Financing tomorrow’s new normal today

First published in Environmental Finance as part of a joint series covering the Climate Innovation Summit.

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. 

Economic growth will be lower if global warming reaches 2C above pre-industrial levels than at 1.5C, according to the recently published Intergovernmental Panel on Climate Change (IPCC) special report. Shifting focus to a 1.5C target means the move to a decarbonised economy needs to happen a lot faster across all sectors and industries.

“The scenario most often cited in the IPCC Report is net-zero globally by 2050,” says Kirsten Dunlop, CEO of EIT Climate-KIC. “The safest pathways would see us reaching net zero much earlier, certainly in richer nations.”

Innovative financial solutions and partnerships will be key to making this happen. Many of the “quick wins” have arguably already taken place, with most industries having undertaken the decarbonisation efforts easily available to them within current market structures. The energy sector is rapidly transitioning to low-carbon alternatives, but other crucial parts of a decarbonised economy have proven more difficult to finance, such as energy efficiency retrofits, agriculture, sustainable land-use and cities, says Dunlop.

The IPCC report should trigger a greater focus on disruptive solutions and on what is “hard to achieve”, she adds. She explains the investment implications of achieving a net-zero emissions economy are primarily understood as the need to scale-up existing solutions and that sustainable finance often focuses on “the low-hanging fruit”.

These assumptions need to be challenged for more innovative investments to take place and for climate change to be mainstreamed into the financial system, she says, adding: “There’s a need for rethinking what types of capital are deployed.”

This is echoed by Dennis Pamlin, who is working with EIT Climate-KIC and other partners on the Mission Innovation 1.5C-compatible investor framework. He says climate change needs to be solved at such a quick pace that investors can’t stay away from new solutions that aren’t yet commercialised. “I’m not talking about pie-in-the-sky solutions here but about ideas that exist but need help to grow exponentially.”

And there are plenty of initiatives underway to accelerate investment into areas often branded “notoriously difficult” to finance by investors and lenders. For example, the rewards of financing energy efficiency retrofits could be huge but deployment is slow. Buildings are responsible for 36 per cent of CO2 emissions in the EU but the annual energy saving renovation rate is only between 0.4-1.2 per cent in member states, according to the European Commission. To address this, EIT Climate-KIC is working with South Pole and other partners to create a bankable pipeline of European public building retrofits and find innovative business models and funding solutions to sustain these platforms.

In agriculture, climate resilience bonds are emerging as a way for financial investors to put their capital into climate-related activities. At present, green and resilience bonds are primarily being raised for energy infrastructure, but Srini Sundaram, CEO of EIT Climate KIC-backed Agvesto, says criteria are being worked out for land-use climate bonds.

Agvesto, a technology company looking to enable better access to capital and climate risk protection into the agricultural sector, is working with the Climate Bonds Initiative to establish “what areas we should be thinking about in agriculture and sustainable land-use and how to assess such bonds”. The company aims to launch a rating and assessment platform next year for resilience bonds and Sundaram hopes this added transparency in the market will help trigger more investment in sustainable agriculture and insurable farmland. “The alternative is the problem gets worse and ends up on our doorstep – it’s our responsibility to come together, both the public and private sector, to solve it,” he says.

Land-use accounts for one-fourth of world emissions but only around one per cent of green finance is directed towards land-based solutions as they are often perceived as difficult to structure and de-risk. Paul Chatterton, founder of the WWF Landscape Finance Lab, backed by EIT Climate-KIC, is working to unlock more integrated landscape financing and make them more accessible to the private sector.

“Landscape programmes take quite a while to get off the ground, sometimes it will take more than five years to get them up and running with full financing,” Chatterton says. “We need to be much faster, much simpler and we need to bring the private sector in. That’s what the lab is experimenting with and we have 25 landscapes on the platform of which six are now going through the development and structuring phase.” The aim is, he adds, to move some of these programmes into the financing phase next year. Eventually, the idea is to systematise the landscape approach so that “anyone can do the same thing” and rapidly scale up necessary financing for landscapes.

Integrated, system-level approaches should underpin all efforts to catalyse investment in complex areas of the shift towards a zero-carbon world, says Dunlop. Chatterton at WWF agrees: “Sectoral approaches to major conservation and resource management don’t work,” he says, adding that addressing one particular issue or sector “it will always impact something else”.

register for the Climate Innovation Summit

 
Location
Ireland
Related Goal
Goal 11: Democratise climate risk information
Articles you may be interested in
In The News
First European cluster accelerator programme launched in Frankfurt

How to take clusters to the next level and...

First European cluster accelerator programme launched in Frankfurt
Innovation Spotlight
Ioncell’s fiber innovation could help drive the circular economy transitio...

The textile, garment and fashion industries generate tonnes of pollution each year and recycle very little, which...

Ioncell’s fiber innovation could help drive the circular economy transition
Opinion
The challenge of redesigning venture capital
Dominic Hofstetter Transformation Capital, EIT Climate-KIC
The challenge of redesigning venture capital
In Detail
Clean and Healthy Construction

Insights from the C40 World Mayors Summit in Copenhagen: Master Class and Market Dialogue for Clean and Healthy Construction. Why clean construction? Kevin Austin,...

