Financing a Greener Planet

Do we really care about climate change? In 2019, Amnesty International asked 18-25-year olds to name the five major issues facing the world. The most commonly cited issue was climate change. Although young people tend to be more concerned with climate change than older generations, there has been an increase in awareness across all age groups. In the U.S., when asked if dealing with climate change should be a top priority for government, 52% agreed in 2019, up from just 30% in 2009. In Europe, a Kantar survey found 60% of respondents think climate change is one of the most serious problems facing the world, up from 43% in 2017.

Okay, we do care about it, now what’s the plan? The Paris Agreement. Signed in 2015, the agreement brought 196 parties together with the same goal — to limit global warming to below 2 degrees Celsius (2°C), compared to pre-industrial levels. Despite a few wobbly moments, it looks like everyone is back onboard to live up to their greenhouse gas reduction commitments.

Overall, momentum for climate action was increasing before the world was hit by COVID-19. Despite the financial hardships brought about by the pandemic, government focus on climate action is actually accelerating with stronger climate policies and net zero emissions targets being put in place. This increased focus on climate is occurring in parallel with a rise in corporate and individual focus. The combination, we believe, puts us at a tipping point on climate action.

In order to decarbonize the world, a whole portfolio of mitigation needs to be developed and implemented across the highest carbon-emitting sectors. Although the pace of innovation has accelerated and investment has increased, the investment gap between what’s being spent currently and what needs to be spent is huge— as much as $3-$5+ trillion per year.

Capital is needed to fund the technologies required help markets evolve towards decarbonization. Advancements in battery technology, the hydrogen economy, carbon capture and storage, electrification, and efficiency require investment to become reality. Carbon management (i.e., carbon dioxide removal) and carbon pricing will help to align investment and economic activity with climate goals.

Public sector spending is crucial to funding climate action together with private investment. Luckily, green momentum in the investor community has led to an explosion in assets under management incorporating ESG considerations. At over $30 trillion, the challenge is putting these assets to work. Developing a clear green framework will help deploy ESG assets where they are most needed.

Financial innovation is the key to matching capital supply and demand. Instruments including project finance, green, social, and sustainability (GSS) bonds, SPACs, ‘efficiency as a service’, and green securitization are used to close the gap.

Given the scale of the issue, we’ve published Financing a Greener Planet in two volumes. Volume I — Catalyzing Private Capital for a Net Zero Emissions World — focuses on the three factors which indicate we are at a tipping point on climate action — policy and regulation, innovation, and green momentum in the investor community. Volume II — Bridging the Gap between Green Investment and Investors — is dedicated to the financial options available to close the massive climate investment gap.

Let’s invest in what we care about.