Category: Climate Finance

The European Investment Bank is launching a project to increase the Climate Resilience of their Investment Projects

The European Investment Bank is launching a project to increase the Climate Resilience of their Investment Projects

The European Investment Bank (EIB), the bank of the European Union and a leader among international finance institutions in the climate change realm, has commissioned Willis Tower Watson, together with AFRY, the Finnish Meteorological Institute and adelphi to undertake a project titled “Climate Resilience in Investment Projects”. This project aims to build resilience to climate change for EIB projects and increase support for investment in adaptation.

More precisely, the project aims to increase the knowledge, skills and tools required to make projects more resilient to climate change and to identify a larger portfolio of adaptation opportunities in support of the EIB Climate Strategy and the Paris Agreement.

The project has two components:

Component 1: capacity building on climate resilience, and;

Component 2: climate risk management in investment projects.

The project began in May 2021 and will last for two years. The first component will develop the EIB’s capacity on climate resilience and support climate risk assessments at the project level. The second component will support the assessment of physical climate risks and the identification of adaptation measures at the project level.

For more information, please contact Cinzia Losenno at c.losenno@eib.org


Cover photo by Brad Knight on Unsplash.
New learning paper takes stock of CRH GCF Readiness support work in Belize

New learning paper takes stock of CRH GCF Readiness support work in Belize

Willis Towers Watson’s Climate Resilience Hub (CRH) has produced a new learning paper about its experience implementing the Green Climate Fund (GCF). Readiness support project “Capacity Building of National Designated Authority”, commissioned by the Caribbean Community Climate Change Centre (CCCCC) acting as the Delivery Partner (DP).

This paper builds on the CRH climate finance team’s track record of implementing GCF Readiness capacity-building activities in the Caribbean. It focuses on the recent 2019-2021 support it provided to the country’s National Designated Authority (NDA), the Ministry of Finance, Economic Development and Investment (MFEDI), in reviewing GCF concept notes, while considering gender dimensions, and updating its GCF Country Programme. The paper takes stock of the project’s success factors, challenges and recommendations, in light of the outcomes of the first Readiness support project the team conducted in Belize in 2018-2019. It aims to share these lessons learnt with other stakeholders active in climate finance and Readiness projects in the Caribbean, in order to support regional efforts to access GCF through a robust project pipeline.

Download the learning paper here.

National Event in Belize Validates Green Climate Fund (GCF) Country Programme through a Virtual Structured Dialogue

National Event in Belize Validates Green Climate Fund (GCF) Country Programme through a Virtual Structured Dialogue

Belize’s Ministry of Finance Economic Development and Investment (MFEDI) – the National Designated Authority (NDA) to the Green Climate Fund (GCF) – in collaboration with Willis Towers Watson’s Climate Resilience Hub (CRH) convened a three-day virtual Structured Dialogue to receive stakeholder inputs and validate Belize’s updated Country Programme* for eventual submission to the GCF**. The event brought together almost 50 key stakeholders across various Belizean ministries, private sector and civil society organisations (CSOs) to guide the country’s engagement with the GCF over the period 2021-2025.

The event took place in the context of the Readiness support project carried out in Belize by the MFEDI in association with the CRH climate finance team and national consultant, Ms Ann Gordon, to update Belize’s Country Programme through an inclusive, and participatory process. The project is funded by the GCF through the Caribbean Community Climate Change Centre (CCCCC) who acts as a Readiness delivery partner (DP).

Opening the meeting on 29th March 2021, MFEDI CEO Ms. Narda Garcia said that “to respond to the imminent threats posed by climate change, the government of Belize is committed to transforming the country’s economy along a low-emission and climate-resilient pathway towards sustainable development.” She also noted that one of the objectives of developing a CP that articulates priority climate change-related needs is to foster country ownership, built through an inclusive process driven by national stakeholders. Ms. Beverly Wade from Belize’s newly-formed Ministry of Blue Economy and Civil Aviation also opened the event by articulating the ministry’s mandate with ongoing GCF activities, acknowledging that Belize’s ocean health was a major contributor to Belize’s wealth and economic development. 

Over the three days, attendees had the opportunity to engage in frank exchanges amongst each other and the NDA on the contents of the updated CP, including its new pipeline of projects for submission to GCF, and Belize’s national climate circumstances and policy goals.

Discussions during the Dialogue highlighted and welcomed the robust support provided by the GCF, while exploring through group discussions the challenges and opportunities to further strengthen the country’s access to climate finance. Ministerial stakeholders, such as the NDA and the National Climate Change Office (NCCO) of Belize, shared the priority areas under Belize’s new administration, such as working with the private sector and increasing agriculture’s climate resilience amongst others, and provided updates on critical national climate documents being updated, such as the updated Nationally Determined Contribution (NDC) which is being finalised for eventual submission to the United Nations Framework Convention on Climate Change (UNFCCC).

On the last day, stakeholders were presented with each other’s comments that were collected on the updated draft CP and were invited to share their feedback with the audience which ensured that the updated document embodied national agreement through an inclusive and multi-stakeholder process.

