No more excuses: Financing 1.5C

First published in Environmental Finance as part of a series covering EIT Climate-KIC’s Climate Innovation Summit 2018. 

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.

This week’s report by the Intergovernmental Panel on Climate Change (IPCC) makes clear that “rapid, far-reaching and unprecedented changes in all aspects of society” must happen to ensure temperature rises don’t exceed 1.5C above pre-industrial levels. The report has provided the clearest evidence yet that global net-zero emissions need to be achieved by 2035.

A key part of this transformation will be to reshape the financial system to accelerate investments in technologies, solutions and partnerships needed to decarbonise the economy and promote behavioural change. Enormous investment is required – for example, the IPCC estimates that around $2.4 trillion or roughly 2.5 per cent of global GDP annually needs to be invested in the energy system between 2016 and 2035. While the IPCC report is an alarming warning, it also reconfirms the unprecedented investment opportunity that can be unlocked if sustainable finance is mainstreamed.

“The IPCC 1.5C special report is a catalyst for a shift away from incremental improvements in existing systems to a greater focus on disruptive solutions across systems,” says Kirsten Dunlop, CEO, EIT Climate-KIC.

The journey to mainstream climate action in the financial system is not starting from scratch. For investors looking to align their actions with the 1.5 goal, a raft of initiatives are underway to identify and accelerate investment in solutions compatible with the target.

“The best thing for financial institutions to do now is to get their fingers dirty and explore what they can do,” says David Lunsford, Co-Founder and Head of Development, Carbon Delta.

The Switzerland-based company, which is supported by EIT Climate-KIC, has developed an evaluation tool identifying how much a company’s value is affected by climate change. The Climate Change Value at Risk (Climate VaR) model analyses risks and related costs for companies if emissions limits are implemented globally to meet a 1.5C, 2C or 3C goal.

“Early next year we’ll have an online tool for investors where portfolio analysis can be done and clients can upload portfolios and download the results of different scenario analysis,” Lunsford says.

To make the 1.5C target a reality, portfolio analysis and investment strategies will need to be overhauled – and not just by individual investors. Importantly, collaborative action and systems-level innovation are needed to move from setting goals to achieving an actual major rise in capital deployed to low- and zero-carbon solutions.

“We have to tackle climate and sustainability in all areas of finance, and we really have to work together – some isolated activity isn’t enough,” says Nico Fettes, Project Lead Fund Ratings, CDP Europe. “We’re far away from reaching the 1.5 target, but the financial sector is huge and has massive influence, so [focusing on] finance is a great way to reach out to many people and EIT Climate-KIC is a [catalyst] for collective action for finance,” he adds.

CDP and ISS-Ethix Climate Solutions last year launched Climetrics, an independent fund rating tool financed by EIT Climate-KIC which enables investors to integrate climate impact into their investment decisions. Effectively, it helps indicate how funds are aligned with the transition to a low-carbon economy. Fettes says other ESG ratings were also launched last year and “collectively we’re trying to create this market – you really have to push the information into the market to create demand”.

Collective action is key, agrees Dennis Pamlin of Mission Innovation which this month, alongside EIT Climate-KIC and other partners, launched an investor framework compatible with 1.5C scenarios. Clusters and groups of investors need to take action, hopefully in combination with future regulation putting the financial system on a pathway towards 1.5C, he says.

The EU is at the forefront of developing policies and frameworks to help support a rapid and significant transition towards a zero-carbon economy.

“We can’t just talk about targets and timetables – we need to talk about how to shift capital,” says Sandrine Dixson-Decleve, a member of EIT Climate-KIC’s advisory board and senior associate of E3G, explaining that this is exactly what the EU Sustainable Finance Action Plan is trying to achieve. Dixson-Decleve is a member of the Technical Expert Group set up by the Commission to develop a classification system for sustainable finance activities, among other things. This system can play a role in meeting the 1.5C target as it will help investors adapt the way they look at their assets and allocate future capital, she explains, and the work done on an EU-level already attracting significant global attention.

“In my history of working on EU policy, it’s the first time we’ve seen all finance ministers give their ‘OK’ for something that’s very much environmentally focused,” she says. “Traditionally, all things dealing with finance and the environment were always promoted by environment and climate ministers – I think it’s a real transition and that’s what we wanted in order to mainstream environmental issues.”

“The IPCC report does not pull its punches,” says Scott Williams, Director of Decision Metrics and Finance, EIT Climate-KIC. “By one reading of scenarios presented in the report to stay below 1.5C of warming, we only have until 2035 to achieve net-zero emissions globally.”

“It’s a goal that nations who have an ambition to light the way will need to consider,” he adds. That’s essentially tomorrow when we’re talking about the pace of change required in a complex, dynamic system like the financial system. The Climate Innovation Summit hosted by EIT Climate-KIC in Dublin next month is an opportunity to get stuck in and seize the opportunity”.

This article is part of an eight-part series by Climate-KIC and Environmental Finance discussing Mission Finance, the theme of the 2018 Climate Innovation Summit in Dublin on 6 – 8th November.  To see the series hub click here; it will be updated weekly prior to the conference.  To register for the conference please click here.

 
Location
Related Goal
Goal 10: Mainstream climate in financial markets
Articles you may be interested in
In The News
In the face of complex challenges, Europe stronger together, says EU President...

European Commission President Ursula von der Leyen outlined her...

