The Lima Paris Action Agenda : Private Finance Focus

Event Summary

Within the framework of the Lima-Paris Action Agenda aimed at strengthening climate action before, during and beyond COP21, the United Nation Secretary General and the COP21 French Presidency, propose, with the help of Caisse des Dépôts and I4CE, Institute for Climate Economics,

• Location: Le Bourget, negotiation zone of the COP21*
• Date and time: on the 4th of December, from 10.15 am til 1.30 pm

Learn more about the Lima Paris Action agenda:

Part of the Paris Lima Action Agenda, the Private Finance Focus took place on the 4 December in the blue zone of COP21. It was organized by the United Nations Secretary General team and Caisse des Dépôts on behalf of the French COP21 presidency with the help of I4CE. Aiming to showcase climate action among financial actors and to launch new financial initiatives to continue post- COP21, it gathered speakers from the main financial sectors: investment, bank and insurance.

Among speakers, UN Assistant Secretary General for Climate Change Janos Pazstor, French Minister of Finance Michel Sapin and COP21 President and French Minister of Foreign affairs, Laurent Fabius, former President of Mexico Felipe Calderon, as well as high level representatives of the finance industry and of innovative initiatives, which fostered the triggering of private finance to accelerate the shift toward a low carbon economy. 300 people attended the event, party delegates and observers.

First take-away of the event: In only one year, Climate action in the private finance sector has far surpassed the level expected

Driven by the growing awareness of carbon risks, investors are increasingly measuring the carbon footprint of their portfolios; with others taking the second step of implementing actions to reduce it. Major investors coalitions launched in 2014, such as the Montréal Carbon Pledge and the Portfolio Decarbonization Coalition (PDC), have surpassed their targets. Divesting from high emitting sectors was presented by big investors as a complementary tool for dealing with assets that are already stranded. Some investors have already decided to dedicate a growing part of their portfolio to finance sectors, firms and projects that participate in the shift to a low carbon economy by acquiring “green assets”. The next step and objective for investors could be to align their climate policy with a 2°C trajectory.

By making financing choices – both from a risk and an opportunity perspective – banks can also have a huge impact on the real economy. This event highlighted how more and more banks are aligning their policies with climate objectives in order to pursue an orderly path from a fossil fuel economy to a low emitting one. In that purpose, some are following sectorial financing guide lines. Some have publicly announced that they have stopped financing high emitting sectors. Others have committed to issue or underwrite green bonds financing new low carbon projects such as renewable energy or energy efficiency. The event highlights how the banking sector still needs research and knowledge sharing to choose the most effective climate action.

According to recent reports from the Bank of England and the Financial Stability board (FSB), the insurance is affected by climate risks threefold: physical risks, transition risks and litigation risks. The main challenges are to cover growing physical disasters risks and to extend the insurance coverage in the poorest countries, thus contributing to addressing adaptation needs. To date, a number of innovative products and methods have been created, some mixing public finance with private insurance technics and means.

But those promising voluntary commitments may be insufficient to complete the shift to a low emitting economy in the long term. To reach the level required by the 2 degrees Celsius objective, private climate finance still needs to overcome barriers, to deepen research and to align with public climate policies beyond COP21. To facilitate sharing – as well as commit to mainstreaming climate across all operations – a group of 26 public and private financial institutions have launched a new initiative, “The five principles to mainstreaming climate action among financial institutions” with an open invitation for others to join.

Next steps for private finance action:

• to align with public climate policies to implement INDCs,
• to create innovative tools to trigger capital flows adapted to sectorial issues

The Private Finance Focus highlighted how financial actors can align with national transition pathways to a low carbon economy, focusing on the Chinese, Brazilian and French examples. It opened new perspective of cooperation between policy makers and private finance actors to implement the financial layer of national contributions (INDCs), notably in relation to infrastructure needs and financing. The Long Term Infrastructure Investors association (LTIIA) launched a program to accompany 6 countries in that purpose; among which Senegal is already a partner of the program.

Various new forms of blending of public and private finance were showcased, aiming to address sectorial climate challenges at a global or regional level.

• The Land Degradation Neutrality Fund (LDN Fund) is an innovative investment vehicle to be launched in 2016 that aims to finance the rehabilitation and sustainable management of 12 million hectares of land per year and sequester rapidly big amounts of carbon in the soils. It is expected to offer investment opportunities that meet risk/return objectives of many institutional investors.
• The European Bank for Reconstruction and Development (EBRD) presented an innovative programme, supported by the Global Environment Facility (GEF), for scaling up energy efficiency financing through local private commercial banksof emerging or developing countries worldwide. Through this program, up to $25 billion could be provided for energy efficiency with estimated carbon emissions reductions of 62 million tons per year.
• The Inter-American Development Bank’s (IDB) presented its new program supported by the Green Climate Fund meant to guarantee green bonds that refinance loans, dedicated to energy efficiency in the LAC countries.
• IRENA (International Renewable Energy Agency) launched the Sustainable Energy Marketplace, a web-based platform that helps identify promising renewable energy projects and links them to public and private financiers to help scale up investments in emerging markets. The Marketplace will be launched with regional hubs for Africa, the Caribbean and Latin American.
• TCX Investment Management Company BV launched the Long-term foreign exchange risk management Instrument for renewable energy and energy efficiency projects in sub-Saharan Africa. This project has been incubated by the Global Innovation Lab for climate finance.