The urgency related to addressing climate change is intensifying. In 2018, the International Disaster Databasei recorded 247 extreme weather related events – i.e. floods, drought, wildfire, and storms, affecting over 77 million people and costing USD121 billion in damages. July 2019 was the hottest July since records began in 1880.ii During that month over 16 million people were affected by severe flooding,iii while Australia, the United Kingdom, India, Chile, and the Arctic Circle recorded temperature highs according to various meteorological agencies.iv This all points to a renewed focus on raising ambition to reduce emissions and create a climate neutral economy.

    Action to solve climate change comes from several angles. Countries are already submitting plans as part of ongoing work progressed through the UNFCCC,v the body that facilitates annual climate talks. The problem is that by 2030, even if these plans are fully implemented, the associated emissions will still increase by 10.7 percent, at a time when emissions are supposed to be peaking as soon as possible.vi This would result in temperature rises of more than 3oC by the end of the century. Industry is also helping by setting operational emission reduction targets, and consumers are paying more attention to food and lifestyle choices.

    None of these efforts will be successful without funding. The finance industry recognises its potential to accelerate the pace of transition. Organisations are working collaboratively through a variety of industry groups and forums to speed up financing in a consistent and standardised fashion.

    Individually, financial institutions are also working on product propositions that deliver a low-carbon economy. This integrated approach of building expertise, services and products means that capacity can be scaled up as effectively and consistently as possible across the industry.

    One such collaboration is the Climate Finance Leadership Initiative, initiated by Michael Bloomberg at the request of UN Secretary-General António Guterres in January 2019. The initiative aims to support a global mobilisation of private finance in response to the challenges of climate change. This group has launched a report, Financing the Low-Carbon Future highlighting why private finance hasn’t flowed to low-carbon solutions as required and what to do to fix it. The report highlights five factors that are hampering progress:

    • Proven investment models are not replicated at scale
    • Risks in emerging markets constrain low-carbon investments
    • Many low-carbon investments in key emitting sectors are not yet profitable
    • The transition from carbon-intensive business models may create financial and social risk
    • There is a lack of tools and incentives to align portfolios with a low-carbon future

    The private sector can help overcome these barriers by providing leadership that builds on existing successes in sectors like renewables and blended finance mechanisms to de-risk projects. In the emitting sectors where decarbonisation is less straightforward, such as Cement, Steel or Shipping, policy makers can help to lay the regulatory groundwork so as to crowd in private investment. Similarly, as carbon intensive business models are dialled down, public and private sector can together help manage an orderly and equitable transition. Finally, for finance to be fully activated, private finance can help develop the necessary framework to align financial decision making with well below 2oC pathways.

    i The Centre for Research on the Epidemiology of Disasters Emergency Events Database. EM-DAT: The Emergency Events Database - Université catholique de Louvain (UCL) - CRED, www.emdat.be, Brussels, Belgium
    ii USA National Oceanic and Atmospheric Administration. https://www.ncei.noaa.gov/news/global-climate-201907
    iii The Centre for Research on the Epidemiology of Disasters Emergency Events Database. EM-DAT: The Emergency Events Database - Université catholique de Louvain (UCL) - CRED, www.emdat.be, Brussels, Belgium
    iv USA National Oceanic and Atmospheric Administration; Met Office, United Kingdom; Bureau of Meteorology. Monthly Weather Review. Australian Government
    v UN Framework Convention on Climate Change
    vi Climate action and support trends 2019. UN Climate Change Secretariat