How to Navigate Climate Finance and Climate-Resilient Investments
Laura Canevari, Founder of Itaca Solutions, and Anu Jogesh, Policy and Governance Lead for Acclimatise South Asia talked about their professional experiences of working in the Climate Finance sector.
Laura Canevari, Founder of Itaca Solutions, and Anu Jogesh, Policy and Governance Lead for Acclimatise South Asia talked about their professional experiences of working in the Climate Finance sector.
So, I think everyone is admitted from the waiting room now, and oh, [a] few more people just came in. Yes, well I can keep admitting people, but Laura I’m gonna turn it over to you to further introduce yourself and jump into your presentation.
Dr. Laura Canevari (01:20): [silence, presenting screen from 01:20 to 01:27].
Laney Siegner (01:28): Oh, I think you are muted. [laughter]. I mean, hold on one second, let me ask you to unmute.
Dr. Laura Canevari (01:35): Okay, there we go. Can you hear me now? Can you see my screen as well?
Laney Siegner (01:42): Yes.
But what is happening in the last couple of years is really, really unique, because when you have someone like the ex-governor of the bank of England who is now the special envoy on climate change for the united nations. So, just hear this, a governor of a bank in England converted into a special envoy on climate change saying that if businesses ignore the climate crisis, that they would fail saying that the world needs a new financial system in order to stop climate change. You start realizing that something is different you know, and this, you start looking at all of these new headlines about massive companies like PG&E which is a huge utilities company in the U.S going bankruptcy because of the effect of climate extreme events. When you hear rating agencies like Moody’s changing, downgrading cities because they are not being able to adequately respond to climate risks. This is a completely shifting paradigm from the way that climate change was discussed, communicated, and the action that happened around it in the former years.
Whilst being at this conference, I actually met some wonderful people who persuaded me to move to the U.K where I did, following my bachelor in marine science, I did a masters in environmental change and management. And I started working with islands especially around reducing disaster risk and how to reduce underlying vulnerabilities. And whilst being there they organized the second adaptation futures conference, and this is where we started. So, this is two years after. So, first one was 2010, now we are in 2012 and we start seeing social scientists, we start seeing other disciplines being represented in this space. And I met there John Firth who is the CEO of Acclimatise, who persuaded me to stay in the U.K and to work with them. And I have actually been working with Acclimatise for the last eight years during that period.
I have also completed a PHD at King’s College, London looking at value chain climate resilience, and joining Acclimatise, presenting at all of these different adaptation futures conference that have happened around the world in different years; you know 2014 in Brazil, then in Rotterdam, 2016 and 2018. And what has happened in this period of time is that we’ve gone from, climate change is only an environmental issue, to more and more sectors getting engaged in these issues you know, like, and moving away from just the real economy to the financial sector.
I am sure that Anu is going to cover very different aspects of the type of work that Acclimatise do from what I do. But what has been interesting for me in this role was that three years ago, something really important did happen, because with the release of this task force on climate related financial disclosure recommendations, we start to get a very different perception from the private sector and the financial system about why climate change is important, because this is a document. It’s like if you need to know two documents in climate change, it has to be the Paris agreement for the public sector and TCFD for the private sector. This tells us a story and helps to understand these transmission channels on how climate risks that may either be physical climate risks associated with physical change or risks associated to a transition to a low carbon economy. How do they translate into clients, as in businesses, how are businesses materially affected by climate change, and then how does this then transfer into the financial sector. And this understanding of these transmission channels, what it’s making people understand is that there is a role for governments, for investors, for rating agencies, for bank regulators, they all have a role to play in making a more stable financial system. And that means also ensuring that climate change does not pose a threat to the financial system.
And it is from this general framework that this new emerged space you know of climate investment opportunities and climate finance emerges. And climate investment opportunities really are, you know all of these investment opportunities on mitigation, climate resilience and adaptation, and they are within a bigger umbrella which is sustainable finance. < br>
But the reality is that this document was a game changer in the private sector, and no wonders why Acclimatise has been developing all sorts of tools, guidelines, mechanisms to help the financial sector understand these transmission channels and understand how to assess, measure and disclose climate risks. These are just examples of recent publications that show the kind of work that we are doing. And what this table is saying is just that you can work with financial actors looking at the risk from climate change at the investment, single investment or asset level, all the way to the portfolio level, and from qualitative to quantitative. And you can have many different tools that emerge from that approach.
Now, Acclimatise is not gambling in developing a lot of these services because we think that there maybe a demand for it. The demand is here and it’s now, because what we see are, is countries from introducing disclosure rules you know for all sorts of institutions, rating agencies, also incorporating climate change regulators, incorporating climate change investors doing so. And it all did start and was strongly propelled by the TCFD. So, these services that we are now developing are in demand and very, very needed.
And there are also this is for example what the regulators are doing. So, the NGFS which is the network for greening the financial system is a network of over thirty-four central banks and supervisors around the world that are starting to set them some standards. This is an example of the standard that they are setting in terms of what type of climate scenarios should financial institutions use. And when you have the supervisor or the regulator asking banks, asking investors what are you doing about climate change, what are you doing, you start think, saying that things start changing, and that the culture and practice it is changing for sure. And climate change is just one of, as I said, a bigger set of initiatives and things that are happening on this space.
Because here, for example, okay, we have all of these climate initiatives like the climate bonds initiative, CDRI, CCRI et cetera. But these are also within you know the broader sustainability agendas. For example, very recently the EU issued a taxonomy for sustainable financing activities, and you can see climate change is presented there, but there are also other categories. O, there is a very big push towards sustainable and responsible banking and sustainable and responsible investment.