In response to the challenges that arose from COVID-19 travel restrictions, the virtual Dialogue employed a mix of plenary presentations from guest speakers, the use of real-time online collaboration tools to comment on the CP, as well as takeaway preparation materials for attendees. Additionally, a poll was administered after the event which found that stakeholders found the process to be inclusive and allowed them as national stakeholders to validate the update of Belize’s CP. This reflects the team’s efforts to ensure national stakeholders’ ownership of the process, despite the challenges arising from the pandemic.

At the end of the event, Mr. Leroy Martinez, Economist and the NDA’s GCF Focal Point, provided closing remarks and thanked all participants, reminding that the group had a shared goal to advance Belize’s national climate change goals. The CRH team will integrate the validated stakeholder feedback from the event into the Country Programme, and share it with the NDA for approval, which will in turn submit it to the GCF in the coming months.


* A Country Programme is a document that establishes the basis for a country’s engagement with the GCF which includes the country’s profile (climate-related impacts, development challenges and climate priorities), the country’s engagement with the GCF (a  GCF project portfolio  and prospective pipeline), and the continuous monitoring and evaluation of the document. As such, the Country Programme provides investment guidance to GCF to support countries achieve low-carbon and climate-resilient development.

** The GCF is the largest public fund dedicated to financing climate change action in developing countries.


Virtual structured dialogue to validate Belize’s Country Programme for engagement with the world’s largest public climate fund, Green Climate Fund.

Virtual structured dialogue to validate Belize’s Country Programme for engagement with the world’s largest public climate fund, Green Climate Fund.

Press release

Belize, a Small Islands Developing State (SIDS) with mangrove forests, dense jungles and the largest barrier reef in North America, is exceptionally vulnerable to the impacts of climate change. Its geographical location and low-lying topography leave the country exposed to rising sea levels and increased frequency and intensity of tropical storms and hurricanes that have traditionally hit the area with catastrophic consequences. Additionally, the economic weight of highly climate-sensitive sectors, notably agriculture and tourism, heightens its vulnerability to a changing climate and threatens its economic development.  

In this context, the COVID-19 crisis places an additional burden on Belize’s growth perspective, leading to a 15.5% economic contraction in 2020, the largest in recent decades.

These climate stresses and economic shocks represent major hurdles Belize is facing to achieve the climate adaptation and mitigation goals the country has set out for itself.

The Green Climate Fund (known as the GCF) offers an attractive source of funding, currently capitalised at USD 9.7 billion, and is the largest fund dedicated to climate change in the world which can provide critical support to achieve climate goals. Belize is already seizing opportunities arising from the GCF.

GCF activities in Belize are coordinated by the country’s National Designated Authority (NDA) and the Ministry of Finance, Economic Development and Investment (MFEDI), in collaboration with the delivery partner (DP), the Caribbean Community Climate Change Centre (CCCCC). In particular, the MFEDI plays an important role in facilitating access to the GCF in Belize and is responsible for acting as the focal point for communications with the GCF and national organisations, identifying national funding priorities in consultation with stakeholders, giving no-objection to funding proposals, and nominating national organisations for accreditation.

To date, there is one GCF-funded project in Belize, focused on climate-smart agricultural production, and implemented by the International Fund for Agriculture and Development (IFAD). Belize has also received support from the GCF to boost the capacities of the country to access international finance for investments in climate change projects, as part of the Fund’s Readiness programme.

An initial 2018 Readiness conducted by Acclimatise Ltd. (now Willis Towers Watson’s Climate Resilience Hub (CRH)[1]) ,“Capacity Building of the NDA and Preparation of Country Strategic Framework”, strengthened the MFEDI’s capacity to carry out its GCF-funded responsibilities and developed a  Country Programme to guide Belize’s engagement with the GCF.  A Country Programme is a document that guides Belize’s GCF investment priorities and Readiness support requests by translating national climate change priorities into a pipeline of fundable projects and programmes, prioritised by national stakeholders.

The CRH, together with a national consultant, are now implementing a second phase of Readiness activities to update Belize’s Country Programme and further strengthen Belize’s national capacities to effectively and efficiently access, manage, disburse and monitor GCF financing.

Activities have included an online training course on GCF project and programme requirements to build the capacities of the NDA and national stakeholders to prepare, appraise, and submit bankable project funding proposals for submission to the GCF; and the development of a set of gender criteria and indicators to integrate gender considerations into the design and appraisal of GCF concept notes.

Additionally under this project, a broad and country-driven consultative process was launched in the form of two Structured Dialogues to identify new projects and programmes that could be integrated into Belize’s Country Programme’s updated project pipeline. Using a country-driven approach through a first Structured Dialogue a pipeline of projects and programmes aligned with Belizean climate priorities and GCF requirements has been reviewed and prioritised by national stakeholders from the public and private sectors, as well as civil society. The Country Programme represents an opportunity for Belize to share its climate change priorities with the GCF and relevant accredited entities.

