Wednesday, February 10, 2016

COP21: Green Finance Key to Climate Success

I spent early December in Paris at the COP21 climate summit.  Within the COP21 venue and around Paris, the best minds showed a common purpose and determination to confront the climate change challenge.

I came away with renewed optimism that the world is finally ready to address climate change.  Green financing solutions will play a very important role.

Below are some observations on green finance issues coming out of COP21, followed by more general quick reflections on science, local government, youth and California leadership.

Financial Resources: Every Decision Part of Climate Solution

Successfully confronting climate change will involve shifting massive financial resources towards climate solutions.  As UN Secretary General Ban Ki-Moon said recently, "Every decision on investment and resource allocation must be part of the (climate) solution." (source here)

UN Secretary General Ban Ki-Moon at the opening of COP21

Rapid de-carbonization, scaling up investments, using pension fund influence and redirecting resources were among the issues Ban Ki-Moon brought to the Investor Summit on Climate Risk, sponsored by CERES, the United Nations Foundation and United Nations Office for Partnerships:
"We need a massive scaling up of investments in clean energy and energy efficiency,  Pension funds must use their influence as investors and shareholders to accelerate the rapid de-carbonization of the economy .. I call on the banking sector to continue scaling up the green bond market while changing its lending practices to support green investments and reflect the growing risk inherent in the brown economy .. Investors and businesses that redirect resources to low-carbon, climate-resilient growth will be the economic powerhouses of the 21st century. Those that fail to do so will be on the losing side of history." (source here)

California institutional investors have been leaders on climate.  "Many of us recognize that our investment decisions that do not take into account our natural resources or greenhouse gases do not benefit our members or future generations who entrust their security to these funds," said California State Controller Betty Yee at the Investor Summit.

COP21 Framework a Roadmap for Finance

The COP21 agreement centers around "Intended Nationally Determined Contributions" (INDCs).  Each country prepares an INDC specific to their country outlining how they intend to reduce carbon emissions over time.

Financial experts, including Tessa Tennant of the United Kingdom Green Investment Bank, see the INDCs as the foundation for determining future investment flows.  The Green Investment Bank has already helped about $15 billion in projects and foresees increased assistance in the future.

Green Banks Growing

The UK Green Investment Bank is not the only green bank.  Throughout the world, green banks are being evaluated as possible tools for green finance.  The Organization for Economic Cooperation and Development has hosted discussions on the use of Green Banks (OECD background here).

At COP21, a new Global Green Bank Network was announced (detail here), with active involvement of OECD, the UK Green Investment Bank and others.  Green Banks in New York and Connecticut are among the initial participants in the Network.  The Network is being coordinated by the Natural Resources Defense Council and the Coalition for Green Capital.  

Green Banks are taking off in the U.S., but not necessarily under that name.  The United States Department of Energy is assisting state and local green financing programs.  Recognizing that the term "Green Bank" may be a bit daunting for some states, DOE coined the phrase "Energy Investment Partnerships" to describe innovative state programs.  In December, DOE released a report highlighting programs in several states, including programs of the California IBank and California Alternative Energy and Advanced Transportation Financing Authority (more on DOE report at CalGreenFinance post here).

Richard Kauffman helped establish the New York Green Bank

2016:  Year of Green Finance

In whatever form, financing programs for green projects are expected to blossom in the next few years. Nick Robins of UNEP Inquiry wrote recently in Huffington Post (here):
"If 2015 designed the foundations, the task for the financial community in 2016 is to take the practical steps to deliver the reallocation in capital that's required, and doing this in ways that result in an orderly transition in global markets."

Green Bond Market Surging

Green bonds are widely viewed as one of the key financing tools to address climate change.  At COP21, they were included in almost every discussion of finance.  OECD held a high-level roundtable on moving the green bond market forward.  Many sessions at government and non-government events explored topics surrounding green bonds.

Green Bond workshop at OECD December 10, 2015

Institutional investors are engaging in the green bond market.  California pension funds PERS and STRS have been leaders in promoting climate risk analyses and related investments.  European pension funds, such as AP4 in Sweden, see green bonds as an important part of their asset mix as the world addresses climate change. AP4 CEO Mats Andersson told a COP21 audience:
"Institutional investors are finally, and in a very serious way, entering the game of action.  They are increasingly tackling climate change-related risks. And on a large scale.  The truth is that this major shift has taken place only recently. I would say over the past 18 months."