And the business case for it is every day becoming more and more elaborating you know. We have things like the global commission adaptation releasing this report showing just how much by investing in adaptation you could be developing a very prosperous economy and developing new jobs and new opportunities that weren’t even there.
So, this is why also like I have started to really think personally about how important these climate resilient investments are as a mechanism to promote local business and help them navigate new and uncertain climate realities.
And this is where we go back to this map really quickly in the journey, because last year when I realized how much different organizations were really calling for a change in sustainable finance, then I realized that we have this gap which is very clear, is that, one side of the world we have financial institutions looking to green their portfolios and finance green projects, and on the other side of the world where I am now, I am in Panama now, we have lots of projects really needing investment, really needing this financing. We have an adaptation gap, an investment gap, an infrastructure gap. What is happening is that these projects that are here in Latin America or in developing countries, the people who need this financial support, they don’t necessarily know how to meet the proof of concept of financial institutions. So, what I have done is, I have moved to Panama now, and I have started this new business that Laney mentioned quickly which is called Itaca which stands for innovation training adaptation in coastal areas.
We are really, what we try to do is, try to help local businesses, small SMEs, cooperatives, NGOs developing bankable adaptation projects in a way that they can meet the proof of concept of financial institutions like social impact investors, green blending credit lines, because really, the benefits from climate resilient investments are multiple.
And just really quickly about how we work. Well, Itaca and basically, is frame around three key axis. The first education and training because in Latin America, there is very low level of awareness of climate change needs and actions. So, you first need to like raise awareness about the need to tackle climate risks and opportunities. And the ides is to start working with many of these businesses on how to co-develop these bankable projects and rolling them out. So, the Caribbean is a region which faces many similar threats. So, the idea is to roll out several of these projects across the region. Examples of projects that I am involved in; so, right now actually I am in the office space of Panasea, north of Panama. We are raising sea cucumbers. I have actually invested in the business of, I have invested in this and I am working with them trying to get sea cucumbers off the ground. I have been working with the commonwealth blue charter on how to map mangrove systems because mangroves have a massive potential for carbon capture. So, as a blue carbon instrument, mapping them is very, very critical. So, you can see that it’s a very different approach from what Acclimatize is doing, but they are kind of complementing each other. And at the end what Itaca is doing and what Acclimatise are doing is responding to a massive demand in new services, new intermediaries who are able to either be intermediaries, as financial intermediaries, so, helping local actors access finance who are also intermediaries in terms of translating the science. So, Acclimatise is an incredibly well formed and boundary organization because we take what climate science says and we translate that into language that business can understand, that the financial institutions can understand. So, and across this spectrum, there is huge amounts of different services that are needed.
Obviously, there are many challenges ahead. For me my biggest challenges are, where I am working now, the low level of awareness on climate change, because very hard to get small businesses and businesses to want to work on this, you know to invest in climate. They have so many other competing priorities and now we have got even more. So, it’s hard to get them to think that this is a material issue and that they need to do something about it. Then once you convince them, it’s hard to get the finance to design and develop these projects. Banks and the financial institutions, they want to put the money there, but they want off-the shelf opportunities. And that’s also because there is a lack of regulation because there is no incentive from the government to try to get this, the climate for good investments to happen in this region. And everyone is thinking about the next closes profit, not the long-term vision. So, these are some of the challenges that I experience. And those were at professional level. And at personal level, staying on top of all the climate initiatives is not easy guys. This is a space that every day there is anew acronym for a new initiative, and every day there is anew report. So, it is really hard to stay on top of that. I have had to like become very systematic about how I filter through new information and how I digest it because, you know newsletters, things that you really want to follow, find out because otherwise it’s a bit overwhelming, and it will be points of like, you feel like you are on top of things, and then the next day somebody comes up with something you didn’t know and you are like okay. So, I am just saying that you got to be patient with this thing because it’s a very dynamic space, but very interesting for any kind of job role that you are trying to position yourself, because of the amount of demand for services that this space has to offer.
And with that I am gonna leave it to questions if you guys have anything else? I have rushed through that a little bit because I thought [the time limit] was twenty and I did fifteen, so… but hopefully you get a little bit of an idea of how dynamic this space is.
Sylveen (17:33): Yes, yes, hi. You mentioned the taxonomies. So, this is something that I have recently become aware of. You want to talk a little bit more about what are the taxonomies and why they are important or being used. I know it’s hard to summarize, but.
Dr. Laura Canevari (17:48): Yeah, I know, it’s okay. I mean, like, the main objective of the taxonomy is to firstly recognizes that there is a lot of things that are being labelled green and sustainable. But there is, there could be a lot of brown in green. So, we need to standardize an approach of what can be considered and labelled as sustainable. The EU has been leading on this front and they have actually released this EU taxonomy which has these six axes. Obviously in some areas it becomes very difficult, like in adaptation, is actually probably the hardest bit of any taxonomy because you don’t have the same kind of indicators of success that you have for example for mitigation. But it’s very clear, you have reduced X amount of CO2. With adaptation you are talking about avoided losses, you are talking about longer-term resilience, so, what is the horizon that you need to use to define if something has worked or hasn’t worked. So, and, so, and it’s less standardized than with adaptation.
Other countries have also started doing their own taxonomy. So, we know Mongolia, China, they are starting to be discussions in Mexico, Chile because they all think that there is actually value in recognizing that some things are really doing it good, and some things I am just calling it so, and that we need to bring much more regularization to that process. There is something that you could look into, and I would suggest following what they are doing which is the IFC sustainable banking academy because they are in the process of releasing in, actually, we have already in October, so, maybe November, next month, they were talking about releasing a document where they were going to present and compare all of these taxonomies to try show what are the difference, because they all try to be science-based, but then some countries have become more politicized processes around the taxonomy than others…
Sylveen (19:40): Right, right.