Now a second structured dialogue is taking place virtually from 29th – 31st March 2021 with the NDA secretariat and national stakeholders to validate the updated Country Programme and its finalised pipeline as well as a proposed procedure for continuously updating the Country Programme. By project completion in April 2021, Belize will have developed a robust pipeline of projects and programmes (mostly adaptation-related with a sectoral focus on agriculture, marine and costal resources as well as biodiversity) for submission to the GCF as well as have a clear roadmap for investment priorities to tackle climate change as part of GCF’s first replenishment period of 2020-2023.

NOTES FOR EDITORS

Ministry of Finance, Economic Development and Investment (MFEDI)

The Ministry of Finance, Economic Development and Investment in Belize formulates and recommends national development policies, strategies and programmes to promote macroeconomic stability, sustainable socioeconomic development and the reduction of poverty.

About the Caribbean Community Climate Change Centre (CCCCC):

The Belize-based Caribbean Community Climate Change Centre (CCCCC) coordinates the region’s response to climate change. Officially opened in August 2005, the Centre is the key node for information on climate change issues and the region’s response to mitigating and adapting to climate change. CCCCC sought accreditation to the GCF in 2015 to undertake and scale up both mitigation and adaptation projects across the region in order to drive a paradigm shift in the region’s development patterns.

About the Green Climate Fund

The Green Climate Fund (GCF) is a global fund created to support the efforts of developing countries to respond to the challenge of climate change. GCF helps developing countries limit or reduce their greenhouse gas (GHG) emissions and adapt to climate change. It seeks to promote a paradigm shift to low-emission and climate-resilient development, considering the needs of nations that are particularly vulnerable to climate change impacts.

It was set up by the 194 countries who are parties to the United Nations Framework Convention on Climate Change (UNFCCC) in 2010, as part of the Convention’s financial mechanism. It aims to deliver equal amounts of funding to mitigation and adaptation, while being guided by the Convention’s principles and provisions.

CONTACTS

Mr. Leroy Martinez of the Ministry Finance, Economic Development and Investment (MFEDI): leroy.martinez@med.gov.bz


[1]     Acclimatise Ltd. was acquired by Willis Towers Watson’s (WTW) Climate Resilience Hub (CRH) on 11 November 2020. WTW is a global advisory, broking and solutions company with extensive experience consulting on climate change adaptation and climate finance.


Cover image by Seann McAuliffe
How climate change can be addressed through executive compensation

How climate change can be addressed through executive compensation

By Nidia Martinez, Director of Climate Risk Analytics, Willis Towers Watson’s Climate and Resilience Hub and Ryan Resch,Managing Director, Executive Compensation (Toronto), Willis Towers Watson

  • One of the most useful tools in prompting leaders to address climate change is via compensation and incentive programmes.
  • Our research shows more boards will be linking relevant climate action measures to executive incentive plans over the next few years.
  • Lack of standardised climate change metrics is holding back the wider adoption of including climate action in executive compensation.

Environmental, social and governance (ESG) issues are increasingly becoming incorporated across all aspects of organizations, including business strategies, operations and product/service offerings.

Recent global research of boards of directors by Willis Towers Watson found that 70-80% of respondents have identified ESG priorities and developed ESG implementation plans. However, only 48% have fully incorporated ESG into their businesses, indicating that organizations are at different stages in their ESG journeys. While the most cited reason for taking ESG actions is that they see it as the right thing to do, over three-quarters (78%) of respondents indicate that they believe ESG is a key contributor to strong financial performance.

Though many organizations have adopted ESG principles, executives and boards could do more to meet the demands of institutional investors, customers, employees and other stakeholders especially in regard to climate change risk.

Some 41% of respondents ranked the environment – including climate change – as their leading ESG priority now; and 43% anticipated it will remain number one in three years.

A particularly effective way to advance ESG principles is through redefining responsible leadership. And one of the most useful tools in prompting leaders to address climate change and make their organizations more sustainable is through compensation and incentive programmes, and the incorporation of new climate-action metrics into such programmes.

Rising demand for sustainable solutions

The drive to make companies more climate resilient and sustainable started with institutional investors, which have long been aware of climate risk. Consumer awareness, likewise, has grown significantly as climate change becomes more apparent in their daily lives amid news stories about extreme weather, such as wildfires.

Many consumers are now more conscious than ever when choosing brands whose policies meet their own interests. For some, this attitude carries over as a factor in the companies they choose to work for, further encouraging organizations to incorporate climate action and sustainability, among other ESG criteria, to help attract and engage the best talent.

Despite this backdrop, many boards have not incorporated climate awareness into their organizations yet. Analysis of company public disclosures conducted by Willis Towers Watson shows that while approximately 11% of the top 350 European companies have CO2 emissions linked to their incentive plans, only 2% of US S&P 500 companies have it.

As we look forward, nearly four out of five (78%) survey respondents plan to change their use of ESG priorities in executive incentive plans over the next three years, with 40% looking to introduce ESG measures into long-term incentive plans and nearly one-third looking to increase the prominence of environmental measures.

Executives acknowledge need for climate action

Despite the lack of environmental and climate metrics in executive compensation and rewards programmes, executives acknowledge the need to address climate risk.

