From Policy to Markets: the New Climate Agenda

The election of Donald Trump as President of the United States comes at a time where the world needs more engagement in climate policy, and threatens to derail the world’s efforts to keep global warning below 1.5oC. Financial markets’ interest in low-carbon and resilience finance can help counter-balance the expected scaling back of U.S. engagement.

Trump’s Climate Agenda

Myron Ebell, a well-known climate denier, is on Trump’s shortlist for nominees to the EPA.
Myron Ebell, a well-known climate denier, is on Trump’s shortlist for nominees to the EPA. Source: New York Times

While Donald Trump as a candidate did not expound much on his views on climate policy beyond calling climate change “a hoax” and promising to revive the coal industry in the U.S., the Republican agenda on climate change is well established. Trump’s short list of potential nominees for EPA and Dept. of Energy seems to confirm his alignment with the most conservative aisle of the Republican party on all things climate and environment. We expect the impact of the Trump administration on climate policy to be three-fold:

First, we anticipate a hard stop or slow down of U.S. efforts to reduce greenhouse gas (GHG) emissions, starting with the Clean Power Plan, mired in court since 2015, but also including other environmental regulations on air, water and land conservation. The incoming administration will likely face legal challenges since the Supreme Court mandated the EPA to regulate GHG emissions under the Clean Air Act, but these typically unfold over years and the EPA can also count on industry-led lawsuits to help bring down some existing or in progress regulations.

Second, we expect a sharp budget cut for the EPA, but also for development aid related to climate change (the U.S. is an important contributor to development finance institutions like the World Bank and the Inter-American Development Bank) and grants and subsidies to support local government. The Obama White House has been instrumental in providing concrete support and resources on adaptation and resilience, in particular with the Climate Data Initiative and the Climate Resilience Toolkit – the future of these programs is now called into question. Trump may also consider cutting funds for critical agencies like NOAA and NASA, which could impact long term climate data collection and analysis, similar to what was experienced in 2013 with the ‘sequester’.

Third, the U.S. will likely shift from being a driving force for a strong global climate agreement to becoming a negative influence, that may provide an excuse for other countries to slow down their own efforts. While the future of the Paris agreement is not called into question even if the U.S. withdraws, the effectiveness of multilateral efforts will be undermined by the absence of the second largest emitter in the world at the table. It is unclear at this point if the EU and China can and will jointly take over that leadership role, but together they could provide a stabilizing influence and governments in both regions take climate change very seriously.

Market Forces At Play

However, many analysts have noted that even without policy support going forward, the transition to the low-carbon economy is already well underway. Trump is unlikely to succeed at reviving the coal industry with low natural gas prices, and renewables and low-carbon technologies have largely reached the point where they compete effectively with fossil fuel sources. Financial markets are providing steady support for new renewable and energy efficiency projects, with over $65.5B worth of green bonds issued in 2016 YTD.

The world needs to step up adaptation finance by over 400 percent.
The world needs to step up adaptation finance by over 400 percent. Source: WRI

The private sector’s support is also going to be needed for adaptation and resilience. Disengaging from climate policy at a time where each year breaks new heat records, and 2016 is already locked into being the hottest year ever on record does not bode well for the future. Mercer estimates climate change will cause $1.5 trillion of potential impact of climate on returns for portfolios, asset classes and industry sectors, and impacts on communities and human welfare will be even more devastating.

UNEP estimates the financing needed for adaptation will be at least $100B a year, while current adaptation funding from multilateral organizations hovers around $25B a year. While there is a strong consensus over the need to bring more private capital into adaptation and resilience investments, meaningful flows are yet to materialize.

Mobilizing Private Capital for Adaptation

In this context, the discussion paper released today by the Global Adaptation and Resilience Investment (GARI) working group brings welcome insights into how investors see opportunities and barriers to adaptation investments. GARI was launched at Paris COP21, in conjunction with the UN Secretary General’s A2R Climate Resilience Initiative, to bring together private investors and other stakeholders to focus on the practical intersection of investment and climate adaptation and resilience. At COP22, GARI released Bridging the Adaptation Gap, a discussion paper that summarizes the discussions of over 150 private investors and other stakeholders in 2016.

The paper confirmed a high level of awareness among participants, with 70 percent of private investors surveyed declaring they see both risk and investment opportunity from the impact of climate change. Seventy-eight percent of respondents thought evaluating the physical risk from climate change was “very important,” and over 60 percent confirming that they were already, in fact, considering climate risk in their investment portfolio. The lack of a common approach to measuring climate risk, however, was identified as a critical barrier, with respondents calling for a transparent, practical approach to assess physical climate risk.

