Stockholm (NordSIP) – Will efforts to mainstream sustainable finance manage to drive the changes needed to reverse climate change and unlock the investment opportunities inherent in the reorganisation of the financial system? Amidst the dire predictions as to the possibilities of implementing systemic change in time to halt carbon emissions beyond the Paris- and 2030 global goals, EIT Climate-KIC, the EU’s largest public-private partnership addressing climate change, is driving the effort to move sustainable finance into a more ambitious phase.
“I’m extremely energised by what looks to me like a convergence of self-reflection and more determined intent,” EIT Climate-KIC CEO Kirsten Dunlop said recently in an article published in Environmental Finance, underlining the “genuine self-questioning and concern” she is witnessing that emissions targets outlined in the Paris agreement aren’t being met. Along with the European Commission’s Action Plan on Sustainable Finance and the High-Level Expert Group on Sustainable Finance recommendations, which have helped to identify investment gaps, the Lamy report, a major review of Horizon 2020 has concluded how future R&I programmes should invest to support all-out transformation as opposed to incremental change.
“We support this effort to rewire the financial system to achieve climate-compatible investments at the scale and speed needed,” Dunlop told Environmental Finance last month. “Closing this investment gap isn’t about more of the same. It’s about systemic changes in finance, infrastructure and innovation, and a new mission-oriented approach that aims for transformation rather than incremental change.”
“To succeed, the Action Plan will need a much bigger push in that direction,” Dunlop added.
The Action Plan puts forward several innovations: a green taxonomy, a European green bond standard and other measures to align capital requirements and investment mandates with sustainability requirements. “These are finance innovation experiments to help to shift these efforts towards system-level transformation,” Dunlop underlined.
EIT Climate-KIC has joined forces with Mission Innovation, the global initiative including the EU and 23 other countries to accelerate energy innovation, and the Research Institutes of Sweden (R.I.S.E) to develop a framework to rapidly identify emissions-saving solutions needed to limit global warming to below 1.5 degrees Celsius and scale up the convergence of public and private capital to those ends.
The Climate-KIC-partnership with Mission Innovation will be launched at a summit being held in Dublin next month, which will also provide the opportunity to launch the EU Hub of the UN Financial Centres for Sustainability.
Capital providers are still missing the connection between their own material risks and those of society if investments don’t rapidly shift towards sustainability, according to Dunlop. “My experience working on innovation in financial services is that insurance and pension funds hold a huge bank of untapped capital for which there is an extraordinarily useful alignment of interest to release the liquidity to fund the kind of transformative innovation that will help us to adapt to and mitigate climate change impacts.”
“This would frankly be a better use of risk capital than having it locked up in long-term bonds,” she added.
EIT Climate-KIC aims to shift attention from the focus on scaling of investments, particularly in new technologies or commonly understood models, to investing capital to a systemic evolution that does more to integrate baskets of solutions. One of the main challenges faced is that investors claim there aren’t enough “ready-made” solutions in terms of business models and ideas. EIT Climate-KIC pushes back against this view, arguing that investors and capital holders are not sufficiently taking the scale of climate risk – and financial opportunity – into account.
“Perhaps a dawning sense of panic combined with the desire to actually acknowledge and address the problems opens the door to the more ambitious path we need – a new era in which a rewired global financial system is the driving mechanism for climate innovation,” Dunlop said.
This article was inspired by an eight-part series by Climate-KIC and Environmental Finance discussing Mission Finance, the theme of the 2018 Climate Innovation Summit in Dublin on 6 – 8th November. To see the series hub click here.
Image: Krivec Ales – Pexels.