Conference Summary — Climate Bonds Connect 2022

Climate Bonds CONNECT 2022 — Global Conference London

SUMMARY AND HIGHLIGHTS

Opening remarks: Our Common Goal

Sean Kidney, CEO of Climate Bonds Initiative (CBI) opened the session by stating the purpose of the conference: to mobilise a massive amount of capital to reduce global emissions by 50% by 2030. These conversations are essential in growing deeper relationships with each other to deliver on the goals with speed, he adds. The rapid onset of climate impacts is chilling, with extreme weather events we weren’t expecting in 25 years, record heatwaves in China, and devastating flooding in Pakistan. Sean further noted that the climate situation is worrying with a sever methane spike in the past ten years, a gas 82 times more potent than CO2. Even the pandemic is a direct result of the changing climate and the IPCC is predicting more pandemics in the future. We live in the new normal: a world of increasing volatility and increased inequality, which means that we have to look at resilience. Our job is critical because it is not just a matter of capital flowing, but also the architecture of how the capital will flow. If we don’t make this transition, we won’t survive.

Citi’s CEO Jane Fraser echoed the urgency of confronting climate change as record heatwaves, floods, and hurricanes affect millions of people, only to be worsened by the conflict in Ukraine. Jane Fraser reminded attendees that there’s an additional ‘S’ in ESG: security. Citi is committed to embedding the transition in all of their work, engaging client by client and each sector by scale. The financial sector can unlock the capital but policy and technology are needed to support it. With partners like Climate Bonds, there is hope in collaboration in tackling the biggest problem of our time. Jane concluded her remarks by inspiring the audience: “if we make this transition, we create a different world – a world our children can live in, one where we want our children to live in.”

Safeguarding our Planet – The Future is Green

Arunabha Ghosh, CEO of the Council on Energy, Environment and Water (CEEW), acknowledged that the Council’s mission on the environment centres on how we can become better prepared for the effects of climate change and make ourselves less vulnerable. First, we need to do a risk assessment on the impact of climate change. We also need address economic risks and what it will do to our livelihoods and sectors. He added that we must sit down and talk about how we are going to halve emissions by 2030. Arunabha challenged the audience and urged us all to look beyond the headlines and get into the by-lines: who is going to author and lead the transition that we all want.

Kingsmill Bond, Energy Strategist at RMI, asked not what should be done to save the planet, but what should be done to save profits. This is the decade where you will either make or lose money, he said. Over the last decade, we have unlocked an enormous source of renewable energy and its cost will continue to fall, enabling it to replace the fossil fuel system. The answer now is not just to embrace renewables and shun fossil fuels because it is the right thing to do, but because it is the only way for businesses to shine and prosper. Kingsmill highlighted that there is no lack of capital, but rather a lack of projects to finance and good policies in place to further accelerate the deployment of renewables. In spite of these difficulties, however, renewables are still getting deployed.

Victor Nkiiri, Senior Capital Markets Specialist at Financial Sector Deepening (FSD) Africa shared that they partnered with Climate Bonds because the public sector is bound to pick up much faster because of skill in transition. The result was the first CBI-certified green sovereign bond in the world. Now, we are seeing a lot private capital placing a premium on impact. Twenty percent of the portfolio of the banks are already green even without a green strategy. We need appropriate regulation not just for the sake of regulation but regulation that is appropriate for the investor. Seventy percent of pension funds in the African continent are invested in government securities so there is an opportunity to have other investment options. Victor emphasised that there is a growing link between climate impacts and security across the region, like the drying of Lake Chad which affects many countries.

Long-term investors know that climate change is the greatest long-term risk and will result in stranded assets, finds Elke Pfieffer, Senior Project Manager at UN-convened Net-Zero Asset Owner Alliance. This is our last chance to transform. We are on a good path, but we must continue with our ambition to make the future green. Every sector must be transformed with new investment opportunities in the green economy which amounts to about USD 3-6 trillion annually – the largest opportunity in decades. The huge elephant in the room is risk, so we need policy and reliable government planning. Financial institutions, investors, issuers and banks all need data for transparency, risk assessment and, eventually, standardisation of data. Elke closed with calling for ambitious leaders and collaboration among all stakeholders.

