On Friday May 22, Climate Finance Day will be held in Paris. The trigger for the debate is “How to shift the trillions?”
It is a question that recognizes that building a sustainable, low carbon future requires a change in all economic activities. It is not enough to simply have one dedicated and specialized fund like the Green Climate Fund (GCF), which aims to assist developing countries with reducing emissions and preparing for the impacts of climate change. All financial resources must promote and shape this future.
Fortunately, in the build up to COP 21 in Paris, the climate finance debate has not been limited by the Green Climate Fund pledges and operational discussions. But the roadmap to meet the $100 billion commitment to finance the Fund is an important issue – it is critical to set up a functional and transformational GCF.
The fund needs to be:
- Fully operative with clear rules, resources and capacities supporting what developing countries need to reduce emissions (mitigation) and adapt and prepare for climate impacts.
- Different in the sense that it clearly contributes to a low carbon future with no open doors to “transitional” false solutions like funding with public money derived from fossil fuels. The IMF just published a new account on fossil fuel subsidies showing the huge amount of public money going to the richest companies in the world – outrageous!
- Transformational, as it should be the financial institution shaping what our future low carbon societies should look like.
Beyond the fund
At COP 16 in Cancun, the international community agreed to keep global warming below 2°C. This political decision was based on scientific reports that showed that average warming higher than that threshold can cause disruptive and dangerous impacts in ecosystems that support human life on Earth.
The economic impacts of climate change were explored by the original Stern review and now increasing evidence is being published by the New Climate Economy report series. Financial markets are slowly reacting to this evidence. Progressive financial institutions are readdressing the way they do long term risk analysis for their investors. Due to ethical or economic reasons, more and more investors are divesting from fossil fuel-related industries.
However, a low carbon society is not only about energy production. All economic activities need to change and make a comprehensive assessment to understand the negative impact they may be having on our planet.
So… how do we shift the trillions?
Climate change impacts in the economy can create a systemic crisis, as it is a risk for financial institutions. Regulators need to do their job and ask financial institutions to stop living in a utopia where there are no stranded assets and there are no risks when temperatures rise to dangerous levels.
It is one or another, but financial markets cannot just ignore any of the risks related to climate change.
The G20 meeting in November is a good moment to start dealing with this inconsistency. In April 2015, the Ministers of Finance produced a document that speaks about dealing with the climate-related risks to financial markets. It is time for them to do take action. The Turkey G20 summit will not bring an immediate solution, but they must start a conversation and set a tight schedule to deal with this challenge.
But there are signs of hope. Many financial institutions are starting to update the way they measure risk and revenue in their activities. These institutions must lead the way and dedicate more resources to start working on how to build a portfolio of investments compatible with the 2°C target.
There is life (and profit) in a low carbon society. Shift the trillions!
Santiago Lorenzo Alonso is the Head of Green Finance for WWF’s Global Climate & Energy Initiative. He is based in Mexico. Read more about WWF’s work on climate finance.
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There is life (and profit) in a low carbon society. How we can shift the trillions: http://bit.ly/1SgLMpq via @climatewwf
Financial markets cannot ignore the risks related to climate change any more. Why we need action: http://bit.ly/1SgLMpq
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