The London-based Climate Bonds Initiative (CBI) has been the key organization promoting green bonds. CBI tracks green bond issuances and assists in the development of standards for green bond and green bond projects. CBI CEO Sean Kidney was very active at COP21. I tagged along to his presentations at the China, India and Peru pavilions as well as sessions on local government green bonds and others. CBI also launched new green bond efforts at COP21. According to Mr. Kidney:

“Together with other organisations at COP 21 we launched a new Climate Aggregation Platform (CAP), the Green Infrastructure Investment Coalition, and coordinated the Paris Green Bond Statement of the world’s leading global investors. Many other financial initiatives were also announced in Paris. This Agreement now gives their implementation a firm and enduring foundation.” (source here)

As the green bond market ramps up, there have been questions related to both market demand available supply for investors.  This is not unusual for new financial products.  What does seem to be unusual is the determination of financial market participants and political leaders to assure the success and expanded use of green bonds for climate solutions. The European green bond market has been especially robust and accounted for about half of the $41.8 billion in labelled green bond issuances in 2015.  The United States accounted for about a quarter of the 2015 issuances.

Frederic Samama of the French asset management firm Amundi said he is noticing the green market surging throughout the world.

Demand for green bonds has been increasing as investors recognize the need to shift their focus moving forward.  As Karsten Loeffler of the insurance and finance group Allianz said,
"The outcome of COP 21 sends a strong signal to businesses and investors that there is but one way forward. Allianz is already taking bold steps to integrate climate change into its core business. We have also joined the Portfolio Decarbonization Coalition, a group of investors committed to aligning their portfolios with the low-carbon economy."

In addition to the standards work of the Climate Bonds Initiative, a set of Green Bond Principles has been developed by a group of investors, issuers and underwriters.  The Principles provide general definitions and a framework for the marketplace to understand green bonds.

Michael Eckhart, Citi Bank Global Head of Environmental Finance
helped lead the development of the Green Bond Principles

California Treasurer Chiang Plans Green Finance Expansion

California Treasurer John Chiang also attended the UN/CERES Investor Summit and sees the opportunity to expand California green financing programs:

"As Treasurer, I intend to use my ability to finance green projects to advance the goals of the historic Paris accord. I sell bonds to raise money for non-polluting transportation, clean water facilities, and pollution control. I also oversee economic development authorities that provide billions of dollars in capital for environmentally friendly purposes. Examples include recycling, electric car charging installations, and energy efficiency upgrades for residential, multi-family, and commercial buildings." (source here)

Treasurer Chiang recently discussed his green plans in his Intersections Newsletter (here).  Over the next two months, he will be travelling to New York, Chicago, Boston and San Francisco on a "listening tour" to discuss how California can improve green financing opportunities.  (Also see CalGreenFinance post here)

California Treasurer John Chiang at Investor Summit

COP21 Observations

Most observers consider COP21 a success, but also recognize the enormous challenge of shifting the world economy away from fossil fuels in a very short timeframe.  COP21 rallied the countries of the world towards a common goal of limiting global warming to under 2 degrees centigrade.  Taken together, the INDCs as currently written will only get us partway there.  The INDCs will have to be updated and tightened regularly and even more steps will need to be taken by all sectors of society.  


Scientists remain very concerned about the impacts of climate change, but generally agree that very aggressive actions now can prevent the worst catastrophic impacts (see my blog post on Science at ClimateDispatch here).  The necessary actions involve a much more rapid shift away from carbon based fuels.

Local Government

Local governments are recognizing the significant role they will play in climate solutions. At COP21 Mayor Tom Butts of Richmond touted the push for solar energy in his area and said that other local issues are "incredibly ephemeral compared to climate change."  Rapid decarbonization can't be accomplished without local action on land use, transportation and other issues.


Youth are engaged and recognize the responsibility that rests with them as they will very soon become the leaders addressing climate change (see my blog post on Youth at COP21 at ClimateDispatch here).

California Leadership

California leadership is very significant and this will continue.  Governor Jerry Brown and the many other California participants were sought out by world leaders for insight and inspiration.

Governor Jerry Brown with Saudi Oil Minister at COP21 Paris December, 2015