According to a 2019 survey by the United Nations (UN) and Accenture, 71% of CEOs believe that — with increased commitment and action — business can play a critical role in contributing to the UN’s Sustainable Development Goals. Yet only 48% of CEOs are implementing sustainability into their operations, which is consistent with the findings from Willis Towers Watson’s research as noted earlier.

Our research found that the most common challenges cited when incorporating ESG metrics into executive compensation plans include setting targets (52%), identifying (48%) and defining (47%) performance metrics, and establishing time periods to affect meaningful change (35%).

Given these responses, it is fair to assume that the lack of standardised climate change metrics is holding back the wider adoption of including climate action in executive compensation. Furthermore, every business has a measurable carbon footprint. Therefore, boards can make reducing that footprint — with the ultimate goal of reaching carbon neutrality — a metric for their organizations and incorporate it into executive compensation.

Since every industry is different, the metrics to incentivise climate action need to be customised by sector, as highlighted through the industry-specific standards provided by the Sustainability Accountability Standards Board or other climate change disclosure frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD).

As organizations refine their climate change strategies and disclosures, they can then start to consider the linkages to their executive compensation programmes.

Multiple ways to link executive pay to climate action

As indicated by our research, more boards will be linking relevant climate action measures to executive incentive plans over the next few years. There are a few ways to make the connection, ranging from underpins, to modifiers, to short-term incentive (STI) plans, to key performance indicators (KPIs) within long-term incentive (LTI) plans, to standalone hyper-long-term incentive plans.

  • An underpin (or minimum funding threshold) is most appropriate in the case of a company with meaningfully high CO2 emissions that newly introduces climate sustainability metrics. It should include a threshold or basic level of CO2 emissions that is required for some of the payout under other incentive plan metrics to occur.
  • An individual performance rating modifier can be tailored to an individual’s role and improve line-of-sight for more qualitative or strategic climate change objectives, but it may not promote collaboration by participants to achieve a common material goal.
  • Plan modifiers are standalone metrics that consider the “how” and the “what”. A modifier allows for the entire STI or LTI award payout to be increased or decreased by a certain percentage. If the underlying target is met, then no modification would be made and the underlying STI or LTI award would be made based on the other metrics.
  • KPIs provide a direct measure that reinforces the importance of climate change and usually are easily communicated, quantifiable objectives. A more highly weighted metric requires clear linkages to funded metrics, but the KPI needs to have a material weighting to demonstrate its importance to plan participants and external stakeholders.
  • KPIs in LTI plans introduce standalone climate change metrics that are most appropriate if there is a longer time horizon to produce measurable results (e.g. carbon emission reductions). A drawback, however, is the length of performance period may dilute momentum to achieve sustainability results, which are the key drivers of LTI plan performance, and could de-emphasize financial/market performance.
  • Standalone incentive plans are separate from other incentive plans, with the sole purpose of measuring sustainability performance and reducing climate risk (e.g. a hyper-long term that aligns with the sustainability strategy). Such plans encourage participants to take a longer-term view of performance, but they may be difficult to communicate or viewed as duplicative of other incentives.

Because most CO2 emission reduction targets tend to have longer-term horizons, the typical annual and three-year incentives may not be directly aligned with these goals. Nonetheless, even short-term incentives can have a significant impact in terms of corporate culture. But to encourage longer-term decision making (e.g. a target period of 10 years) often associated with large capital investments, and to emphasize its prominence, companies could introduce a separate, hyper-long-term incentive plan focused solely on CO2 emission reductions.

Modern incentive plans are based on time as a constant (i.e. one- or three-year performance periods) and performance as a variable (i.e. achievement of threshold, target, stretch goals). However, a hyper-LTI could allow a different variation, in that the performance goal could be treated as constant (e.g. CO2 emission reduction of 50%) and time could be treated as the variable. Thus, encouraging early achievement of goals via incentive upside, and conversely punishing delayed achievement of CO2 reduction targets with an incentive downside.

Implementing such incentive arrangements may not be straightforward. Companies will need to consider whether and how best to rebalance other components of pay, how to deal with disclosures of mega-LTI grants, and ensure that targets are sufficiently stretched so that proxy advisors do not perceive these plans to have soft targets as way of boosting executive pay. Large institutional investors have supported proposals for long-term alignment between CO2 emissions and incentives, provided that the quantum and opportunity are properly calibrated, and mechanics are carefully laid out.

What’s the World Economic Forum doing about climate change?

Climate change poses an urgent threat demanding decisive action. Communities around the world are already experiencing increased climate impacts, from droughts to floods to rising seas. The World Economic Forum’s Global Risks Report continues to rank these environmental threats at the top of the list.

To limit global temperature rise to well below 2°C and as close as possible to 1.5°C above pre-industrial levels, it is essential that businesses, policy-makers, and civil society advance comprehensive near- and long-term climate actions in line with the goals of the Paris Agreement on climate change.Global warming can be beaten thanks to this simple plan

The World Economic Forum’s Climate Initiative supports the scaling and acceleration of global climate action through public and private-sector collaboration. The Initiative works across several workstreams to develop and implement inclusive and ambitious solutions.