AIIB-Amundi Climate Change Investment Framework

Jin Liqun, President of the Asia Infrastructure Investment Bank (AIIB), and Valérie Baudson, CEO of Amundi, shared how their companies have been working closely scaling up globally to get the investment we need to address climate change. Valerie highlighted the role that the finance sector can and must play to support this transition and how Amundi is a world leader in responsible investment. The economy needs to undergo ?a significant transformation to achieve the objective of net-zero emission by 2050. This transformation will require massive investments of around USD 9.2 trillion in annual average spending on physical assets, which means USD 3.5 trillion more than today. Investments in clean energy in emerging and developing markets need to expend more than 7 times to above USD 1 trillion and to achieve the net-zero scenario by 2050.

Jin shared how AIIB is working hard to reach at least 50% of climate finance by 2025 and becoming the partner of choice for green and sustainable infrastructure. He also flagged that AIIB has invested more than USD 1.4 billion in green and sustainable bonds in Asia.

During the networking break, we had the pleasure to announce the launch of the first research application of the AIIB-Amundi Climate Change Investment Framework (CFFI) . The CCIF translates the three objectives of the Paris Agreement into fundamental metrics that enable investors to assess an issuer’s level of alignment with climate change mitigation, adaptation and resilience, and low-carbon transition objectives. For each objective, the CCIF sets out key metrics to assess financial risks and opportunities. The CCIF was jointly developed by AIIB and Amundi and was endorsed by CBI.?

The Ambition of Transition: From Entities to Entire Sectors

Climate Bonds’ Head of Asia-Pacific Programmes Zalina Shamsuding moderated the next session and introduced the panel of speakers who shared their knowledge about transition pathways for different industries and directions for independent assessment of entities. Cristina Gamboa, CEO of World Green Building Council, explained how a global action network of over 70 member Green Building Councils around the world having been working with businesses, organisations and governments to drive the action towards the ambitions of the Paris Agreement and UN Sustainable Development Goals (SDGs). The challenge is to connect investment and investors. She also mentioned that, since the biggest asset class in the world is infrastructure, we need to avoid locking in carbon intensive infrastructure.

Scott Roose, Managing Director - Global Head of ESG Financing of Credit Suisse, brought in the perspective of the market. According to him, capital flows will dictate the viability of decarbonisation and Credit Suisse is supporting green finance by providing financial support, establishing targets and KPIs, and developing their pioneer framework. Tonny Rooke, Executive Director of Glasgow Financial Alliance for Net Zero (GFANZ) shared how the Alliance has been working since 2021 to provide tools and resources the financial sector needs to implement its net-zero commitments. He emphasized that we need blended finance, such that public and private finance are not competing to scale. And Rupert Cadbury, Vice President, Fixed Income Portfolio Strategist - ESG at State Street Global Advisors, highlighted the importance of data and standards. He finds that some of the challenges for institutional investors include benchmarks oriented for their risk return objective, and the lack of bonds that qualify for inclusion in green finance.

Taxonomies – Cutting Emissions and Building Resilience

"Taxonomies were a very theoretical complex sort of sideshow in previous years, but are now becoming a very real, tangible issue, particularly within Europe,” says Philip Brown, Citi’s Managing Director for Capital Markets. Helena Vines Fiestas, Commissioner of the Spanish Financial Markets Authority (CNMV) and Rapporteur of the EU Platform on Sustainable Finance, shared her work on the EU Platform Usability Report . The report provides guidance, clarification, and 64 recommendations on data and usability as part of taxonomy reporting.

Ingrid Holmes, Executive Director of Green Finance Institute, pointed how the UK Taxonomy is intended to set out the criteria which specific economic activities must meet to be considered environmentally sustainable It has some differences with the EU Taxonomy and Ingrid underscored its challenges, the importance of transparency, and its usability.

To offer the perspective of another region, Mariana Escobar Uribe, Advisor to the Financial Superintendent of Colombia (SFC) spoke about the first Latin American taxonomy as she is responsible for the SFC's green finance and climate risk strategy. Latin American and emerging markets’ taxonomies have some similarities with the European Taxonomy but she highlighted the importance of adapting it to the region’s context, local data information, applicability and the cost of implementation.

Wrapping up the session, Climate Bonds’ Head of Taxonomy Bridget Boulle spoke about the organisation’s work with stakeholders, funders, donors all around the world on Taxonomy development and implementation. She highlighted the importance of interoperability, which means that all taxonomies are speaking the same language, even if they’re not always saying the same things.

