Why Climate Finance? Why Now?

“Why climate finance,” you might ask?

In 25 years of reporting on sustainable business, I have become fascinated by the pivotal relationship between capital and innovative solutions to climate-related issues.

Over the past few years, I have engaged with organizations, companies, conferences, webinars, and workshops about several varieties of values-based investing, especially the increasing number pointed toward ESG, impact investing, and SRI strategies and practices that address climate change. Each of these variants contains its own sub-categories, variously defined by institutional and individual investors, research firms, financial advisors, analysts, and academics. These, in turn, are connected to a rapidly growing range of products being introduced to activate the concepts, from green bonds to target-specific impact funds and ESG ETFs.

This unprecedented activity is among the most exciting developments in a time that could use more good news. It can also get confusing — fast. As a field, climate finance is a pioneering effort, based on analysis of data and science to generate new methodologies but by definition, one that creates new, uncharted paths within the financial sector.

As a field, climate finance is a pioneering effort that creates new, uncharted paths within the financial sector.

Speaking of definitions, when l went looking for a coherent way to assess the concept of climate finance, I found this one by the United Nations Framework Convention on Climate Change, Standing Committee on Finance:

“Finance that aims at reducing emissions, and enhancing sinks of greenhouse gases and aims at reducing vulnerability of, and maintaining and increasing the resilience of, human and ecological systems to negative climate change impacts. This definition represents finance for climate change in its broadest form as it relates to the flow of funds to all activities, programs or projects that support climate change-related projects, whether mitigation or adaptation, anywhere in the world.”

This expansive mandate is being filled to the brim with concrete action. Some selected recent examples:

• ESG funds forecast to outnumber conventional funds in EU by 2025, says PwC
• 137 financial organizations managing $20 trillion AUM have urged 1,800 of the biggest greenhouse gas-emitting companies to set targets aligned to the Science-Based Targets initiative (SBTi).
• BlackRock has launched the first-ever sovereign-bond fund assessing climate risk.
• Legal & General Investment Management (LGIM) will publicly rate 1,000 firms on climate.
• HSBC has earmarked $1 trillion for green financing.
• JPMorgan Chase will align its financing strategy with Paris Agreement.
• The Net-Zero Asset Owner Alliance, a group of funds and investors managing $5 trillion in assets, set an “unprecedented” 1.5º C emissions target.

How to make sense of this exponentially expanding field of activity?

Our newsletter is one answer. Climate Finance Weekly, or CFW, provides a concise yet comprehensive weekly digest of news and insights about investing with climate-related capital, curated for context.

At Climate & Capital Media, we believe CFW is a vital link between climate-finance activity and the growing audience of financial professionals who want to know more to advance their practice. Its voice is journalistic in tone and draws on experience in the field. CFW fills a gap between the occasional coverage in the mainstream financial media and the deep data of trade publications and white papers.

As a best-practice guide in evaluating support for budding entrepreneurs, there is a strong case to be made for looking closely at capital that filters for solutions to climate change. That’s the general mission of Climate&Capital and the specific focus of CFW, which will look at climate-finance activity in detail.

There is a strong case to be made for looking closely at capital that filters for solutions to climate change.

“What gets the money gets done.” That’s how one prominent ESG investor put it in a recent seminar, replying to a question as to why investment in climate change solutions is a worthy idea.

Indeed, climate finance is seeing record inflows of capital. Globally, $71.1 billion globally was recorded between April and June of this year, pushing worldwide sustainable assets under management to a new high of more than $1 trillion. Sustainable fund flows in the U.S. for the first half of this year totaled $20.9 billion, nearly as much as the record $21.4 billion set in 2019 for the entire year. And 2019’s flows were four times the previous record for one year. These are large numbers that can make a big difference.

As for that “why now” question, the simple answer is to take a look at recent heat records. This past summer — June through August — ranked fourth hottest and among the driest one-third of all summers. The last five years rank as the hottest on record, according to NOAA, and the organization’s scientists predict that each year in the next decade will be among the top ten warmest years globally.

Last month was the hottest September on record. Earth’s average temperature was 0.05ºC warmer than the previous record, set last September. We’re two-thirds of the way to the 1.5º C that the UN Intergovernmental Panel on Climate Change (IPCC) says will irretrievably change life as we know it by 2030. The future of global warming is now.

Our work at Climate&Capital and in the CFW newsletter is to help you navigate all this; to avoid and manage the rapidly escalating risks of global warming while acting on opportunities in the new climate economy.

Join me as I chronicle the new Climate Age. Sign up for the CFW newsletter here.

 

Article by John Howell – a writer, editor, and broadcaster who oversees the Climate Finance Weekly newsletter and advises on communications and media strategy. He was co-founder, editorial director, and chief of thought leadership for 3BL Media, for which he managed all original editorial content, wrote, and edited newsletters, and created the Brands Taking Stands initiative. He has worked as an editor and contributor for Elle, Artforum, and High Times magazines, developed new media for Hearst Magazines, and created communications for Calvin Klein, Polo/Ralph Lauren, and The Body Shop. He lives and works in New Hampshire and Maine.