Climate resilience was the pressing issue at the 2019 United Nations Environmental Programme Finance Initiative Regional Roundtable (UNEP FI RRT) for Africa and the Middle East in Cairo last month. Present were experts from both the finance and environmental industries discussing the solutions and tools for building climate resilience at a national, organisational and individual level.
With $90 trillion of investment in climate projects needed by 2030, it is now more than ever that financial resilience and investment into resilient infrastructure in particular must be developed. The need for collaboration was made clear at the roundtable. Both private sector and public sector funding for large scale projects is needed alongside collaboration with environmental experts to create holistic solutions.
EcoAct was also present at the roundtable and here we provide our insight into the main discussion points surrounding the tools and solutions currently available to the public and private sector in order to build climate resilience, whilst highlighting the joint effort required for improvement and further development.
Climate change poses a large risk to future investments as many asset managers and investors are now making plain. This, therefore, has implications for future financial resilience and is growing the demand for green investments.
There are now many ‘Green’ or ‘Sustainable’ global market trackers which you can select to invest in, either for personal investments or under pension schemes. However, the lack of homogenous definition for ‘sustainable investments’ means that there is no market consensus on what should be included within these portfolios. This makes them vulnerable to ‘greenwashing’ – i.e. appearing more sustainable that they actually are. It was identified that collaboration and integration of financial and environmental experts is needed to ensure that the market becomes more consistent and transparent.
Green bonds are a key private sector solution to achieve sustainable growth and climate change resilience. They are loans which fund projects that specifically deliver environmental benefits and are an important means of financing sustainable development. They differ from green stocks or investments in that bonds are creditor stakes, whereas stocks are shareholder stakes. 2018 experienced the largest investment into Green Bonds ever seen, with a record $389bn loaned.
Having said this, investment into and availability of green bonds have been slow to take off in developing nations due to a lack of clearly defined asset classes and market standards providing investors with little confidence to invest. This calls for collaboration between environmental and investment specialists to align investment needs with effective and transparent climate resilience efforts. This will better enable future green bond development at an international level.
In order for Green Investments, Green Bonds and sustainable development to grow in a resilient and high-quality manner, there must be systemic change from the market. This requires collaboration between the financial private sector and the government with regards to financing climate resilient projects. To reach the investments required to achieve the UN Sustainable Development Goals (SDGs), as well as to keep up with economic development, corporate investment must run alongside public investment. This not only spreads costs but also the risks involved – neither can fund the requirements alone. Whilst this will take work, collaboration and numerous experts, it is key to both climate and financial resilience..
Financial Technology (“FinTech”) was identified at the roundtable as an important tool with the potential to act as a “corridor” towards sustainable and resilient development for personal, corporate and government bodies.
FinTech can provide easy access to both finances and financial information. For example, online banking through a mobile device can free up time previously spent queuing at the bank, increasing available time for economic generating activities, social care or education. FinTech also provides a platform to aid SDG 8 – Decent Work and Economic Growth as there are 2 specific targets relating to bank account availability. Access to bank accounts can help increase climate resilience as economic vulnerability means individuals or businesses are not well prepared for the effects of climate change – they lack the required financial resources. FinTech can, therefore, increase availability of secured savings and build climate resilience for individuals.
FinTech can also help by increasing the availability of information regarding economic security and investment opportunities which may not have been readily accessible otherwise. It works also for companies and governments, as innovative technologies such as Blockchain can process and manage complex multi-national transactions in a secure and audited platform. This can help provide financing solutions for infrastructure projects, Green Bonds and other financial instruments required to bridge the funding gap for climate resilience and the SDGs.
Further development of this facilitative technology requires innovation from both the technology and finance industries and collaboration between the two to form new products that can solve future issues generated by climate change.
Financial investments into infrastructure in emerging economies through Green Bonds are set to play a crucial role in building resilience. It was stated at the roundtable that if infrastructure is to keep up with economic development, $3.3 trillion of investments will be required annually. If planned and implemented correctly, this new infrastructure can be built to withstand future changes to the global climate but will require both private and public funding to make this achievable.
However, developing infrastructure comes with a warning that future climate modelling should be adequately taken into account. For example, when building a dam, historic river flow data is usually used when in fact future water flow should be analysed, as climate change will impact the quantities of water that will reach the dam. Proper climate scenario analysis will need to be undertaken for us to fully understand the risks that climate poses to us, so that we can adequately build resilience to its impacts. This is a good example to demonstrate the importance of collaboration: from the experts that can best provide the climate science and advice on climate resilience, to government approval and financing for projects that deliver this resilience, to private sector financing that potentially makes such a project financially viable as well as a more financially secure investment for them.
The main takeaway from the UNEP roundtable was that achieving climate resilience calls for coordinated action from both the private and public sectors to balance the costs and risks of the investment needed. Governments alone cannot provide this funding. The essential role of the private sector in helping to build climate resilience is clear. Furthermore, the required collaboration between financial and environmental experts to create holistic definitions and approaches to sustainable finance to better facilitate an effective and transparent market for green investments plays an essential role to aid future climate resilience for individuals, companies and global markets.
The need for assessing climate risk, investing responsibly and building climate resilience is the responsibility of all sectors of society to safeguard corporate, financial and social interests, not just across Africa and the Middle East, but the whole globe.
(Photo credit: Alexis Munro)