Dr. Laura Canevari (19:41): To land in Mongolia and China there are things about like how science-based it is versus other countries. But at the end what the IFC is trying to do is to show what is similar across all of them and what is different. What tends to be most different is like adaptation because it’s so localized. So, they are trying to come up with principles rather than specific indicators on adaptation. I think that they are the best ones to follow, they do a lot of webinars around this topic to show what different countries are doing, yeah.
Sylveen (20:12): Thank you, thank you, yeah.
Dr. Laura Canevari (20:13): I hope that answers your question.
Sylveen (20:14): Yes.
Laney Siegner (20:15): Yeah.
Sylveen (20:16): Thank you.
Laney Siegner (20:17): Thanks, thanks for that answer. And so, we had a question from Keisha that Bruno also added on to. But, yeah, can you tell is more about the sea cucumbers and, for those of us that don’t know that much about them. Like, what are they, you eat them [laughing].
Dr. Laura Canevari (20:33): They are very ugly creatures. Okay, so, see, why I did marine science in the beginning and I was really keen to start working back with like coastal projects. So, as you probably don’t know, but, marine cucumbers are, significantly are delicacy in China due to their rising demand from middle class for sea cucumbers. They have been massively depleted around the world in terms of the marine crashes, they are not many left there. So, they are starting to look at aquaculture as a way to respond to the increased market demand for this product.
Now what happens, what is interesting about sea cucumbers is like they are like the vacuum cleaners of the sea. So, when you are reproducing them, like what we are doing here, I mean I can see from here the tanks over there. So, they have the tanks with all the babies in vitro, yeah. At a certain point you put them back in the water and whilst they are in the bay, they massively re-heal the ecosystems. So, they are very good for re-healing the ecosystem for sea grass restoration. They kind of reduced like the levels of sedimentation in the water, so, corals are also healthy.
So, they have this, they can have this potential, additional you know positive impact on the environment whilst you are raising them for commercial purposes. So, the idea here is that we are, this is a startup that they started a year ago, but they have all the technology in place. It’s going to take about twelve more months before they can send the first batch that has already been pre-purchased in China. And then the idea is that every month you would have a new cycle of sea cucumber companies going in the water and then you work with the community. So, they help you with the harvest, they help you with the installation, with the maintenance, so, you are also getting the community engaged. And it has a massive potential in terms of just scalability. So, for an impact investor this is a very nice, it’s a high risk, but also high return in the long run. And it has this additional environmental component. So, you can embed environmental rehabilitation as part of growing sea cucumbers just naturally, you don’t have to add another program layer to it, you just put the sea cucumbers in the water.
I have never tried it, so, I cannot test for myself if it’s tasty or not, it depends, yeah. And I have also invested in them. So, I am working with them as business development associate a couple of days a month, and I have also invested like, I decided it was time to leave my passive investments and go active. But I want to keep oversight over it. So, I also asked them to hire me to make sure that the business runs smoothly in the future, yeah.
Laney Siegner (23:09): Cool, fascinating. Yeah, I have been getting really interested in you know submarine aquaculture and marine ocean farming, and the different ways that you can stack so much food production in the ocean and also rehabilitate marine ecosystems. So, that’s fascinating to know more about.
Dr. Laura Canevari (23:26): The thing is you need to get very, very wise you know about a blended finance. So, you need to start combining grants with equity, with debts, they have everything in it. So, a lot has come from private capital investors, single investors. But now as it grows, we are starting to go more into the development banks, the different kinds of grant programs for community engagement. So, you need to start working with blended finance to make it work.
Laney Siegner (23:52): Hmm, yeah, cool, good point. Okay, let’s do one more question and then we’ll switch it over to Anu. Parag, do you want to ask your question that you posted in the chat?
Parag (24:02): Yeah. Thanks, thanks Laney. Laura, thank you for the call, I mean, thank you for this call. I actually work for an impact finance firm. So, what we have done in the past is, we have created development impact bonds and social impact bonds to address poverty, health, education say in Africa, in Asia. I am just curious to know if we have a precedent of development impact bonds in climate science as well, because I want to know in the climate science field if there are development impact bonds who invest in such bonds, and do you have outcome funders who actually come in to return the money to the investors once you have reached certain outcomes?
Dr. Laura Canevari (24:43): Yeah, so, I mean one of the big challenges here has, in sustainable finance is matching the reality of how projects need to be financed and what local project developers need in terms of financial capital with investor’s expectations, yeah, because of the timeframes, like nature-based solutions, they take much longer to rip a return than your normal average two-three year cycle an investment does. And investors are too rushy, you know they want the return really quickly. So, the first thing is changing the mindset to make a better match of their development needs and the investor needs.
There are impact bonds. I think that many of them are in the public space. For example, something very novel, I had taken it out of my slide, it was there before. It’s look into the EBRD first resilience bond because that is a bit different from your normal green bond. It is based on a very different calculation on how much by investing in resilience today, you are reducing performance, lowering quicker on infrastructure. So, say like if you invest in resilience now, that infrastructure is going to ne more resilient in future and it’s going to operate better, and in the longer run you are going to lose less. So, the new calculations that are being done for resilience ones are quite innovative. I think that’s one space where you could definitely look into.
There are lots of opportunities, like right now there is something called the IDB lab, they have just released a call for financial innovation. So, there is lots of calls out there looking for financial actors who wanna innovate in climate finance and come up with their own ideas. Right now, for example, on a different call, like there is a call on reef protection, and I am actually helping some guys who have specialized on doing rehabilitation of coral reefs. But we are actually doing is, we are getting, we are applying for this bid to start a fund, to start a blue ocean fund that would give part of earnings from the fund to the rehabilitation program, and would only fund companies that have a circular economy model that influences positively the coast.
