The 4th Climate Finance Day and the UNEP FI’s Global Roundtable took place in Paris from 26-28 November 2018 with a theme of “Financing Sustainable Development Goals and the Climate Agenda: Innovation and Impact”.

Aiming to present concrete examples of moving from commitments to action, the Climate Action in Financial Institutions Initiative organized the final roundtable on Wednesday 28th of November as part of Climate Finance Day.

The panel was moderated by Benoit Leguet, Managing Director of I4CE (Institute for Climate Economics), Secretariat of the Climate Action in Financial Institutions Initiative. The panelists included:

  • Development Bank of Latin America (CAF) – Ubaldo Elizondo, Climate Change Coordinator
  • Caisse des Dépôts et Consignations Tunisie – Nejia Gharbi, Deputy Director-General
  • European Investment Bank – Monica Scatasta Head of Environment, Climate and Social Policy
  • Proparco (AFD Group) – Pierre Forestier, Director TA – Blending and Sustainable Development department
  • Société Générale – Emmanuel Martinez, Group Environment Director

‘Connect the Dots’ to move from commitments to actions: the objective of our initiative

Benoit LEGUET introduced the session by highlighting how the financial sector has been called over the three days of events – as well as over the last few years to demonstrate clear progress on the commitments they have made to contribute to national and international climate objectives.

He then described how sharing knowledge and creating opportunities for public and private actors to work together is increasingly seen as essential. He described to the audience how the Initiative was launched on the sidelines of COP21 around 5 voluntary Principles for Climate Mainstreaming. The Initiative was created to assist financial institutions in shifting from financing climate activities in incremental ways, to making climate change – both in terms of opportunities and risk – a core consideration and a “lens” through which institutions deploy capital. Today, the 42 Supporting Institutions of the Initiative are working together to share their experience, learn from each other and based on lessons learnt develop together new approaches to accelerate action.

On behalf of the Initiative, Benoit Leguet then welcomed the launch of the consultation on the Principles for Responsible Banking by UNEP FI: The Initiative is pleased to see how the financial sector is moving in the same direction and notes the complementarity of the Principles for Responsible Banking with 5 voluntary Climate Mainstreaming Principles.

Demonstrating how financial institutions can advance on climate mainstreaming

To capitalized on the experience of Supporting Institutions of the Initiative, Benoit Leguet asked the panelists to comment on two questions:

  • How have they worked to integrate climate change into their activities and make it part of how they do business?
  • How the Climate Action Initiative allows financial actors to share their experience and move together to go ‘further, faster’?

Part 1: How to make mainstreaming ‘happen’?

Ubaldo Elizondo (CAF) started by highlighting the opportunities of being a Supporting Institution of the Initiative: 1) share knowledge, 2) learn what others are doing and 3) identify how to progress.

He noted that CAF started working on climate change in the early 1990’s. At that time, the institution was not working on climate change specifically, but on carbon markets and worked with some funds with European governments. In 2014/15 CAF shifted its strategy to focus on climate change, with the objective of mobilizing climate finance for Latin-American projects. In 2018, CAF created new agendas in sustainable development including: water, urban development, gender, education and climate change. The Climate Change Agenda includes a 2018-2022 working plan focusing on how to help Latin America transition to a low-carbon climate-resilient economy. CAF aims to achieve this objective through capacity building, knowledge sharing with the countries and the development of programs that can catalyze these financing through international funds.

Ubaldo described how today CAF has a climate change unit that provides services to all units to support business executives to:

  • identify both mitigation and adaptation opportunities,
  • access financing for the projects and
  • find extra resources through the Green Climate Fund and other funds CAF partners with.

At CAF, the internal mainstreaming of climate change will be a main priority for the next 2 years, with the objective of enabling business executives to reach out to the climate unit at the early stages of the project cycle.

Nejia Gharbi (CDC Tunisia) explained that the Caisse des Dépôts et Consignations Tunisie was created in 2011 and is the financial arm of the country. Its mandate is to support the implementation of the national policies, and more specifically the digital and energy transition policies. In its 2018-2020 Strategic Plan, CDC Tunisia dedicated one of its strategic areas of focus to the support to the national energy transition. This included 3 objectives:

  • support renewable energy projects
  • support energy efficiency projects
  • support projects against water stress

CDC Tunisia finances large-scale infrastructure projects, which contribute to these objectives. In addition, it:

  • has created a facility to support renewable energy and
  • is preparing its accreditation process to the Green Climate Fund to access additional financing.

