This month's COP 21 in Paris concluded with a universal agreement to keep the global temperature rise well below 2 degrees Celsius, and to aim to further reduce it to below 1.5 degrees.
To achieve this, the world needs to shift to carbon neutral economies within this century – with a downward carbon trend required well before 2050.
This month’s COP 21 in Paris concluded with a universal agreement to keep the global temperature rise well below 2 degrees Celsius, and to aim to further reduce it to below 1.5 degrees. To achieve this, the world needs to shift to carbon neutral economies within this century – with a downward carbon trend required well before 2050.
The US$100 billion climate finance target by 2020 remains an integral part of the deal, and it is expected that financial flows will be regulated more stringently to direct them to low carbon investments. In this way, the financial sector plays a key role – it structures financial products and has the marketing and distribution capacity to reach a wide range of industries and sectors. It is therefore uniquely placed to enable finance to flow to projects of all sizes that can contribute to the fight against climate change.
Energy efficiency is seen as the ‘5th Fuel’ by the International Energy Agency (IEA). Compared to other low carbon investments, however, energy efficiency investments are less visible, and under-investment in this area has left the energy efficiency potential largely untapped. This is surprising, considering that half of the emissions reductions needed by 2030 to remain within the 2 degree global average temperature increase scenario will have to come from energy efficiency – not to mention other co-benefits that energy efficiency investments bring. This year’s COP saw more than 100 financial institutions from all over the world pledge their support for energy efficiency, marking a change in this situation.
Financial institutions from 42 countries have endorsed the Statement by Financial Institutions on Energy Efficiency. By doing so, they acknowledge their unique role in channelling finance to activities that promote energy efficiency. They also pledge their active contribution to scale up energy efficiency finance and their support for clients in implementing energy efficiency investments.
This initiative was launched at the Istanbul Energy Efficiency Finance Forum, which was hosted by the European Bank for Reconstruction and Development (EBRD) in partnership with the United Nations Environment Programme Financial Initiative (UNEP FI) in September this year. At the time, delegates from more than 70 financial institutions gathered to share knowledge and successful business strategies related to energy efficiency finance. They endorsed the statement, and many financial institutions took the opportunity to make individual statements that further outlined their actions and intent with regards to energy efficiency finance.
The individual statements and the panel discussions during the forum demonstrated the diversity of business strategies that financial institutions have developed for energy efficiency finance. Some institutions have launched financial products to fund energy efficiency projects for specific client groups such as small and medium sized businesses, large corporations, the retail sector or households. Other groups have focused on working with suppliers of energy efficient equipment, and yet others have introduced energy efficiency training for their staff. Bringing this knowledge together to enable institutions to learn from each other will be a key challenge for the future.
After Istanbul and in the run-up to COP 21 in Paris an increasing number of financial institutions endorsed the statement. At the COP, the initiative was presented during the Energy Day organised by the UN Sustainable Energy for All (SE4All) initiative.
The discussion also showed that most financial institutions have initiated their energy efficiency related business activities with the support of donors, such as the European Union, Austria, the Climate Investment Funds (CIF) and the Global Environment Facility (GEF). These institutions have provided successful support through concessional co-finance, grants and/or technical assistance. The expected growth in climate finance promises to further enable scaling up of these activities.
By endorsing the Statement by Financial Institutions on Energy Efficiency, financial institutions have signalled that energy efficiency is an important area of their business and that they are prepared to play an important role in tackling climate change by channelling an increased volume of finance to low carbon investments. This is an important signal as it is a prerequisite for remaining within the 2 degree global average temperature increase scenario.