Sustainable finance: the highs and lows of 2019

2019 was a year of highs and lows for sustainable finance. In this post, the Blended Finance Taskforce shares some recent highlights and reflects on a few of the major trends we think will influence 2020 (read: nature-based solutions, net-zero portfolios, greener capital markets and transition finance).

There were moments of strong progress on climate …

  1. Business ramped up their commitments, especially in consumer facing industries like food, fashion, travel & tourism, plastics and a growing emphasis on decarbonising hard to abate sectors like shipping, cement and steel.  At the UN Climate Action Summit in September, almost 90 businesses committed to implement a 1.5°C target throughout their operations.  Read more about the highs and lows of the Summit here.  

  2. “Net zero” was the catch cry of 2019. A group of the world’s largest pension funds and insurers launched the Net Zero Asset Owners Alliance and the EU committed to becoming the first climate-neutral continent by 2050 with the European Green Deal.

… and there were new developments with carbon finance

  1. Pledges of net zero put carbon markets back in the spotlight. COP25 did not produce any deal on a global carbon market under Article 6 of the Paris Agreement, but the voluntary market for carbon credits continues to grow.  New trading platforms like EMERGENT have also been launched to incentivise the exchange of carbon credits for projects which avoid deforestation. For insights on the outcomes of COP25 from Taskforce champion, Lord Nicholas Stern, see here.

  2. Forests were central to carbon offset discussions. Preventing tropical deforestation represents the cheapest, highest-impact offsets, meaning that countries like Indonesia – which is home to the world’s 3rd largest rainforest – have a major opportunity to combine forest protection while attracting international investment. Indonesia is set to pilot a carbon market in 2020.  For a useful summary on carbon markets and the history of carbon trading, see here.

We saw real leadership on financing the SDGs …

  1. Commercial banks saw value in sustainability.  Credit Suisse launched its Responsible Consumer Fund with Lombard Odier and Rabobank focused on tackling food waste and investing in regenerative farming while Standard Chartered pulled out of three coal projects in South East Asia this week.

  2. Development banks also delivered bold action on climate and the SDGs. The EIB committed to end fossil fuel lending after 2021 and the IFC is mobilising $4 from its own account and another $5 from co-investors for every dollar of donor funds in a blended finance transaction. See more about development bank mobilisation ratios in the Taskforce’s flagship report, “Better Finance, Better World”.

  3. The blended finance market has started to scale, supported by initiatives like the OECD’s Tri Hita Karana Roadmap for Blended Finance. Taskforce champions like Climate Fund Managers, Dolma Impact Fund, Circulate Capital and ILX also made significant progress mobilising capital for the circular economy, clean energy and sustainable infrastructure. 

… and nature was top of mind for investors

  1. Investing in nature-based solutions became a priority. Protecting forests and oceans and scaling up sustainable agriculture is one of the most cost-effective solutions to tackle emissions, protect vital ecosystems and improve livelihoods and food security.  In the “Growing Better” report of the Food and Land Use Coalition, the Taskforce found that shifting to more sustainable food and land use systems could unlock $4.5 trillion in new business opportunities each year.   

  2. Development banks, climate funds and foundations are looking to scale natural solutions activities in 2020. We look forward to working with many of you on this. We are also proud to work with a number of blended finance vehicles that actively mobilise capital for sustainable food and land use systems including the Tropical Landscape Finance Facility, the &Green Fund, Clarmondial’s Food Securities Fund, Partnerships 4 Forests, RARE, GAIN, the Natural Capital Lab and many more. Please get in touch if this is part of your 2020 agenda or reach out to Convergence if you could use design grant funding to support a blended solution for natural capital in Asia. 

The financial sector focused on climate risk and resilience …

  1. Investors all over the world are waking up to their exposure to physical climate risk. The Taskforce joined a group of financial institutions with over $5 trillion under management to launch the Coalition for Climate Resilient Investment, which will help integrate climate risks into decision-making across the infrastructure investment value chain. We also welcome the UK’s leadership ahead of COP 26 in Glasgow on this topic as the Bank of England introduces stress testing for the largest UK banks and insurers on climate.