This includes the Alliance of CEO Climate Leaders, a global network of business leaders from various industries developing cost-effective solutions to transitioning to a low-carbon, climate-resilient economy. CEOs use their position and influence with policy-makers and corporate partners to accelerate the transition and realize the economic benefits of delivering a safer climate.

Contact us to get involved.

To convince sceptics, focus on the bottom line

For boards and management that are a little more suspect of climate sustainability, consider the fact that climate-related measures can provide a return on investment through reduced energy consumption and waste in addition to the goodwill of stakeholders like investors, customers and employees.

As the World Economic Forum’s January 2019 publication on effective climate governance for boards sets out, monetary incentives for senior management teams should be tied to long-term organizational goals that contribute to resilience and prosperity over time. There is little to prevent linking climate-risk and opportunity-related factors to compensation if they are material to an organization’s long-term sustainability, value creation and risk mitigation.

Executive compensation has always been an effective tool to foster innovation. Now we must marshal its power to encourage the march toward a climate resilient future.


Cover photo by Markus Spiske on Unsplash.
This article was originally published by the World Economic Forum. View the original article here.
Climate chaos batters global insurance industry

Climate chaos batters global insurance industry

By Kieran Cooke

The climate crisis is exacting a rising price from the worldwide insurance industry, a relief and development agency says.

LONDON, 11 January, 2021 – The economic cost of the climate crisis keeps on rising, as the world’s insurance industry is now acutely aware. As the world digests the news that 2020 was the joint hottest year on record, two reports attempt to assess how many billions of dollars are being lost as a result of an ever-warming planet.

Christian Aid, the UK and Ireland-based charity, lists what it considers to be the 15 most serious climate-related disasters in 2020, and seeks to quantify them in financial terms.

“Covid-19 may have dominated the news agenda in 2020, but for many people the ongoing climate crisis compounded that into an even bigger danger to their lives and livelihoods”, says Christian Aid.

Six of the ten most costly disasters happened in Asia, many of them associated with an unusually prolonged and wet monsoon season. The charity estimates that floods in China cost US$32 billion, while extended rains in India cost US$10bn. Cyclone Amphan, which in May hit the Bay of Bengal region – one of the world’s most densely populated areas – caused losses valued at US$13bn.

“Covid-19 has an expiry date, climate change does not, and failure to ‘green’ the global economic recovery now will increase costs for society in future”

In Africa, unusually heavy rains and changing wind patterns are considered to have been the main factors behind devastating infestations of locusts, which caused an estimated US$8.5bn of damage to crops in Kenya and other East African countries.

In its latest update on locust breeding and movement patterns, the UN’s Food and Agriculture Organisation warns that swarms are likely to continue devastating crops across the Arabian peninsula and in East Africa in the weeks ahead.

Christian Aid says its calculations of financial losses resulting from climate crisis-related events are likely to be an underestimate. “Most of these estimates are based only on insured losses, meaning the true financial costs are likely to be higher”, the report says.

Insurance is a very unequal business: much of the property and economic infrastructure of the developing world is not insured, with the bulk of cover being in the US, Europe and other leading economies.

Australian toll

Swiss Re is one of the world’s biggest insurance groups. Its preliminary estimate of global insurance losses as a result of both what it terms natural catastrophes and man-made disasters in 2020 amounts to US$83bn, up 40% on the previous year. A large chunk of those losses resulted from claims related to extreme weather events in the US.

“Losses were driven by a record number of severe convective storms (thunderstorms with tornadoes, floods and hail) and wildfires in the US”, says Swiss Re. Wildfires in Australia were another contributing factor.

The group says climate change is likely to exacerbate what it calls secondary peril events, as more humid air and rising temperatures create extreme weather conditions, which in turn will result in more frequent wildfires, storm surges and floods.

“While Covid-19 has an expiry date, climate change does not, and failure to ‘green’ the global economic recovery now will increase costs for society in future”, says Jerome Jean Haegeli, Swiss Re’s chief economist– Climate News Network


This article was originally published on The Climate News Network.
Cover photo by Iwoelbern, via Wikimedia Commons.
Online event: Building climate resilience through insurance: Lessons from the InsuResilience Investment Fund’s first six years

Online event: Building climate resilience through insurance: Lessons from the InsuResilience Investment Fund’s first six years

The InsuResilience Investment Fund (IIF) is hosting an event at this years’ InsuResilience Global Partnership Annual Forum. The virtual side event “Building climate resilience through insurance: Lessons from IIF’s first six years” will take place on the 10th of December 2020 at 15:15 – 16:30 CET.

In addition to the side event, IIF will participate on Day 4 of the Annual Forum. Maria Teresa Zappia, Chief Impact & Blended Finance Officer of the IIF Fund Manager BlueOrchard Finance, will participate in a panel discussion on “Impacting lives”.

Learn more about the event below and register today to guarantee your place.

Session description

How can we mobilize private finance to achieve real and lasting impact through offering climate insurance in developing countries? Join the IIF for a stimulating discussion to learn from its experience after six years of building climate resilience through climate insurance in Africa, Asia, Latin America and the Caucasus.

