Today, above the flickering red and green signs of company stock at the London Stock Exchange, appeared a new symbol: “Climate Finance Accelerator”.
This sign, in this context, is a strong signal of a movement gathering momentum to shift countries and companies towards a low carbon, sustainable economy. It marked the launch of the first Climate Finance Accelerator, a bold initiative bringing together countries and financiers to co-develop plans that can help counties transform their economies to mitigate and adapt to climate change.
Country delegations from Nigeria, Mexico, Columbia and Vietnam have been teamed up with London based financial experts and development banks to co-develop detailed investment plans for bankable projects in an intensive 5-day process. The CFA is the brainchild of serial climate change-makers Ian Callaghan and Tessa Tenant and was set-up together with PWC and Riccardo. It provides a structure to help countries attract the finance needed to meet the climate targets they set out in the Paris Agreement.
One can understand why this is attractive to the private sector, once the sheer scale of the finance gap becomes apparent – Sir Roger Gifford, speaking this morning, put the need at $90trillion. Mexico alone is looking for more than $100bn by 2030. Countries have already committed massive budgets and are looking to the sector for smart financing arrangements for further billions.
This mini-blog will follow the teams over the next few days and highlight some of the emerging themes, resources and ideas coming through that may be useful for others working in similar areas.
A few themes that emerged today, including:
The power of multi-stakeholder dialogue
Nanno Kleiterp, development financier, said “it’s all about learning to understand each other’s language”. Hans Verholme, supporting the Nigerian delegation, mentioned “It’s about merging conversations at national and international level”. The Mexico delegation, which had representation from Government, local banks and the guild of taxicabs, noted that by involving diverse stakeholders CFA-inspired conversations had already significantly progressed the agenda.
Similarity in sector focus
Of interest is the similar focus areas across counties; transport (specifically, electrification and shift from private to public modes), energy (implementation of renewable and efficiency measures) and agriculture (including smart agriculture and land-use shifts). This offers opportunities to learn from existing projects and for collaboration, knowledge-sharing and replication.
The management of risk
The CFA initiative removes the information asymmetry that raises the price on projects by making opportunities more transparent to the finance community in a language they understand. It also allows them to weigh up endogenous and exogenous risks and develop blended and specific solutions to address each of these. Ultimately this will (as Michael Lewis from Deutsche Bank pointed out), lead to suites of new products from these institutions. It is also noted that part of the bigger transformational journey will need to include insurance companies. A Government led initiative, like the Green Investment Bank, supports increased market confidence by showing intention, creating focus and offering first capital.
Link to development
As Nigeria said in their opening statement today “Climate and development are inextricably linked”. Climate projects have multiple co-benefits that make them attractive to counties. In the UK 430 000 people are already employed in the green energy sector and it is growing at more than 12% p.a. For Nigeria, the opportunity to create new value chains in agriculture will support food security and lower cost of imported food. All of the counties mentioned the projects discussed as an opportunity to increase access to energy and alleviate poverty.
A wide range of creative finance structures and solutions are already deployed
These are very diverse and include: green bonds, Green Investment Bank (UK), Green Investment Bank (Connecticut), Green Growth Fund, Denmark Climate Fund, charges on electric bills, cap ‘n trade, carbon credit, Climate Investor 1 Fund, and government guarantees. They all offer case studies for countries and finance professionals to learn from.
Finance is not the silver bullet
While this was listed as the most important barrier for countries to move forward with their plans, other factors that need to be addressed include: in country capability development, ensuring strong governance and legal frameworks and community engagement.
A great start! Ed Wells, of HSBC, said today that “the money is there. If we can create the structures, it will flow”. Today (Tuesday) we start in earnest creating those structures, with the country teams working at different banks on an immersive ‘deep dive’ into enabling environments and how to prioritise projects.
More to follow…