18 September 2019: The Climate Finance Leadership Initiative (CFLI) published a report titled, ‘Financing the Low-Carbon Future: A Private-Sector View on Mobilizing Climate Finance,’ which identifies concrete opportunities for mobilizing private finance at the scale and speed needed to support an orderly and inclusive transition to a low-carbon global economy across both developed and emerging economies. The report outlines a range of readily available and scalable solutions, best practices and technologies to address some of the most common challenges in achieving the Paris Agreement on climate change.

The first part of the report explores how private finance influences change in the real economy through, inter alia, increasing low-carbon investment and supporting the transition of carbon-intensive sectors. It also provides an overview of global trends in low-carbon investments covering such areas as clean power generation, electrified transportation and resource efficiency.

The report singles out renewable energy as one of the sectors with high potential for decarbonization, noting that private finance has already responded to the attractive risk-adjusted returns offered by deploying hundreds of billions of dollars in equity and debt investments. It notes that developers in most markets can now deliver electricity generated by mainstream renewables at a lower cost than coal-fired power, “provided sufficient revenue certainty and policy stability are present.”

Another growth sector highlighted in the report is the development of green financial products, with green bonds, in particular, growing from less than USD 1 billion in 2009 to USD 177 billion in 2018. However, the report states that a broader set of capital market instruments such as transition bonds or sustainability-linked corporate bonds will be required to support the transition of carbon-intensive business models. The report further emphasizes the importance of integrating climate risks into both financial stability monitoring and supervision of individual institutions, as called for by the Network for Greening the Financial System (NGFS) and other stakeholders.

The second part of the report elaborates on five key challenges – and related solutions – linked to the need to increase low-carbon investments, while also actively transitioning carbon-intensive sectors. The challenges include identifying ways to: replicate proven investment models at scale; counter risks for low-carbon investors in most emerging markets; find financially viable alternatives for high-emitting sectors that currently present minimal or no returns on investments; deal with financial and social risks that may emerge due to the need to transition away from carbon-intensive business models in, among others, the transport, construction and power generation sectors; and develop decision-support information and methodologies to facilitate the integration of climate-related risks and opportunities into investment decisions.

The report concludes by outlining some “scalable solutions” to the five challenges, most of which require building strategic partnerships across the financial system. They include the need to:

• Implement even more ambitious renewable energy targets, as well as policies that have proven successful, such as auctions, guaranteed revenues, and measures that facilitate project development for renewables and other cost-competitive sectors;
• Address the conditions needed to attract low-carbon investments to other emerging markets beyond China, including through leadership by national policymakers and working in tandem with development finance institutions;
• Create clear investment signals through a mix of public policies, including investment incentives, public procurement, standards, and carbon pricing, as well as collaboration in research and development and public-private risk sharing to shift unprofitable sectors toward net zero emissions;
• Support the transition of communities and workers whose livelihoods are currently reliant on carbon-intensive sectors by developing programmes that spur investment in alternative sectors, reskill affected workers or provide them with compensation; and
• Develop sector- and geography-specific transition pathways, as well as benchmarks to evaluate progress on their alignment with well-below 2°C pathways.

The CLFI report was formally delivered to the Secretary-General at the Climate Action Summit, while the proposed private sector actions tied to the recommended solutions will be tabled for discussion at the Bloomberg Global Business Forum on 25 September.

The CFLI was established in 2018, following a request of UN Secretary-General António Guterres to Michael Bloomberg, UN Special Envoy for Climate Action, to lead a private sector initiative to support global mobilization of private finance in response to the challenge of climate change. The Initiative brings together senior executives of seven major private sector institutions – Allianz Global Investors, AXA, Enel, Goldman Sachs, HSBC, Japan’s Government Pension Investment Fund (GPIF) and Macquarie – representing a diverse span of roles across the investment value chain that include power utilities, commercial and investment banks, insurers and asset managers and owners. [Publication: Financing the Low-Carbon Future: A Private-Sector View on Mobilizing Climate Finance] [Bloomberg News Story] [CLFI Website]