Where are the investment opportunities in adaptation? GARI maps the opportunities in key sectors. Source: Bridging the Adaptation Gap discussion paper.
Where are the investment opportunities in adaptation? GARI maps the opportunities in key sectors. Source: Bridging the Adaptation Gap discussion paper.

GARI also brought attention to investors’ interest in opportunities for investments in adaptation and resilience. Seventy percent of participants indicated they would consider making investments that supported adaptation to climate change or climate change resilience now. The paper catalogs various investment types, including existing infrastructure, corporate, and fixed asset investments that support adaptation and resilience to climate change. Over 60 percent of respondent investors are considering investments today in resilient infrastructure and in companies whose products address the impact of climate change on water, agriculture, healthcare, energy, and financial services.

Conclusion

The engagement shown by GARI participants, which includes some of the largest financial institutions in the world, opens the door to bringing private investors into a number of adaptation opportunities in need of funding, such as developing and deploying new and existing technologies to help deal with the effect of drought in agriculture, better flood prevention, resilient retrofits to infrastructure and cool, efficient housing.

Not all adaptation projects are suited to private sector investments however, and banks will not replace governments in investing in social capital, development projects and lifting the most vulnerable out of poverty. But leveraging and guiding financial flows towards projects that enhance economic and social resilience create a win-win opportunity and a powerful way to continue to make progress towards a low-carbon and resilient world in spite of political headwinds.

by Emilie Mazzacurati

Climate Week NYC: The Quest for Climate Wisdom

Climate Week NYC always reminds me of a scavenger hunt. You have to make your way across the city, oblivious and buzzing, from one event to the other, sometime literally searching for the right building or event venue – but once you find it, a new world opens.

C2ES business resilience
Janet Peace moderates a panel on business resilience with with Melissa Lavinson from PG&E, Jay Bruns from The Hartford, and Roberta Barbieri from Diageo.

Dedicated groups of practitioners and experts gathered from all around the country to discuss the next big thing in climate adaptation, share their insights and look up to the next challenge.

On September 22nd, the Center for Climate and Energy Solutions (C2ES) launched its new report Weathering the Next Storm, which analyzes how Fortune 100 corporations approach climate risk and resilience: what they’re concerned about, what they disclose, and what they’re doing – or not doing – about it. You can view the video recording of the event on YouTube, including the excellent panel on corporate best practices moderated by Janet Peace from C2ES.

C2ES’s series of reports on business climate resilience are among my favorites, and this report is no exception. The good news: the number of Fortune 100 companies that acknowledge that climate risk is material is growing. The bad news: they’re still not doing much about it, for four key reasons:

Climate data for business resilience

These challenges are also the ones we had identified in our 2015 Corporate Adaptation Survey, and what we work on solving, day in and out. You can find more on business resilience and key takawayrs from the C2ES report in this blog post.

On September 23rd our partners the Notre-Dame Global Adaptation Index (ND-GAIN) unveiled the recipients of the ND-GAIN 2015 Corporate Adaptation Prize, which recognizes excellence in climate adaptation for projects in countries below 60 on the NDGAIN Index.

Peter Williams from IBM and Aman Singh from Edelman discuss climate resilience and corporate adaptation.
Peter Williams from IBM and Aman Singh from Edelman discuss climate resilience and corporate adaptation.

A small Dutch company, DADTCO, and multinational giants AECOM’s and IBM’s Resilience Scorecard won the day. The panel discussion revolved a lot around how to incentivize resilience investments. Nick Shuffro from PwC pointed to the lack of price signal from the insurance industry, since companies that have invested in resilience do not get lower premium, while Peter Williams from IBM insisted we need to point to the return on investment (ROI) of resilience projects so they can compete with other investment opportunities in the business. I could not agree more.

Later that day, Triple Pundit had invited me to a Twitter chat on The Business Case for Climate Action ahead of COP21. The full recap of the Twitter chat, which also involved the Climate Reality Project and Novozyme, is here. In general, it’s worth noting we tweet live from all the events we attend – you can follow us @427climaterisk and @emazzacurati.

Tweettweet2

Last but not least, Risky Business Project held a fantastic event on September 24. The Climate Data Summit brought together a large swath of professionals dedicated to bringing climate science and climate data to business for a behind-the-scene conversation on technical and economic challenges in using climate data in a business setting. It’s hard to do justice to the rich conversations that unfolded in a short post, but you can listen to my remarks on “Listening to End-Users:Climate Data and the Bottom Line” in the audiocast here.

Did I find a treasure at the end of my Climate Week NYC scavenger hunt? Not one, but many nuggets of wisdom and new connections to continue down the path of our journey to climate resilience.

Emilie Mazzacurati