Climate Week NYC takes place every year alongside the United Nations General Assembly (UNGA) and could be described to a lay person as a climate event with the scale and enthusiasm equal to the combination of Lollapalooza, SXSW and Woodstock. I would have included Burning Man but for the ominous metaphorical link to global warming.
For climate finance observers like me, outcomes of this year’s events were replete with new information and insights into how the private sector is responding to climate change. Highlights included:
- One hundred and thirty banks collectively holding USD 47 trillion (that’s trillion with a “t”) have signed up for the newly launched Principles for Responsible Banking Its member institutions will commit to strategically align their business with the goals of the Paris Agreement and the Sustainable Development Goals (SDGs).
- Nineteen companies with over USD 500 billion in revenues committed to a new initiative called “One Planet for Biodiversity” or OP2B, which aims to protect and restore biodiversity within their supply chains and product portfolios.
- The Net Zero Asset Owner Alliance, a U.N.-backed initiative that involves insurers and pension funds managing USD 2.3 trillion of assets, was announced. Members of this alliance have pledged to align their investments with the goals enshrined in the 2016 Paris Agreement and reach carbon neutrality by 2050.
- Eighty-seven global companies with a combined value of USD 2.3 trillion announced they would set climate targets aligned with the Paris Agreement.
These announcements are encouraging and certainly signs of progress. However, accelerated action needs to follow. A few trends emerged that may help shape that action, which I gathered from the Sustainable Investment Forum (a day-long multi-stakeholder gathering related to sustainable investing) and was reinforced through other presentations I attended and in private conversations:
- Integrating environment, social and governance (ESG) is becoming mainstream (well, almost)
Increasingly, asset owners (e.g., pension funds) are accounting for and reporting on their impact on critical sustainability issues. Many, if not all, claimed to have integrated ESG criteria in their investment analyses, asset allocation and portfolio construction activities. While this is great news, the power of ESG lies in how one uses it, and asset owners have just scratched the surface in terms of using ESG insights to promote change in the management and operations of portfolio companies.
- Climate alignment
A catchphrase that emerged during the forum was alignment. As clear from the announcements listed above, financial institutions and the private sector are forming alliances, actions and targets to respond to climate change. Although there are various disclosure frameworks being adopted related to climate, there seems to be a good alignment among them (see the Corporate Reporting Dialogue’s latest report on this). However, as we move beyond disclosure and focus on action, much more coordination is needed to ensure the holistic transformation of the global economy toward carbon neutrality.
- Resilience
Hiro Mizuno, the head of Japan’s Government Pension Investment Fund (GPIF), gave this dire insight during climate week: “Our latest TCFD-compliant ESG Report shows GPIF’s global portfolio is in line with a greater-than-3-degree-celsius increase scenario. As a universal owner holding approximately 5,000 company stocks and 3,400 bond issuers worldwide, our portfolio represents where the world is heading.” In other words, while we strive to reach the Paris goals, we also need to make ourselves more resilient to climate change. Specifically, banks that lend for long-term infrastructure projects and real assets (e.g. factories and real estate) in developing economies need to consider the climate vulnerability of those assets. Through conversations I had with multiple lenders and investors, it was clear there is a lot of interest in learning about how to do this from more experienced lenders, including development financial institutions.
Winrock’s U.S. Government-funded Private Investment for Enhanced Resilience (PIER) project, along with our partner Climate Finance Advisors, is working with the national development bank of Peru, COFIDE, to mainstream climate risk in their operations, processes and business strategy. While this intervention alone is expected to deliver huge resilience benefits for Peru, much more work needs to be done to arm the global financial sector with the information, insights and tools needed to face climate change. As part of PIER’s continuing engagement with the financial sector, we look forward to working with private financiers, development institutions and other experts on peer-to-peer learning efforts to bring about climate alignment and mainstreaming of climate risk in their businesses.
For those interested in knowing more about each of the above-mentioned projects or more about Winrock’s thought leadership in the adaptation/resilience field, please reach out to Anmol Vanamali (Anmol.vanamali@winrock.org) or Michael Cote (Michael.cote@winrock.org).