So, yes, there are things like this emerging and there are tools and mechanisms out there, financing mechanisms to help start these kinds of funds, yeah. I think that the hard thing there is to look at how transparent these funds are around what is their process of selecting, you know the credit assessment process, because many of them would still be leaning towards just good returns in terms of monetary returns and not necessarily on the climate or environmental returns. So, being able to see if the fund is transparent about depreciation, the rationale or the scope of the fund, that’s going to be really important in future to detect which ones are just playing on the game and which ones are doing actually good.
So, we are going to move over to Anu and then we’ll open it up to the questions specific to that and then just keep it open for any general questions.
So, Anu, I am gonna share my screen so that you can just let me know how to proceed through them.
Anu Jogesh (28:01): Thanks.
Laney Siegner (28:03): Yes, of course. Let me just get the right tab open here, it’s this one… okay, Chrome…share screen. Okay, hopefully you all can see my screen, I am going to make it big. [pause from 28:21 to 28:29] [adjusting screen size]. Okay, yeah, while this loads, yeah, go ahead and thanks for being here Anu.
Anu Jogesh (28:35): So, thanks so much Laney. And it’s good to be presenting this session. Hi everyone, and it’s especially nice to do it jointly with Laura, I don’t think we get a chance to do this very often. So, I am actually very glad.
So, as you know I work with Acclimatise, I have been with Acclimatise for five years now. My focus is on, of course because I am part of Acclimatise at the moment, my focus is on climate adaptation and risk management. But within that particularly I focus on policies, institutions and governance. So, my take in talking about public finance for adaptation is going to very much use that lens. But–Laney can you change this slide please? My background is far more diverse, I have worn many hats over the last fifteen, sixteen years. I started off as a business and then environmental journalist. And then I have since sort of gone down the rabbit hole in being a sort of a qualitative policy researcher and now very much a practitioner in sort of looking at how climate resilience can be built through the entire sort of planning, finance, capacity building cycle. But as a result of all of the time actually spent as a climate and business journalist as well, I do a lot of media discourse analysis. So, and that’s a lecture for another time, it’s a lot of fun. So, alright, next slide please.
So, I’ll start with a very quick recap on situating the adaptation finance context in terms of all financial flows, but then looking at challenges and accessing and utilizing dedicated climate funds; and then look at what’s happening at the level of domestic budget, where adaptation financing can happen at scale; and then very briefly in terms of what the private sector is up to. And then what I would like to do is really step back a bit and make a case for how thinking about, or rather reimagining how all planning decisions are made in finance, and how climate change needs to be co-opted into that; and what the frameworks that sort of various agencies are now congregating around on this. Alright, next slide please.
I must say that a lot of my examples will very much come from South Asia, though I have worked in other regions. So, I’ll try and bring in stuff as and when. Right, so, let’s try and unpack the climate adaptation finance landscape first. Much of this you likely already know. So, I am not going to sort of dwell on this too much. But it’s pretty obvious that finance for adaptation is a very small percentage of all financial flows that are publicly tracked. This is a percentage from the last fiscal based on the CPI report, but this figure does not change very much relative to fluctuations in overall flows. And it’s important I think to state that this is based on what is publicly tracked. It’s not always easy to unpick adaptation from business’s usual development that builds resilience, and we’ll come to that. We also know that less than one percent of tracked private finance is targeted at adaptation. So, therefore, much of the money that’s explicitly aimed at adaptation is public sector finance, and a majority of that essentially flows from development finance institutions, so domestic bilateral, multilateral agencies who are the major contributors. I think it’s important to also note that most of them, not all, both, formally and informally prioritize assistance in terms of you know sort of their own country organizations and firms. So, if you do see development aid flowing as technical assistance, you know that it’s sort of rooted in a way that often the money makes it’s way back to that very same economy, and as a result of which you have seen a proliferation in a number of regional, international, but also increasingly domestic climate funds that are specifically set aside for climate project implementation. Now, they will have some technical assistance components, they’ll have capacity building components, they’ll have formal policy formulation components, but they are often aimed at structural and non-structural interventions on the ground. So, for instance, you know, flood resource management, flood defence infrastructure, working with village development community, setting up early warning systems, strengthening agricultural extensions, you know, so, dedicated funds like the green climate fund, the adaptation fund, the least developing countries fund, all of these; and also like I said, domestic funds. You have got the Bangladesh climate change trust fund, India has one such fund, Cambodia has one such fund. So, you know, a various sort of countries are also recognizing the only way to explicitly put in money is to actually set these aside. Obviously, the longer-term sort of goal is to mainstreaming, mainstream, rather planning in budgetary planning. And we’ll come to why that’s not really happened as effectively as it should. Now, many of these sort of funds typically have some amount of a grant component, which are then often paired with other sourced and through other instruments. So, there are various sort of blended finance mechanisms. This is a snapshot of where adaptation finance stands.
Now there are challenges in tracking adaptation finance as I said. One of the biggest issues is this uncertainty in terms of causality of investments because some adaptation can happen autonomously as sort of business’s usual development planning. Often, we don’t have common impact metrics for what constitutes resilience and Laura sort of referred to that as well. And we also have limited data availability in terms, especially in terms of fund flows for adaptation from the private sector. Right, next slide please.
