INNOVATIVE FINANCIAL MECHANISMS – RAISING THE TRILLIONS FOR LOW CARBON INVESTMENTS AND CLIMATE RESILIENCE
Innovative financial mechanisms are becoming the foremost global climate opportunity now—to pave the way for a new wave of clean energy and other mitigation investments, and build greater resilience among communities to a growing number of climatic shocks and disasters across the world. Exciting new developments are afoot, even as the gap between promise and reality remains very large. Skeptics are asking for more evidence and implementation solutions, tailored to tangible outcomes, not concepts. This Session will bring some selected world thought leaders and experts to inform the audience how we might go about finding the solutions. It will be designed in a slightly unusual format: where we will ask them to identify their 3 biggest constraints, and ways to solve them, with illustrations. Scale, impact and solving the problems are the only currencies for an interactive discussion.
There are several reasons why innovative finance is coming to the front. First, the absolute scale of Investments needed to keep the world safe is massive and growing. The INDC investment needs for 64 developing countries in 2020-30 periods are about USD 400 billion a year, 4 times bigger than the Paris Agreement number (which itself is far from target). Second, we need even greater ambition: even if the INDC goals for both developed and developing countries were met, we would be far from keeping the planet safe to below +2C. The window is fast closing. Third, public finances have come under immense pressure for other priorities in many if not most countries, and rising carbon prices and taxes have become political anathema. Fourth, the global climate coalition was always fragile, and since the Paris Agreement, is again possibly starting to unravel. Without innovative private capital at work, we are at cross-roads.
Fortunately, new developments in Climate finance are promising. First, new technology for clean energy and mitigation are now much more abundantly available, at prices that are continuously falling and fast competitive to fossil fuels. This pace of innovation is continuing, well beyond wind and solar electricity generation, to everything, from electric mobility to energy storage, mass transport, energy efficient housing, heating, cooling and lighting and others. Second, financial sector sectors are now beginning to shift their portfolios to promising low-carbon assets, massively and away from increasingly risky fossil fuels, and even to high social impact areas. Green bond markets are looking to expand to 'bout USD 1 trillion by 2020, compared to virtually zero seven years ago. Pension funds, insurance, sovereign funds and individuals are looking to raise the share of portfolios: even a small shift can make huge differences in quantum of resources available from some USD 100 trillion in global fixed income bonds and USD 60 trillion in equity markets to more sustainable and less risky portfolios. Third, even in adaptation, the combination of new technology and finance tools re now increasingly on the uptake—from Climate smart agricultural research and innovations, to water use efficiency investments, land rehabilitation and sustainable land management, insurance for natural disaster risks, and managing municipalities and solid waste and sanitation, backed by much greater available know-how and capacity to undertake at-scale innovations by social impact enterprises and private and public sector agencies, by privately managed large scale social funds and by specialized financial institutions. Fourth, the social and economic ‘co-benefits’ for growth, jobs, health, clean air, water, education, incomes and livelihoods and poverty reduction are very positive.
The main challenge now is to close the gap, faster, between promise and potential and actual investments and actions at scale on the ground in developing countries. Make it more mundane, standard, and low transaction cost. What are the pathways, how do we do this, and what are the respective roles of public and private agents? The solutions are not simply the promises.
- Large-scale clean infrastructure projects (e.g., railways, energy efficiency, roof-top solar, cities and municipalities, clean transport, electric buses): How might sovereign guarantees (blended multi-country) leverage public finances, improve ratings, bring down spreads and costs and improve maturities?
- Large-scale, high impact pay-for-performance adaptation bonds (solar pumps, water storage and harvesting, shifting to less water-intensive crops, micro-irrigation, stopping crop burning pollution lords): delivering more through policy changes, and transferring risk to bond-holders, social impact bonds: Is there any real potential and appetite on the ground yet?
- Large scale, layered impact funds such as Land Degradation Neutrality Fund: what is the principal idea to attract investors? how is the response to date? what are the 3 main lessons looking forward to scale-up and fast-track high impact -layered social funds for SDGs including climate change?
- Is climate finance innovation a ‘fadʼ? Why not stick with the basics, of public finance for adaptation, private sector for clean investments, simply price and tax externalities through appropriate carbon taxes and carbon trade mechanisms, 'and get the international climate grants 'and transfers back on rail?
- Are Multilateral Development Banks still ahead of the curve in innovative climate finance? What is the next generation of innovations that are being tested 'and piloted around the world?
- How is the weather- index based insurance market working globally against earlier promises? Might there be a market for ‘climate catastrophic bonds in India and South Asia for climate and weather risks in hilly areas, coastal areas, urban flooding, and drought-prone districts and crop failure in agriculture? What role of insurance for climatic disasters generally?
- Innovative Climate smart technologies and incubating climate friendly ventures: what role for developing country policy support to boost the eco-system for PE and venture capital funding and FDI in new Climate technologies? Are there market failures in new technology access? Should some large developing countries boost new technology adoption policies, what instruments have highest WTO-compliant pay-offs, what lessons from at-scale public procurement innovation in Indi' for LED lighting, city lighting and EVs, and what lessons from Chin' on manufacturing?
- Are there policy ‘nudges’ that governments, states, sub-sovereigns, regulatory agencies, cities and municipalities must need to do to boost innovative climate financing? Are budgets and public finances being used as efficiently as possible to deliver results with private sector and financing innovations? Are
- Single special agency executive delivery model the right answer? What is the best-practice for states on their capacity to re-engineer themselves to manage the benefits 'and risks of climate finance innovations?