Networking

While the participants engage in rich conversations with each other, Jason Channell, Global Head of Sustainable Finance at Citi pointed out that the issue is not in the lack of capital, but a number of challenges. Firstly, we don’t have the right vehicles – there is a mismatch between the need for capital which is in emerging markets and their investment rating. Second, the ticket size: billions of dollars are allocated for investment but some projects are too small to do due diligence. Lastly, investors are not targeted enough – whether they’re not Paris-aligned or aligned with the country’s taxonomy. That’s why the data and reporting is very important. We are facing a historic opportunity where we need trillions of capital waiting for the right vehicle to it can help solve our biggest problem. Whether we succeed or fail, we will have the largest gains or suffer from the largest penalties.

Governments Driving Change

Ma Jun, as Co-chair of China’s Green Finance Committee, is responsible for the largest green bond market – China – which is RMB 1.4 trillion large. He discussed their experience of growing it which is currently 40 percent of the bond market, up from 33 percent last year. Ma Jun also sits in the G20 Sustainable Finance Working Group which focuses on a couple of topics, the main one being is developing the transition finance framework.

Martin Spolc, Head of the Sustainable Finance and Fintech Unit European Commission’s Directorate General for Financial Services, said that as regulators their role is to provide an enabling framework for the various stakeholders. They also provide tools like the European Green Bond Standard and translating the taxonomy to different products. There is still a lot that government can do in its role to accelerate renewables and promote energy efficiency. These are in line with the long-term objective but there is a short-term challenge so some players are not moving as fast as we want.

Rathin Roy, Managing Director of the Overseas Development Institute (ODI), challenged the audience to think about how much UK subsidies are for fossil fuels and be conscious of the political narrative at COP27, G20 and other multilateral meetings. The term ‘resilience’ has been used very loosely; he adds. ‘Green’ means productive, equitable, and, if it’s ethical, then green should qualify for government subsidies. We need to unpack the differences in countries – for example, giving grants to small island developing states that need finance for loss and damage, while bigger countries should go to the markets.

Marie Diron, Managing Director of Sovereign and Subsovereign Risk at Moody’s, discussed the analysis that they do on transition, especially in Africa and Asia where resilience is a top priority. They looked at hydrocarbon in the sovereign ratings analysis as part of the transition work. There needs to be an assessment on whether transition and resilience work are translating into what they are meant to do as different countries have varying levels of strong or weak institutions.

From Global to Local – Tools to Make it Easier for us all

Simone Utermarck, Director of Sustainable Finance at the International Capital Market Association (ICMA) described the sustainability-linked bond market as an instrument to finance the transition. It is a nascent market but is really where the trend is and growing. ICMA has newer working groups and task forces including a Climate Transition Finance working group. They also found that 98% of sustainable bonds are aligned to their principles.

Rahul Ghosh Managing, Director at Moody's Investors Service, shared his experience in working with a large commodities producer that was worried about the risk of their core business being a dinosaur in the next 10-20 years to demonstrate that there is really interest from the market. As a credit rating analyst, Moody’s has conversations around the company’s exposure, response and how they implement it.

Blue like an Orange Sustainable Capital’s Managing Director Jean-Marie Masse said that green bond is a tool to finance the green economy. While raising money for green bonds and investors, he realised that green bonds are still a small asset class at 3%, and concluded that if we want to accelerate the transition then it should include industries that are polluting. The concept now is to work on Sustainable Development Goals (SDGs) and green bonds.

Rodolfo Fracassi, Co-Founder & Managing Director of MainStreet Partners shared with us the story of MainStreet's creation in 2008. The company aims to achieve consistent financial returns while improving people’s lives and protecting our planet. Rodolfo explained that MainStreet Partners' goal is to create financial value for all stakeholders while simultaneously generating positive, measurable impact. Closing panel session, the speakers answered the audience’s questions related to data, GSS issuance, regulation, the barriers of growing, ESG rating, second part opinions and credit risk.

Closing Remarks

Closing this year’s Climate Bonds CONNECT Global Conference in London was Luis Oganes, Head of Global Macro Research at J.P. Morgan. Their firm is supporting economies hardly hit by climate impacts and companies around the globe shifting to a low carbon industry to become climate resilient. Luis pointed out that J.P. Morgan is among the largest financiers of both traditional and clean energy and that is why they are leveraging their capabilities and expertise to provide capital and advice that supports economic growth while helping to address the key global challenges. To avoid irreversible consequences, markets will need significant climate financing in the coming years to reduce their emissions and to adapt to the physical effects of climate change. Scaling up private climate finance is key to achieving this objective.

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