Emmanuel Martinez (Société Générale) highlighted the favorable context at different levels supporting the integration of climate considerations by the financial community since 2015:

  • the French context, with the Article 173 of the French Energy Transition Law,
  • the European context, with the Action Plan on Financing Sustainable Growth and
  • the international context, with the recommendations of the Task-force on Climate-related disclosures.

A major step was COP21, on the sidelines of which, Société Générale committed to strive to align by 2020 its activities with a 2°C scenario. Since then, Société Générale has been developing and implementing governance and risks management methodologies tools and metrics to achieve this objective. This objective resulted into the adoption of a proactive policy to assist customers in their energy transition by accelerating support for renewable energies, while at the same time gradually reducing its financing of carbon energies activities.

These commitments were then integrated into the 2020 Strategic and Financial Plan as a sign of internal traction up to the Executive Management.

Following a specific request by the Board of Directors concerning the climate, in July 2016, the first Group Risk Committee meeting in relation to the management of climate change-related risks, chaired by senior Management, was held in January 2017.

Since then, the Environment department is working closely with the Risk department on:

  • a reference climate scenario for transition risk which will support the development of the analysis of long term risks on credit portfolios;
  • an evaluation of the vulnerability to climate change performed on corporate clients in oil& gas, metals and mining, power generation and transport sectors as a start.

Pierre Forestier (Proparco) explained that Proparco, and the French Development Agency Group (AFD) in general, has the mandate to support the sustainable development of developing countries, taking into account the economic, social and environmental dimensions.

AFD group is at his third stage regarding climate mainstreaming. The first stage began in 2000 with the introduction of the tracking of climate finance and CO2 emissions and first “voluntary” discussions at operational level during project appraisals. Once tools were developed and first results obtained in terms of climate activity we enter a second stage  with adoption of a “climate and development” strategy in 2011based on three pillars:

  • A financial commitment: 50% of operations with climate co-benefits for AFD / 30% for Proparco, AFD group’s private sector arm,
  • Systematic ex ante estimation of projects impacts on “climate”: ex ante analysis of greenhouse gas emissions and/or their impact in terms of adaptation
  • Selectivity of operations through a selectivity grid

Moving forward in 2017, the AFD group entered in its third stage by adopting a new “100% Paris agreement” strategy for the next five years relying on three pillars :

➔ 100% Accord de Paris compatible : Ensuring the consistency of the Group’s financial activities with the Paris Agreement, in support of low-carbon and climate-resilient development and related investments and public policies. AFD’s group will therefore have a systematic analysis of the effect of the project its is considered to finance on i) country/sector long term climate trajectory, ii) structural effect on policies and market , iii) mobilization effect on financial flows and investments; iv) locked in effect of the project on the long term trajectory and/or competition with lower carbon intensive solutions,

➔ Transformational effects oriented: Maximizing the impact of its actions in this regard, notably in terms of leverage effects both in terms of finance, public policies and the capacities of actors,

➔ climate risk integration: searching to take care of vulnerability and climate transition risk into AFD’s group  activity and internal process. Helping counterparts and beneficiaries to integrate those aspects.

Monica Scatasta (EIB) described the process leading up to the release of its latest Climate Strategy in 2015, before COP21. The adoption of this strategy was the result of years of work in this area. One major step was EIB’s issuance of the first green bond, a climate-awareness bond in 2007. At that time, the EIB already had a focus on its portfolio on renewable energy and energy efficiency. The EIB pioneered the mobilization of private finance in this area. In 2010, the EIB adopted a volumetric climate target, which anchored Climate Action at the Bank. This target has increased over time to increase the ambition of the Bank, and has been met every year. In parallel the EIB has developed a strong focus on transparency and accountability in climate finance tracking and impacts.

The work with others, particularly with the group of Multilateral Development Banks, in defining a granular methodology to track mitigation and adaptation finance was an important step to help the bank follow up what they are financing. Having a common language to identify investment in climate action is important. The ongoing work on taxonomies under the EU Action Plan on Sustainable Finance, to which the EIB is contributing, shows the importance to make sure that we develop a language that all actors can understand.

