climate-adjusted equity benchmark.
It is misleading to claim that SWF-related issues are separate climate changes. Governments must be consistent in their climate ambitions and ensure that SWF investments match national objectives. Most sovereign wealth funds were created as savings vehicles for future generations. Their investments should help to conserve the climate in which these generations will live.
“For a low carbon future, investors must focus on additionality”
James Gifford, Head of Sustainability & Impact Consulting and Thought Leadership, Credit Suisse
Investors play a key role in achieving net zero. But not all sustainable investments are created equal in terms of impact. To create a real impact, investors must demonstrate additionality: that is, is there less carbon emitted as a result of the investment?
There are two key mechanisms of additionality within investing, and investors should focus on these:
- Seed and growth capital in illiquid investments, especially venture capital funds supporting start-ups focused on climate innovation. If the whole world is to switch from fossil fuels, cleaner alternatives simply have to be cheaper, and that will require funding for rapid innovation.
- Active participation in liquid public markets. The simple act of buying or selling stocks in liquid markets from other investors has little measurable impact. But shareholder engagement has 30 years of experience in pushing companies to improve. Coalitions such as Climate Action 100+ aggregate capital representing nearly half of the world’s financial markets to collectively push companies to reduce their emissions.
Sustainable investing is not a quick fix. However, this can be an important part of the solution, especially if the focus is on the strategies that have the most impact.
“Capital can be transformative”
Greg Guyett, Co-CEO of Global Banking & Markets, HSBC
A successful global transition requires close collaboration with the industries that are now the largest emitters, such as transport, power generation and steel production. These industries will undergo fundamental changes over the next decades and will need capital to finance the development and deployment of new technologies to reduce their emissions.
Capital can be transformative when tied to commitments that align with the goals of the Paris Agreement. For example, when the interest rate on a debt instrument is linked to emission reduction targets. HSBC recently worked with global oil company Repsol to incorporate its commitment to reduce carbon emissions into its debt financing. The transition will not happen overnight, but sustainable finance can create a liability to ensure that we are moving at a steady pace towards our collective net zero ambitions.
Policy makers should work in tandem with the financial sector to push for the transformation of business models towards net zero. The capacities and infrastructure of large companies in high emission sectors should not be overlooked. Under the right conditions, they can attract capital to reduce emissions on a large scale. And scale is essential for dealing with the climate crisis.
This article is organized by the World Economic Forum.