What role can finance play in the green recovery? EIT Climate-KIC and UNEP Finance Initiative ask leading thinkers to weigh in

EIT Climate-KIC, in partnership with the UNEP Finance Initiative, is releasing Aligning finance for the net-zero economy: New ideas from leading thinkers, a series of papers that will contribute to the debate on how financial institutions can support a just transition to a net-zero emissions economy by 2050.

Stakeholders in financial markets, capital and investment are key players in tackling climate change, supporting solutions for climate adaptation, and reducing global greenhouse gas emissions. But to enable our economy and society’s transition to net-zero, finance requires a fundamental overhaul. Financial portfolios, for instance, need to align with a well below 2-degrees emissions pathway, incentivising green growth, sustainable development, and systems transformation.

Produced and supported by EIT Climate-KIC, in partnership with UNEP Finance Initiative (UNEP FI), the series
Aligning finance for the net-zero economy: New ideas from leading thinkers aims to inspire financial actors to move from climate risk disclosure to alignment. The series delves into current assumptions around alignment with climate frameworks such as the Paris Agreement and the UN Sustainable Development Goals, and develops ideas for how alignment can best be achieved.

“EIT Climate-KIC has supported innovation to mainstream climate in financial markets, democratise climate risk information, and foster bankable green assets for ten years,” says Kirsten Dunlop, CEO of EIT Climate-KIC. “We are committed to the transformation of core finance to deliver a regenerative, low-emissions economy and sustainable society. Against the backdrop of economic crisis, the inexorable onset of climate emergency and geopolitical fragmentation, financial institutions have an unprecedented opportunity and a responsibility to provide the leadership, investment stimulus and risk mitigation needed for transformation. We are honoured to partner with UNEP FI to provide food for thought as to why and how this might be done.”

The first paper of the series, Achieving Alignment in Finance , is authored by Dr Ben Caldecott, founding Director of the Oxford Sustainable Finance Programme and an Associate Professor at the University of Oxford. It examines how financial institutions can move beyond climate risk management towards much closer alignment with climate outcomes. “We cannot ever hope to align finance and the financial system with climate change objectives if we just focus on a narrow interpretation of climate risk management,” says Dr. Ben Caldecott. “We need specific ways of contributing to the challenge of climate alignment. These need to be articulated, developed and scaled across the financial system rapidly. My paper is one attempt to try and rebalance the conversation.”

The second paper, Transformations Required for 1.5°C Alignment and Global Sustainability,  is written by Dennis Pamlin, founder and CEO of 21st Century Frontiers and Senior Adviser to the Research Institutes of Sweden. Pamlin, who is also a member of EIT Climate-KIC Advisory Council, discusses the transformations that are needed in the global economy and the finance sector to meet the Paris Agreement objectives, as well as the opportunities that these transformations represent for both sectors.

“For almost 20 years, climate discussions have been focused on a ‘problem perspective’, i.e. cost-efficient incremental improvement in existing systems. With IPCC’s 1.5°C report and the Low-Energy-Demand (LED) pathway, the world was given the first innovation-driven pathway that also focused on global sustainability,” says Pamlin. “The COVID-19 crisis demonstrated that we are capable of significant changes and that many solutions are ready to be implemented. Hopefully, my paper can support the shift from an incremental problem perspective towards a transformative solution perspective where financial institutions focus on measurable results that are compatible with a 1.5°C LED pathway.”

The first two papers were launched during a webinar on 2nd September 2020.

In addition to discussing the economic system transformation required to deliver the Paris Agreement, the series will provide answers on how our response to the COVID-19 pandemic informs the response to climate change, and what pathways are available for financial institutions and the financial system to ‘build back better’ and drive the necessary transition to a net zero-carbon economy.

“UNEP FI is supporting financial institutions to deliver low-carbon, fairer, and more resilient global economies,” said Eric Usher, Head of UNEP FI. “Currently, 38 banking members have committed to deliver the goals of the Paris Climate Agreement and we are co-convening 28 asset owners representing nearly $ 5 trillion who aim to decarbonise their investment portfolios by 2050. This series of thought leadership papers convenes innovators and industry experts to provoke discussion, challenge the status quo and guide the transformation of business and finance towards a sustainable future.”

John Elkington and Richard Roberts from London-based change agency Volans, as well as Jakob Thomä, Managing Director at 2° Investing Initiative, will also participate in the series with papers published later this year on EIT Climate-KIC’s website.

 
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Goal 10: Mainstream climate in financial markets
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