In 2015, the Bank Strategy focused on going beyond the volumetric target to consider the broader impact of the Bank’s climate activities, including the mobilization of private finance. The Bank also included in its strategy a focus on climate-related risks assessment and management at the project and portfolio levels, also in view to increase its support for adaptation – which is still a difficult objective to achieve. More importantly for this panel’s theme, the EIB Strategy also explicitly aimed to mainstream climate change across all EIB activities.

Monica Scatasta shared some lessons learnt from the EIB in this process:

It takes time to develop proper action plans:

The EIB developed 10 action plans, which define clear roles and responsibilities for everybody inside the institution. She highlighted that mainstreaming is about ensuring that everybody knows how what they are doing fits into the main strategy, with clear outputs, and most importantly flexibility. Among others, the EIB has been working on:

  • The proactive development of climate projects pipelines.
  • The systemic assessment of climate-related physical risks for all projects and the identification of investment in climate adaptation and resilience measures
  • The launch of an inter-services task-force to look at the assessment of both transition and physical risks at the portfolio level.

 Be relentless and listen:

Monica highlighted the need to keep the dialogue alive and never believe that the case has been made once and for all. Understanding both the concerns and the constraints of the people that have to implement the strategy or are affected by it –both internally and externally– is key. Financial institutions need to define solutions that actually respond to their needs, in their language. If they do not do this, they risk losing momentum.

Part 2: Benefits and opportunities:

Ubaldo Elizondo explained that the Initiative released a Joint Statement at the Global Climate Action Summit demonstrating how Supporting Institutions of the Initiative are supporting local climate action. Development finance institutions have developed tools and approaches to overcome challenges of working at the subnational level and seize opportunities. CAF for example developed the Cities with a Future initiative in which, they try to have an integral view of the needs of cities, and how local climate action contributes to and are aligned with national objectives.

Nejia Gharbi presented CDC Tunisia’s target to reach 20% of its portfolio contributing directly to the transition to a low carbon, climate resilient economy, and to have a leverage effect by mobilizing partners, based on a co-financing approach. The Accreditation to the Green Climate Fund is the next step for the institution to move forward in this direction.

Emmanuel Martinez recounted how in 2017 Société Générale set an objective of raising €100 billion for the energy transition between 2016 and 2020, with a focus on renewable energy and green bonds. At the end of September 2018, Société Générale had already raised 58% of the €100 billion. This is a clear signal that there are opportunities. The group has been supporting the renewable energy sector for 10 years from large infrastructure projects to start ups like Lumo in France, but the group also developed a sustainable and positive impact finance offering. In addition, Société Générale, which is present in 19 countries in Africa, developed the program Grow with Africa, which includes financing energy infrastructures, supporting the development of SMEs, the creation of innovating financing mechanisms in agriculture and energy, in order to support the region’s sustainable development.

Pierre Forestier explained that Proparco benefited from the redefinition of its objective, and will enter into new challenges and opportunities by having increasingly access to public resources to mix with its own resources  to also achieve the climate-related parts of it. Opportunities are emerging from:

  • the development of new technologies such as renewable energy, but more and more regarding energy efficiency and energy savings;
  • partnerships, which enable the development of new offers and services;
  • the development of concessional instruments.

Proparco now aims to use its resources to increase impact and to reorient financial flows to support climate-related objectives.

Monica Scatasta highlighted the difficulties encountered in financing adaptation projects that often represent a smaller share of investments than mitigation investments. However, among these difficulties there are often opportunities when using for example:

  • intermediated lending for SMEs//MidCAPs: even in our most mainstream instruments, the EIB is building on the positive experience with Climate Action windows focused on mititgation to design Climate Action windows that include adaptation investments. This will help support adaptation investment by SMEs/MidCAPs;
  • blended finance innovative solutions: to mobilise more private finance for climate action in cities, including climate adaptation, the European Fund for Sustainable Development (EFSD) recently approved a guarantee to support a Sustainable Cities Investment Fund Platform. This Platform aims to support the identification and preparation of projects, their financial structuring the project and aims to attract investors. The EIB will provide a junior (guaranteed) and a senior tranches to attract investors into 3 to 5 funds that would then multiply the actual availability of funding for activities that include adaptation in cities.

A call to join the initiative

Benoit Leguet wrapped up the session with an invitation to all financial institutions to join the Climate Action in Financial Institutions Initiative – or at least take advantage of the publically available tools the Initiative has created online, including: