13 February 2018
Climate Finance Institutional Update: Progress in Portfolio Decarbonization, Green Bonds
UN Photo/Eskinder Debebe
story highlights

In January, three major investors announced plans to divest, or demonstrated progress in divesting, from fossil fuels.

According to the Climate Bonds Initiative, global green bond issuance in 2017 totalled US$155.5 billion, representing a 78% growth from 2016.

The GCF's plans and priorities for the year include “focusing on quality, while increasing efforts to move more funding proposals into implementation and scaling up disbursement”.

12 February 2018: During the month of January 2018, climate financing institutions and experts took a look back at 2017, reporting growth in financing for the green economy, green bond markets and support to portfolio decarbonization. However, finance researchers continue to neglect climate finance and risk, according to academic findings.

Sustainable Energy Gatherings Discuss RE Finance; WEF Hears Calls for Resource Mobilization

Climate finance was on the agenda at two major January 2018 sustainable energy events. The eighth session of the International Renewable Energy Agency (IRENA) Assembly, held in Abu Dhabi, UAE, discussed: unlocking renewable energy investment through public-private dialogue; delivering bankable renewable energy projects in the small island developing States (SIDS); and accessing funding in the sixth cycle of the IRENA/ADFD Project Facility. The following week, the Abu Dhabi Sustainability Week hosted further discussions on financing for renewable energy and climate action. [IRENA Assembly 2018 Documents] [ADSW World Future Energy Summit 2018 Programme]

At the World Economic Forum (WEF) Annual Meeting, convening at the end of January in Davos, Switzerland, government and business leaders made calls for increased resources for accelerating the uptake of climate change technologies in developing countries, and for businesses to step up climate action. Insurance company AXA announced it will stop insuring coal projects, and revealed plans to divest from coal. [SDG Knowledge Hub story on WEF] [WEF News]

Investors Advance in Portfolio Decarbonization, Climate Risk Disclosure

Signaling a growing interest in divestment as a climate change risk mitigation strategy, three major investors announced plans to divest, or demonstrated progress in divesting, from fossil fuels. New York City announced plans to divest its US$189 billion pension funds of fossil fuel assets, which will amount to US$5 billion in the securities of over 190 fossil fuel companies. A survey of Norway’s sovereign wealth fund found it has reduced its share of investments in major corporate greenhouse gas (GHG) emitters from a equivalent of 280 MtCO2 to 249 MtCO2.

Lloyd’s of London will exclude coal from its investment strategy beginning 1 April 2018.

Also, following in the footsteps of AXA, City of London-based insurance market Lloyd’s of London announced that it will exclude coal from its investment strategy from 1 April 2018. [UNFCCC News Article on New York City] [Climate Investment Fund Links to Articles on Lloyds and Norway]

The UN Environment Programme Finance Initiative (UNEP FI)-led Portfolio Decarbonization Coalition (PDC) released its annual report, which examines members’ progress in “assessing and taking investment action on climate-related risks and opportunities, and by extension, in decarbonizing capital allocation and portfolio design worldwide.” The Coalition notes that the total assets under management by its member investors, US$800 billion, have increased significantly beyond the Coalition’s original asset target of US$100 billion by 2015. [PDC Third Annual Progress Report]

UNEP FI, together with three specialist consultancies, will be developing a harmonized methodology for banks for assessing and disclosing climate-related risks and opportunities. The project is part of the mandate of a working group of 16 major banks worldwide, established in mid-2017 based on the final recommendations by the Financial Stability Board’s (FSB) Task Force on Climate-Related Financial Disclosures (TCFD). [Acclimatise Press Release]

Positive Trend Continues for Green Bonds

The Climate Bonds Initiative published its ‘Green Bond Highlights 2017,’ indicating that global green bond issuance in 2017 totaled US$155.5 billion, representing a 78% growth from 2016. A total of 1,500 green bond issues took place in 37 countries from all continents. The size of the largest single green bond was US$10.7 billion.