Clean and Healthy Construction
Opinion
If we have figured out transformation, why is the world still in such a mess?
Susannah Fisher Research, EIT-Climate-KIC
If we have figured out transformation, why is the world still in such a mess?
Opinion
The tyranny of categorisation
Dominic Hofstetter Transformation Capital, EIT Climate-KIC
The tyranny of categorisation
Opinion
EIT Climate-KIC strengthens biodiversity through systems change
Felicity Spors Head of International Affairs, EIT Climate-KIC
EIT Climate-KIC strengthens biodiversity through systems change
Opinion
Why our cities must act as beacons for ambitious climate action
Tom Mitchell Chief Strategy Officer, EIT Climate-KIC
Why our cities must act as beacons for ambitious climate action
In The News
Biggest-ever global hackathon to tackle climate breakdown

Over 100 Climathon events around the world turn grassroots...

Biggest-ever global hackathon to tackle climate breakdown
In The News
Global call for transformative solutions to tackle the climate emergency

EIT Climate-KIC launches Climathon Global Awards and Healthy, Clean...

Global call for transformative solutions to tackle the climate emergency
In The News
EIT Climate-KIC supported crop insurance project acquired by world’s largest...

The insurance sector is well aware of the rising...

EIT Climate-KIC supported crop insurance project acquired by world’s largest re-insurer
In The News
EIT Climate-KIC innovators celebrated at 2019 EIT Awards

The European Institute of Innovation and Technology (EIT) has...

EIT Climate-KIC innovators celebrated at 2019 EIT Awards
Opinion
Part three: Climate action #NotinNewYork
Andy Kerr Director, UK & Ireland, EIT Climate-KIC
Part three: Climate action #NotinNewYork
In Detail
New EIT Climate-KIC supported report finds digital technologies can vastly a...

As part of the UN Climate Action Summit, the Global Enabling Sustainability Initiative (GeSI) and Deloitte launched a report today, supported by EIT Climate-KIC,...

New EIT Climate-KIC supported report finds digital technologies can vastly accelerate the SDGs
Opinion
Part two: Climate action #NotinNewYork
Andy Kerr Director, UK & Ireland, EIT Climate-KIC
Part two: Climate action #NotinNewYork
Opinion
Climate action #NotinNewYork
Andy Kerr Director, UK & Ireland, EIT Climate-KIC
Climate action #NotinNewYork
In The News
Circular Cars Initiative launched at United Nations Climate Action Summit

On the occasion of the United Nations Climate Action...

Circular Cars Initiative launched at United Nations Climate Action Summit
In The News
We’re closing for business in solidarity with #ClimateStrike

EIT Climate-KIC will close this Friday 20 September, the...

We’re closing for business in solidarity with #ClimateStrike
In The News
Open Innovation Call targeting air quality and urban heat island effect launch...

The City of Copenhagen’s department Resilient and Sustainable City Solutions within...

Open Innovation Call targeting air quality and urban heat island effect launched
In The News
EIT Climate-KIC cleantech start-up ZOLAR attracts 10 Million Euro Investment

The Berlin-based start-up Zolar raises a 10 million EUR...

EIT Climate-KIC cleantech start-up ZOLAR attracts 10 Million Euro Investment
In The News
Breaking down barriers to climate-finance: the City Finance Lab launches secon...

Competition for the five most innovative financing solutions for...

Breaking down barriers to climate-finance: the City Finance Lab launches second call for proposals
Opinion
Innovating in complexity: Systemic investing
Dominic Hofstetter Transformation Capital, EIT Climate-KIC
Innovating in complexity: Systemic investing
In The News
Climathon onboard ‘Sail to the COP’

On 2 October, 36 young climate change agents will...

Climathon onboard ‘Sail to the COP’
In The News
Research reveals surprising link between socio-economic indicators and sustain...

A new study by EIT Climate-KIC partner academic institutions...

Research reveals surprising link between socio-economic indicators and sustainability transition
Opinion
Transformation capital: A new investment logic for catalysing systems change
Dominic Hofstetter Transformation Capital, EIT Climate-KIC
Transformation capital: A new investment logic for catalysing systems change
Opinion
Innovating in complexity: From single-point solutions to directional systems innovation
Dominic Hofstetter TRANSFORMATION CAPITAL, EIT CLIMATE-KIC
Innovating in complexity: From single-point solutions to directional systems innovation
In The News
Four EIT Climate-KIC innovators nominated for annual EIT Awards

The European Institute of Innovation and Technology (EIT) has released...

Four EIT Climate-KIC innovators nominated for annual EIT Awards
In Detail
Report offers recommendations for development of agricultural impact tool

A new report supported by EIT Climate-KIC’s CSA Booster programme proposes technical, governance and business arrangements for the development of a new tool for...

Report offers recommendations for development of agricultural impact tool
In Detail
Food value chains strategy report offers recommendations based on systemic i...

A new report details the work of EIT Climate-KIC and its partner Metabolic, a consulting company using systems thinking to tackle major sustainability challenges,...

Food value chains strategy report offers recommendations based on systemic impact
In The News
EIT Climate-KIC supports digital roadmap for a circular economy

EIT Climate-KIC, along with several European stakeholders, is advocating...

EIT Climate-KIC supports digital roadmap for a circular economy