On the day that the IIF launches its new report “Protecting low-income communities through climate insurance: Achievements from the InsuResilience Investment Fund” authored by IIF, Acclimatise and Climate Finance Advisors, the panel will discuss how the IIF has used a blended finance approach to direct private capital towards building climate resilience through insurance. We will hear directly from two of IIF’s investees about how the Fund‘s investment and support has helped them to launch and grow climate insurance products, in Nigeria and in Pakistan.

The panel also includes representatives from IIF’s fund managers as well as its public and private investors, who will provide insights into how the IIF has raised USD 167 million and invested USD 133 million in 21 companies from across the insurance value chain. Through its unique model, the IIF has extended climate insurance cover to 25 million poor or climate vulnerable people in developing countries.

The session will give participants the opportunity to learn about the IIF’s strategic approach to developing an emerging ecosystem of insurance entities in developing countries and delivering real resilience benefits to poor and climate vulnerable people, and at the same time, delivering value for its investors.

The panel: Moderated by Lea Mueller, Head of Consulting at CelsiusPro, the panel will include:

  • Stefan W. Hirche is Principal Portfolio Manager at KfW, Germany
  • Chukwuma Kalu, Head, Agric Insurance & Emerging Business, Royal Exchange General Insurance Co. Ltd, Nigeria
  • Qasim Raza, Associate Principal, Investment Team, Open Society Foundation, UK
  • Zainab Saeed, Head of Research & Development at Kashf Foundation, Pakistan
  • Maria Teresa Zappia, Chief Impact & Blended Finance Officer, Deputy CEO BlueOrchard Finance, Switzerland
Climate risk disclosure picks up steam: Roundup of developments in UK, US, Australia, and New Zealand

Climate risk disclosure picks up steam: Roundup of developments in UK, US, Australia, and New Zealand

By Robin Hamaker-Taylor

Late summer 2020 has seen a flurry of activity relating to climate risk disclosure requirements, frameworks and consultations, with several milestone announcements and in the last few weeks from Australia, the US, and New Zealand in particular. We bring these announcements together here, as well as highlight a UK consultation on climate risk governance and reporting in pension schemes, closing 7 October 2020.

Australia

On September 14th, a set of guidelines on physical climate risk assessment and disclosure was launched in Australia by The Climate Measurement Standards Initiative (CMSI). The CMSI is an Australian industry-led collaboration established to assist with, and support, climate-related financial disclosures. CMSI involves insurers, banks, scientists, reporting standards professionals, service providers and supporting parties.

The CMSI has recommended financial disclosure guidelines and developed scientific scenario specifications for the purpose of disclosure of scenario analyses for climate-related physical damage to buildings and infrastructure. The open-source guidelines are voluntary, and provide Australian banks, financial institutions and insurers with robust scientific and technical information on how to assess the risk of climate-related damage associated with a set of acute and chronic risks. The guidelines aim to allow Australian firms to determine their physical risks from these extreme events in a credible and consistent way, and to disclose physical risks under the TCFD recommendations. Importantly, this guidance sets out a potential framework for regulation of climate risks, should regulators decide to mandate disclosures in Australia.

Involved parties include: QBE, Suncorp, IAG, RACQ, NAB, Westpac, Commonwealth Bank, HSBC Australia, Munich Re, Swiss Re, Leadenhall CP, MinterEllison and Investor Group on Climate Change. The new CMSI guidelines can be downloaded here.

New Zealand

All eyes were on New Zealand this month as well, when the Government announced plans to make climate-related financial disclosures mandatory for certain firms, on 15 September. The Cabinet agreed to introduce a mandatory regime through an amendment to the 2013 Financial Markets Conduct Act. Disclosures would be required from around 2023, if approved by Parliament, on a ‘comply-or-explain’ basis. At present, around 200 entities in New Zealand would be required to produce climate-related financial disclosures in line with the TCFD recommendations:

  • All registered banks, credit unions, and building societies with total assets of more than $1 billion;
  • All managers of registered investment schemes with greater than $1 billion in total assets under management;
  • All licensed insurers with greater than $1 billion in total assets under management or annual premium income greater than $250 million;
  • All equity and debt issuers listed on the NZX; and
  • Crown financial institutions with greater than $1 billion in total assets under management.

Read more about this announcement on the New Zealand Government website, which provides links to useful climate risk assessment guidance documents, such as those from the IIGCC and UNEP FI.  

United States

There is emerging evidence that key organisations in the United States are starting to understand climate risk as a financial risk. Specifically, the US Commodity Futures Trading Commission (CFTC) released a report on 9 September 2020, entitled: Managing Climate Risk in the U.S. Financial System. The report, produced by the Climate-Related Market Risk Subcommittee of the Market Risk Advisory Committee is the first of-its-kind effort from a US government entity.

The work was instigated by CFTC Commissioner Behnam, and comes after the CFTC announced in 2019 that a climate sub-committee of the Commission on climate risk would be established. Commissioner Benham recognised the global progress toward climate risk supervision, not least by the network of 60+ central banks and supervisors (known as the NGFS) who are sharing best practice on the matter. The US is not yet a member of the NGFS, and though some states, private sector actors and financial institutions have been assessing and disclosing climate risks, the federal government progress on this is sluggish.  

The report brings together a set of over 50 recommendations to mitigate the risks to financial markets posed by climate change. Though regulation of climate risk and mandated disclosure is perhaps a ways off in the US, and in many other countries, this landmark report could help pave the way for improved oversight of climate risks, in particular as the report finds that Existing statutes already provide U.S. financial regulators with wide-ranging and flexible authorities that could be used to start addressing financial climate-related risk now. The full report can be downloaded here.

UK

In late August, the UK Department for Work and Pensions (DWP) put out a consultation which seeks views on policy proposals to require trustees to address climate risks and opportunities. In particular, this would be for trustees of larger occupational pension schemes and authorised schemes. It also invites responses on proposals to disclose these in line with the recommendations of the international industry-led Task Force on Climate-related Financial Disclosures (TCFD).

It is proposed that among the activities required would be calculating the ‘carbon footprint’ of pension schemes and assessing how the value of the schemes’ assets or liabilities would be affected by different temperature rise scenarios, including the ambitions on limiting the global average temperature rise set out in the Paris Agreement. The disclosures would be required to be made publicly available, referenced from the schemes’ Annual reports and Accounts, and pension savers informed of the availability of the information via their annual benefit statement.

The consultation closes on 7 October 2020, and more information on responding to the consultation can be found here.


Cover photo by Dan Freeman on Unsplash.

How banks are trying to capture the green transition

How banks are trying to capture the green transition

By Tomaso Ferrando and Daniel Tischer

Private sector banks in the UK should have a central role in financing climate action and supporting a just transition to a low carbon economy. That’s according to a new report from the Grantham Research Institute at the London School of Economics.

Framed as a strategic opportunity that climate change represents for investors, the report identifies four specific reasons why banks should support the just transition. It would reinforce trust after the financial crisis; it would demonstrate leadership; it would reduce their exposure to material climate risks; and it would expand their customer base by creating demand for new services and products.

The report is not alone in its attempt to put banking and finance at the centre of a green and just transition. Similar arguments are presented by the World Bank, by the European Union, and by many national task forces on financing the transition, including the UK’s.

In all these cases, banks and financial markets are presented as essential allies in the green and just transition. At the same time, the climate emergency is described as a chance that finance cannot miss. Not because of the legal duties that arise from international conventions and the national framework, but because banking the green transition could help reestablish public legitimacy, innovate and guarantee future cashflow.

Twelve years after the financial crisis, we may be aware that banks and finance were responsible for the intensification of climate change and the exacerbation of inequality, but such reports say our future is still inexorably in their hands.

Is there no alternative to climate finance?

Four decades on from British prime minister Margaret Thatcher’s infamous motto that There Is No Alternative to the rule of the market, the relationship between financial capital and the green and just transition is presented as universal and inevitable. However, a vision of the future is a political construction whose strength and content depend on who is shaping it, the depth of their networks and their capacity transform a vision into reality.

Nick Beer / shutterstock
UK banks haven’t recovered their reputation since the financial crisis.

In the case of climate finance, it seems that a very limited number of people and institutions have been strategically occupying key spaces in the public debate and contributed to the reproduction of this monotone vision. In our ongoing research we are mapping various groups involved in green financial policymaking: the EU’s High-Level Expert Group on Sustainable Finance and its Technical Expert Group on Sustainable Finance, the UK Green Finance Task Force, the participants to the 2018 and 2019 Green Finance Summits in London and the authors behind publications like the LSE’s Banking on a Just Transition report.

Across these networks, key positions are occupied by current and former private industry leaders. Having done well out of the status quo, their trajectories and profiles denote a clear orientation in favour of deregulation and a strong private sector.

Often, the same people and organisations operate across networks and influence both regional and national conversations. Others are hubs that occupy a pivotal role in the construction of the network and in the predisposition of the spaces and guidelines for dialogue and policy making. This is the case, for example, of the Climate Bond Initiative (CBI), a relatively young international NGO headquartered in London whose sole mission is to “mobilise the largest capital market of all, the [US]$100 trillion bond market, for climate change solutions”. Characterised by a strong pro-private finance attitude, CBI proposes policy actions that are infused by the inevitability of aligning the interests of the finance industry with those of the planet.

Let’s unbank the green and just transition

COVID-19 has emphasised the socio-economic fragility of global financial capitalism and represents the shock that may lead to an acceleration of political processes. While corporate giants are declaring bankruptcy and millions are losing their jobs, governments in Europe and across the global north continue to pump trillions into rescuing and relaunching the economy in the name of the green recovery.

Political debate and positioning will decide whether these public funds will be spent on bailouts or public investments, on tax breaks for the 1% or provision of essential services, or whether the focus will be on green growth or climate justice. But private finance is already capturing this debate and may become a key beneficiary. Getting a green and just transition does not only depend on the voices that are heard, but also those that are silenced.

Intellectual and political elites on the side of the banks are making it harder to have a serious discussion about addressing climate change. NGOs and campaign groups are participating, but only if they share the premises and objectives of the financial sector.