You know this is a diagram you likely have already seen. I am not going to go into it in any detail except to note that you can see that adaptation is a sort of very small component, much of it is getting into disaster management, water resource management, coastal infrastructure and so on. You do have a small component of projects that have a sort of a mixed component. So, for instance, a project that is mitigation focused setting up solar home systems that also have a resilience component because people are sort of getting a system wherein they are able to do more, there are more sort of livelihood opportunities because of that system being put in place. Much of that money you will see on your left is actually flowing through government agencies, through development finance institutions or through intermediary. And a small component of that, a very small component of that is actually distinct or sort of dedicated climate funds. It’s so small and yet governments nationally and sub-nationally hanker for this. It’s such a priced you know sort of, a piece of money to actually have. Next slide please.
But let’s look at the other end of the lens; what happens when government agencies and departments are looking to access in finance, access this finance and then utilize it; what are the sort of various issues. I think it’s important to note that a number of these funds are sort of approved based on the development of concepts and proposals that have some kind of climate evidence base, because that’s the only way you can really differentiate it from regular development planning. But this evidence is in the form of available climate data, sometimes socio-economic data that’s married to it in the form of climate risk and vulnerability assessments. Now, one of the fundamental issues that government agencies and departments face is accessing climate data. And if these assessments are available, then interpreting them. A good risk assessment will typically focus on historical trends, but also projected impacts often based on model-based outputs. And these are technically heavy reports. We often see on the ground that a sectoral bureaucrat will likely never pick it up. There is just a huge dichotomy in terms of what the scientists end up doing, either sort of because the government has asked for it or because they know there is some fund that they want to sort of try and access. Or because there is a technical assistance program that demands it, but you will not see an implementing agency actually pick it up. If they do pick it up, there are issues of interpretation. Models offer corridors of uncertainty, that you know X district has a minus three percent (-3%) to a plus twenty percent (+20%) chance of increased annual average precipitation between the April to June period in 2040. What do you do with that time scale, what do you do with that uncertainty of prediction? Often, and this is pervasive, this is not just in South Asia, this is where that link fails in terms of you being ale to use that information effectively to be able to build a concept and then a proposal where you can access a limited port of money.
And then let’s move into sort of the idea of the climate plans which are supposed to be the basis for which you develop then bankable projects to access finance for some of the recommendations you have made in these plans. These are largely guiding documents, especially in South Asia, because you have troubles with these assessments. They are not really rooted in the climate science. Often, they pick overarching development objectives that broadly overlap with some resilience building. So, therefore, there is no grasp to whether these recommendations are robust against multiple climate futures, or whether they are just plain maladaptive. You know a classic example is thinking about putting irrigation infrastructure. You have really no idea and thinking about whether that area over time is going to have a water deficit. In which case you may have water now, but that irrigation infrastructure is likely useless. But at the face of it, having that infrastructure in place likely builds resilience now and is probably good development planning. And therefore, you do need to have, think about what sort of future projections are when you put a project in place and when you get climate finance for that particular project.
It’s also worth noting that a lot of these funds, whether they are project based or programmatic, they are largely one time even in terms of multiple phases, and end up funding isolated projects. They are not economy wide and they are certainly not helping in any sort of mainstreaming. They are isolated. We have fantastic examples. Some of the work that we have done, other agencies do, NRDC does, you know you do cool roofs project, you have interesting stuff that’s happening. A number of states in India are doing heat action plans. They are islands of innovation, the islands of innovation because of a small set of drivers. And they are great instances of funds spent on interesting projects that have not been scaled up effectively, and to an extent that’s actually required.
There is also limited capacity to scale up, and I think it’s worth talking about. There is limited human and institutional capacity to undertake an exercise, to scale it up once a project like this that is funded sort of ends, and limited agency to access funds and convince decision makers to sort of scale it up using the public finance system. Of course, the private sector is missing from this conversation, and we will come to that.
There are also large gaps in financing adaptation in number of key-at-risk sectors. And you certainly see this in a number of plans in Bangladesh, in Pakistan, Nepal, Sri Lanka, Afghanistan as well. What you are essentially seeing is energy; even renewable energy or transport are typically seen as mitigation sectors. And yet they are susceptible to physical risks both, in terms of their assets, but also their service provision. Sometimes it’s your short-sightedness, you just don’t see a linkage in a lot of these climate plans. And therefore, there isn’t a sense of very, explicit sense of trying to pitch for an access finance for it, for resilience. But the other problem is very much in terms of political mandates. We certainly, we have seen this in Nepal, we have seen this in a number of the north eastern states. You have hydropower generation, and there is almost you know a myopic sort of sense that not to link and think about resilience from the perspective of something that is adding to your GDP and not to… But the fact still remains you know, you are uncertain about what your flood return periods are, you are uncertain about therefore sedimentation, you are uncertain about how that asset is going to actually provide energy efficiently, consistently. And yet this is actually largely overlooked. And so, therefore, what you end up having is a system wherein there is a finite source of funding spread thin competing countries, competing agencies within a country. And the scope for transformative action because of these sort of dedicated funds is actually considerably limited. Next slide please.