In the face of complex challenges, Europe stronger together, says EU President von der Leyen
In The News
New IPCC report reveals urgent need for climate innovation

The IPCC’s Sixth Assessment Report has launched. The report...

New IPCC report reveals urgent need for climate innovation
In The News
Moving beyond ‘brown coal’ in Europe’s rural regions

Together with Partners, EIT Climate-KIC is leading a process...

Moving beyond ‘brown coal’ in Europe’s rural regions
In The News
EU’s “Fit for 55” to spur policy innovation for climate action

The European Commission has released its “Fit for 55”...

EU’s “Fit for 55” to spur policy innovation for climate action
In The News
Munich Re and ERGO invest in EIT Climate-KIC carbon removal programme

Major German corporate group sets the ambition to accelerate...

Munich Re and ERGO invest in EIT Climate-KIC carbon removal programme
In The News
23 pilot projects selected by EIT to unlock higher education’s innovation po...

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

23 pilot projects selected by EIT to unlock higher education’s innovation potential in Europe
In The News
Investing in start-ups scales the offering of climate adaptation solutions in ...

A partnership between EIT Climate-KIC and CDC Group, the...

Investing in start-ups scales the offering of climate adaptation solutions in African and South Asian countries
In The News
Irish Aid extends support for innovation and development from the ground up

The Government of Ireland’s development assistance programme, Irish Aid,...

Irish Aid extends support for innovation and development from the ground up
In The News
EIT Climate-KIC showcases climate innovation at R&I Days

EIT Climate-KIC participated in the European Commission’s Research and...

EIT Climate-KIC showcases climate innovation at R&I Days
In The News
Branch Magazine wins Ars Electronica Award for Digital Humanity

Branch Magazine, a collaboration between EIT Climate-KIC, Mozilla Foundation...

Branch Magazine wins Ars Electronica Award for Digital Humanity
In The News
Cross-KIC project to boost circular economy in Western Balkans

The circular economy concept is of crucial importance to...

Cross-KIC project to boost circular economy in Western Balkans
In The News
Exploring new horizons with Pioneers into Practice

Enrolment is now open for placement hosts and participants...

Exploring new horizons with Pioneers into Practice
In The News
Circular bioeconomy start-up receives €2 million from European Innovation Co...

EIT Climate-KIC supported Lixea (formerly Chrysalix Technologies) has received...

Circular bioeconomy start-up receives €2 million from European Innovation Council Fund
In The News
Embracing a new approach to climate change in Moldova

Moldova is one of Europe’s most modest contributors to...

Embracing a new approach to climate change in Moldova
In The News
Krakow: transforming the city towards climate neutrality

Poland’s former capital and one of its oldest cities,...

Krakow: transforming the city towards climate neutrality
In The News
Is Europe doing enough to tackle climate change?

On 23 April, EIT Climate-KIC CEO Kirsten Dunlop spoke...

Is Europe doing enough to tackle climate change?
In The News
EU Commission publishes sustainable finance taxonomy

The European Commission has published its EU-wide classification system for...

EU Commission publishes sustainable finance taxonomy
In The News
New European Bauhaus: what kind of future do you want to live in?

On 22 and 23 April, the first conference dedicated...

New European Bauhaus: what kind of future do you want to live in?
In The News
Estonian innovation to help stabilise grid as renewables increase

EIT Climate-KIC supported Estonian start-up Sympower has raised €5.2...

Estonian innovation to help stabilise grid as renewables increase
In The News
Five EIT Climate-KIC community members in Forbes 30 under 30 list

Twelve entrepreneurs from across the EIT community have been...

Five EIT Climate-KIC community members in Forbes 30 under 30 list
In The News
These eleven organisations are building a greener Europe

Google, in partnership with EIT Climate-KIC, launched the €10...

These eleven organisations are building a greener Europe
In The News
New equity crowdfunding programme unearths cleantech start-ups

Found by us, funded by you, a new start-up...

New equity crowdfunding programme unearths cleantech start-ups
In The News
From start-up to 100-person industry player in 18 months: air up is launching ...

It’s a beverage revolution: Healthy hydration while fooling your...

From start-up to 100-person industry player in 18 months: air up is launching in new markets
In The News
#TurnItAround: an event for all climate solutions seekers, suppliers and enabl...

As part of the fifth SDG Global festival of...

#TurnItAround: an event for all climate solutions seekers, suppliers and enablers
In The News
New EIT initiative to boost innovation in higher education

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

New EIT initiative to boost innovation in higher education
In The News
Just transition within reach for Polish coal city Rybnik

“We are preparing plans for the next decade. Mentality is...

Just transition within reach for Polish coal city Rybnik
In The News
Inclusive guide helps communities build urban resilience

The new Urban Action Kit, launched by the International...

Inclusive guide helps communities build urban resilience
In The News
Climate app among DigiEduHack 2020 global finalists

The DigiEduHack, supported by EIT Climate-KIC as well as...

Climate app among DigiEduHack 2020 global finalists
In The News
GreeMko receives Climate Reality Project Award in Spain 

GreeMko (for Green Management Technology), a Spanish start-up that...

GreeMko receives Climate Reality Project Award in Spain 
In The News
What’s the future of trade in a climate crisis?

EIT Climate-KIC Chief Executive Officer Kirsten Dunlop addressed the...

What’s the future of trade in a climate crisis?