  2. Funding for adaptation and resilience is growing. At 5%, adaptation still only receives a fraction of total climate finance, but multilateral development banks (MDBs) are taking action. In 2018, MDBs increased the proportion of climate finance for adaptation from 23% to 30% and earlier this year, the EBRD issued the world’s first resilience bond for $700 million. The Global Commission for Adaptation and the UK government also championed the resilience agenda in 2019, while AXA and Ocean Unite launched the Ocean Risk and Resilience Alliance to build coastal resilience, mobilise investment for natural capital and tackle ocean risk through innovative financial and insurance solutions.

… but we are still a long way off a Paris-aligned financial system

  1. There are multiple levers which are working to green the financial system.  We commend the launch of the Principles for Responsible Banking, the work of the Task Force on Climate-related Financial Disclosures (including those exploring a TCFD for Nature), the Coalition of Finance Ministers for Climate Action, the Network for Greening the Financial System and the growing focus among central banks, regulators and treasurers to integrate climate risk into decision making.   

  2. Despite being a record year for green bonds and sustainability-linked loans, we are still falling short. Greenhouse gas emissions continue to rise along with levels of coal finance.  Although 2017 and 2018 both saw over half a trillion dollars of climate finance, this is still a drop in the ocean compared to the size of the $80 trillion global economy.  In response, we have developed a set of priority actions for greener capital markets and key recommendations for products, practices and partnerships which could help scale sustainable finance in 2020.

Fortunately, the number of climate “champions” continues to grow …  

  1. Philanthropy was a true pioneer of financial innovation in 2019.  The MacArthur Foundation launched the $150 million Catalytic Capital Consortium in collaboration with the Rockefeller Foundation and Omidyar Network to unlock billions of dollars for impact investment.  New players like hedge fund Quadrature Capital also came onto the scene, pledging largescale funding to fight climate change.

  2. New SDG champions also inspired us this year. We were pleased to support IMAGINE (courageous business leaders for climate and equality), the Make My Money Matter campaign (Paris-aligned pension funds), and the Tri Hita Karana Forum for Sustainable Development (watch this space for the launch of a new “Blended Finance and Innovation Institute” in Indonesia in 2020).   

… and now, more than ever, we need to focus on action

All in all, we have seen huge progress in financing the SDGs this year and grown the Taskforce family significantly.  But we know that we are still not doing enough, or moving quickly enough, to tackle the climate emergency.

As we head into the “Decade of Delivery”, we will try to live up to the recent challenge posed by Taskforce Chair, Jeremy Oppenheim:

“It comes down to what kind of economy we want to build and how does finance play a role? …  I challenge you to a simple ‘litmus test’: are the interventions that we are proposing actually having any impact on the real economy?”

We look forward to working with many of you in 2020 to do just that – focusing on using finance to drive real economy shifts and scaling solutions which work.  

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About the Blended Finance Taskforce

The Blended Finance Taskforce is a coalition which brings together actors from across the development finance and investment community to accelerate investment for the SDGs.  Our flagship report Better Finance, Better World set out key recommendations to unlock private capital by using development finance more catalytically. 

We deliver our mission through thought leadership, convening and providing an informal marketplace to channel development capital to high impact projects and geographies. The Taskforce has produced leading research and supported the development and scaling of numerous blended finance vehicles and country platforms.

We have spent the past 12 months implementing an 8-initiative Action Programme focused on scaling investment in priority sectors and regions.

Our work

Definitions 

"Blended finance" is the use of development capital (from donor governments, development banks or philanthropy) to mitigate investor risks and therefore mobilise commercial capital for the SDGs. Examples of blended finance include subordinate capital in a fund structure, development guarantees, political risk insurance, FX hedging, technical assistance for project preparation and outcome-based payments.  See more here: www.blendedfinance.earth

"SDGs" are the UN Sustainable Development Goals – a universal roadmap for people and planet.  The Business & Sustainable Development Commission found that the SDGs could create at least $12 trillion a year in economic value by 2030.  See more: https://sustainabledevelopment.un.org/