Now let’s step outside this very tine, highly priced universe, so, sort of climate funds. I’ll think about domestic budgets. They are under examined, but they are an important and sustainable source of adaptation finance at scale, you know money that’s financed through domestic taxes, levies, other internal revenues. And you know there is a key that’s to be made that they are already contributing to some degree of resilience building as we have spoken about earlier in terms of business’s usual development. So, there is an opportunity to use that and make it climate compatible. For the past eight odd years, there is therefore been this focus on climate budget tagging, the idea to first monitor and then track climate related expenditures in the national budget system. It’s a fantastic exercise. Unfortunately, it’s incomplete. It’s incomplete because the process does not yet distinguish money explicitly set aside to address climate change. So, what are the budget tagging process typically entail. You know you have a code in place. Let’s say there is a budgetary line item on farm mechanization. You look at that and you say okay, percentage of that is climate relevant because it is at some level probably, it means you know, if you have farm mechanization, you can have an additional crop cycle, and therefore, more money in the hands of the farmers, and therefore it has some resilience building opportunity. So, there is a percentage added to that, which is fantastic. But this still business’s usual development. This sort of process is not tagging what is specifically set aside just for climate adaptation. It was originally aimed at estimating long-term finance requirements, and that has not happened. What it is doing perversely is functioning more as a reporting mechanism to publicize existing adaptation funding. So, for instance, a lot of the NDCs, for a lot of developing and emerging economies that X percentage of their GDP, two percent, four percent, already goes into adaptation financing. It’s a way of showing commitment without actually putting in the money or the effort. And you know, and the agencies who actually drive this process are committed to it, which is great. But it needs to now evolve, and that’s where the gap is in terms of really sort of understanding what these periodic budgets are actually sort of, what are their end goals and what are they doing in terms of actually planning and helping anticipate long-term finance requirements in each of these countries. Right, next slide please.
In this slide what you would essentially see is, so, the global commission and adaptation. There was an interesting background paper that talked about this and developed this table which has a lot of text. So, I urge you to read it at your own time, but essentially try to show the various steps in budgetary planning that can be used as entry points to mainstream adaptation. And on your right-hand side is that bit on climate budget tagging which is where basically sort of the needle is stuck, and therefore more needs to happen. Next slide.
I am going to, you know, so, when you talk about sustainable finance at scale, there is clearly another player, there is the private sector. In this case I am talking both, in terms of private sector players in the real economy, corporates, as well as private financers, and what is the rationale. And Laura clearly got into this a little bit. One is of course, they can support governments facing constrained budgets, but they can also look at their own operations and profitability which will get impacted sort of adversely. But when you think about what’s happening in South Asia, again, coming back to South Asia, in terms of companies in the real economy and their support to governments, there is limited private sector interest in investing in adaptation. There are exceptions, those explicitly focused on adverse community and environmental fallouts. We certainly know sort of what’s happened in terms of the entire water stewardship exercise which is, a lot of it was driven by community backlash on water extraction by some sort of large corporates in certain communities. And therefore, there is a water stewardship program in place. But apart from that when you think about private sector companies jointly working with the government, often the window is, in terms of where the money would come from, is limited. They look at their corporate social responsibility payouts, they are very, very small in themselves. There is also, and what we found on the ground, there is a limited alignment between government and business objectives linked to the investment. The other thing we found out interestingly in Maharashtra which is a western state in India and highly drought grown in certain regions, but also heavily flood prone in others, there were massive issues with commissions and tie ups with local governments on joint community projects. And a lot of big corporations actually just backed out. This was very interestingly sort of, it was part of a development funded project where the mandate was to bring the private sector in and put money with the governments. And you very quickly saw that the state government planning timeline and cycles is completely misaligned with the government planning timeline and cycles. And just governments, you know the private sector just got restless and a lot of companies actually backed out. And that’s just one of the issues when you think about corporates working directly with governments jointly on adaptation projects. When you talk about companies now thinking about their own operations, their own value chains and how they are susceptible to climate risks both, now and in the future, again, very, very nasty. But you do see some of the large conglomerates. Certainly in South Asia you have got the Tata group that has been, that has done a climate risk assessment for one state, and then has deep dived further to look at certain companies of theirs and to look at how the businesses will get impacted, some of their coastal operations will get impacted by coastal incursions, storm surges and so on. Very, very early work. But there is a growing recognition, there is a growing understanding that businesses are getting impacted. And when you think about financial institutions. I know Laura sort of went into that in considerable detail, and I’ll talk about it again from the south east Asia, bit from the Africa perspective as well. What’s ended up happening is that often when you think about drivers for why financial institutions need to get into this. There is a huge conversation about, first of all there is a conversation about what sort of targets their regional block that the countries have made aligning to those targets, thinking about their own portfolio. What we are seeing in south Asia and in some cases in some of the African countries, the driver is very material risk. We have now seen anecdotal instances of material sort of impacts to you know sort of bank business continuity because ATMs are getting submerged because their own staff wasn’t able to sort of get into offices because of heavy sort of flood incidents, how droughts have actually impacted. In parts of Africa droughts have actually impacted small borrowers sort of closing up their accounts, no repeat businesses in terms of certain sort of farm sector, you know communities who are in the farm sector. Of course, there is a, it’s anecdotal. A lot of these organizations are not talking about it openly, they are talking about it when you actually speak to them off record. The idea very much is that there is an impact. It is not something that they have sort of worked into their stress testing models as yet. But there, I mean there is a growing recognition that financial institutions so sit at the heart of the economy. So, any sort of economic losses aligned to assets or operations with communities and businesses have a direct sort of bearing on financial flows. And then that can directly and indirectly impact you know sort of financial institutions borrowing and investments. So, there is clearly a sort of a feedback loop. Next slide.
This is a slide we love to sort of use at Acclimatise. I can see some of the, some of the icons have sort of gone misplaced I think Laney.
Laney Siegner (51:23): Sorry about that.
Anu Jogesh (51:24): Nah, that’s okay. You know I can share sort of my original presentation. But the idea is to sort of give you that connection. There are physical risks, there are transition risks. There are clearly micro and macro impacts both, to businesses and communities. And there is a feedback move because this in turn impacts financial institutions who could either directly be impacted by sort of physical risk or through sort of their borrowers. And they in turn can then sort of impact their lending to businesses and communities. And so, therefore, there is a growing recognition because these are unfortunately parallel conversations. You have governments, you have agencies. They wipe these small sort of dedicated climate funds. There are sort of some efforts going on in terms of what can happen from the budgets. There is some amount of blended finance coming in, fantastic. And this conversation about what the financial institutions are doing, how regulatory agencies can get involved. But the ministries of finance are doing completely parallel conversations at the moment. They are not sort of cross-cutting certainly in South Asia.
