Unlocking opportunities for climate finance
For finance to enable the scale and pace of change we need we will need to completely rewire our financial system, integrating climate into mainstream financial markets so that the impacts and effects of climate change become a necessary and accounted cost in the economy; creating strong, financial incentives to do something to reduce emissions; and rethinking market design and value economics in terms of circularity and planetary boundaries.
The global financial system, awash with capital, represents the enabling mechanism to unlock the trillions in risk-informed finance required to accelerate progress towards a net-zero emissions economy in the coming decades.
However, currently, both short-term financial return incentives and the exclusion of climate risks and opportunities from the information used for commercial and financial decision making are preventing the realisation of climate-aligned efforts at the required scale in real world implementation in cities, land use and industry.
Our aim is to mainstream climate in financial markets, democratise climate risk information, and foster bankable green assets, especially in cities, where the need for risk-informed, 1.5 C compatible finance is more than $90 trillion globally over the next 15 years.
The ‘Decision Metrics and Finance’ team at EIT Climate-KIC works with our community of partners to develop the metrics and financial mechanisms to redirect and mobilise the finance at this scale to drive the necessary structural and behavioural changes.
Our report Mainstreaming Climate brings together recent case studies on innovations that integrate climate into financial decision making such as:
- Aligning Portfolios with Paris: Aligning Portfolios with Paris (APWP), a project involving EIT Climate-KIC partners InfluenceMap and 2° Investing Initiative (2dii), sets out to provide owners with direct information on the climate-related characteristics of their assets.
- Disclosure – A New Approach: EIT Climate-KIC is supporting CDP in the upgrade of its disclosure system to ensure it responds to new market needs and the rising urgency of global environmental challenges.
- Climate Risk for Asset Managers (CRAMS): Carbon Delta has been working on a Climate Value-at-Risk (Climate VaR™) model, a unique tool that takes climate change risk data, processes it and presents it to investment managers in an easy to understand format that can readily be used in portfolio analysis.
- Financial Centres for Sustainability (FC4S): The European Hub of the FC4S is a part of EIT Climate-KIC’s wider innovation ecosystems and systems innovation work and part of a joined-up ‘portfolio’ of finance interventions.
- Asset Data Provider: An initiative that builds on 2dii’s research to date to provide verifiable asset-level data, for integration into climate-related financial analysis.
- Sovereign Physical Climate Risk (SPCR): An innovative project that aims to integrate climate change issues into financial ratings of sovereign states.
Defining the levers for change
The Mission Finance video series looks at the levers of change that can help to mainstream climate in financial markets and foster bankable green assets.
A playlist of all our videos from the Climate Innovation Summit is available here, including the session videos from the summit and bite-sized video interviews with VIPs. Our aim is to shed light into the challenges and opportunities for sustainable finance and build a dialogue towards the co-creation of new solutions. In this video we ask Andrew McDowell, Vice-President of the European Investment Bank, how we can scale up sustainable finance innovations:
For a full list of the videos and interviews please visit our #MissionFinance playlist.
Latest news and insights
The financial sector must play a critical enabling role to limit global warming to below 1.5 degrees. Investors need to quickly overhaul their strategies for climate change to be halted in just over a decade, and there are already tools and solutions available to help investors align with this goal.
Where should investors be putting their money to make a real impact when it comes to climate change? And how should businesses react? Shifting the perspective from risk to opportunity can create an unexpected leverage point that could present the answer.
Blockchain Valley Ventures is a Crypto Valley, Switzerland based company that was launched in March 2018 as a new accelerator and venture firm with support from EIT Climate-KIC.
The financial system needs to be reshaped to trigger the investments needed to address climate change, says Kirsten Dunlop, CEO of EIT Climate-KIC, and innovation is crucial to bringing sustainable finance to the next level.
With vested interests and lack of political will named as obstacles to securing 1.5C, it may be necessary to challenge the very value system the financial industry is built upon.
"How can we also avoid the financial implications resulting from the exposure of investments and physical assets to these risks?" asks Hanna Värttö of South Pole Group.
"We need, at a political level, growing consensus and, at a financial level, change in the investments we make and how they are to be funded" says Ireland's Minister of Climate Action.
Financing adaptation is a key delivery mechanism for the Sendai Framework for Disaster Risk Reduction and the UN’s 17 global Sustainable Development Goals.
Most of the world’s largest companies account and report on emissions from their direct operations, but there is still a significant gap in accounting for emissions along their value chain.
Decision-makers with responsibility for capital need to make bold, upfront investments in innovative sustainability solutions to limit climate change. An improved understanding of physical climate risks can help make this ‘strategy overhaul’ happen.
Across most industries, quick wins for decarbonisation – at least within current frameworks – have already been put in place. Innovative finance will be needed to unlock investment across all sectors and industries. Environmental Finance explores how investors can enter uncharted waters to truly drive change.
The roadblocks that stand in the way of companies analysing and reporting their climate risks, as recommended by the Task Force on Climate-related Financial Disclosures (TCFD), were discussed at a panel discussion at EIT Climate-KIC’s Climate Innovation Summit.
Public, private and institutional investors financing sustainable land-use projects are now looking at practical ways to scale them, make them.
Most climate and ESG data is self-reported – can this approach ever provide investors with the reliable and comparable data they need to make the best investment decisions?
Sandra Vlasic of Terra Hub looks back at the Climate Innovation Summit 2018 which took place in Dublin with a focus on sustainable finance.