Also in 2017, three countries – France, Fiji and Nigeria – issued sovereign green bonds. According to a report by S&P Global Market Intelligence, Europe remains the strongest market, with the US catching up thanks to growth driven by subnational actors and companies. The report also notes that emerging markets accounted for 20% of 2017 issuances, and that private sector actors have now largely replaced development banks as leading contributors to financing, making up two-thirds of the green bond market.

In 2018, the Climate Bonds Initiative forecasts a minimum annual growth of 60% compared to 2017, with a total issuance estimate of US$250-300 billion. S&P Global Market Intelligence published more conservative estimates, predicting a 30% growth and a total issuance of US$200 billion in 2018. [Climate Bonds Initiative 2017 Highlights] [UNEP Climate Action Story]

Also in January, the European Investment Bank (EIB) issued an Australian dollar-denominated Climate Awareness Bond, totaling AUD750 million (US$586 million), and the CICERO Center for International Climate Research reported that Indonesia is about to issue its first sovereign bond. The authors find that Indonesia’s Green Bond and Green Sukuk Framework “is aligned to support the [country’s] climate targets.” [EIB Press Release] [CICERO Press Release]

Institutional News: Funds Report on 2017, Look Ahead to 2018

The Adaptation Fund reported on its results and achievements in 2017, which included a decision by the parties to the Kyoto Protocol that the Adaptation Fund “shall serve the Paris Agreement” and a record-high annual resource mobilization of US$95.5 million, which came from six contributors. [Adaptation Fund Press Release]

Also, the Adaptation Fund Board accredited the Bhutan Trust Fund for Environment Conservation as a National Implementing Entity (NIE) under Direct Access, a modality that enables countries to access funds and design and implement climate change projects directly through accredited national institutions. [Adaptation Fund Press Release]

Reporting on its performance in 2017, the European Bank for Reconstruction and Development (EBRD) said its financing for the green economy increased to €4.1 billion that year (up from €2.8 billion in 2016), representing 43% of the EBRD’s total financing in 2017. The Bank’s pledge in 2015 was to increase the share of green investment to 40% of total financing by 2020. At the One Planet Summit in Paris, France, in December 2017, the EBRD pledged to further increase its climate finance activities. [EBRD Press Release]

In its 2018 letter to partners, the Green Climate Fund (GCF) outlines plans and priorities for the year, which include “focusing on quality, while increasing efforts to move more funding proposals into implementation and scaling up disbursement.” [GCF 2018 Letter to Partners]

The GCF also published the provisional agenda for its 19th Board meeting, taking place from 27 February to 1 March 2018, in Songdo, Republic of Korea. The Fund announced an indicative timeline for consideration of funding proposals for the 20th GCF Board meeting, planned for 3-5 July 2018. [GCF 19th Board Meeting Provisional Agenda] [GCF Announcement on Funding Proposal Deadline for B.20]

January 2018 Reading List

Suggested climate finance-related readings from the month of January are:

  • An article in Climate Home News that highlights the dearth of climate finance-related research in leading finance journals, referring to an academic study that found that “for the leading 21 finance journals only 12 articles (0.06%) are related in some way to climate finance” [Climate Home News Article];
  • The Nordic Development Fund’s (NDF) ‘Climate in Focus’ newsletter, which showcases “NDF’s wide-ranging involvement in green finance” [NDF Newsletter 1/2018]; and
  • A list of ‘top stories’ from 2017 from the Adaptation Fund [Adaptation Fund 2017 Highlights].

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The SDG Knowledge Hub publishes monthly climate finance updates, which largely focus on multilateral financing and cover, inter alia, mitigation and adaptation project financing news and lessons, institutional events and news, and latest developments in carbon markets and pricing. Past IISD climate finance updates can be found under the tags: Finance Update: Climate Change; and Finance Update: Sustainable Energy.

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