A lot of the driver, I can already tell you in India, is you know this idea about concessional lending. We spoke with the reserve bank of India, and it was very interesting because they said well, we have had an opportunity to get concessional lending from the European investment bank, except, except they… India didn’t have a taxonomy in place, and so, we had to let go of that money. And so, that’s actually the driver. So, suddenly India is saying okay, we can have taxonomy in place, how can it be aligned, but how can it also be very contextual to south Asia. So, these conversations are already happening.
Okay, I know I have taken up a lot of time. So, I am going to sort of end very quickly with my last slide. I am not going to go into it in very much detail. Can you sort of go to the last slide please? Which is essentially in the next slide after this lady, thank you, which is this idea of stepping back a little bit and understanding, when you talk fundamentally about finance… the very last slide, thank you. When you… I’ll talk through this. When you talk, when you think about climate finance, don’t just think about climate finance, think about all development planning, planning selection, planning sort of frameworks in fiancé for it. The idea is sort of very much to think about why we have sort of planning that does not sort of very clearly articulate what are those sort of reasons and driver behind it, why some of these sort of planning decisions are made.
You know, let’s think about the fact that, you put money on a specific energy choice, that energy choice is going to have an impact on probably air quality, probably cost to users, probably land use, water requirement. None of this is sort of publicly articulated. And yet these have impacted multiple sectors in multiple areas.
The other issue of course is that there are implicit considerations of costs benefits, traders, trade-offs, stakeholder preferences. And yet planning often focusses on a single sector, encourages limited participation, and rarely invites inter-sectoral deliberation. The idea here is sort of to step back and think about the concept of approaching all policy planning and financing from the perspective of multiple benefits. So, it builds on the sort of a co-benefits idea. But can you select and rank policy options in key development areas crucial to the stakeholders that are also climate compatible. If you look at this, we developed this for a project we’d actually done in Uttarakhand, as in guidance. You know, for any planning decision, you have social considerations, you obviously have economic considerations, you have environmental considerations that you are forced to bethinking about because your community is active, or you have seen a fallout afterward. You have transactional and institutional considerations, you have political mandates, I mean classic examples. You know I am, there is a study of working in one of the small cities and they want to have a tram system. The government, the state government wouldn’t allow it, but the state government wanted to invest in a metro. There are political considerations for an option, for a choice that maybe climate compatible.
But also thinking about how, whatever decision you actually make is resilient against multiple climate future, but also reduces or avoids emission, and financing for this. So, really, maximizing benefit and then choosing finance for the best option that actually maximizes sort of choices across it. You will never get the right choice. Depending on the sort of cross-section of various stakeholders you speak with, you are going to come up with a different choice for that planning option. The idea is to have a clear audit trail about the people who were on board and the considerations you actually made, and then sort of coming up with a solution that sort of ticks off most of the boxes that are relevant to you. And I’ll end there.
Laney Siegner (56:25): Right, oh, I muted. Awesome. Thank you so much Anu. That was a fascinating tour of the space and I think for me at least very complimentary to hear both aspects of private and public climate finance in this talk today. I know we are running a little bit short of time, so, I want to get Siddharth’s question. And I’ll just say that the slides from Laura and Anu are already shared in our Google drive folder for guest talks. So, you will have access to those. And if it’s okay with Laura and Anu if there is any lingering questions that we don’t get to, I can send them to you all via email.
Anu Jogesh (57:00): Definitely.
Laney Siegner (57:01): But, Siddharth you want to ask your question?
Anu Jogesh (57:52): Right, so…
Siddharth Jayaram (57:53): Yeah, that’s my question.
Anu Jogesh (57:55): That’s actually a fact, that’s a fascinating conversation. In terms of impacts, very, very early. You know you do have a number of companies that are looking to now put in funds in using ESG metrics, you have EQ that’s sort of setup and a bunch of others who are doing this in India at least. They are just starting off. They have started having conversations in terms of where the money would go. Where they are actually trying to put money, and this is interesting, is where a lot of companies are finding opportunities to where they think can they come up with technology; and in this case not just mitigation technology, but adaptation sort of compatible technology as well that then sort of has a positive benefit.
So, it’s very easy sort of then put in sort of ESG funding into that. I… yeah, there is also the sort of, it’s important to unpack how ESG funding is sort of slightly differentiated in terms of what it means and whether the money you are putting in is actually also climate resilient. There is an idea that you have a company that does something that has a positive footprint, right, so, the whole triple bottom line. But then that often precludes what it means in terms of whether their assets, services, operations, value chains are actually climate resilient themselves. So, something that impacts their own profitability. That conversation I don’t think is happening. When we speak with a lot of ESG impact investors, they are still trying to wrap their head around that. When we speak with banks and they have a conversation about what kind of sort of qualitative ESG metrics they use, they are still wrapping their head around financial… physical risk. It’s a very different conversation because you are not looking at your impact, but what’s going to impact you and then in turn the investments you make.
Laney Siegner (59:43): Thanks for that, that’s wow!
Siddharth Jayaram (59:45): This is a great summary. Thank you.
Laney Siegner (59:48): Yeah. Thank you. And I totally understand if folks have to drop, I’ll keep recording for a couple of more minutes. So, if you need to like catch up, you definitely can. But let’s try and get to Satyam’s question and then we’ll sign off for today. And if you have any other ones, yeah, just send them to me, I’ll share with Laura and Anu. But Satyam go ahead.
Satyam (01:00:06): Yeah, hi, I am Satyam here from India.
