The climate action drive: bruised but still standing

Hello from soggy Foggy Bottom. The rain in Washington DC yesterday might have looked to some like a metaphor for dampening enthusiasm for climate change commitments. With war, global inflation and the threat of recession, have climate efforts been shoved aside?

Not entirely. As Gillian suggested earlier this week, it has been an intense few days for the climate finance conversation. Please see my briefing from the week in Washington. And Gillian has a dispatch from here on the sustainable development goals. More from us on Monday. (Patrick Temple-West)

IMF/World Bank week illustrates financial work under way on climate

It was a joy for me to be back in person at the IMF and World Bank meetings this week, seeing some people I have not met in three years — even if the main topics of conversation were anything but cheerful.

The discussions here in DC have been dominated by global inflation, the threat of recession and Russia’s invasion of Ukraine. This ugly mix of crises has raised fears that the climate action agenda could be sidelined.

Yet the G7 leaders promised this week not to compromise, “but rather intensify our efforts to meet our climate goals, including an accelerated, clean, just and sustainable energy transition that also strengthens energy security”.

So are there grounds to feel encouraged? There were several examples from this week that suggest continuing momentum in this area.

IMF managing director Kristalina Georgieva announced the start of a new financing mechanism called the Resilience and Sustainability Trust, which has been stuffed with an initial $20bn.

This honeypot aims to help countries fund long-term projects for climate change and pandemic preparedness. A lot of the IMF’s work involves swooping into countries in an emergency: a currency collapses and the IMF offers a lifeline. But this one will focus “on longer-term challenges such as climate change to low-income and vulnerable middle-income countries,” said Chrystia Freeland, Canada’s deputy prime minister. Canada was one of the first countries to contribute more than $2bn to the fund, which is expected to grow to $37bn.

Though IMF and World Bank financing is one piece of the puzzle, the financial sector plays a crucial role on climate, and that’s where Mark Carney has been focusing his efforts.

The Brookfield Asset Management vice-chair and former Bank of England governor defended the Glasgow Financial Alliance for Net Zero as “an imperfect substitute for mandatory approach” from governments”.

He emphasised that members of Gfanz — an alliance of dozens of financial institutions, unveiled with fanfare last year — have different expertise and that “they can pursue different elements of this” to cut emissions.

Carney also applauded the Gfanz open data project to pool emissions reports from data providers to give the public more information about carbon lurking on corporate balance sheets. (We wrote about this when it was announced last month).

“I don’t know if it is cheating to build the holy grail yourself but in this case — to stretch the metaphor — that is what we are doing,” Carney said of this project.

Other climate strategies are taking shape as well. Carney and others stressed the potential of voluntary carbon offsets, a wild west market at the moment. Scott O’Malia, head of the International Swaps and Derivatives Association, told me that greenwashing could destroy the nascent sector. To prevent this, Isda and other organisations are developing a legal foundation for these carbon credits. “We cannot risk having greenwashing or double counting,” he said. Regulators such as the Commodity Futures Trading Commission would not want to step in and provide federal rules for a market rife with false claims, he added.

These conversations underscored a notable focus this week on three areas of the climate struggle: multibillion-dollar programmes such as the IMF’s new trust; financial sector disclosures to shed more light on what’s driving emissions; and the need to get effective standards in place for new tools like carbon offsets. (Patrick Temple-West)

‘It’s SOS SDGs!’

Three years ago, just after Moral Money was launched, I had the honour of moderating one of the first meetings of the UN-backed Global Investors for Sustainable Development — a collection of powerful companies and asset owners who control $16tn in funds and want to channel some of this into investment projects that implement the Sustainable Development Goals.

Back then, the language around GISD — and SDGs — was hopeful, if vague. No longer. At yesterday’s meeting there was clear concern about mounting problems facing the SDG programme — a set of 17 interlinked targets, ranging from gender equality to poverty elimination, set up by the UN General Assembly in 2015.

“More than four years of progress in alleviating poverty has been erased by Covid-19, pushing 93mn more people worldwide into extreme poverty in 2020,” says the latest official GISD report, whose members range from banks such as Standard Chartered and Citigroup to pension managers like CDPQ and Calpers.

“There is a perfect storm,” echoed a delegate, pointing out that soaring energy and food prices, a strong dollar, rising interest rates and recession risk have exacerbated the setbacks after the pandemic. Or as one delegate declared, more pithily: “It’s SOS SDGs!”

The good news is that there is plenty of desire among big fund managers to channel money to poor countries in support of the SDG goals. Although that three-letter acronym has been less prominent in public debate in the past year, the big asset managers all insisted that retail investors were more (not less) interested today in backing SDG causes in poor nations, if only they could be offered transparent and easy ways to do this. Environmental issues resonate particularly well.

The even better news is that yesterday’s meeting highlighted a string of admirably specific proposals: issue SDG bonds; ask multilateral development banks to share data with fund managers so they can assess risks; use MDBs such as the World Bank to “wrap” investments (ie reduce currency and political risk) to tempt in risk-averse private capital; urge asset managers and owners to adopt long-term, views and so on. The GISD is also implementing some tangible policies in this area: it revealed yesterday that is had created an infrastructure investment platform, and after a competitive bid had selected a global asset manager to run this.

But the bad news is that many of these ideas have already been floating around for some time, and have hitherto proven hard to implement. That is partly because of inertia. But an important issue, as we have noted many times, is that the MDBs in general (and World Bank in particular) have been achingly slow to embrace creative blended finance structures.

Unsurprisingly, almost every delegate on Wednesday used the podium to call on the MDBs to embrace reforms and appealed to the World Bank’s biggest shareholders to back this. Equally unsurprisingly, this has become a hot debating topic this week in DC. Maybe it will bear fruit. But there were also calls yesterday for the UN itself to become more active in trying to create bankable SDG projects, itself, in case the MDBs cannot (or will not) move fast enough. (Gillian Tett)

Smart read

• There’s less than a month to go until the COP27 climate conference in Egypt (where Moral Money will be reporting daily from the ground). Delegates from African nations — which face some of the worst climate impacts, and have faced repeated broken promises from heavily polluting rich nations — will have a major influence on how the event plays out. For a sense of some of the top climate issues on the African agenda, check out this collection of articles and videos from policy experts, activists and business people from across the continent.