Hitting global net zero is going to take so much more than summits and pledges.

It is going to take money – lots and lots of money.

Money to retrofit homes, to finance climate tech, to pay for sustainable energy projects and so much more.

If you expect our political leaders to find enough cash to do all of this, think again. A stagnant global economy and the fleeting nature of power mean green investment cannot match need.

Instead, we may find the answer in our financial institutions.

There is a growing movement among the world’s biggest financial organisations to direct investments towards green projects.

‘Climate finance’ has moved beyond a concept and become a real thing for discussion in boardrooms and clubs.

In fact, it is the “critical catalyst” for a global economic reset, helping the globe to fund sustainability and net zero, a conference heard.

More greenbacks for your green bucks

For an indication of how seriously the major finance houses are taking climate finance, have a look at some of the speakers from MSCI’s recent Capital for Climate Conference in London:

• Ashley Lester, Chief Research Officer, MSCI
• Rhian-Mari Thomas, CEO, Green Finance Institute
• Caroline Haas, Head of Climate and ESG Capital Markets, NatWest
• Franck Rizzoli, Managing Director, Head of ESG Financing Advisory, BNP Paribas
• Vikram Raju, Managing Director, Head of Climate Investing, Morgan Stanley
• Michael Viehs, Global Head of Sustainable Investing, Partners Capital
• Jenn-Hui Tan, Chief Sustainability Officer, Fidelity International
• David Oelker, Head of ESG Investment EMEA, BlackRock

The conference was designed to connect the investment data companies like MSCI with the investment banks, to demonstrate how putting money into sustainable projects is not just virtuous – it makes money.

Caroline Haas, Head of Climate and ESG Capital Markets, NatWest, said: “Climate finance is going to be the new industrial revolution. It will stimulate growth, jobs and innovation.”

Ashley Lester, Chief Research Officer, MSCI, said: “The question which we face today is ‘what is the role of capital going to be in framing the new world?’

“How do we go about assessing the many risks and opportunities around climate change? Just relying on governments would be to abdicate our responsibilities.

“Our mission is to bring actionable climate data and models to investors.”

The conference delegates heard a consistent call to action throughout the event, being told that financiers are perfectly placed to guide investors towards green – and profitable – investments.

They also heard about the desperate need to direct the majority of the money to emerging markets.

For example…

For a perfect illustration of the shifting of the sands, we have the recent launch by Brookfield Asset Management and UAE-backed climate investment platform ALTERRA of the US$5bn Catalytic Transition Fund.

The fund has been set up solely to direct capital into clean energy and transition assets in underserved emerging economies.

If that sounds like big money, consider ALTERRA’s back-story. It was launched by the government of UAE at the COP28 climate summit in Dubai in December 2023.

The government made an initial US$30bn commitment and the goal is to mobilise US$250bn, all to be targeted at climate investments and aimed at improving access to climate finance in emerging markets.

Majid Al-Suwairi, CEO of ALTERRA, said: “ALTÉRRA wants to challenge the status quo of how we invest in climate solutions, and our investment in the Catalytic Transition Fund reflects our ongoing commitment to go beyond business-as-usual.

“We are passionate about ensuring capital goes where it is needed and that it drives impact for countries, communities and business.

“Our catalytic capital will be deployed to supercharge investment in emerging markets – wherever we see great potential for delivering meaningful climate impact and positive economic return.”

Mark Carney, Chair and Head of Transition Investing at Brookfield Asset Management, said: “The Catalytic Transition Fund is a private market solution to the global challenge of delivering transition investment to emerging markets.

“Brookfield is already a leading transition investor in these regions and has first-hand knowledge of the incredible opportunity and impact that is available in these chronically underfunded markets.”

Private finance to lead the way

Mark calls the CTF a “private market solution” to the global challenge of getting transition investment to emerging markets.

It describes both the fund and the direction of travel – private capital will likely dwarf public investment in clean energy and other projects in the coming decades.

At the Capital for Climate Conference, one of the fireside chats was titled ‘Private Capital's pivotal place in the climate transition’. A statement, not a question, you will notice.

The description was equally unequivocal, saying: “Investors are increasingly making the hefty investments needed to decarbonize emissions-intensive industries and spur development of clean-energy technologies through investments in private equity, infrastructure, private credit and venture capital.”

Green bonds

One popular financing model is green bonds –  a type of debt issued by public or private institutions to finance themselves and, unlike other credit instruments, they commit the use of the funds obtained to an environmental project or one related to climate change.

Speaking at the conference, David Oelker, Head of ESG Investment EMEA, BlackRock, said the green bonds market is worth US$3tn, adding that a key advantage is their transparency.

He said: “It’s so valuable as investors because you get insight reports on an annual basis.”

David said he believes green bonds can play a key role in driving the green transition in emerging markets.

The value of climate bonds has grown from US$1.5bn 15 years ago to US$4tn today.

They are attractive to investors, including pension funds, because they are uncomplicated – and make a difference.

Important to unlock the capital

Rhian-Mari Thomas, CEO, Green Finance Institute, speaking in a fireside chat at the conference with Ashley, was keen to emphasise that climate finance is in everyone’s interests – and that all barriers must be removed in order to release the capital.

She said: “How do we use finance as a facilitator? It will take US$4-6tn to profoundly reset the global economy.

“It’s the biggest redeployment of capital we’ve ever seen.”

She added: “We need to make sure that opportunities to make capital are as attractive in the green sector as in the traditional sector.

“It is in our enlightened self-interest. If we are not recognising that, we are storing up huge problems. Not acting will cost us an awful lot more than acting.

“We have to find a way to get over the blockages and unlock the capital.”

Rhian-Mari said there is a role for “forceful stewardship”, with tangible requirements and assessments to ensure that companies’ spending is in line with climate targets.

A note of caution

Rhian-Mari added a note of caution, telling delegates that companies still have a way to go on the path to green finance.

She said there are four stages of development for companies in terms of climate investment:

1 – Initial engagement: making sure risk and compliance are at the forefront

2 – Systematic change: where organisations start to develop reporting and target setting

3 – Transforming the core: where sustainability is starting to drive revenue and growth

4 – Competitive differentiation: where everything is being driven by sustainability “front and centre”.

Rhian-Mari said financial organisations are “largely at stage one and two”.

Time for a sense of urgency

How the money gets to the right place is far less important than that it gets there.

MSCI CEO and Chair Henry Fernandez, in an interview with RBC Capital Markets, said: “Climate change is a fast-moving problem. We don’t have the luxury of waiting a very long time to come up with solutions.

“We need to convene and debate the best way to tackle these problems. We created the MSCI Sustainability Institute to do precisely that by engaging academics, NGOs, think tanks and policymakers.

He added: “My first time at a COP was COP26 in Glasgow. I was shocked that it was not until the 26th convening year that they invited investment and finance companies. The world also runs on capital, not on policy alone. We need private sector stakeholders at the table too.”

Finally, he warned: “I tell my conservative friends that if the private sector doesn’t try to solve some of these problems, climate change is going to be the mother of all socialising factors in the world.

“The physical consequences will become so bad that citizens are going to demand their elected officials do something about it, and they’re going to come up with highly prescriptive policies.”

To see the full article in the magazine, READ HERE.

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