Anu Jogesh (01:00:08): Hi.
Satyam (01:00:09): And I work in CPR. So, my question is how global south countries should abide or follow multi-based approach of climate financing when powerful institutions who are invested in climate financing quote that, you know, like for instance, in Bhutan recently World Bank came up and saying that the forests are actually not that much used in Bhutan, under-utilized and talked about sustainable investment. So, what is this sustainable investment, isn’t it similar to how world bank used to you know use his leverage of financing in terms of democracy, democracy promotion in other countries?
Anu Jogesh (01:00:57): You know, okay, it’s … okay, you will have to look at this in many ways. Okay, let’s talk about the bank itself. The world bank, you are right, the world bank has multiple mandates, their own country operations will have mandates. They have got their global fund for disaster reduction in DC, different mandates. So, often, its very hard to unpack why sort of certain kinds of sort of lending happens, what are the outcomes they are probably expecting. And you are right, that’s actually part of the problem, that’s a part of the problem.
What we have ended up seeing in certain cases is, you have government sort of pushing back a bit as well. So, you have two things that actually happen, You know this is a great example of Bhutan. Same example with Himachal. Himachal is a large portion of funding. The Himachal actually comes from the world bank. And so much of what they want to do is actually completely sort of, it’s framed in a way that the bank would like them to frame. So, you know every time you do an X, we want catchment area treatment, great. So, there is sort of funding coming into that. I know certainly we worked with the bank recently in south Asia. And one of the things they clearly want to do is make a very clear case for what is incremental adaptation finance for assets, for large infrastructure projects. And it’s very hard to sort of push back and actually tell the bank, well, great, you can’t have a tool for that because you know one man’s adaptation is another man’s maladaptation; one asset’s adaptation is another asset’s maladaptation. It is not that simple, you can’t do an end to end tool around it. I completely actually agree with you.
What, I’ll tell you what’s ended up happening on the positive side. You have certain, because there is pressure, the bank is very much part of you know sort of the large sort of global conversations in terms of what needs to happen. You have got the Asian development bank, you have got certain sections of the world bank, you have got a couple of other agencies who are now thinking about climate resilience in a way where they can actually have a conversation with their own counterparts who may or may not listen by the way to try and see that their projects can have a climate resilience angle. Classic example, we work with the ADB. The ADB has actually funded us to say, speak with our loan officers. Our loan officers just want to give money, right. We want to have a corridor, we just want to give money. Speak to our loan officers, there is a small grant they can get. So, if your project is the two billion project, we’ll give you 1.5 million, but you should make it sort of climate resilient, because their loan officers, their only focus is to give money out as loans. They just don’t want to have conversations. So, it’s a very interesting way in which some of these agencies are trying to circumvent that sort of big block. But I do agree with you. You know, yeah, development finance aid, something’s got to give, yeah.
Satyam (01:03:50): I am just… going to comment on this. So, yeah, this is also connected to countries funding other countries. For example, India recently had a green climate fund for Bangladesh, and Bangladesh… So, how, does this also come with writer? For instance, Norway funding, Norway giving up money to some countries in Amazon forest to not cut trees and remove forests?
Anu Jogesh (01:04:08): So, yeah, so, okay. So, the climate funds will not come with any sort of specific caveats. The fund is very project-based. It is, I mean the GCF is the largest sort of fund, it is a big amount of money for the kind of small, small bits of money they get from their own sort of dedicated funds, it’s a big fund of money. And it would be for that project, for that area. And then you know to get that money they will have to meet all of this. I don’t think it sort of has an economy wide impact because a lot of these are, they have a large grant component and some sort of blended component. These are grants, these are large, especially the GCF. These are sort of large grants. So, that’s how they essentially function.
Satyam (01:04:57): Thank you.
Dr. Laura Canevari (01:04:58): If I can just add to that, just, a different angle, but to think about this issue of the difference that there is between ESGs and SDGs and what it means to finance company that has integrated ESGs. Which basically means that they are more aware of the kind of risks that can happen. And it’s like the company is doing the right things because it’s tackling those risks versus companies that actually have and SDG mandate that are actually putting forward activities, services, products to help reduce, or to help meet any one of the different SDG goals. So, a company maybe doing ESG but not necessarily be promoting sustainable development you know. They are just doing things right. Whereas some companies are doing the right things, they are putting together activities and capital for sustaining sustainable development goals. So, there is a difference here.
The standard is that all companies should come to have ESG integration because that’s just good business. That just means reduce instability, reduce uncertainty. They all should do it and it’s been proven, that companies that integrate ESGs will have better performance. But the issues of whether companies integrate SDGs, whether they integrate into their function to have a societal role, to help deliver you know on the services needed for this. This is a different matter. And that’s where you start moving much more into, in that spectrum towards the real serious impact investment, which is not just I am going ESG, it’s, I am actually being part of that transition and I am actively helping to sustain SDG goals. So, just to say that, there is that difference you know, and sometimes it’s hard to tell which one is speak, you know. You need to know the activities and expenditure of firms to see whether they are actually SDG aligned or ESG aligned. Both are great, but ultimately you want both, yeah.
Laney Siegner (01:06:52): Yeah, yeah, that’s a great distinction. Thanks for jumping in there Laura.
Okay, well, I think I’m gonna wrap things up for today and just thank you all so much for being here as participants and for being here Laura and Anu as our speakers and sort of guides into the world of climate finance. It’s just been really insightful and amazing to learn from you today. So, thank you all, and I will see you later.
Dr. Laura Canevari (01:07:18): Thank you, bye, bye.
Anu Jogesh (01:07:21): Bye.
Dr. Laura Canevari (01:07:22): Bye, bye.
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