This crowds out more transformative voices from civil society and the academy, and establishes a false public narrative of agreed actions despite the numerous voices outside of this club. And it also normalises the priority of financial market activities, putting profit before people and planet.

The current crisis is an opportunity to rethink what a green and just transition would entail. We must continue to question the role of finance rather than taking it for granted and ensure that the “green and just transition” becomes precisely that: green and just, rather than another source of profits for banks and the 1%.


This article was originally posted on The Conversation.
Cover Photo by sergio souza on Unsplash
Call for members of the EU Sustainable Finance Platform, new Taxonomy Regulation, and closing public consultations – EU sustainable EU sustainable finance update part 2

Call for members of the EU Sustainable Finance Platform, new Taxonomy Regulation, and closing public consultations – EU sustainable EU sustainable finance update part 2

By Robin Hamaker-Taylor

The European Commission is continuing to progress the implementation of their Action Plan for Financing Sustainable Growth. New reports have been published, regulations have been established, and more are on the way. Much of this recent activity has implications for financial institutions. This is the second of a two-part article series that aims to round up these developments.

This article narrows focus to newly adopted EU regulations on the Taxonomy, the European Bond Standard, the European Green Deal, and a consultation on the updated EU Sustainable Finance strategy. The first article looked at the developments relating to the EU Sustainable Finance Taxonomy and impending regulation, and is available here.

Be sure not to miss the calls and consultations linked throughout this article, several of which end in mid-July 2020.

EU Taxonomy Regulation is adopted and call for members of the Sustainable Finance Platform

On 18 June 2020, European Parliament adopted the EU Taxonomy Regulation (TR). The TR creates a legal basis for the EU Taxonomy and sets out the framework and environmental objectives for the Taxonomy. It will be supplemented by delegated acts*, due to be established in 2020-2021. These acts will contain detailed technical screening criteria for determining when an economic activity can be considered sustainable, and hence when activities can be considered Taxonomy-aligned.

To help the Commission prepare the technical screening criteria and develop the taxonomy further, the Commission has launched a call for applications for members of the Platform on Sustainable Finance. This platform will be an advisory body composed of experts from the private and public sector, according to a Commission press release. Platform members will also advise the Commission on the further development of the EU Taxonomy to cover other sustainability objectives and provide advice on sustainable finance more broadly.

The deadline for applications is 16 July 2020. For more information on the Platform on Sustainable Finance and how to apply, please visit: Register of Commission expert groups – Calls for applications.

*Delegated acts are legally binding acts that enable the Commission to supplement or amend non‑essential parts of EU legislative acts, for example, in order to define detailed measures. Read more about the proposed timeline for EU Taxonomy delegated acts and what they mean for climate risk disclosures in part one of this two-part series.

European Bond Standard

The European Commission is exploring the possibility of a legislative initiative for an EU Green Bond Standard in the context of the public consultation on the renewed sustainable finance strategy. That consultation is running from 6 April to 15 July 2020. A targeted consultation on the establishment of an EU Green Bond Standard, that builds and consults on the work of the TEG, and is running for an extended period of 16 weeks between 12 June and 2 October 2020.

Based on the outcome of these two consultations, as well as ongoing bilateral stakeholder dialogues, the Commission will take a decision in Q4 2020 on how to take the Green Bond Standard. Read more about the EU Green Bond Standard here.

European Green Deal and sustainable finance

The European Green Deal is the EU’s roadmap for making the EU’s economy sustainable and make the EU climate neutral by 2050. It includes actions to boost the efficient use of resources by moving to a clean, circular economy and restore biodiversity and cut pollution, according to the European Commission’s dedicated Green Deal website.

The Green Deal outlines investments needed and financing tools available, and explains how to ensure a just and inclusive transition. Climate Action is one of nine policy areas of the Green Deal. Under the Climate Action umbrella, the Commission is proposing to establish the first European Climate Law which makes it a legal requirement for the EU to become climate-neutral by 2050. On the adaptation and resilience side, the Commission will adopt a new, more ambitious EU strategy on adaptation to climate change in early 2021, according to the Commission. The aim will be to strengthen efforts on climate-proofing, resilience building, prevention and preparedness, ensuring that businesses, cities and citizens are able to integrate climate change into their risk management practices. A public consultation will inform the design of the new adaptation strategy.

The EU recognises that Climate Action will require alignment of many key areas, including sustainable finance. While the EU will fund climate action itself, it expects that its efforts in establishing the Taxonomy Regulation and implementing the will also boost private sector investment in green and sustainable projects. So while the Green Deal may seem like a parallel initiative, it is very much intended to align with the EU’s current efforts to make finance and the wider economy sustainable.

Consultation on the renewed sustainable finance strategy

The European Commission is currently consulting on an update to the 2018 sustainable finance strategy. Building on the 2018 Action Plan on financing sustainable growth, the renewed sustainable finance strategy will provide a roadmap with new actions to increase private investment in sustainable projects and activities to support the different actions set out in the European Green Deal and to manage and integrate climate and environmental risks into our financial system. The initiative will also provide additional enabling frameworks for the European Green Deal Investment Plan. The public consultation is open until 15 July 2020.


Cover photo by Marius Badstuber on Unsplash