To the development community the term ‘climate finance’ means aid to countries to assist with the cost of climate mitigation and adaption; to the climate community it means public finance targeted to cover the cost of hitting climate change goals. In the aftermath of the Paris Agreement, both views seem out of step. Let me explain.
Looking back to 2010, E3G was the middle of an ongoing argument with the then Business and Economics Minister about whether a ‘green’ infrastructure bank was really necessary. The Minister didn’t deny a public infrastructure bank was a good idea – rather he was arguing over whether a green focus was really necessary. The general feeling at that time was that ‘green’ and ‘climate’ issues were rather marginal and limited to a subset of a subset of the economy (energy). In the end the ‘killer statistic’ that won the argument with the sceptical Minister was when we pointed out that 70% of the UK’s forward infrastructure build would need to be low carbon or low carbon-enabling (such as advanced ICT) if it was to be in line with meeting our forward climate targets. Argument won, UK Green Investment Bank was created and for a time at least, in the UK ‘green’ and ‘climate’ had mainstreamed.
Fast forward to 2016 and April’s signing of the Paris Agreement. This historic deal demands climate action further and faster than anything previously agreed. Not only did it strengthen the global goal to keep global temperature increase well below 2˚C and to pursue efforts to limit it to 1.5˚C. It also added a more specific target to achieve global peaking of GHG emissions as soon as possible and to reach GHG emission neutrality in the second half of the century. If governments are to deliver on the promise of Paris these headlines have very significant impacts for infrastructure planning and financing – starting now.
It is estimated that US$90 trillion in infrastructure investment will be deployed globally to 2030. The infrastructure choices made in the next decade will determine whether future climate stability can be achieved and whether a significant part of this investment will become stranded as climate policy tightens in the faces of increasing impacts. Avoiding high carbon lock-in and related asset stranding risk – either due to policy or physical risks – must be a global priority.
Against this backdrop there can be no more niche ‘climate finance’ – instead we need mainstream finance to realign and then accelerate an orderly transition to a resilient and low carbon economy. This has to start with Economic and Finance Ministries rather than Environment Ministries owning the climate challenge alone. From here we can start to believe that the significant financial reforms needed to effectively redirect flows of public and private investment away from high risk, high carbon infrastructure towards low risk, low carbon and resilient infrastructure options will happen. With these reforms in place all ‘finance’ can become ‘climate finance’ and we can build the new global low carbon economy we need.
This revolution can be catalysed by a number of initiatives. The G20 Green Finance Study due to report later this year will provide some guidance on how government should be considering financial reform processes: Economics and Finance Ministries are in the loop and so it is a key way to build capacity among these central decision makers. The work of the FSB Climate Disclosures Task Force will provide critical insights on how to use disclosure of material climate risk to incentivise the key agents of change –corporates – to move further and faster to deliver a climate resilient economy. But ultimately the processes of mainstreaming climate finance will need to come from national governments. And – as the Green Investment Bank story shows – it’s more about a change of mindset more than anything.
It’s about new approach to infrastructure planning that thinks in a truly long-term way and puts climate-resilience at the centre all decisions made. It’s about a new approach deploying public and private investor to enable that planning vision to become a reality. Progressive investors such as Aviva are already calling for this approach. Progressive governments such as those in Chile and Mexico have already kicked such processes off. Others now need to follow suit so that the Paris Agreement can be turned into Paris Action. Mainstreaming climate finance and facilitating the planning, investment and delivery of infrastructure that enables – not blocks – corporate and private investors to become agents of change will at last turn all finance into climate finance.